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SUMMER 2001 Expressions v. Ahmanson Development, Inc. The 4th District Court of Appeal recently issued an important decision confirming and clarifying the use of comparative fault between subcontractors in construction defect cases. In Expressions, a strictly liable defendant settled with plaintiff and then pursued an indemnity cross-claim against a non-settling joint tortfeasor. The issue was whether the settling defendant could seek full indemnity for the amount paid in settlement from the non-settling joint tortfeasor. Expressions at Rancho Niguel Association (the "Association") filed a construction defect lawsuit against the owner of the project, Ahmanson Development, Inc. ("Ahmanson"), and others. Ahmanson filed a cross-complaint for indemnity against numerous subcontractors including Monier, Inc., a manufacturer of roof tiles. Ahmanson and the developer entered into a settlement with the Association for $3,131,750. The developer assigned its claims against the subcontractors to Ahmanson and the Association. Ahmanson and the Association then pursued the remaining subcontractors. The parties to the settlement allocated approximately 10% of the settlement proceeds to roof damages. Prior to trial, a settlement was reached with all remaining subcontractors except Monier. The settlements included approximately $154,000 from other roofing subcontractors. Ahmanson then took Monier to trial. The jury found that $343,000 of the original settlement between Ahmanson and the Association reflected roof damage. The court found that Monier was liable for that amount, less the $154,000 offset for monies paid by other roofing subcontractors. Monier then appealed. In reversing, the court of appeal found that equitable indemnity principles govern the allocation of loss among multiple tortfeasors who are jointly and severally liable for the injury. While Monier was jointly and severally liable to the Association for the roofing damages, the court found that Ahmanson was not entitled to step into the shoes of the Association and recover all amounts paid to the Association for damages. The court applied the principle of equitable indemnity allowing the tortfeasor to obtain indemnity on a comparative fault basis. This principle, according to the court, applied not only to negligence liability but also to strict liability. The controlling factor for apportionment of loss among joint tortfeasors is equitable indemnity on a comparative fault basis rather than joint and several liability. The court of appeal essentially concluded that joint and several liability principles do not apply in apportioning losses from an indivisible injury among joint tortfeasors. Lantzy v. Centex Homes In this case the court of appeal considered whether the statute of limitations under California Code of Civil Procedure section 337.15, providing for a ten year statute of limitation for latent construction defects, is subject to equitable tolling during periods of repair. Centex Homes developed and constructed single family homes located in Contra Costa County. The project was substantially completed in November 1988. A class action lawsuit was filed by a group of homeowners in August 1999 alleging that the homes contained defective windows and window systems. Centex demurred to the complaint on the grounds that it was untimely under the ten year statute of limitations. In opposing the demurrer, the homeowners alleged that Centex had tried to repair the defective conditions, tolling the statute of limitations. The homeowners also argued that Centex was estopped from relying on the statute given their allegedly repeated promises to repair the damage to the homes. The trial court granted the demurrer, finding that the statute of limitations was not subject to equitable tolling. The court of appeal reversed. The court found that the statute of limitations under California Code of Civil Procedure section 337.15 was not to be implied inflexibly where principles of equity and justice favor application of equitable tolling. While noting that there were conflicting court of appeal decisions on this topic, the court agreed with those decisions that repairs undertaken by a developer would toll the statute of limitations. Because imposition of the statute in this case would frustrate the statute's primary purpose, that is to prevent to surprise by the revival of stale claims, the court allowed for the imposition of estoppel or tolling in this case. The court rejected another court of appeal decision and the arguments of Centex that the statute represented the outside limit for any action against a contractor. Noting that the Code itself contained exceptions to the rule, the court found that the statute did not create a fixed time period in which an action could be brought. In the present case, the period of repair was within the control of Centex. Centex could limit the period of repair by performing the repairs properly. Any tolling period would therefore be within the control of the contract. The court also disagreed with Centex Homes which argued that the statute exceptions were limited to those enumerated within the Code section. The court found that these exceptions did not preclude a judicial recognition of an additional exception based upon equity. Because Centex allegedly promised to repair the damage to the homes, there were sufficient allegations to overcome a demurrer based upon the statute of limitations. Centennial Insurance Company v. United States Fire Insurance
Company In Centennial Insurance, a dispute arose between three insurance companies over the proper method of allocating defense costs. Three insurance companies insured Lincoln Associates, a joint venture which developed and constructed a condominium project known as Pacific Plaza. U.S. Fire insured Lincoln for a period of approximately 5 months. Travelers Insurance Group insured Lincoln for a period of one year. Centennial insured Lincoln for a period of three years. The Pacific Plaza Homeowners' Association sued Lincoln alleging construction defects and property damage. Centennial, Travelers, and U.S. Fire all assumed the defense of Lincoln. Upon settlement, Centennial and Travelers contributed equal sums. U.S. Fire paid a smaller portion of the settlement. U.S. Fire also contributed to defense, but not in the same proportion as Travelers and Centennial. Centennial and Travelers then sued U.S. Fire seeking reimbursement for defense costs. Centennial alleged that the defense costs should be allocated equally. The trial court disagreed and allowed for allocation of defense costs based upon time on risk. The court of appeal affirmed. In short, the court of appeal confirmed other decisions which state that the method of allocation is a matter for equitable judicial discretion. In finding that the trial court's determination was appropriate, the court of appeal examined numerous recognized ways of apportioning the burden of defense. These include:
The court confirmed the California practice to refuse to mandate a single rule to be applied in all cases. Instead, trial courts are to use the method of apportionment which reaches the most equitable result. If you would like to discuss these or any other construction law matters, please do not hesitate to contact any member of Klinedinst's Construction Law Department (Arthur S. Moreau III, Kurt U. Campbell, Susan S. Kohn, Dayna L. Chmelka, Maurine P. Travis, Mark H. Nys, Kristin M. Johnson, David N. Bregman, Bonnie M. Cloutier-Simonek, and Gabe P. Wright).
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