Litigation ReportTM Trichilo, Bancroft, McGavin, Horvath & Judkins, P.C. are pleased to welcome three new associates to the firm. Quarterly Publication Published by: Trichilo, Bancroft, McGavin, Horvath & Judkins, P.C. 3920 University Drive Post Office Box 22 Fairfax, Virginia 22030-0022 Volume 2, Issue 2 March 2005 703.385.1000 703.385.1555 fax www.vadctriallaw.com Lessons Learned email: in the Synthetic Stucco Litigation Letters to the Editor: By: Stephen A. Horvath, Esquire Melissa H. Katz, Esquire [email protected] Starting in the early 1990’s an exterior cladding for houses known as “EIFS” (Exterior Insulation Finish System) became c 2005 All Rights Reserved Pictured left to right is Stephen A. Marshall, Jennifer L. McRobbie, and Jeremy Paner popular in the Washington Metropolitan area. The product had a number of advantages. It looked like stucco, but did not have the weight of stucco, and would not crack like stucco. It had an insulation quality to it. There was a layer of a Styrofoam type product which made it as though you were wrapping your house in a Styrofoam cooler. It was decorative and could be easily shaped, to add attractive features to the exterior of the house. Finally, its finish was impervious to water, and would in theory keep water out. The use of this popular cladding resulted in a large number of and new law was developed by the Circuit Court and Virginia subcontractors being trained by the manufacturers of the product Supreme Court. to install it on houses. Although some very strict installation The first two cases that were tried by other firms in Fairfax requirements were set up, the subcontractors would frequently County resulted in verdicts of approximately $1.4 million and Trichilo, Bancroft, McGavin, Horvath & Judkins, P.C. PRESORTED not follow the requirements. As a result, water could infiltrate $1 million. In those cases, there were no aggressive challenges 3920 University Drive • Post Office Box 22 FIRST-CLASS between the house sheathing, and the EIFS, and the water would to the plaintiffs’ experts and the attorneys “ran away” from the U.S. POSTAGE be trapped. Over time, the elevated moisture levels would cause benefit and quality of the EIFS product. The third case in Fairfax Fairfax, Virginia 22030-0022 PAID rotting of the wood sheathing and framing. County, which was tried by this firm, resulted in a $17,000 FAIRFAX, VA In the mid to late-1990’s, as a result of newspaper articles verdict, which was reduced to zero because of a prior settlement Permit No. 6241 and TV programs, the public became aware of a number of with the installer. While the Court did award costs and attorney’s serious potential problems. For many of the homeowners the fees, the attorney’s fees awarded were one-seventh of the amount time for which to make a warranty claim under their purchase requested. agreement had expired. Plaintiffs’ attorneys were left to try a Successful handling of these cases depended upon a number number of novel approaches, including alleged fraud, or violation of factors: First, at the pleadings stage, the allegations were of consumer protection acts to develop a theory for recovery. aggressively challenged by use of demurrers and motions craving With leaky homes and huge bills for repair, the oyer. While the plaintiffs’ attorneys attempted to sue subcontractors homeowners were sympathetic plaintiffs. directly, through successful use of motions, most, if not all, the The fraud allegation usually went like this: claims directly against the “I contracted to buy stucco. Stucco should be subcontractors were a cement based product which has been used ultimately dismissed. Inside for hundreds of years. The product you put Second, although EIFS did on my house is Styrofoam and plastic. You have its problems, the idea Synthetic Stucco Litigation .......1 have lied to me.” Hundreds of lawsuits were behind EIFS was excellent. filed alleging stucco defects in the Northern It was a good idea, but had Economic Loss Rule .................3 Virginia area. The Fairfax Circuit Court to be carefully installed. created a special three judge panel to Attorneys who attempted Frolic or Detour ..........................3 hear the stucco cases, to provide for to shift the burden to EIFS uniformity in the decision making. on behalf of their Payment by Debtors .................4 This firm handled almost one hundred defendants, or who agreed of these cases, representing both the subcontractors and the that the product was fraught with Picking an Expert.......................5 general contractors. We were successful in either having the cases problems, continued to have dismissed, or reaching resolutions on the cases, and paying only a problems with their defenses. If General Assembly Update ......6 small amount of the damages claimed. A number of lessons were the product was embraced, and it learned in how to handle the homeowner building defect cases, continued on page 7 Worker’s Compensation ......2 continued from page 1 Workers’ 1999). In that case, the employer requested review of a Deputy was explained that there were a few minor problems which that at this time. If you do not include any statement, it will be By: Commissioner’s decision holding that a pending claim for disability could be fixed, the results were better. Third, the plaintiffs’ assumed that you are not relying upon any verbal statement or representation made by the seller in entering into this contract.” Compensation Benjamin J. Trichilo, Esquire benefits survived the claimant’s death from an unrelated cause. experts were frequently individuals who had little or no Because a significant legal issue was involved, the full Commission experience with the use of EIFS prior to being involved in the When the purchaser would later claim fraud in reliance on Corner considered the appeal, and upheld the Deputy Commissioner’s ruling EIFS litigation. One expert from North Carolina was used in what they were told about “stucco”, this statement from the that the claim did survive the claimant’s death. hundreds of the cases in this area. He had been involved in so contract would then be read back to them, and a number of the many cases, that within a few years time, his company’s total homeowners would confirm that it was correct, they did not Another example is provided by Grimes v. A-1 Towing, VWC File fees for examination and testing exceeded $3 million. Out of rely on any statements. Number 155-46-42 (December 22, 1997) where the Commission over 1,200 houses that he examined, he found the product Finally, after the first wave of lawsuits, some of the builders heard an appeal by the claimant requesting that a witness subpoena defectively installed over 1,200 times. Although he had never brought a second wave of lawsuits against their subcontractors 1. Death of claimant allows insurer to withdraw settlement: for a deposition be quashed. The Commission noted that interlocutory had any experience in the installation, application or repair of attempting to recover for money they paid out to homeowners to Liability settlements are generally governed by principles appeals are normally not appropriate for evidentiary matters, unless EIFS prior to being involved in litigation, he was an “expert” on re-clad the houses. In this second wave of lawsuits, some of the of contract law: timely acceptance of an offer creates a binding there is a showing of good cause. The Commission found that the subject who stated that it was always defective, and could builders were not very successful because of the inaccuracies agreement. The rules for settlements under the Virginia Workers’ substantial prejudice would result if it did not rule on the motion, not be installed correctly. Aggressively challenging the expert in how they identified themselves to their subcontractors, and Compensation Act are much different. Settlements are not binding heard the appeal of the claimant, denied the motion to quash, and helped in the final resolution of the cases. to their sellers. They had set up so many different entities for until approved by the Virginia Workers’ Compensation Commission. allowed the deposition requested by the employer to proceed. Because the claims were fraud based, some of the seller’s construction of the house versus sales versus ownership of the property, that they became bogged down in their own web of Even after the settlement Order is entered, the Commission has contracts allowed for additional defenses that were not available 3. When are employers subject to the Act? to other sellers. Some of the contractors included paragraphs in entities, and were unable to establish a claim against the discretionary authority to vacate that award within twenty-one days Every employer that regularly employs three or more employees their contracts which stated to the effect as follows: “Frequently subcontractors. for good cause. “Good cause” may be simply a change of mind disputes arise between the purchaser and the seller because of Most of the EIFS litigation has been concluded. The lessons by the claimant. Should that occur, then the settlement proceeds in the Commonwealth of Virginia is subject to the jurisdiction of the Virginia Workers’ Compensation Commission, and is required to confusion of what may have been said at the time the parties learned can help establish ways to handle future construction must be returned before the Commission will vacate the settlement negotiated the contract. As a result, if you intend to rely on any defects claims. Order. carry Workers’ Compensation insurance. The burden of proving that the employer does not regularly conduct business with three or more statement or representation made by the seller, please include In a recent full Commission decision, Pringle v. WMATA, employees is upon the employer.