Pennsylvania Litigation Blog : Pennsylvania Litigation Lawyer & Attorney : Barley Snyder Law Firm : Serving Lancaster, York, Reading, Hanover, Malvern

On August 9, 2012, Governor Tom Corbett announced the re-start of the Pennsylvania Homeowner’s Emergency Assistance Program ("HEMAP") administered by the Pennsylvania Housing Finance Agency ("PHFA"). HEMAP was discontinued in August of 2011 as a result of PHFA’s determination that it lacked the necessary funding for the program. In June of 2012, Governor Corbett signed the Homeowner Assistance Settlement Act. This act, among other things, allocates to HEMAP the lion’s share of Pennsylvania’s portion of the cash settlement received in the litigation brought by states and the federal government against the nation’s five largest mortgage servicers for alleged misconduct in connection with home foreclosures. According to the announcement, Pennsylvania’s share of the funds has been received and PHFA will begin accepting applications for HEMAP immediately.

Another important part of HEMAP is the Notice of Intention to Foreclose, also known as the Act 91 Notice (the "Act 91 Notice"), which a mortgage lender is required to send to the borrower before initiating a foreclosure against the borrower’s home. The Act 91 Notice provides notice to the borrower of the nature of their default and the time and method to cure such default. It also informs the borrower of HEMAP and how to apply for assistance under the program. The requirement to send the Act 91 Notice was suspended at the time HEMAP was discontinued. As part of the re-start of HEMAP, mortgage lenders will again be required to send the Act 91 Notice before instituting foreclosure in cases where the mortgage is secured by real estate that is the borrower’s primary residence. In the August 18, 2012 issue of the Pennsylvania Bulletin, PHFA published its formal notice of the resumption of HEMAP. According to the published notice, October 2, 2012 is the official date for resumption of the Act 91 Notice Requirement. As a result, lenders will not be able to institute foreclosures against a borrower’s home, unless it has sent the borrower an Act 91 Notice and has otherwise complied with the Act 91 Notice requirements. The form of Act 91 Notice that is required to be sent is the same form notice that was in effect when the notice requirement was suspended in 2011. A copy of PHFA’s published notice, which includes a copy of the form Act 91 notice is attached to this Alert.

One obvious timing question raised by this is how to handle loans that become eligible for foreclosure prior to the October 2, 2012 effective date. If the foreclosure is not filed prior to the effective date, either because it could not be filed (e.g. due to the pendency of another notice period) or for some other reason, the foreclosure will not be able to be filed until the Act 91 Notice is sent and all applicable notice or stay periods have run. This could delay the process for at least thirty (30) days or more. A possible solution to this situation would be to begin sending the Act 91 Notices prior to the date such notices are actually required. Beginning to send the Act 91 Notices no less than 30 days prior to the effective date (i.e., by September 2, 2012) should alleviate the problem of any "notice gap." Also, since PHFA is apparently already accepting applications for HEMAP, lenders may decide to begin sending the Act 91 Notices as soon as possible after publication of the official notification by PHFA.

Sending the Act 91 Notice prior to the actual effective date, as outlined above, will serve two purposes. First, it will make it less likely that a particular foreclosure will fall through the cracks during the transition. Second, it will comply with PHFA’s request that lenders give notice to homeowners who are currently in the foreclosure process of the possible availability of HEMAP assistance. Such voluntary notification on the part of mortgage lenders is being encouraged and recommended by some banking and lending organizations as a possible stop-gap to the fear that some courts may unilaterally impose blanket stays on foreclosure proceedings during the transition.

A final area to be discussed involves the inter-relationship between the Act 91 Notice and the notice required under Act 6. The Notice of Intention to Foreclose under Act 6 (the "Act 6 Notice") has been a part of the law since before Act 91. The resumption of requiring the Act 91 Notice does not eliminate Act 6. However, as was the case before the suspension of Act 91, the Act 6 Notice is not required where the Act 91 Notice is being sent. Act 91 expressly states that the Act 91 Notice is to be in lieu of any other notices. The Act 91 Notice also contains all of the information that is required to be included in the Act 6 Notice. For this reason, it seems clear that where the Act 91 Notice is sent no other notice is required, even where the notice is sent before the effective date of the Act 91 Notice requirement. Lenders who are concerned that discontinuing the Act 6 Notice prior to the effective date of the Act 91 Notice requirement could open their foreclosures to a technical challenge, may opt to send both notices during that time period. One other point to keep in mind - Act 6 is not going away. Where Act 91 does not apply, an Act 6 Notice could still be required where: a) the real estate being foreclosed upon meets the definition of "residential real estate" under the act; and b) the original mortgage amount is less than the "base figure" (currently $230,110).

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 In a landmark decision that effectively overrules approximately thirty years of precedent, the Supreme Court of Pennsylvania recently expanded “statutory employer” status to any company that subcontracts for services or work “of a kind which is a regular or recurrent part of the entity’s business.” Under the new caselaw, contractors may be held secondarily liable for injuries incurred by their subcontractors’ employees, even if they have no control or authority over those employees.

It is well-established that, where a subcontractor’s employee is injured on premises generally controlled by a contractor, the contractor is responsible for workers compensation coverage if the subcontractor lacks insurance. This has been the case since the Supreme Court’s 1930 opinion in McDonald v. Levinson Steel Co. The new case, called Six L’s Packing Co. v. Workers’ Compensation Appeal Board (Williamson), extends this liability beyond the worksite.

Six L’s Packing Company harvests, processes, and distributes tomatoes and other produce. The company contracts with other companies for transport of tomatoes between its facilities and various other services. In April 2002, a employee for one of these contractors, F. Garcia & Sons, was injured in a motor vehicle accident while transporting tomatoes between a warehouse in Pennsylvania and processing facility in Maryland. Garcia did not have workers compensation coverage, and Six L’s was deemed the responsible statutory employer.

In awarding benefits, the Court rejected Six L’s arguments that it did not own trucks or employ drivers and that it was not in control of the public highway where the employee was injured, as required under the McDonald test. The Court noted that the “premises” language from McDonald did not appear in the section of the Act imposing statutory employer status on “contractors,” effectively limiting McDonald to circumstances in which employers control the worksite where an injury occurs. Since the Court further held that transport of tomatoes was a “regular or recurrent part of” Six L’s business, it was liable for the subcontractor’s injuries.

This case highlights the importance of ensuring that contractors carry workers compensation coverage for all their workers. Any company using contractors should obtain proof of such coverage and, further, may want to include indemnity clauses in its contracts to insulate itself from workers’ compensation liability.

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On February 10, 2011, the Construction Workplace Misclassification Act (CWMA) took effect in Pennsylvania, ushering in a new era of heightened scrutiny for businesses that classify employees as independent contractors. While there have yet to be any legal decisions further explaining the reach of the new law, affected employers should be aware of the following features and developments.

The CWMA includes a built-in “good faith” defense for employers accused of CWMA violations. The Act states that a defense to such a violation exists if the person for whom the services are performed believed in good faith that the individual who performed the services qualified as an independent contractor at the time the services were provided. Until several cases are tried, however, the extent to which employers must prove “good faith” is unknown. Affected employers should instead take proactive steps in order to ensure compliance, including:

a)      Determine how many workers are utilized as independent contractors by performing an internal audit.

b)      reclassify workers and groups of workers previously classified as independent contractors according to the test provided in the CWMA (discussed here.)

c)      Review the company’s contracts and relationships with legitimate independent contractors to ensure that these agreements will remain intact despite greater scrutiny.

Employers should also be aware of several CWMA-related forms posted on the Pennsylvania Department of Labor and Industry’s website. There is no indication from the Department of Labor and Industry that employers must provide these forms within the workplace.

a)      A complaint form, which asks for information regarding tools supplied by a given employer, whether certain employees have their own liability insurance, and how workers on a given job are paid. This form provides further insight into what factors are considered when an employer is under investigation for alleged CWMA violations. Available at: http://iccomplianceph.files.wordpress.com/2011/02/pa-construction-workplace-misclassification-complaint-form.pdf

b)      A warning poster, aimed specifically at individuals holding themselves out as independent contractors. Available at: http://iccomplianceph.files.wordpress.com/2011/02/pa-construction-workplace-misclassification-act-poster.pdf

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• Offer to the buyer the option to install or equip, at the buyer's expense, an automatic fire sprinkler system in home pursuant to the 2009 International Residential Code;
• Provide the buyer with information which explains the initial and ongoing cost of installing and equipping an automatic fire sprinkler system in the home; and
• Provide the buyer with information, as made available by the State Fire Commissioner on the agency's website, on the possible benefits of installing an automatic sprinkler system.

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  Builders, developers, sub-contractors, shipping companies and suppliers, importers, distributors, architects and others may potentially be impacted if litigation in this area becomes prevalent in the Northeast, as the Gulf Coast is already seeing mass tort litigation forming. In particular, it is important to review insurance policies early to ascertain whether coverage is provided in the event of a claim. Further, we recommend checking your supply chain to identify drywall sources, handling and documentation and preserve any documents involved.

 There has been a great deal of discussion recently with respect to property damage and personal injury claims arising from Chinese-made drywall, which is alleged to have contamination issues causing property and personal injury damages. While the science behind this remains murky, the problem may be particularly significant as statistics show that there are approximately 600 million pounds of Chinese-made drywall in at least 60,000 homes in the U.S.A. today. Commercial applications can also be involved.

According to an April 17th article in the Wall Street Journal, “Complaints about foul smelling Chinese-made drywall that first emerged in a few dozen homes in Florida in January have spread to hundreds of homes in several states.” As we saw with mold and synthetic stucco, the science surrounding Chinese-made drywall is still being developed. CNN reported in March that the drywall is alleged to have high levels of sulfur, and that the material emits sulfur-based gases that smell of rotten eggs and corrode piping and wiring, causing electronics and appliances to fail. At this point, the Gulf Coast has been in the forefront of these claims as high temperatures and humidity are purportedly primary triggers of problems resulting from the Chinese-made drywall. The United States Consumer Products Safety Commission has posted an internet alert on Chinese drywall, noting that it has received 1,174 reports from residents in 24 states who believe their health symptoms or the corrosion of certain metal components in their homes are related to the presence of drywall produced in China. Consumers largely report that their homes were built in 2006 to 2007. recommend checking your supply chain to identify drywall sources, handling and documentation and preserve any documents involved.

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In the case Wampum Hardware Co v. DEP (March 2009), the Environmental Hearing Board sustained an appeal of a DEP order which was issued to Wampum relative to a blast at Wampum's quarry. The blast in question ejected rock into the air, which rock was expelled several hundred feet from the site of the blast. The blaster established a 950 foot safety zone which was nearly twice the size required by DEP regulations. No rock was expelled from the safety zone. The closest that any rock landed to any person on the site was 250 feet. Rock from the blast traveled up to 700 feet from the blast, which clearly was beyond what would have been the required safety zone under the regulations. The regulation that DEP relied on to issue the Order provided: “blasting…may not be done or performed in a manner…constituting a hazard or danger or do harm or damage to persons or property in the area of the blasting.” The Board found that there was no evidence that any harm or hazard to persons or property in the area of the blasting, due to the size of the safety zone. As part of DEP's order, Wampum was direct to revise its blasting plan and as a result, agreed to change the material used for stemming shots, to lower the depth of stemming and to increase the delay in shots, each of which were designed to decrease the potential for flyrock. It appears that the Board missed the point that the blast at issue was not properly designed and fired, as rock traveled well beyond what would have been anticipated within the typical safety zone, the fact that no one was hurt was not due to design, but rather good luck. 

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The Home Improvement Contractor Registration Act has become the law in Pennsylvania and is due to go into effect this Summer. At least part of the goal of this Act is to curb the impact of “fly-by-night” contractors by requiring all contractors that work in the residential home improvement area to register in a statewide database. The Act is designed to carry enforcement provisions and serve the purposes of protecting the public as well as legitimate contractors. It is expected that a form contract will be promulgated prior to the effective date of the Act. Highlighted points include:

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In 2006, the Superior Court of Pennsylvania and the Commonwealth Court of Pennsylvania issued decisions that may dramatically effect an injured party’s right to now recover economic (only) loss damages from “facility owners” in receipt of notices through Pennsylvania’s One Call Act and their failures to properly comply with the Act, and, “other professionals,” that are “in the business of supplying information” that provide false or inaccurate information when acting in compliance with the Act. The theory of recovery may differ between facility owner and a party that is a provider of information largely depending upon the status of the injured party and privity of contract or agreement, although the end result is the same--i.e., an aggrieved party may now be permitted to seek recovery for losses that are  purely economic that might otherwise have previously been precluded pursuant to the economic loss doctrine. 

The law, however, is far from settled. In fact, re-argument has been granted in that matter decided by Superior Court, now withdrawn and awaiting decision. Nevertheless, the cases are interesting from the standpoint of demonstrating both the courts trend of perhaps expanding the scope of recoverable economic damages, generally, where the actions sound in tort rather than contract law where privity of contract can not be established and more directly relating to actions maintained pursuant to the One Call Act. 

In the matter Excavation Technologies, Inc. v. Columbia Gas Company of Pennsylvania, (Pa. Super 2006)(re-argument granted - awaiting decision), the Superior Court permitted an excavator to seek recovery from a facility owner, and in this case, a utility company, for economic loss damages where a utility company allegedly marked several lines improperly, and, in some instances not at all. The utility company argued the excavator was precluded from maintaining an action because all of the damages were economic only and sounded only in tort, thus, were precluded pursuant to the economic loss doctrine where no privity of contract could be established. 

In its original holding, the Superior Court, relying upon Bilt-Rite Contractors, Inc. The Architectural Studio, 581 Pa. 454, 866 A.2d 270 (2005), reasoned that where information is negligently supplied by one in the business of supplying information, such as an architect, design professional, or in the instant action, a utility company, and where it is foreseeable that the information supplied will be relied upon by third persons, even absent privity of contract, a party may be held accountable for their consequences of a negligent failure to perform services in a competent fashion. The Court indicated that a duty exists to provide information accurately because parties justifiably rely upon information received from services required and provided pursuant to the One Call Act, and in fact, it is in the public’s interest for reporting companies to report accurately, the Court held that companies required to comply with the One Call Act are subject to negligent misrepresentation claims. 

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Allstate Insurance has lost a case in which it denied coverage to a Louisiana man who lost his home to Hurricane Katrina. The dispute centered around whether the home was destroyed by wind or storm surge. Storm surge damage was not covered by insurance, which resulted in a battle of the experts as to the cause of the home's destruction:

Jim Neva, a surveyor and engineer who inspected the house for Allstate, initially told Robert Weiss, who is listed as the policy holder, and his wife, Merryl, that wind may have destroyed the home before the surge of water washed away its remnants.

He later backed off that conclusion, however, and deferred to engineering consultant Craig Rogers of Rimkus Consulting Group. Rogers, who wrote the final report on the home for Allstate, convinced Neva that storm surge demolished the house.

Rogers said he didn't personally inspect the property until after he wrote the report. He said he based his conclusions in part on evidence gathered by other Rimkus engineers - a practice he described as common. But Trahant questioned the move.

"Why did Allstate elect to rely on the one engineer who never set foot on the property until long after he stamped his report?" Trahant said in closing arguments.

The $2.8 million verdict included a $1.5 million penalty for delay in payment of the claim.  The jury's decision, including the hefty penalty, will no doubt be closely analyzed by the insurance industry and plaintiff's bar in light of the numerous similar disputes pending in Lousiana and Mississippi.

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OSHA has set forth a standard that an employer shall insure that each employee uses protective footwear when working in areas where there is a danger of foot injuries due to falling or rolling objects, piercing the sole or where such employees feet are exposed to electrical hazards. Employers have frequently had questions over when safety shoes are required and who has to pay for them. Generally, it is believed that the OSHA standard will be interpreted with an eye towards the employer’s experience with foot injuries to determine whether there has been a history of foot injuries due to work-related accidents. Where the hazard is particularly great, a history of prior accidents may not be required. OSHA representatives have recently announced that they are “working on the standard to tighten it up,” presumably to create some certainty as to when protective footwear will be required in the workplace. 

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