State ex rel. Stephan v. GAF Corp.
| Decision Date | 23 April 1987 |
| Docket Number | No. 58501,58501 |
| Citation | 12 Kan.App.2d 123,736 P.2d 465 |
| Parties | STATE of Kansas, ex rel. Robert T. STEPHAN, Attorney General, Plaintiff- Appellee, v. GAF CORPORATION, Defendant-Appellant, and W.R. Grace & Co., et al., Defendants. |
| Court | Kansas Court of Appeals |
Syllabus by the Court
1. In order to prove fraudulent concealment or fraud through silence, the plaintiff must establish that the information withheld by the defrauding party was a known material fact and that the plaintiff's reliance on the defrauding party was reasonable.
2. Standing alone, PIK Civ.2d 14.42 (1986 Supp.) fails to state all the elements necessary to prove fraud by silence as discussed in the opinion.
Jerry D. Bogle, of Gott, Young & Bogle, P.A., Wichita, for defendant-appellant.
William E. Enright, of Scott, Quinlan & Hecht, Topeka, for plaintiff-appellee.
Before BRISCOE, P.J., PARKS, J., and PORTER K. BROWN, District Judge, assigned.
The plaintiff, State of Kansas, initiated this action against GAF Corporation and several other defendants after a roof constructed on a building at the Kansas Neurological Institute (K.N.I.) was found to be defective. Prior to trial, all defendants except GAF settled with the State. The suit against GAF proceeded to jury trial on the State's claims for breach of express warranty, negligence, and fraud. The jury returned a verdict for the plaintiff for $100,705.42 in actual damages and $1,000,000 punitive damages. GAF appeals.
In 1972, the plaintiff began planning the construction of a building at K.N.I. known as the Flint Hills Lodge (Lodge). The state architect in charge of the project specified the roof would consist of a structural concrete roof deck covered by a lightweight insulating concrete called Zonolite which was in turn covered by a built-up roof membrane manufactured by GAF. Zonolite is manufactured by W.R. Grace & Company (Grace) and the specifications prepared by both Grace and GAF regarding their respective roofing products indicate that the two substances may be used together over structural concrete.
The construction of the Lodge was undertaken with Lee & Bueltel Construction Company, Inc., acting as general contractor and Jack Rinehart, d/b/a Rinehart Roofing Co., winning the roofing subcontract. The roof was constructed according to the plans and the GAF membrane was applied in conformity with the manufacturer's specifications. GAF made an on-site progress inspection of the built-up roof membrane on October 15, 1974, and the installation was completed on April 28, 1975. Following Rinehart's application for a guarantee on the membrane, GAF made a final inspection on April 20, 1976, and issued its written guarantee on May 6. This guarantee provided that the roofing membrane and base flashing were guaranteed for ten years against leaks caused by various circumstances. GAF promised to make any necessary repairs free of charge with exclusions for leaks caused by structural failures in the base or insulation over which the GAF membrane was applied. The guarantee also included the proviso that the owner must give written notice of any leaks to GAF's nearest district office within 30 days of discovery. The application for the guarantee executed by Rinehart included the following provision:
"In consideration of the Guarantee to be furnished by GAF on the GAF Built-Up Roof applied by the undersigned to the premises as described above, the undersigned roofing contractor agrees that in the event GAF, within a period of two (2) years from date of completion of the roof, is called upon to make any repairs under the Guarantee issued by GAF and which covers the above roof, the undersigned will, at its own expense, investigate any report of leaks, make all necessary repairs if repairs are required and directed by GAF, cut and repair as directed by GAF any blisters or buckles and if the trouble is not due to defects in the roof, the undersigned will use its best efforts to satisfy the owner to that effect."
The roof began leaking shortly after it was completed, but, throughout 1975 and 1976, all leaks were reported directly to Rinehart. Rinehart responded by making repairs free of charge on five or six occasions. GAF received written notice of the leaking in February 1977 and, at GAF's request, Rinehart completed additional repairs. The problems of the leaky roof continued unabated so that water literally poured into the Lodge, causing extensive interior damage and considerable inconvenience. By the latter part of 1977, Rinehart concluded that the roof could not be repaired and would have to be replaced. Various GAF personnel inspected the roof and, after observing cracks in the Zonolite substrate coinciding with the leaks in the membrane, concluded the leaks were not caused by a defect in the membrane and, thus, were not covered by the guarantee. GAF refused to accept responsibility for the leaky roof and the plaintiff decided a new roof would have to be constructed.
Vincent Roofing Co. contracted to make temporary repairs and ultimately to construct a new roof for the Lodge. Plaintiff claimed the following damages as a result of the leaking and repair:
Emergency Roof Repairs $ 6,265.92
Architects' Fees for Reroofing 3,669.50
Reroofing 109,600.00
Interior Damage 20,000.00
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TOTAL $139,535.42
Plaintiff filed suit against all parties connected with the roof construction including GAF, Grace, Lee & Bueltel Construction, and Jack Rinehart, since there was considerable controversy over the cause of the roof failure. However, in February 1984, plaintiff took the deposition of William Barnett, a retired GAF employee. Barnett's testimony indicated that GAF had been concerned since 1974 with the high rate of failure among roofs in which the GAF membrane was used over Zonolite. Barnett stated that the GAF personnel responsible for drafting the specifications controlling the use of the GAF membrane became convinced in the mid-70's that the membrane should not be used over lightweight concrete decks and consequently scaled back to minimal the specifications detailing the manner of using the GAF product in such a fashion. Barnett testified that protests from Grace concerning this abandonment of their product caused GAF to reinsert endorsing provisions in the GAF specifications in fear of a lawsuit by Grace.
After filing a motion to amend its petition to state a cause of action for fraud against GAF based on the deposition testimony of Barnett, plaintiff reached settlement with all of the other defendants. The amended petition was permitted and the trial proceeded with GAF as the only defendant. GAF basically denied any responsibility for the faulty roof, contending that leaks in its membrane were caused by cracks in the Zonolite which were in turn caused by excessive moisture in the Zonolite. GAF sought to shift blame principally to Grace contending Grace knew that use of its product over structural concrete did not allow sufficient venting to permit the Zonolite to dry. Defendant denied any fraud by its actions and contended that it was not until 1977 that the GAF personnel responsible for specifications decided the use of the GAF membrane over Zonolite should be severely restricted. Plaintiff relied on the testimony of Barnett concerning the state of GAF's knowledge. Plaintiff also presented expert testimony that the leaks in the Lodge roof were caused by the low tensile strength of the GAF membrane and were unconnected to the cracks in the Zonolite.
The jury returned a verdict on special questions finding defendant guilty of breach of its express warranty, negligence, and fraud. The jury concluded defendant was 70% at fault for the damages sustained by plaintiff and found total damages of $100,705.42. Since the jury also found defendant's conduct to have been fraudulent, it concluded plaintiff was entitled to punitive damages of $1 million. Defendant challenges various facets of the resulting judgment.
The two instructions given by the trial court on fraud were taken from PIK Civ.2d 14.40 and 14.42. Instruction No. 4 (14.40) states the elements of active fraud or misrepresentation while Instruction No. 5 (14.42) describes fraudulent concealment as follows:
1. That false (or untrue) representations were made as a statement of existing and material fact.
2. That the representations were known to be false (or untrue) by the party making them, or were recklessly made without knowledge concerning them.
3. That the representations were intentionally made for the purpose of inducing another party to act upon them.
4. That the other party reasonably relied and acted upon the representations made.
5. That the other party sustained damage by relying upon them.
1. The defendant has knowledge which plaintiff did not have and which the plaintiff could not have discovered by the exercise of reasonable diligence;
2. The defendant was under an obligation to communicate the true state of facts to the plaintiff;
3. The defendant intentionally failed to communicate to plaintiff the true state of facts;
4. The plaintiff relied upon the defendant to communicate the true state of facts to him; and
5. The plaintiff sustained damages as a result of the defendant's failure to communicate this to the plaintiff."
During deliberations, the jury asked the following question: "In order to find fraud by silence do all five items on page 4 and all items on page 5 need to be present[...
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