Judges in East Baton Rouge and St. Tammany Parish have issued two of the earliest rulings on the impact of the Louisiana New Home Warranty Act on claims by homeowners against contractors for damages related to Chinese Drywall. Both state district court judges have found that the Louisiana New Home Warranty Act is the exclusive remedy as between a builder and a homeowner for damages caused by Chinese Drywall. Both judges have also ruled that the Chinese Drywall incorporated into homes in Louisiana is not a structural component of the home and is thus subject to a one year warranty period.

In both of the district court cases, the courts dismissed the plaintiff’s case because the suits against the contractors were brought more than one year after the homes were occupied by the original owners.

The rulings by the district court judges should have no impact on homeowner claims against suppliers and manufacturers of Chinese Drywall as the Louisiana New Home Warranty Act only applies to the relationship and rights between a home builder and a home owner in Louisiana.
 

The United States Supreme Court recently resolved conflicts among the Circuit Courts about the citizenship of a corporation for determining diversity of citizenship jurisdiction (1). This will allow corporations to analyze with more predictable results whether to remove a case to federal court. In Hertz Corp. v. Friend, et al, No. 08-1107 (February 23, 2010) (a unanimous decision, which is unusual in and of itself), the Court decided that when determining a corporation’s citizenship for diversity of citizenship jurisdiction, the “principal place of business” of the corporation is “the place where the corporation’s high level officers direct, control, and coordinate the corporation’s activities”—something that courts have referred to as the “nerve center” of the corporation.

The District Court and Ninth Circuit determined diversity did not exist because they determined that although Hertz did business in 44 states its business activity was “significantly larger” and “substantially predominated” over activity in other states. Therefore, Hertz’s “principal place of business” and thus, its citizenship, was in California. The Supreme Court agreed to review the Ninth Circuit’s decision.

The Court’s decision focused on the meaning of “principal place of business” in Section 1332(c)(1). It started its analysis with a discussion of the history and rationale for diversity jurisdiction starting with the first diversity jurisdiction statue enacted in 1789 and ending with the current version of 28 U.S.C. §1332(c)(1) which was enacted in 1958. The court then reviewed the various tests used by federal appellate courts to determine the location of a corporation’s “principal place of business.” For example, the First Circuit used a “nerve center” test (the location from which the corporations activities are directed and controlled); the Second Circuit used a “business activities” test (where a corporation’s actual business activities are located); the Sixth and Tenth circuits used a “total activities” test (a combination of the “nerve center” and “business activities” tests); the Fifth and Eleventh circuits used a two-part test (are corporate activities “centralize or de-centralized” and then either a “place of operations” or a “nerve center” test.

The old “nerve center” test won out. The Court found that the best way to identify the principal place of business of a corporation as “the place where a corporation’s officers direct, control, and coordinate the corporation’s activities.” This conclusion was reached for three reasons: (1) the statutory language supported the approach of identifying a single state as the principal place of business; (2) it leads to “administrative simplicity” and predictability that will allow courts to focus on the underlying merits of a case rather than jousting over jurisdiction; and (3) the legislative history supported the conclusion.
 

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 (1) The diversity jurisdiction statute, 28 U.S.C. §1332(c)(1) says that “a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business.”

The Louisiana Legislature has adopted House Concurrent Resolution No. 185, authored by Representative Tim Burns.  The resolution urges and requests that the Department of Health and Hospitals and the Deptartment of Insurance, in consultation with the Louisiana State Licensing Board for Contractors, investigate the health risks associated with living in homes that contain drywall imported from China, study the potential homeowners insurance coverage issues, including triggers, endorsements, and exclusions to policies that are related to drywall imported from China, and determine whether such material should be identified as a substandard, unsafe building material.  The resolution goes on to request a report of the findings and recommendations of this study to the legislature prior to the convening of the 2010 regular session.

A copy of the enrolled version of the resolution can be seen here: Download file

June marks the beginning of Hurricane Season and should serve as a reminder to review your personal and business property insurance coverage. The effect of recent Hurricanes on the Gulf Coast generally and Louisiana specifically have been significant with respect to both damages and the insurance covering those damages.

The losses caused by the 2008 Hurricanes in South Louisiana will make property insurance renewals more difficult and expensive. Coverage provided by many property carriers is expected to be narrowed and subjected to higher named storm deductibles.

Beginning the renewal process on property coverage at least 120 days in advance of the renewal date is advised to ensure a fair opportunity to negotiate acceptable terms and to avoid unpleasant surprises such as excessive rate increases and non-renewals.

When purchasing property insurance an insured should also remember that Business Interruption Insurance is usually included in property insurance coverage. Business Interruption Insurance comes in many forms and must be specifically purchased in most cases as an additional coverage under a property policy. Understanding the different type of business interruption coverage is important and may be the difference between a company surviving or not surviving a catastrophic loss.

A comprehensive legal review of your insurance programs including your property insurance is recommended on a regular basis.   

Hurricane Gustav recently wreaked havoc and felled trees throughout the heavily wooded areas of Southeast Louisiana.  As such, many property owners may be concerned who bears the responsibility for a fallen tree. Obviously, if a tree in a homeowner’s yard falls on his house, then that homeowner should contact his insurance agent for assistance in repairing the tree damage. The remainder of this article addresses the issue of tree-owner responsibility when a tree located on the property of one person (the “tree owner”) falls on the property of his neighbor (the “property owner”) damaging the house, car, fence or other property.

Louisiana Civil Code article 2317.1 states:  The owner or custodian of the thing is answerable for damage occasioned by its ruin, vice, or defect, only upon a showing that he knew or, in the exercise of reasonable care, should have known of the ruin, vice or defect which caused the damage, that the damage could have been prevented by the exercise of reasonable care, and that he failed to exercise such reasonable care. 

Thus, to establish liability for damage caused by a defective thing (ie—a fallen tree), the property owner must demonstrate that the tree owner should have known, in the exercise of reasonable care, of the defective tree that caused the damage, that the damage could have been prevented by the exercise of reasonable care, and that the tree owner failed to exercise such reasonable care. Caples v. USSA Ins. Co., 806 So.2d 148, 150 (La. App. 1 Cir. 2001).

In Hoerner v. Beulah Title, 968 So.2d 217 (La. App. 4 Cir. 2007), the Louisiana Fourth Circuit addressed damage caused to one homeowner’s property by the trees of another. The Hoerner’s yard was damaged by trees in the yard of their neighbor, Ms. Title. The Hoerners filed suit alleging that the Ms. Title was liable under Louisiana Civil Code article 2317.1. Ms. Title, argued in her defense that the trees were not defective. She also argued that she was entitled to the defense of force majeure because the trees were felled by Hurricane Katrina.

The Hoerners testified that they had problems with Ms. Title’s pine trees and her foliage since 1991. However, there were no allegations that the trees in question were defective through disease or otherwise. Indeed, photographic evidence demonstrated that the trunks of the trees were blown over by Hurricane Katrina. There was no independent evidence that the trees fell due to the lack of maintenance or improper trimming. Nevertheless, the Hoerners argued that the trees were defective because they were neglected, overgrown, and placed too close to their backyard brick wall.

In support of their argument, the Hoerners argued that Brown v. Williams, 850 So 2d 1116 (La. App. 2 Cir. 2003) applied. In Brown, the tree which caused the damage had not been maintained in over 25 years. The branches had not been pruned, and the health of the tree had never been assessed. The Brown defendants were ultimately found liable because they should have known of the trees’ defective condition, and, in the exercise of reasonable care, the Brown defendants could have prevented the damage caused by their tree with ordinary maintenance.  However, as the Hoerner tree did not involve a total lack of maintenance and/or disease, Brown did not apply. As such, the Hoerners’s claims were dismissed. Moreover, the Fourth Circuit held that Ms. Title was entitled to the defense of force majeure because the winds of Hurricane Katrina caused trees to fall and damage property regardless of maintenance and/or location. 

Responsibility of removing a fallen tree from one’s own or one’s neighbor’s property rests squarely upon the issue of ownership of the tree. The owner of the ground out of which a tree grows is legally presumed to also own that tree. La. C.C. art. 491 (West 2008). This maxim holds true unless the owner of the ground has been divested of ownership of the tree and there is evidentiary support of separate ownership. Allen v. Simon, 888 So.2d 1140, 1144 (La. App. 3rd Cir. 2004). The Simon Court held that the obligation to remove one’s property off one’s neighbor’s property has long been recognized by Louisiana law.

The Simon case involved claims by a neighbor for reimbursement of tree-removal expenses against the neighboring tree owner. The tree owner asserted the Act of God defense, the common law equivalent to the Louisiana civil law doctrine of force majeure, declining liability for the tree removal because it was felled by an unforeseen force of nature, or other irresistible force. The appellate court overruled the trial judge’s application of the Act of God defense and found that the defendant’s decision not to remove the tree was not caused by any act of God. The court concluded that the Act of God defense did not relieve the defendant from his responsibility to remove his fallen tree from his neighbor’s property. Although an Act of God or force majeure may have caused the tree to fall, it did not serve to divest the tree owner of his ownership of the tree. Hence, responsibility to remove a fallen tree from neighboring property rests with the owner of the tree.
 

In Sher v. Lafayette Insurance Co. (La. 2008), an apartment unit was flooded when levees failed immediately following Hurricane Katrina. The insurer inspected the property to determine the amount of covered loss and concluded that most of the building’s damage was due to poor maintenance, disrepair, and flooding. Checks totaling slightly more than $2,700 were tendered but rejected. Although the term “flood” was not defined in the policy, the Louisiana Supreme Court rejected the argument that the definition depended on whether the event resulted from a natural disaster or a man-made one, instead focusing on the prevailing meaning of the word “flood,” i.e., the overflow of a body of water causing a large amount of water to cover an area that is usually dry. Accordingly, the court did not find the term ambiguous, and found that the levee breaches were covered by the flood exclusion. 

In Landry v. Louisiana Citizens Property Insurance Co. (La. 2008), the Louisiana Supreme Court rejected a homeowner’s breach of contract claim against the insurer for failure to pay the face value of the policy after their house was totally destroyed by Hurricane Rita. The parties did not dispute that the insurance in question covered any loss caused by wind and rain, and that the policy specifically excluded damages caused by flood waters. Even so, the homeowner claimed that Louisiana’s statutory law (R.S. 22:695) obligated the insurer to pay the face value of the policy. The insurer responded, asserting several defenses, including damages caused by flood, high tides, and storm surge. The statute in question was the Louisiana Value Policy Law (R.S. 22:695), that sets forth the methodology to compute loss and that its provisions are not altered due to concurrently causing damages, even if one of such damages is not covered. 

For example, "punch list" items are considered minor and consequential under the New Home Warranty Act, and cannot constitute "major structural defects" within the Act’s meaning. A Louisiana appellate court rejected a homeowner’s claim that the Louisiana New Home Warranty Act only protects builders, concluding that the Act’s coverage extends to the builder’s insurers. In Barnett v. Watkins, WL 2713329 (La. App. 1st Cir. 9/19/07), the court concluded that "by extension, the NHWA [New Home Warranty Act] is also plaintiff’s exclusive remedy against . . . the liability insurer of [the builder]."

Louisiana courts preclude summary judgments on insurance coverage matters until the underlying litigation is resolved and the factual basis for the insured’s liability is determined. For example, in Vidrine v. Constructors, Inc., 953 So.2d 193 (La. App. 3rd Cir. 2007), welders, pipe fitters and their helpers brought action against the employer and plant owner to recover for asbestos exposure allegedly arising during a plant renovation. One of the insurers filed a motion for summary judgment, asserting there was no coverage based on an exclusionary provision for bodily injury caused or aggravated "by the conditions of your employment." Under that provision, the employee’s last day of last exposure had to occur during the policy period. The insurer based its summary judgment on the plaintiffs’ petition and discovery responses that alleged asbestos exposure beyond the last day of the policy period.

According to the Louisiana Supreme Court, a commercial general liability policy unambiguously excluded coverage for a contractor’s faulty workmanship. Supreme Services & Specialty Co. Inc. v. Sonny Greer, 958 So.2d 634 (La. 2007). The homeowner instituted legal action claiming that cracks in the slab were the result of faulty and defective design and construction, alleging causes of action based on breach of contract and breach of warranty. Relying on the "work product" exclusion in the policy, the court recognized that it reflected the insurance company’s intent to "avoid the possibility that coverage under a CGL policy will be used to repair and replace the insured’s defective products and faulty workmanship."

The court further concluded that the work product exclusion and the products completed operations hazard are not inherently ambiguous. While the work product exclusion precludes coverage to the insured’s work or product caused by faulty workmanship, the products completed operations hazard provides coverage for damages other than the faulty product or work itself arising out of the faulty workmanship. In other words, the products completed operations provision applies to damages and injuries that might occur as a result of the damaged product.

Act 739 extends to September 1, 2007, the filing period for Katrina-related claims under homeowner, personal property, tenant, condominium and commercial insurance policies, with a similar extension to October 1, 2007 for Rita-related claims.

The Supreme Court found that the Acts impaired the insurers' contract rights, but readily found that the State's interest in coping with the aftermath of the "worst natural disaster to have ever occurred in the United States" easily prevailed.

Discussions of the decision can be found at Appellate Law and Practice, and the Insurance Journal, and this morning's Picayune has an article here about the last-minute filings in case the decision doesn't hold up.

Owners of property in Louisiana continue to face problems and delays in collecting payments for property damage related to Hurricanes Katrina and Rita. The vast majority of homeowner policies issued to insureds in the State of Louisiana, and possibly some commercial policies, limit an insureds right to file suit on insurance claims to a period of twelve months. See LSA-R.S. 22:691.   The one-year prescriptive date for damages related to Hurricane Katrina is August 29, 2007. The one-year prescriptive date for damage claims related to Hurricane Rita is September 24, 2007. 

Failure to file suit within the one-year period against an insurer who has not agreed to extend the prescriptive period to file suit from 12 months to 24 months will result in a loss of the right to sue the insurer, even if the insurer is in active negotiations with a policy holder.   All policy holders are advised to make a determination of the prescriptive period affecting their policy and are advised to seek expert legal advice if there are any questions concerning the prescriptive date on hurricane related damage claims.

The article notes further, "To assist policyholders, the names of insurance companies who agree to extend the prescriptive period will be listed on the Department's Web site and publicized through a variety of mediums."