BILD Prepares for Court Proceedings to Preserve Insurance for Construction Defect Claims

For more than a year, BILD has been involved in a case currently before the California Court of Appeal that promises to determine whether or not insurance coverage for construction defect claims continues to exist.  The case is Navigators Specialty Insurance Company v. Moorefield Construction, Inc.  BILD has appeared in the case as a friend of the court, filing its brief in September 2015.  BILD’s outside counsel, Gerard Mooney with Rutan & Tucker, LLP, obtained an Order from the Court of Appeal to participate in oral argument and will be making BILD’s case before the Court on October 19, 2016.

The case revolves around a commercial construction defect action wherein the floor tiles of a retail store were installed by Moorefield and are now claimed to be defective as a result of an adhesive failure.  Moorefield tendered the matter to its insurer, Navigators, under its comprehensive general liability policy, seeking coverage for the retailer’s defect claims.  Navigators argued before the trial court that Moorefield’s installation of the flooring titles over a concrete slab with elevated moisture vapor levels was an intentional act, rather than an “accident” as a required by the policy, such that the policy did not cover the matter. The trial court agreed with Navigators – leaving Moorefield with no insurance coverage. 

BILD believes that the trial court erred in siding with Navigators and that to rule in any way other than to affirm Moorefield’s coverage under its policy would potentially negate coverage for construction defects under CGL policies.  Specifically, BILD’s brief contends that contractors do not intend to do their work defectively, and that any reasonable interpretation of the term “accident” should cover a contractor’s allegedly defective work, particularly given nearly all construction work is done with knowledge of a potential risk of product failure. 

Said Mr. Mooney, “Rutan & Tucker is proud to assist BILD with its efforts to avoid the significant possible harm to the building industry that could result if the trial court’s order denying insurance coverage is not reversed.”

In order to preserve the availability of construction defect insurance coverage for all types of projects, builders, and contractors, BILD has stepped in to persuade the Court of Appeal to reverse the lower court. 

In addition to this insurance case, BILD continues to monitor and participate in other construction defect cases throughout the state, always fighting to protect the building industry, preserve pre-litigation rights to cure alleged defects, and halt the proliferation of construction defect lawsuits. 

A copy of BILD’s amicus curiae brief can be found here.  

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BILD Leads Coalition Challenging Expansive New Permitting Program from State Water Board

BILD Foundation is leading a broad-based coalition challenging the proposed “Procedures for Discharges of Dredged or Fill Materials to Waters of the State.”  Through a comment package submitted August 18, 2016 as well as testimony provided at State Water Resources Control Board (State Water Board) meetings on the matter, BILD is continuing in its many years of involvement in the State Water Board’s efforts to regulate wetlands and other waters throughout California. 

Working through its outside counsel, Keith Garner with Sheppard Mullin, LLP, BILD along with a coalition of 30 additional statewide and regional business, planning, agricultural, and water-related organizations provided extensive comments to the State Water Board.  As Mr. Garner explains, “The current proposal is based on questionable legal authority, conflicts with an existing federal regulatory program, and will likely result in significant delay and additional costs for public and private project sponsors.” A full copy of the comments can be found here.

BILD’s comments focused upon several glaring and significant problems with the proposed permitting program.  Highlights of the comments follow:

·         Rather than focusing solely on the narrow band of allegedly unprotected “isolated wetlands” the State Water Board is proposing a broad-based permit program that will conflict with, duplicate, or complicate federal programs as well as other state programs managed by the U.S. Army Corps of Engineers and the California Department of Fish and Wildlife.

·         The program would require a case-by-case analysis to determine when any area is potentially a “water of the State” and fails to contain any definitions as to what the agency considers “water of the State” to be. 

·         The new program lacks clear definitions on what activities would be considered exempt from the new program, when alternatives analyses would be required, and what rules or definitions would apply leading to likely application of the new rules in non-uniform and unclear fashion across the state. 

·         Would impose a new, onerous permit program on all “waters” throughout the state despite statements from the State Water Board staff that only 1% of these “waters” fall outside of federal control presently. 

·         The State Water Board appears to lack authority to implement its new proposals, either under federal or state laws. 

Since BILD and its coalition submitted their comments, numerous other entities have come forward with concerns about the proposed regulations, including the U.S. Army Corps of Engineers, the U.S. Environmental Protection Agency, CalTrans, the California High Speed Rail Authority, and the Department of Water Resources.

BILD awaits a revised draft of the proposed regulations from the State Water Board.

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BILD Helps Win Case Supporting Funding of Storm Water Programs

After several years of administrative and courtroom battling, the California Supreme Court handed down a decision on August 29, 2016, that promises to relieve pressure on the building industry to fund costly storm water quality programs throughout the state.  

The case was Department of Finance v. Commission on State Mandates, and involved a challenge brought by the County of Los Angeles seeking to have the state fund portions of their implementation program for the municipal separate storm sewer system (MS4) permit. Public storm drain permits often cost millions or billions of dollars for local governments to implement and the specific requirements challenged by the County of Los Angeles included requiring trash receptacles at transit stops and inspections of various facilities, including construction sites. 

Per the California Constitution (Article XIII B, §6.a) the state is required to reimburse local governments that state law or regulations require them to implement programs that go beyond federal law. Many local governments have argued that numerous aspects of their municipal storm sewer permits—issued by the State Water Resources Control Board or Regional Water Quality Control Boards—go beyond the requirements of the federal Clean Water Act and are thus state mandates eligible for reimbursement. The County of Los Angeles along with most of the cities therein filed a claim with the Commission on State Mandates demanding such reimbursement and the case was the first one of its kind filed in the state.  Other local governments, including the Counties of San Diego and Orange, also have matters pending before the courts or the Commission that will be impacted by this decision.

BILD Foundation was involved in each stage of the litigation, filing friend of the court briefs supporting the argument that the terms of the storm drain permits extend beyond federal requirements, are imposed at the discretion of the state, and are, thus, subject to reimbursement by the state. The goal of the BILD briefs was to support the local governments, ensure access to funding of the local programs, and thereby relieve some pressure felt by the building and construction community to contribute to the funding of these costly programs. 

Regarding inspections, the Supreme Court found that the federal “maximum extent practicable” standard required operator inspections of construction sites, and further, that via statewide permits (such as the California Construction General Permit) responsibility for such inspections belonged to the Regional Water Boards. For the trash receptacles the Supreme Court ruled that “[t]he fact that the [US] EPA itself had issued permits in other cities, but did not include the trash receptacle condition, fatally undermines the argument that the requirement was federally mandated.”  In its opinion remanding the case back to the Court of Appeal, the Supreme Court found that the permit conditions at issue “were imposed as a result of the state’s discretionary action” and thus would be eligible for reimbursement by the state. 

The case represents a significant win for the regulated community. The case will inform other pending cases wherein local governments are seeking reimbursement for storm water program implementation, aiding the financing of these programs and relieving pressure on local government to look to others, including the building industry, to pay for the programs.  Moreover, the case is likely to lead to a reexamination of many of the excessive requirements contained in these storm water permits and could lead to relaxation of the requirements, benefiting the local governments and the building industry alike. After this case, it is also likely that state regulators will be cautioned against blithely exercising their discretion to go beyond federal requirements without careful examination and analysis of the costs and benefits of doing so. 

BILD will continue to monitor other pending claims and cases and will continue to advocate for determinations that many elements common to storm water permits are discretionary, go beyond federal requirements, and open up eligibility for state reimbursement. 

The text of the California Supreme Court’s opinion in Department of Finance v. Commission on State Mandates can be found here.  

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The Songbird That Halted Development in Coastal California

For the past twenty years a small gray songbird has greatly affected the development and the conservation of the coastal real estate in California. A federal decision made recently to leave the coastal California gnatcatcher on the endangered species list has left Southern California developers stuck.

The gnatcatcher has been a cornerstone to conservation planning in San Diego, Riverside and Orange counties since it was listed as a threatened species in 1993. In 2014, the Pacific Legal Foundation petitioned the U.S. Fish and Wildlife Service to delist the bird, arguing that recent science casts doubt on its threatened status. The service rejected that petition last week, but debate over the gnatcatcher isn’t over. Building groups say they may sue over the decision, while conservation groups worry the bird remains at risk from wildfires, climate change and development pressure.

“We’re still in the process of analyzing the service’s decision,” said Robert Thornton, an attorney who represented the Building Industry Assn. of Southern California on the petition. “The next step is possibly a lawsuit. The issue here is, did the service comply with the Endangered Species Act, which requires it to use the best science available.”

The gnatcatcher is a blue-gray songbird that lives in coastal sage scrub from Santa Barbara to the Baja peninsula. Researchers say that urban sprawl has whittled away 90% of its habitat in California. By the 1990s, the birds were feeling the pinch. At that time, a 20-year-old environmentalist named David Hogan with the Center for Biological Diversity filed a petition to list the gnatcatcher under the Endangered Species Act.

“Back then, there were virtually zero measures in place anywhere in Southern California to protect the gnatcatcher or its critically endangered habitat,” Hogan said.

The listing ushered in complex systems for protecting ecosystems, known as habitat conservation plans or natural community conservation plans. The plans aimed to streamline environmental permitting, while preserving habitat for multiple species. And the gnatcatcher was at the center of it. By protecting the gnatcatcher, regulators also safeguarded animals such as the coastal whiptail lizard, coastal horned lizard and coastal cactus wren, said Ileene Anderson, a senior scientist for the Center for Biological Diversity. Developers, however, saw the bird, and its ensuing regulations, as a roadblock to the region’s construction boom.

“In general, species listing and the critical habitat designation that goes along with that listing takes areas out of consideration for building and development,” said Shanda Beltran, BILD general counsel for the Building Industry Assn. of Southern California. “That obviously would be a concern to the industry when developable area is reduced.”

The Pacific Legal Foundation said in a news release that the gnatcatcher listing took hundreds of thousands of acres in Southern California off the table for construction.

“In total, approximately 197,303 acres in San Diego, Orange, Riverside, San Bernardino, Los Angeles and Ventura counties have been designated as critical habitat for the coastal California gnatcatcher,” the foundation, a Sacramento watchdog agency for property rights and limited government, stated. “Federal officials estimate that the economic impact of these restrictions will total more $900 million by year 2025.”

In 2014 the foundation petitioned to remove the gnatcatcher from the list, on behalf of the Property Owners Assn. of Riverside County; the Center for Environmental Science, Accuracy & Reliability; and the Coalition of Labor, Agriculture and Business, along with the California Building Industry Assn. and the National Assn. of Home Builders.

They argued that new research showed that the Southern California gnatcatcher is genetically indistinguishable from its Mexican counterparts, and shouldn’t be protected as a separate species. The service, however, convened a panel of geneticists, ornithologists and statisticians, and determined that the original listing is still valid.

The Pacific Legal Foundation and its partners say they’re contemplating a lawsuit to challenge that decision. They hope to change the way the service reviews data and perhaps reset the bar for future endangered species listings.

Read the full story here from the LA Times.

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