HawaiiConstructionLaw.com

Another Circuit Court Judge Rejects Group Builders

The construction industry heaved another sigh of relief today when Circuit Court Judge Gary Chang granted, in part, summary judgment requesting that an insurer be forced to provide coverage for construction defects on an Owner Controlled Insurance Policy (OCIP) that include a wrap provision providing coverage for years after construction completion. 

The project is the Sunset Heights construction defect litigation, which has been ongoing for several years without resolution.  The insurers providing a defense in the case have routinely denied any duty to indemnify their insureds for construction defects that may have occurred on the project, claiming the Group Builders decision of 2011 relieved them of that responsiblity when the ICA held that construction defects can never be an "occurrence" -- a precursor to coverage under a standard CGL policy. 

The Sunset Heights insured, however, argued that Group Builders did not apply to its case, essentially because (1) Group Builders involved a standard CGL policy, not a wrap policy, which are two different animals; and (2) Group Builders has been rendered moot by the legislation passed in response -- Act 83, which determined that despite Group Builders, insurance policies must be interpreted in accordance with the law in effect at the time the policy was entered into. 

Judge Chang addressed, head on, the issue of the applicability of Group Builders to construction defect claims, and found that in light of Act 83, it is NOT controlling over the courts.  He opined that prior to Group Builders, the law in the State was that provided by prior Hawaii appellate courts, which looked to the intent of the parties to construe coverage issues, and he did not believe that the law of the State proscribed coverage for construction defects claims, as the insurers were now claiming.  The decision was by a Circuit Court, and will not be controlling on appeal, but it is still a very big development in this rapidly evolving area of the law.  I will try to post the Order when it is filed.

Contributed by Anna H. Oshiro

Our Construction Defects Chapter is Published!

Hot off the presses!  Anna Oshiro and Christi-Anne Kudo Chock co-authored a chapter in a book entitled Construction Defects that was just published by the American Bar Association and sponsored by the Forum on the Construction Industry.  Construction Defects delves into various legal aspects related to issues that commonly arise on construction projects. 

This chapter was a lot of work, but there is something deeply satisfying about finally seeing the end product in hard copy form.  We think it provides very useful information (certainly I would have liked to have had such a book over the course of my practice), and the book itself will be helpful to practitioners in this area of law. 

You can order it here: http://apps.americanbar.org/abastore/index.cfm?pid=5570226&section=main&fm=Product.AddToCart

 

 

 

 

         

 

 

Economic Loss Doctrine and Residential Construction; not in Kansas Any More

The Supreme Court of Kansas refused to extend the economic loss doctrine to homeowners suing their contractor for purely economic losses in Daid v. Hett, 270 P.3d 1102 (2011), a case decided in December of last year.  In the case, the plaintiffs were inexperienced in construction, and hired a general contractor to perform work on their home.  Contractor Hett performed excavation, basement, and concrete work, after which plaintiffs began experiencing settling in the garage and basement.  The homeowners brought suit for, among other claims, negligence, and the trial court granted summary judgment, dismissing the negligence case under the economic loss doctrine.  The court of appeals upheld the ruling, but the Kansas Supreme Court reversed.  In doing, so, the court reversed an earlier decision issued in 2004, which applied the economic loss doctrine to homeonwers' claims against a residential contractor. 

Recognizing that construction defect claims can sound in tort as well as contract, and the line between the two is often blurred, the Kansas Supreme Court refused to expand the economic loss doctrine to negligence claims, holding that in the case of residential construction, the inquiry must lie not in the nature of the damage, but in the nature of the duty that is breached.  The question should be whether the contractor has breached a duty independent of the contract and if the contractor has done so, a cause of action in tort exists regardless of the existence of the contract. 

This reasoning is very interesting, most notablybecause of  its contrast with Hawaii law, which has gone in a different direction entirely.  Hawaii courts have expanded the scope of the economic loss doctrine under the theory that in construction especially, the parties carefully allocate their risk in their agreements, and to allow the parties to sue in tort does injury to their ability to allocate their exposure in contracts, which is the fundamental basis of their relationship.   Also, the recent Group Builders insurance decision was predicated upon the existence of a contract when the ICA ruled that because the construction defect claims at issue in the case arose out of a contract for construction, they did not constitute the type of injury envisioned by the contractors' insurance policy.  The courts' reasoning in both instances is subjecct to the criticism leveled by the Kansas Supreme Court:  "the economic loss doctrine's application to home construction [is] troubling because it focused on the consequence of damages, rather than the duty breached." 

Contributed by Anna Oshiro

Ocean Thermal Energy Conversion Headed to Hawaii?

Forbes recently featured the development of energy using the differential in temperatures between cold deep sea and warmer surface ocean waters. The technology is called ocean thermal energy conversion (OTEC). The technology apparently works as follows:

"Cold water is drawn with a pipe from depths of a 1,000 meters or more, where the
sun’s heat can’t reach. Meanwhile, warm seawater is sucked from near the
surface. The warm seawater is run through a heat exchanger with a chemical with
a low boiling point, like ammonia, which creates chemical steam that runs an
electrical turbine."

This paragraph in particular caught my interest: "Another entrant in the field, OTEC International, is poised to sign an agreement to install a one-megawatt offshore OTEC demonstration plant near the Big Island in Hawaii, and is negotiating with Hawaii Electric Company for a 100-megawatt plant."