Inside this Issue

A1 - Condo Owners Sue Condo Association for Breach of Contract for Failing to Repair Defective Foundations to their Units (6 year statute of limitations applied)
A2 - CGL Policy not required to indemnify a judgment against a general contractor – Professional Liability Exclusion and the “Your Work” Exclusions Applied
A3 - General Contractor Claim against Subcontractor Barred by Statute of Limitations applicable to Contract Claims, but Permitted under Negligence Statute of Limitations

Article 1

Condo Owners Sue Condo Association for Breach of Contract for Failing to Repair Defective Foundations to their Units (6 year statute of limitations applied)

Where the foundations under several condominium style townhouses settled and caused damage, the unit owners sued the condo association for failing to do necessary repairs. The court dismissed the tort claim that asserted that the foundations were negligently constructed because the 3 year statute of limitations had lapsed. The breach of contract claim asserting the association had a contractual obligation to the unit owners to do the repairs was held to be valid because it was filed within 6 years of the date the association ceased doing repairs to the units. Canner v. Governors Ridge Association, Inc., 348 Conn. 726 (2024).

The plaintiff, condominium owners, sued their condominium association alleging that the foundations supporting their respective units were sinking as a result of improper design. The trial court dismissed the negligence based allegations concerning the defective design because the three year statute of limitations had lapsed – running three years from the date of purchase. The trial court also dismissed the breach of contract count of the complaint.

The defendant, condo association, had over a period of several years attempted to correct problems arising due to the differential settling of the units. The plaintiffs eventually attempted to sell their units and potential purchases refused to complete the sale because they found the floors sloped “dramatically.” At that point, the plaintiffs filed their suit against the condo association because they couldn’t complete the sale of their units.

The two counts of the complaint alleged (1) the foundations were constructed under the units negligently and (2) the condo association thereafter violated its contractual duties to the unit owners by failing to conduct necessary repairs to common elements of the community.” The trial court concluded that the tort statute of limitations applied to all counts. This is because it found that the essence of the statutory (contractual claims) was that the foundations had been improperly constructed on soft ground that the statute ran from the date of the act or omission of constructing the foundations.

A relevant state statute required condo associations to repair or replace “any portion of the common interest community for which insurance is required under this section which is damaged or destroyed….” The defendants argued that particular foundations involved in this matter were not “insurable common elements” and the statute was therefore inapplicable. The appellate court concluded that the statute does make the insurance matter “absolute.” It concluded there could be a statutory obligation of the association to do repairs here.

The statute did not expressly create a statute of limitations governing claims brought under the statute against a condo association. “When a statute includes no express statute of limitations, we should not simply assume there is no limitations period. Instead, we borrow the most suitable statute of limitations on the basis of the nature of the cause of action or of the right sued on.” Applying the 6 year statute of limitations period to the plaintiff’s statutory claim against the association for failure to repair the foundations, the appellate court reversed the trial court decision and allowed this case to be pursued through litigation.

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 27, No. 2 (Feb 2025).

Article 2

CGL Policy not required to indemnify a judgment against a general contractor – Professional Liability Exclusion and the “Your Work” Exclusions Applied

Where a swimming pool construction contractor built a multi-million dollar “floating floor pool, it designed a system based on information found on YouTube. When completed, the pool floor wouldn’t raise evenly. It jammed inside the pool shell and each time it was moved it caused damage to the pool shell as well as to the expensive flooring. Additionally, 15,000 gallons of water were released down the hillside below the pool every time the floor was moved. A jury awarded judgment against the contractor for $3.7 million. The CGL carrier had defended the law suit, but refused to indemnify the contractor for the loss. Reasons provided included an argument that the loss was not caused by an insured “occurrence,” and that even if it was, several exclusions barred coverage – including Business Risk exclusions, the Professional Liability Exclusion and the Subsidence Exclusion. The trial granted judgment for the carrier. Nautilus Insurance Company v. Farrens, 719 F.Supp.3d 1105 (2024).

The first issue the court reviewed there was an “occurrence” that might trigger coverage under the CGL policy. The court explained:

Coverage under the Policies is triggered only if there is “bodily injury” or “property damage” caused by an “occurrence.” … “Occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” (See, e.g., id. at 24.) In interpreting what an occurrence is, courts employ a two-part test: “(1) whether the act itself was intentional, and (2) if so, whether the consequence or resulting harm stemming from the act was intended or expected from the actor's standpoint.”

In this case the carrier argued there was no “occurrence” because the damage was the product of defective workmanship, which is never considered an occurrence, and the damage was exclusively to the contractor’s own work product. The court concluded there was an “occurrence.” Because the Plaintiff’s damages arose from the unanticipated and unexpected consequence of the Contractor’s design and work, Contractor’s installation of the floating floor and its component parts constitutes an “occurrence,” triggering coverage under the Policies.

Turning to the Exclusions section of the CGL policy, the court found several Exclusions barred coverage in this dispute.

Professional Liability Exclusion.

“The 2016 Policy excludes coverage for property damage “arising out of the rendering of or a failure to render any professional services by you, but only with respect to your providing engineering, architectural or surveying services in your capacity as an engineer, architect or surveyor.” (Doc. 37-1 at 33.) The 2016 Policy defines professional services to include“[p]reparing, approving, or failing to prepare or approve ... shop drawings, opinions, reports, or drawing and specifications” and “[s]upervisory or inspection activities performed as part of any related architectural or engineering activities.” (Id.)

In arguing that this exclusion does not apply, the [Plaintiffs] insist that “Nautilus submitted no evidence that [Contractor] acted in the capacity of an engineer, architect, or surveyor.” (Doc. 44 at 21.) … [Plaintiffs] argue that the exclusion requires the rendering of “professional services,” claiming [Contractor] rendered no such services. In response, Nautilus claims the record shows that Rock and Water designed all of the faulty elements at issue here, and “[t]he fact that Rock and Water lacked the credentials to make these types of design and engineering decisions does not render the exclusion inapplicable.” (Doc. 47 at 15.) Once again, Nautilus has the persuasive and better argument.

Under the plain language of this provision, coverage is excluded when a contractor acts in the capacity of an engineer or architect. As contended by Nautilus, that necessarily includes [Contractor’s] design of all the pool components that were designed and built here. Indeed, while [Contractor] may have contracted only to build the pool, it is undisputed that Sean Henry, [Contractor’s] owner, “said he would design [the pool] himself.” (See Doc. 42 at ¶ 9.) He then did so. (See id. ¶ 10 (“Based on this YouTube video, [Contractor] designed a ballast tank system that consisted of nine tanks that were seven feet wide and two feet deep.”) (Emphasis added).) The fact that Sean Henry was not qualified to perform this design or engineering function does not change the undisputed fact that he did. While the [Plaintiffs] may be correct that the “professional” component of these services was questionable considering the fact Henry copied an idea from YouTube, that does not alter the applicability of the policy terms. He prepared drawings of the pool and provided a detailed list of its structural components. (See Doc. 33-6 at 18–30.) Furthermore, the pay schedule specifically notes that the first 20% of the pool cost included “completion of engineering” that would “be completed in R&W WHSE.” (See id. at 32.) Thus, the fact that [Contractor] was not qualified to render the professional services it provided does not avoid the application of this policy exclusion.”

Business Risk Exclusions j(5)

Exclusion j(5) excludes coverage for “[p]roperty damage to ... [t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations.” The parties agree that the pool, spa, and water features Rock and Water constructed qualify as “real property.” The parties also agree that Rock and Water's work on the project remained ongoing through 2018. Nautilus therefore argues that the damage to these items is excluded because it occurred when Rock and Water was performing operations on or immediately adjacent to them. In response, the Farrens argue that “particular part” is limited to the discrete project component at issue, not the pool area as a whole. Nautilus disagrees, arguing that while “particular part” is narrower than the residence, it encompasses the entire pool area in which all of Rock and Water's work was performed. On this point Nautilus has the better argument.

In reviewing this Exclusion and the Plaintiff’s argument, the court found that the pool shell, aluminum tanks, spa frame, and deck fence were all part of the floating floor pool system. As such, the alleged property damage was to the particular part of real property that was the direct focus of the Contractor’s work, and coverage was therefore barred by this Exclusion.

Business Risk Exclusion j(6)

Exclusion j(6) precludes coverage for “[p]roperty damage to ... [t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” The Policies define “your work” as Rock and Water's “[w]ork or operations,” “[m]aterials, parts or equipment furnished in connection with such work or operations,” or “[w]arranties and representations made at any time with respect to the fitness, quality, durability, performance or use of ‘your work.’ ” Nautilus argues that this exclusion applies because “all of the awarded damages[ ] ... were to replace [Contractor’s] own work product (or the materials, parts and equipment used in connection with that work) because Rock and Water's work was done incorrectly.” In response, the [Plaintiffs] quibble that there were completed, properly installed portions of the project that were damaged: the pool shell; the aluminum tanks, frame and hydraulic cylinders; and the Ipe wood decking. Nautilus once again has the better cogent argument.

After reviewing the details of the allegations, the court concluded that the Plaintiff’s unsuccessfully tried to separate out the failures of what they call the “floating pool floor” from its component parts. “Because the property damage alleged here was a result of your work by [Contractor], coverage for those damages is also excluded under j(6).”

Comment: The professional liability exclusion of the CGL policy alone seems sufficient for the court to hold in favor of the carrier. As the court noted, professional services can be provided by individuals and firms that are not architect and engineers, and who hold no professional license whatsoever. In this instance, the contractor chose not to retain a design professional to design the floating pool floor but instead designed the system itself basing its design on information it obtained from YouTube videos. Contractors can certainly obtain professional liability insurance policies to protect them against claims asserting professional liability.

Article 3

General Contractor Claim against Subcontractor Barred by Statute of Limitations applicable to Contract Claims, but Permitted under Negligence Statute of Limitations

A general contractor (GC) was sued by a homeowner because the house burned because of alleged deficiencies in a subcontractor’s masonry work on a fireplace. The GC lost a judgment of $1.2 million at arbitration. The subcontractor declined to join the arbitration proceedings. The GC subsequently filed suit against the subcontractor to recover damages. The trial court granted the subcontractor’s motion to dismiss the complaint based on the claims being barred by the statutes of limitations. On appeal, the appellate court held that the breach of contract claim was barred because the defect was a patent defect that the GC should have discovered early, and the statute of limitations period began to run on the date of the breach of contract not on the date of discovery of the breach. The court reversed, the trial court, however, regarding the negligence count against the subcontractor. It held that the 3-year statue had not lapsed. Mac Long Homes, LLC . Olvera Construction, LLC, 385 So3d 836 (2024).

The reasons for the court’s decision concerning the negligence count were explained as follows:

“As this Court has previously recognized, for purposes of a statute of limitations, a cause of action accrues when it comes into existence as an enforceable claim, that is, when the right to sue becomes vested. For the right to sue for negligence to become vested, all elements of the tort must be present. The elements of negligence are duty, breach, causation, and damages…. Here, the earliest date Mac Long could reasonably argue it suffered damages due to Olvera's alleged negligence would be the date of the fire on December 30, 2018. Under those circumstances, the three-year statute of limitations applicable to Mac Long's negligence claim would not have expired until December 30, 2021. Mac Long filed its complaint against Olvera in February 2021, and “[t]he filing of an action tolls the statute of limitations until the expiration of the 120-day service period.”…. We therefore reverse the portion of the circuit court's order dismissing Mac Long's negligence claim against Olvera, and we remand the matter to the circuit court for further proceedings as to this claim.”

Comment: This case is instructive in that it shows us that even though a claim may be time barred as a breach of contract claim, the facts might still permit the claim to go forward as a tort claim where negligence may be asserted as the basis for the damages. The negligence statute of limitations in this case began to run later than the breach of contract statute because it didn’t begin running until the Plaintiff learned it had been damaged.

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