Klinedinst News - Construction Updates

NEW FEDERAL REGULATION: LEAD-BASED PAINT DISCLOSURES FOR RESIDENTIAL RENOVATORS

Federal regulations now require renovators, performing renovations on target housing, to provide the owner and the occupant with information regarding lead hazards before beginning any renovations. Title 40 C.F.R. Part 745.80, Subpart E (1999). This section of the Real Estate Notification and Disclosure Rule ("Disclosure Rule") became effective June 1, 1999. The following provides a brief synopsis regarding the scope and applicability of the regulation.

To fall within the Disclosure Rule, three key requirements must be met. First, the person doing the repair work must be considered a "renovator". The federal government defines the term broadly, including any person who performs the renovations with the intention of receiving compensation for the work. 40 C.F.R. § 745.83 (1999). Second, the renovator must be performing "renovations", liberally defined as the modification of any existing structure. Modifications include, but are not limited to, the removing or modifying of painted surfaces or components; surface preparation such as sanding or scraping; removing large structures such as walls or ceilings; and replacing windows. Finally, the regulation only applies to the renovation of "target housing", that is defined as any housing which was constructed prior to 1978. 15 U.S.C.A. section 2681(17). Target housing, however, does not include housing for elderly persons, persons with disabilities, or a dwelling without a bedroom unless a child under the age of 6 resides or is expected to reside in the housing unit.

Minor repair work and maintenance which disrupts two feet or less of painted surface area is excluded from compliance with this regulation. 40 C.F.R. §745.82 (1999). Emergency renovations are also excepted. Additionally, renovators can seek a written determination that the components affected by the renovations are free of lead based paint or other coatings containing lead so as to avoid having to comply with the disclosure requirements.

The Disclosure Rule specifies steps to be taken by the renovator in order to satisfy disclosure requirements. The steps vary depending on whether the area to be renovated is a dwelling unit or a common area.

If the renovation is to take place in a dwelling unit, the renovator is required to provide the owner with a pamphlet and either obtain: (1) a written acknowledgment from the owner that he has received the pamphlet or (2) a certificate of mailing at least 7 days prior to the renovation. 40 C.F.R. §745.85. The pamphlet which must be provided is the Environmental Protection Agency pamphlet developed under § 406(a) of the Toxic Substances Control Act ("TSCA"). If the owner is not the occupant of the dwelling, the renovator must also provide the occupant with the pamphlet and comply with one of the following:

(1) obtain a written acknowledgment from the occupant that he has received the pamphlet; (2) certify that the pamphlet was delivered, but that the renovator has been unsuccessful in obtaining the acknowledgment; or (3) a certificate of mailing at least 7 days prior to the renovation.

If the renovation takes place in a common area, the renovator must provide the owner with the same notification as set forth above. It is necessary for the renovator, however, to provide occupants with written notification of the renovations and make the pamphlet available, at no charge, upon request. The written notification must be provided to each unit and describe the general nature of the renovations, the general location of the renovations, expected start and completion dates, and a statement of how to obtain the pamphlet from the renovator. If the scope of the renovations change after the initial notification, the renovator is required to provide each unit with further notification of the renovations. Such notification must be provided prior to undertaking the additional scope of work. All activities regarding notification must be taken no more than sixty (60) days prior to the commencement of the renovation activities.

Renovators are required to retain all records demonstrating compliance with the Disclosure Rule for at least three years. 40 C.F.R., § 745.86 (1999). Such records include the following: (1) reports from inspectors certifying the absence of lead-based paint; (2) acknowledgments signed by the owner or occupant; (3) any certificates of attempted delivery; (4) certificates of mailing; and (5) records of notification for common area renovations.

The Disclosure Rule permits the Environmental Protection Agency ("EPA") to conduct inspections and issue subpoenas to ensure compliance with the regulation. The failure to establish and maintain the compliance records is a violation of TSCA sections 15, 16, and 409 (15 U.S.C. 2614, 2615, and 2689). A violation may subject the renovator to either civil or criminal administrative penalties, depending upon the nature of the violation. 40 C.F.R. § 745.87.

A renovator found to be in violation of the Disclosure Rule will receive written notice from the EPA Administrator of its proposal to issue a civil or criminal penalty against the renovator. The renovator has 15 days after receiving notification to request a hearing on the proposed penalty. After the hearing, the Administrator will enter the order for civil or criminal penalty on the record if a violation is found.

A renovator who disagrees with the order entered by the Administrator may file a petition for judicial review with the United States Court of Appeal for the District of Columbia or any other circuit court where the renovator resides or conducts its business. The petition must be filed within 30 days after the order was entered. The Disclosure Rule does not provide for a private cause of action for a violation

Civil penalties for violation of the Disclosure Rule may result in a fine not to exceed $25,000. 15 U.S.C.A. section 2615. The amount of the civil penalty assessed by the Administrator, will vary depending upon "the nature, circumstances, extent, and gravity of the violation". Additionally, the Administrator must take into consideration the violator’s ability to pay, degree of culpability, prior violations, and other similar considerations that justice requires.

Criminal penalties will be imposed when a renovator "knowingly or willfully" violates the Disclosure Rule. The criminal penalty may result in a monetary penalty up to $25,000 and/or a year in jail.

Renovators performing renovations on target housing must exercise caution in complying with the Disclosure Rule. To obtain additional information regarding this regulation, the reader should seek legal assistance or consult Title 40 C.F.R. Part 745.80, Subpart E in its entirety.

NEW CALIFORNIA CASE LAW: CALIFORNIA PACIFIC
HOMES, INC. v. SCOTTSDALE INSURANCE CO.
1999 Daily Journal D.A.R. 2845

California Pacific Homes ("CPH") constructed and sold condominiums in a project called Madrid from 1983 through 1986. The homeowners of Madrid Condominium Association brought a lawsuit naming CPH as a defendant on December 12, 1994. The lawsuit was settled in 1996 for $1,975,000.00. The parties stipulated that the lawsuit "arose from a single occurrence involving continuous or progressively-deteriorating property damage taking place during the entirety of the period from at least 1984 to June 1, 1995."

Scottsdale Insurance Company and National Casualty Company issued successive comprehensive general liability policies to CPH between June 1990 and June 1995. Each of the policies provided that the "insured’s retained limit" was $250,000.00 of the ultimate net loss as a result of any one occurrence because of property damage. The policies further provided that the insurer would be liable for $1,750,000.00 of the ultimate net loss as a result of any one occurrence because of property damage.

CPH sought funding from various insurers and asked each insurer to contribute 1/11th of the total sum per policy year they were on the risk. Under this allocation, Scottsdale and National were responsible for 5/11th of the total settlement for the 5 years they were on the risk. CPH made a demand upon Scottsdale under its 1990-1991 policy that the insurer pay that portion of the ettlement in excess of CPH’s retained limit of $250,000.00. Scottsdale and National adopted the position that before they had any obligation to indemnify, CPH was obligated to satisfy the settlement in an aggregate amount equal to its retained limit for each of the 5 excessive policies, totaling $1,250,000.00.

CPH filed an action seeking declaratory relief and damages for breach of contract under the insurance policies. CPH sought to establish the obligation of Scottsdale and National to indemnify it for that sum beyond its retained limit of $250,000.00.

CPH filed a motion for summary adjudication which was granted. The trial court found that the language of the policy was clear and unambiguous and "establishes a retained limit of $250,000.00 for any one occurrence."

The Appellate Court agreed with the trial court, finding that the language of the insurance policies were clear and explicit.

The insured’s retained limited was $250,000.00 of the ultimate net loss as a result of any one occurrence. For the settlement, the parties had stipulated that the instance that the claims arose from a single occurrence involving continuous for progressive property damage. The court held, "once the ultimate loss of CPH had exceeded $250,000.00, the Scottsdale policy provided for coverage up to $1,750,000.00" as a result of any one occurrence.

The trial court had found that each of the insurers is and was obligated to indemnify CPH for the portion of the settlement which exceeded the single retained limit of $250,000.00.

Scottsdale had argued that CPH was obligated to exhaust all five policy years’ worth of retained limits at $250,000.00 per year before it, as an excess carrier, had any duty to indemnify CPH. Scottsdale posed the issue as one allocation between insurers, with themselves as excess carriers and CPH as primary insurer, rather than an issue of policy interpretation.

The Appellate Court affirmed the decision in AeroJet-General Corp. v. Transport Indemnity 27 Cal.4th 38, 57 which held that once the coverage is triggered, the policy obligates the insurer to indemnify for the insured’s entire loss, subject to the policy limits. The Court reiterated that "successive insurers on the risk when continuous or progressively-deteriorating property damage first manifests itself are separately and independently obligated to indemnify the insured."

The Appellate Court distinguished Stonewall Insurance Company v. City of Palos Verdes Estate (1996) 46 Cal.App.4th 1810. The Court distinguished Stonewall because it involved coverage under primary and excess policies. In Stonewall, the Court held that the law should be apportioned between primary insurers without any obligation between the excess carriers if the primary policies were sufficient to indemnify the insured for the property damage. The Court distinguished the present case from Stonewall stating,

"the principle of horizontal exhaustion which appellate seek to invoke based upon Stonewall is certainly not compelled here where there was no layer of primary insurance policies as distinct from the policies issued by appellants which they characterize as being excess."

Stonewall was further distinguishable because any one of Scottsdale’s or National’s policies provided sufficient coverage to indemnify the insured.

Due to the policy language that CPH had a "retained limit of $250,000.00 for any one occurrence", the insurance companies were prevented from stacking the retained limits and reducing the coverage for occurrence-based claims. Reiterating the holdings in Montrose and AeroJet, the court held that the insurers were separately and independently obligated to indemnify the insured.