1/12/2016

Around the Nation: January 2016

State news and updates from CLM chapters, reps, and committees.

By Bevrlee J. Lips

CALIFORNIA: “As Is” Sales Do Not Relieve Banks of “Any and All” Disclosure Duties in Foreclosures

If you defend lenders or their real estate brokers, you should be mindful of the ever-present duty to disclose in foreclosure sales. Civil Code 1102 et seq. requires sellers to provide buyers with a detailed real estate transfer disclosure statement, except when the property is sold by a court order, foreclosure sale, probate sale, etc. It is a well-settled principle in the law that a bank has a common duty to disclose facts materially affecting the value and desirability of the home that are known by the bank and when the same facts are not known by the buyer or within the reach of the diligent observation of the buyer. In a recent case, a bank sold a home “as is” to a buyer. The MLS listing showed the property as connected to the sewer; however, it was connected to a septic tank. The bank’s problems were (1) that it mispresented the house as being connected to the sewer, and (2) that it financed the original purchase loan and was provided with standard disclosures from the prior owner/seller indicating that the house was connected to a septic tank. The bank did not intend to mislead the buyer, but its failure to check its own file subjected it to liability exposure.—From Orange County Chapter Member Robert A. von Esch

COLORADO: Denver Mayor Signs Construction Defect Claim Reform Ordinance

Denver joins a growing number of Colorado cities (10 total) in approving an ordinance regarding construction claims in common interest communities. Denver’s ordinance adopts several provisions popular among Colorado cities, including (1) homeowners’ associations must provide notice to and obtain majority consent from homeowners before filing lawsuits, and (2) amendments to alternative dispute resolution (ADR) provisions in declarations are deemed ineffective and void against public policy absent consent of the declarant. However, Denver’s ordinance has additional teeth.

With Colorado Springs’ ordinance passing on Dec. 8, 2015, the three largest Colorado cities have approved their own construction defect reform ordinances, sending a strong message to the legislature, which reconvenes Jan. 13, 2016. While Colorado Springs’ proposed ordinance does not include provisions limiting amendments to ADR requirements, it tracks most other cities, including Denver and its building code component. Colorado Springs’ ordinance, like other cities, seeks to encourage construction of owner-occupied, multifamily townhome and condominium common interest communities and prompts voluntary correction based on construction defect claims in order to enhance the health and safety standards of construction in Colorado.—From Greater Denver Chapter Member Adam Wiens

CONNECTICUT: Free Identity Theft Prevention Services Required

Connecticut became the first state to require businesses to furnish a free year of identity theft prevention services to persons affected by a data breach that results in the release of their personal information, including their names and Social Security numbers. Notice must be given of a breach within 90 days of the discovery. Public Act No. 15-142 became effective on Oct. 1, 2015, and the IRS has just released bulletin 2015-22, which states that persons receiving free identity protection as a result of a breach receive the benefit tax free. However, if a person receives cash instead, the cash payment is taxable.—From CLM Fellow Michael Craig-Grubbs

OHIO: Intentional Acts Exclusion Does Not Obviate Duty to Defend Against Federal Housing Discrimination Claims

In Granger v. Auto-Owners Insurance, the Ohio Supreme Court tackled the question of whether an umbrella insurance policy’s intentional acts exclusion—through application of the inferred-intent doctrine—eliminates the insurer’s duty to defend an insured against federal housing discrimination claims. Granger, an apartment landlord, was alleged to have discriminated against an African-American lease applicant based on her familial status and race. The applicant, a single mother, sued Granger for emotional distress and later reached a settlement with him. Granger then sued Auto-Owners for failing to provide a defense under the umbrella policy. In evaluating whether the umbrella policy’s exclusion was triggered by the landlord’s intentional conduct, the Ohio Supreme Court drew an important distinction between the landlord’s intent to discriminate and his intent to cause personal injury. In affirming the appellate court’s judgment, the court held that the inferred-intent doctrine was inapplicable since damages for emotional distress are not inherent in a claim for discrimination.—From Northeast Ohio Chapter Secretary Michael C. Brink

OREGON: Mistake Doesn’t Support Reformation of Settlement Agreement

In A&T Siding Inc. v. Capitol Specialty Ins. Corp., a homeowners’ association (HOA) sued siding subcontractor A&T for negligence and breach of contract. A&T had two insurers, one of which was Capitol. The HOA, A&T, and the other insurer settled the claim without Capitol’s participation. Under the settlement, A&T agreed to a stipulated judgment of $2 million, of which the other insurer paid $900,000. The settlement included an unconditional release and a covenant not to execute against A&T. Subsequent to entry of judgment, the HOA instituted a garnishment proceeding in state court against Capitol to recover the $1.1 million balance. The trial court held that Capitol’s policy did not apply because the settlement unconditionally released the insured. In response, the original settlement agreement was amended, and A&T filed a second action against Capitol. The Oregon Supreme Court held that the amendment did not revive the insurer’s liability. A&T contended that it had restored Capitol’s obligation to provide coverage by virtue of the voluntary reformation of the original settlement agreement, based on its own and the HOA’s mistake as to the legal effect of that original agreement. The court rejected the argument, concluding that a mistake as to the legal effect did not support reformation of the original settlement agreement.—From CLM Member Geoffrey Bedell

PENNSYLVANIA: Brain Injury Suit Filed Against Dartmouth and NCAA

The estate of Patrick Risha filed an action in Westmoreland County against Dartmouth College and the NCAA. The allegations are that repeated brain injuries sustained by Risha while he played football at Dartmouth from 2000 to 2003 led to his suicide in 2014. An autopsy following his death showed the presence of chronic traumatic encephalopathy (CTE).—From CLM Member Mark Eck

TENNESSEE: Spoliation of Evidence

In Tatham v. Bridgestone, the Tennessee Supreme Court held that intentional conduct is not necessary for sanctions for spoliation of evidence, but the culpability of a party as well as prejudice are factors to be considered. In this case, the plaintiff claimed that a tire was defective and caused a wreck. The car, including its tires, was sold to the plaintiff’s insurer after the total loss, and the car was scrapped. The court noted that this is not intentional conduct and there is no prejudice to Bridgestone. The trial court denied summary judgment, and the Supreme Court held that the standard of review is “abuse of discretion.” Finding none, the Supreme Court affirmed. This case also gives a good discussion of Tennessee products liability law.—From CLM Member James C. Wright



Bevrlee J. Lips was managing editor of Claims Management magazine (now CLM Magazine) from January 2012 until March 2017.

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