Liquidated Damages: A Dangerous Afterthought
January 15, 2019 —
Trevor B. Potter - Construction ExecutiveOwners and contractors frequently treat liquidated damages provisions as an afterthought, but they deserve to be treated as a key deal term. If a contractor breaches a contract by failing to complete the work in a timely manner, the remedy is typically an agreed upon amount or rate of liquidated damages.
Liquidated damages provisions seldom get more than a cursory, “back of the napkin” analysis, or worse, parties will simply plug in a number. This practice is dangerous because liquidated damages typically represent the owner’s sole remedy for delay and, more importantly, they are subject to attack and possible invalidation if certain legal standards are not met. The parties to a construction contract should never agree to an amount of liquidated damages without first attempting to forecast and calculate actual, potential damages.
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Trevor B. Potter, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.
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Avoid the Headache – Submit the Sworn Proof of Loss to Property Insurer
September 28, 2020 —
David Adelstein - Florida Construction Legal UpdatesProperty insurance policies (first party insurance policies) contain post-loss obligations that an insured must (and should) comply with otherwise they risk forfeiting insurance coverage. One post-loss obligation is the insurer’s right to request the insured to submit a sworn proof of loss. Not complying with a post-loss obligation such as submitting a sworn proof of loss can lead to unnecessary headaches for the insured. Most of the times the headache can be avoided. Even with a sworn proof of loss, there is a way to disclaim the finality of damages and amounts included by couching information as estimates or by affirming that the final and complete loss is still unknown while you work with an adjuster to quantify the loss. The point is, ignoring the obligation altogether will result in a headache that you will have to deal with down the road because the property insurer will use it against you and is a headache that is easily avoidable. And, it will result in an added burden to you, as the insured, to demonstrate the failure to comply did not actually cause any prejudice to the insurer.
By way of example, in Prem v. Universal Property & Casualty Ins. Co., 45 Fla. L. Weekly D2044a (Fla. 3d DCA 2020), the insured notified their property insurer of a plumbing leak in the bathroom. The insurer requested for the insured to submit a sworn proof of loss per the terms of the insured’s property insurance policy. The insurer follow-up with its request for a sworn proof of loss on a few occasions. None was provided and the insured filed a lawsuit without ever furnishing a sworn proof of loss. The insurer moved for summary judgment due the insured’s failure to comply with the post-loss obligations, specifically by not submitting a sworn proof of loss, and the trial court granted the insurer’s motion. Even at the time of the summary judgment hearing, the insured still did not submit a sworn proof of loss.
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David Adelstein, Kirwin Norris, P.A.Mr. Adelstein may be contacted at
dma@kirwinnorris.com
Retaining Wall Contractor Not Responsible for Building Damage
July 20, 2011 —
CDJ STAFFThe Court of Appeals of Indiana ruled on July 8 in the case of Rollander Enterprises, Inc. v. H.C. Nutting Co. Judge Baily wrote the opinion affirming the decision of the trial court.
The case involved an unfinished condominium complex, the Slopes of Greendale, in Greendale, Indiana. Rollander is a real estate development company incorporated in Ohio. One of the issues in the case was whether the case should be settled in the Indiana courts or be tried in Ohio. The project was owned by a special purpose entity limited liability corporation incorporated in Indiana.
Rollander hired Nutting to determine the geological composition of the site. Nutting’s report described the site as “a medium plastic clay containing pieces of shale and limestone.” The court summarized this as corresponding with “slope instability and landslides.” Rollander then hired Nutting to design the retaining walls, which were constructed by Scherziner Drilling.
After cracking was discovered on State Route 1, the walls were discovered to be inadequate. More dirt was brought in and a system of tie-backs was designed to anchor the walls. Not only were the tie-backs unsightly, local officials would not approve the complex for occupancy. Further, the failure of the wall below one building lead to damage of that building.
The court concluded that since almost all events occurred in Indiana, they rejected Rollander’s contention that the case should be tried in Ohio. Further, the court notes “the last event making Nutting potentially liable on both claims was an injury that occurred in Indiana and consequently, under the lex loci delicti analysis, Indiana law applies.”
Nor did the court find that Nutting was responsible for the damage to the rest of the project, citing an Indiana Supreme Court ruling, that “there is no liability in tort to the owner of a major construction project for pure economic loss caused unintentionally by contractors, subcontractors, engineers, design professionals, or others engaged in the project with whom the project owner, whether or not technically in privity of contract, is connected through a network or chain of contracts.”
The court concluded:
Because Rollander was in contractual privity with Nutting, and Indy was connected to Nutting through a chain of contracts and no exception applies, the economic loss rule precludes their recovery in tort. Damage to Building B was not damage to "other property," and the negligent misrepresentation exception to the economic loss rule is inapplicable on these facts. The trial court therefore did not abuse its discretion by entering judgment on the evidence in favor of Nutting on the Appellants' negligence and negligent misrepresentation claims.
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How Small Mistakes Can Have Serious Consequences Under California's Contractor Licensing Laws.
February 15, 2018 —
Eric Reed - Myers, Widders, Gibson, Jones & Feingold, LLPIn construction, some risks have nothing to do with how well a contractor executes a project. Licensing problems is one of these risks. Even a brief lapse caused by an unintentional administrative error can give the CSLB grounds to discipline a contractor, or enable a customer to seek disgorgement and other remedies provided by Business and Professions Code section 7031. This article discusses five tips for mitigating the liabilities associated with licensing problems.
Tip 1: Take workers' compensation insurance very seriously. Workers’ compensation insurance problems can trigger license suspension in California. Business and Professions Code section 7125.4 calls for automatic suspension if a contractor cannot provide proof of workers’ compensation insurance for any period of time. This is particularly serious for residential remodelers who claim exemption for workers’ compensation but are later discovered – usually during litigation with a homeowner – to have “off the books” workers helping them. Courts can declare the contractor retroactively unlicensed under these circumstances and order it to disgorge,
i.e., to pay back, every penny paid by the customer for the entire project (even for materials). (Bus. & Prof. Code, § 7031, subd. (b);
Wright v. Issak (2007) 149 Cal.App.4th 1116.) The contractor will also find itself unable to collect any amounts owed to it by the customer. (Bus. & Prof. Code, § 7031, subd. (a).)
Tip 2: Watch out for licensing confusion after a merger or acquisition. The economic downturn of 2008 and 2009 resulted in consolidation throughout the building industry. The newly merged or acquired entities often allowed redundant licenses to expire, assuming they could complete all pending projects under the umbrella of the acquiring company's license. Many learned this was a mistake the hard way. Armed with the California Supreme Court's opinion in
MW Erectors, Inc. v. Niederhauser Ornamental & Metal Works Co., Inc. (2005) 36 Cal.4th 412, customers began refusing to pay invoices and demanding disgorgement under Business and Professions Code section 7031 because the original contractor did not maintain licensure “at all times.” Many of these customers succeeded.
Tip 3: If a license suspension has occurred or is imminent, prepare to prove substantial compliance. Section 7031(a) and (b) give a disgruntled or indebted customer every incentive to capitalize on a contractor's licensing problems. Subdivision (e) is where a contractor must turn to protect its interests if this happens. It allows the contractor to prove “substantial compliance” with licensing requirements and avoid (a)’s and (b)’s sharp edges if it can show the following:
(1) The contractor “had been duly licensed as a contractor in this state prior to the performance of the act or contract”;
(2) It “acted reasonably and in good faith to maintain proper licensure”; and
(3) It “acted promptly and in good faith to remedy the failure to comply with the licensure requirements upon learning of the failure.”
The Court of Appeal confirmed in
Judicial Council of California v. Jacobs Facilities, Inc. (2015) 239 Cal.App.4th 882 that a contractor, upon request, is entitled to a hearing on these three factors before it is subjected to disgorgement under Section 7031(b). The legislature amended Section 7031 shortly after the Court of Appeal published this case. The Assembly’s floor analysis went so far as to directly quote the opinion’s observation that penalizing a construction firm for “technical transgressions only indirectly serves the Contractors Law’s larger purpose of preventing the delivery of services by unqualified contractors.” (Assem. Com. on Bus. and Prof., Off. of Assem. Floor Analyses, analysis of Sen. Holden's No. 1793 (2015-2016 Reg. Sess.) as amended August 2, 2016, p. 2.) This echoed an industry consensus that clarifying the law was needed to ensure that properly licensed and law-abiding construction firms were not “placed at fatal monetary risk by malicious lawsuits motivated by personal gain rather than consumer protection.” (Assem. Com. on Judiciary, com. on Assem. Bill No. 1793 (2015-2016 Reg. Sess.), pp. 6-7.)
Unfortunately, existing law does not give many examples of what it means to act “reasonably and in good faith to maintain proper licensure” or to act “promptly and in good faith” to fix license problems. A practical approach is for a contractor to work backwards by assuming it will need to prove substantial compliance at some point in the future. Designated individuals within the organization should have clear responsibility over obtaining and renewing the proper licenses and should keep good records. If necessary, these designees can testify about the contractor's internal policies and their efforts to fix licensing problems when they arose. For example, if the suspension resulted from not providing the CSLB proof of workers’ compensation insurance, the designee can testify about the cause (a broker miscommunication, transmission error,
etc.) and produce documents showing how he or she worked promptly to procure a certificate of insurance to send CSLB. Saved letters, emails, and notes from telephone calls will provide designees and their successors with an important resource months or years down the line if a dispute arises and the contractor is required to reconstruct the chronology of a licensing glitch and prove its due diligence.
Tip 4: Don't sign new contracts unless all necessary licenses are active and any problems are resolved. A recently-formed contractor should not begin soliciting and signing contracts until all required licenses are confirmed as “active.” The first requirement of substantial compliance – being “duly licensed as a contractor in this state prior to the performance of the act or contract” – cannot be met by a contractor that first obtains its license mid-project. (Bus. & Prof. Code, § 7031, subd. (e)(1);
Alatriste v. Cesar’s Exterior Designs (2010) 183 Cal.App.4th 656.) A licensed contractor should also consider refraining from signing new contracts if there is any reason to believe its license might be suspended in the near future – especially if the suspension will be retroactive. Having a suspension on record at the time of contracting may complicate the question of whether the contractor was “duly licensed . . . prior to performance” for the purposes of substantial compliance.
Tip 5: Any judgment against a contractor can cause license suspension if not handled promptly and correctly. The Business and Professions Code authorizes the CSLB to suspend the license of a contractor that does not pay a construction related court judgment within 90 days. The term “construction related” is interpreted to include nearly all types of disputes involving a contractor. (16 Cal. Code Reg. 868;
Pacific Caisson & Shoring, Inc. v. Bernards Bros. Inc. (2015) 236 Cal.App.4th 1246, 1254-1255.) This means a contractor should treat a judgment against it for unpaid office rent, for example, as one carrying the same consequences as one arising from a construction defect or subcontractor claim. The contractor should also not assume that filing an appeal, or agreeing with the other side to stay enforcement, automatically excuses the 90-day deadline in the eyes of the CSLB. It does not. A contractor must notify the CSLB in writing before this period expires, then post bond for the amount of judgment, if it wishes to delay payment for any reason. (Bus. & Prof. Code, § 7071.17, subd. (d).) A suspension may result if it does not. This applies even to small claims judgments.
Recent case law and the 2016 amendments to Business and Professions Code section 7031 provide some solace to those caught in the dragnet of California's licensing laws. But avoiding these problems altogether is preferable. Consider licensing the foundation of a successful business and deserving of the same attention as the structures a contractor builds.
Eric R. Reed is a business and insurance litigator in the Ventura office of Myers, Widders, Gibson, Jones & Feingold, LLP.
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Eric Reed, Myers, Widders, Gibson, Jones & Feingold, LLPMr. Reed may be contacted at
ereed@mwgjlaw.com
Construction Defect Leads to Death of Worker
January 28, 2013 —
CDJ STAFFThe family of a Florida man has received $2.4 million in damages as a result of his death. Victor Lizarraga was killed when a steel column fell due to the anchor bolts being improperly secured. The general contractor on the project, R. L. Haines, told subcontractors that the epoxy had sufficient time to cure. An OSHA investigation determined that the epoxy was not used properly. Mr. Lizarraga worked for a subcontractor on the project.
Mr. Lizarraga and his coworkers were hired to erect steel columns. The epoxy failed, sending a 1,750-pound column down onto Mr. Lizarraga. According to the lawsuit, "due to the sudden and unexpected nature of this incident Mr. Lizarraga had no ability, opportunity or time to get out of the way of the falling column."
Other parties in the lawsuit settled with the family. R. L. Haines was the only defendant to go to a jury trial.
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OSHA Issues COVID-19 Guidance for Construction Industry
July 13, 2020 —
Garret Murai - California Construction Law BlogThis past month, after remaining relatively quiet following the coronavirus outbreak, OSHA began issuing industry-specific guidance on how to deal with the coronavirus in the workplace.
Until this month, the only construction industry specific guidance issued by OSHA was an OSHA Alert entitled COVID-19 Guidance for the Construction Workforce, a one page document providing little more guidance than that workers should stay home if sick, wear masks and frequently wash hands to prevent spreading and catching the coronavirus, and to sanitize tools and work areas.
Early this month, OSHA issued more comprehensive guidance for the construction industry. The guidance, as noted in the preface by OSHA is simply guidance, “is not a standard or regulation” and “creates no legal obligations. The guidance supplements general guidance applicable to all workplaces issued earlier by OSHA.
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Garret Murai, Nomos LLPMr. Murai may be contacted at
gmurai@nomosllp.com
Pollution Exclusion Does Not Apply To Concrete Settling Dust
November 28, 2018 —
Tred R. Eyerly - Insurance Law HawaiiApplying Virginia law, the federal district court determined that the pollution exclusion did not bar coverage. Allied Prop. & Cas. Ins. Co. v. Zenith Aviation, Inc., 2018 U.S. Dist. LEXIS 14727 (E.D. Va. Aug. 29, 2018).
Zenith Aviation, Inc. hired Abby Construction Company to install an elevator at its warehouse. A wet saw was used to cut away concrete, but Abby did not use any water with the wet saw. This created a significant amount of concrete dust to leave the warehouse. Surrounding businesses contacted the fire department because they thought the dust was smoke from a fire. The concrete dust settled inside Zenith's building, damaging airplane parts stored in the warehouse.
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Tred R. Eyerly, Damon Key Leong Kupchak HastertMr. Eyerly may be contacted at
te@hawaiilawyer.com
$24 Million Verdict Against Material Supplier Overturned Where Plaintiff Failed to Prove Supplier’s Negligence or Breach of Contract Caused an SB800 Violation
November 21, 2017 —
Jon A. Turigliatto, Esq. & Chelsea L. Zwart, Esq. – Chapman Glucksman Dean Roeb & Barger BulletinOriginally published by CDJ on March 16, 2017
Acqua Vista Homeowners Assoc. v. MWL Inc. (2017) 2017 WL 371379
COURT OF APPEAL EXTENDS GREYSTONE HOMES, INC. v. MIDTEC, INC., HOLDING THAT CIVIL CODE §936 CREATES A NEGLIGENCE STANDARD FOR CLAIMS AGAINST MATERIAL SUPPLIERS BROUGHT UNDER SB800.
The Fourth District California Court of Appeal recently published its decision Acqua Vista Homeowners Assoc. v. MWI, Inc. (2017) 2017 WL 371379, holding that claims against a material supplier under SB800 (Civil Code §895 and §936) require proof that the SB800 violation was caused by the supplier's negligence or breach of contract.
Civil Code §936 states in relevant part, that it applies "to general contractors, subcontractors, material suppliers, individual product manufacturers, and design professionals to the extent that the general contractors, subcontractors, material suppliers, individual product manufacturers, and design professionals caused, in whole or in part, a violation of a particular standard as the result of a negligent act or omission or a breach of contract .... [T]he negligence standard in this section does not apply to any general contractor, subcontractor, material supplier, individual product manufacturer, or design professional with respect to claims for which strict liability would apply."
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Jon A. Turigliatto, Esq., Chapman Glucksman Dean Roeb & Barger and
Chelsea L. Zwart, Esq., Chapman Glucksman Dean Roeb & Barger
Mr. Turigliatto may be contacted at jturigliatto@cgdrblaw.com
Ms. Zwart may be contacted at czwart@cgdrblaw.com
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