Victims of Apartment Arson Allowed to Pursue Claims Against Builder, Owner

July 8, 2009

The Alabama Supreme Court recently considered a suit in which a fire at an apartment building, caused by arson, resulted in the death of one resident, and injuries to six others.  The residents sued the owner and builder of the complex, which had been constructed 22 years before the fire, alleging claims of negligence and wantonness.

The trial court entered summary judgment in favor of the owner and builder, holding that they had no duty to protect the residents from injuries caused by the criminal acts of a third party, and that the residents’ claims were barred by the 20-year rule of repose.

The Court, in Collins v Scenic Homes, Inc. __ S0.2d __ (Ala. June 30, 2009), reversed the entry of summary judgment.  Recognizing that in general, “absent special relationships or circumstances, a person has no duty to protect another from criminal acts of a third person,” Moye v. AG Gaston Motels, Inc., 499 So.2d 368 (Ala. 1986), the Court held that the general rule was inapplicable because the residents alleged that the defendants had a duty to construct and operate:

… a reasonably safe apartment building, equipped with appropriate exits and fire suppression safeguards designed to reduce the risk of injury as a result of fire, regardless of the origin of the fire. … Indeed, it is a forseeable risk that a fire at an apartment complex, however started, will cause harm to the inhabitants of the complex if the premises owner fails to provide adequate fire suppression safeguards and an adequate means of escape from the fire.

The Court distinguished the residents’ claims from previous cases decided under the general rule because in each of the previous cases, the plaintiff “alleged that the premises owner had a duty to prevent the intervening criminal act from occurring.”

The Court also held that the plaintiffs claims were not barred by the 20-year rule of repose, atating that a cause of action accrues “on the date the first legal injury occurs, but not necessarily from the date of the act causing the injury.”  Smith v. Medtronic, Inc.,  607 So.2d 156 (Ala. 1992).  In Collins, “the residents did not have a viable and cognizable claim against Scenic Homes until the fire occurred and the residents suffered injuries as a result.”


Chinese Drywall Coverage Litigation Working its Way Through Courts

June 11, 2009

The Insurance and Reinsurance Report has posted an informative update on the status of several pending lawsuits over coverage for Chinese drywall issues in both homeowner’s and CGL policies.  Having been involved in considerable EIFS litigation several years ago (with a few stragglers still around), I am paying attention to this to see how it compares.  Although I see some similarities, there are some marked differences as well.

First, both products obviously are componants that are incorporated into a structure, and arguably are intended to have the same useful life of the structure.  The Alabama Supreme Court has held that such componants are not “products” within the meaning of the Alabama Extended Manufacturers Liability Doctorine (AEMLD).  In Keck v Dryvit Systems, Inc., 830 So.2d 1 (Ala. 2002), the Court held:

The owner of a house or of any building should reasonably expect that many components will have the same useful life as the house or building itself and will not need to be replaced over the life of the building. Such components include, by way of example, an exterior brick wall, a staircase, or a fireplace. There are also certain components of a house or a building the purchaser reasonably expects to wear out and to require replacement in the course of normal and ordinary usage, such as roof shingles, a dishwasher, a furnace, or a hot-water heater. Whether an item that is incorporated into real property may be considered a “product” for purposes of the AEMLD is determined by whether the item is a part of the structural integrity of the house or building that is reasonably expected to last for the useful life of the house or building. If it is, then the item cannot be considered a “product” for purposes of the AEMLD. However, if the item is attached or incorporated into real property and, yet its very function and nature clearly makes it an item that one would reasonably expect to repair or to replace during the useful life of the realty, the item may be considered a “product” for purposes of the AEMLD. For instance, although paint, when applied to the structure of a wall, becomes incorporated into the surface of the wall, paint is a structural improvement that does not have the same useful life as the wall itself or the building to which the wall is attached; one would expect to have to repaint a wall to maintain the quality of the first application. Therefore, paint would be considered a product for purposes of the AEMLD.

In Keck, the Court held that EIFS was intended to last for the useful life of the structure, and was not subject to the AEMLD.  Moreover, the Court held that it was not a “good” under the Uniform Commercial Code, and therefore was not subject to the rules concerning warranties of merchantability.  Arguably, drywall would meet the Keck test as well, and would therefore not be calssified as a “product” or a “good.”

It is also questionable whether a builder or installer would be held liable for negligence regarding the installation of chinese drywall.  In my opinion, this is the central difference between drywall and EIFS litigation.  In regard to EIFS, the negligence theories against builders and installers often revolved around agruments that the system was improperly installed, and that installation led to problems with moisture intrusion, termites, etc.  Conversely, it’s at least my understanding that the drywall issues concern the product itself, and not its installation.

There are some potential issues for building owners on this point, as generally, a builder is not liable for latent defects in building materials that are used and “he is not liable to the owner for the latent defect or liable for the amount of damage to the building caused by such defect.” 13 Am. Jur. 2d, Building and Construction Contracts § 27 (1997); Wood-Hopkins Contracting Co. v. Masonry Contractors, Inc., 235 So.2d 548 (Fla. Ct. App.1970).

The law is clear that a builder is not liable for latent defects in building materials that are
used and “he is not liable to the owner for the latent defect or liable for the amount of damage to
the building caused by such defect.” 13 Am. Jur. 2d, Building and Construction Contracts § 27
(1997); Wood-Hopkins Contracting Co. v. Masonry Contractors, Inc., 235 So.2d 548 (Fla. Ct. App.1970).

Unless a building owner is able to show that the builder or installer had knowledge of the problems associated with Chinese drywall, he or she may have problems with holding those entities accountable.

Spoliation of Evidence in Construction Defect Claims

May 30, 2009

In defending construction defect claims, one must always consider the defense of spoliation of evidence.  Often, either before or after making such calims, plaintiffs will repair the alleged defective condition, destroying crucial evidence that must be analyzed by the defense.  The law requires that the plaintiff give notice to the defendant of anticipated repairs, providing him with an opportunity to inspect the alleged defcts.  When notice is not given, sanctions, including dismissal in some cases, are available.

The Alabama Supreme Court has held that when the subject of the lawsuit is destroyed without giving the defense an opportunity to inspect, and that inspection is necessary to the defense, the lawsuit must be dismissed. Capitol Chevrolet Inc. v. Smedley, 614 So.2d 439 (Ala. 1993); Cincinnati Ins. Co. v. Synergy Gas, Inc, 585 So.2d 822, 827 (Ala. 1991); Ex parte General Motors Corp, 769 So.2d 903 (Ala. 1989).

In Smedley, the Court reversed the trial court’s judgment and ordered that the case be dismissed based on spoliation. The Court recognized that without access to the evidence, to independently evaluate the cause of the fire, the defendants were left with no way to establish a defense. Acknowledging that dismissal was a severe sanction, the Court held that the dismissal of claims may be appropriate if a party destroys or disposes of evidence that it knows or should know is evidence that is important to possible or pending litigation.

The Court has identified five factors to be analyzed in deciding the appropriate remedy for spoliation of evidence: (1) the importance of the evidence destroyed; (2) the culpability of the defending party; (3) fundamental fairness, (4) alternative sources of information obtainable from the evidence destroyed, and (5) the possible effectiveness of other sanctions less severe than dismissal. Vesta Fire Ins. Corp. v. Milam & Co. Constr., Inc., 901 So.2d 84 (Ala. 2004).

In Story v. RAJ Properties, Inc., 909 So.2d 797 (Ala. 2005), the Court affirmed summary judgment in favor of a builder, EIFS installer, and EIFS manufacuturer where the plaintiff homeowner had removed the EIFS form the home, repaired the damaged sheathing, and reclad the home with brick.  The defendants were not notified, and their experts testified that they were unable to conduct any significant analysis of the EIFS material or the alleged damage by viewing photographs produced by the plaintiff.

In Flury v. Daimler Chrysler Corp., 427 F.3d 939 (11th Cir. 2005) the 11th Circuit Court of Appeals reversed a jury’s verdict against Daimler with instructions that the district court enter judgment for Daimler based on the spoliation of evidence doctrine. In doing so, the Court noted that the defendant had suffered extreme prejudice when it lost its opportunity to inspect the evidence; that the trial court had erred in leaving the issue of spoliation for the jury and that the “spoliation of critical evidence for whatever reason … may result in trial by ambush.”