When Does a Claim for Defective Work Arise?
Lee v. Prof’l Constr. Servs., 982 So. 2d 837 (La. Ct. App. 2008).
A Louisiana Court of Appeal barred a claim against an engineer because it was brought beyond the limitations of the statute of repose.
Plaintiffs sued the engineer for the improper design, fabrication, and construction of a radio communication antenna tower. The parties entered into the contract in 1998. Plaintiff discovered the alleged faults in 2005 and sued in 2006.
The statute limiting the timeframe within which a claimant may sue referred specifically to professional engineers. It was enacted in 2003. Plaintiffs first argued that a different statute applied to the contract in question. They claimed that the contract was one of warranty rather than one for engineering services and that a ten-year statute of repose period applied. The court disagreed. It found that the contract did not provide any guarantees by the engineer for his performance.
Next, plaintiffs argued that applying the 2003 statute to the contract retroactively would violate the
The court held the exception of preemption applied and dismissed plaintiffs’ claim.
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Commercial General Liability Insurance Carrier Did Not Cover Liability for Professional Services
Wimberly Allison Tong & Goo, Inc. v. Travelers Prop. Casualty Co. of Am., 559 F. Supp. 2d 504 (D.C. N.J 2008).
This case involved an architect who was sued by several parties who either sustained injuries or lost loved ones when a parking garage colapsed. Defendant, the architect, argued that its general commercial liability (GCL) insurance carrier and excess GCL insurance carrier had an obligation to defend under the architect's policy. The insurers, however, rejected the architect's claims, noting that the exclusion for liability resulting from professional services applies.
The architect's argument in support of his position that the exclusion was inapplicable was that plaintiff's causes of action for "nuisance" and "negligence" were something "other than professional services." Also, the architect stated plaintiff did not mark the "professional malpractice" when filling out the Civil Case Information Statement.
The New Jersey District Court rejected the architect's argument and found the "professional services" exclusion applicable. The court stated that the causes of action against the architect were not based on general business services, but on the particular professional services that fall under the policy exclusion. The insurance carriers had no duty to defend.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
A Surety's Potential Liability
RLI Ins. Co. v. Indian River School Dist., 556 F. Supp. 2d 356 (D. Del. 2008).
A surety was found responsible for a contractor’s financial obligations resulting from overpayment by owner. The owner made payments in reliance on payment applications submitted by the architect that did not reflect the actual construction progress. Upon learning of the nonconformity, the owner terminated the contractor.
The surety sued the architect, construction manager (CM), and the owner for negligent misrepresentation, seeking to avoid having to pay the owner. The court concluded that the presented facts warranted a judgment in defendants’ favor. It found that the surety did not have a claim against the architect and CM because there was neither a contract with them, nor an independent basis for a tort claim. The decision was affirmed on appeal.
The surety argued that the restatement of torts allowed an action against a defendant who supplies information to plaintiff for use in business transactions with others. The CM pointed out that the provision only applied to administrative, management and related services, which the CM did not provide. Also, the CM’s contract with the owner specified that there was no contract between CM and a third party dealing with the owner. The architect made the same arguments as the CM. The court further noted that the construction of the project, rather than the provision of information, was the purpose for which the architect and the CM were hired. The information was “incidentally supplied … as part of the project.”
In addition, the court noted that the owner was obligated under contract to pay the payment applications. The owner had acted in good faith and the surety had to pay even if the contract terms relating to payments had not been followed.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Scope of Contractors' General Liability Insurance
Auto Owners Insurance Co. v. Newman, a 2008 case in the South Carolina Court of Appeals, involved a commercial general liability (CGL) insurance policy issued to a contractor. The subcontractor in the case installed stucco siding defectively, which allowed water to seep into the home and cause damage. Consequently, the owner sued the contractor for breach of contract, breach of warranty, and negligence. The court sided with the owner. The contractor’s insurance provider, Auto Owners Insurance Company, then asked a court to declare that their policy did not cover the damages assessed against the contractor. The lower court disagreed and found that the insurance company had to pay the judgment against the contractor.
The CGL policy at issue was a standard Insurance Services Office (ISO) form. The policy covered injury or damage from an occurrence - an accident or continuous exposure. Because the insurer did not define the term “accident”, the court said it was an unexpected happening that harmed a person without that person intending such harm. The court also noted that only damage to the work itself (the stucco siding) and resulting from faulty workmanship is excluded from the CGL policy. Repeated water intrusion caused damage beyond the stucco itself; it damaged the exterior sheathing and wooden framing. Thus, the court said the water intrusion was a continuing harm and met the definition of “occurrence.”
The court further explained that the “your work” exclusion did not apply. A “your work” exclusion means that the policy will not cover property damage to a contractor's own work. However, the court noted that the "your work" exclusion does not apply if the damaged work or the work out of which the damage arises was performed on the contractor's behalf by the subcontractor.
Finally, the court stated that the CGL policy covered the stucco itself because the damaged substrate could not be fixed without removing the top layer. It seems that the carriers agree with the court’s findings or else they would change the policy forms.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Impact Claims Must Be Released Expressly
The United States Court of Federal Claims allowed a contractor to recover losses suffered due to over 200 contract modifications by the defendant, a government entity called the National Institutes of Health (NIH). Bell BCI Co. v. United States, No. 03-1613C (2006). The contractor, Bell BCI Company (“
The NIH contract changes added great cost and inefficiency to the project. One such change was the decision to add a whole another floor after the construction had already begun. NIH initially directed
Following the execution of Mod 93, NIH issued other changes, but did not authorize resources to speed up performance and avoid delays in schedule. Rather, NIH started withholding payments and threatened to charge
Upon completion of the project, Bell submitted to NIH a Request for Equitable Adjustment (REA) – a request that NIH pay for the additional cost born by Bell because of project modifications. NIH rejected the request and claimed liquidated damages and back charge claims – charges to make adjustments for previous transactions. The court found that NIH did not act in good faith and dealt unfairly in negotiating with
The court started its analysis by explaining that an impact claim covers the “cost of working less efficiently than planned” – in other words the cost for more difficult and expensive work. The damages claimed needed to be proven with reasonable certainty only, even if they were an approximation. The court interpreted the contract to provide for an equitable adjustment to the contractor if multiple changes affected the total cost.
NIH also claimed accord and satisfaction as a defense. That means NIH argued that
The government’s bad behavior throughout the project probably influenced the court’s decision. In conclusion, the opinion seemingly indicates that where a contract does not mention expressly that a contractor waives or promises not to raise an impact claim, the interpretation is that the contractor has not in fact waived that right.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
An Architect Could Enforce Copyrights Several Years after the Statute of Limitations Expired
In
The defendant in this case hired plaintiff, the architect, to design a veterinary hospital. According to Article 6 of the contract between them, the architect was to retain all rights to the plans and drawings prepared for the project. After the relationship between the two began to spoil, the architect filed a formal copyright application for his plans with the U.S. Copyright Office. The owner and the architect eventually signed a termination agreement that said Article 6 was still in effect. Also, the agreement prohibited the owner to use any work solely produced by the architect.
Four years after signing the termination agreement, the architect saw the floor plan of the veterinary hospital and realized his copyright had been infringed. He filed a copyright infringement suit against the owner six years later. The trial court sided with the owner and found that the architect should have known about the infringement for more than three years because any “reasonably diligent person” in the architect’s position would have found out about it. So the court charged the architect with knowledge for more than three years and said he sued the owner too late – the period during which he could sue had passed. The trial court also determined that the owner had no rights in the plans and drawings filed with the copyright office.
The architect appealed. The court of appeals disagreed with the trial court and found that the facts were insufficient to conclude that a reasonable person in the architect’s position would have known of the copyright infringement. For example, the owner had responded to the architect’s written warning not to use his work by saying the plans had been discarded. The court also rejected the owner’s argument that the word “solely” in the termination agreement gave the architect notice. The termination agreement did not authorize the owner to use any copyrighted work.
The court of appeals also rejected the owner’s claim that he had an interest in any of the copyrighted materials because it constituted work for hire. The contract must expressly state “work for hire” for such interest to exist.
Many owners draft contracts with hired professionals and include the “work for hire” language. An architect should strike the language “word for hire” and include appropriate language in the contract to preserve the architect's copyright interest in the documents. At most, an architect should share ownership with the owner and not to give ownership rights to standard forms that have been developed over years. If an architect gives up ownership to the owner, the architect should include a provision that requires the owner to pay for any losses that result from the use of the documents outside the uses provided in the contract.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Obtain a Subcontractor's Proof of Insurance for Each Job
In February, 2009, in Hardee v. McDowell, the South Carolina Supreme Court addressed a contractor's ability to shift liability under the South Carolina Uninsured Employer's Fund. The subcontractor worked on various job sites for the contractor. While the subcontractor presented the contractor with proof of insurance purporting to last a year, it turned out that the policy was cancelled a day before an employee was gravely injured.
The contractor sought reimbursement from the Uninsured Employer's Fund. The South Carolina Court of Appeals interpreted S.C. Code Section 42-1-415 to require a contractor to obtain proof of insurance from a subcontractor for each particular job for which the subcontractor is engaged to perform work.
The South Carolina Supreme Court affirmed, finding that a contractor must obtain proof of insurance for each job. In addition, the court clarified that a contractor must obtain proof of insurance every time the subcontractor is actually hired to perform work. Thus, if the contractor hires the subcontractor for a job in January, then for another one in February, the contractor must make sure the subcontractor has insurance coverage at the time of the February engagement.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Contractors, You Cannot Contract Out of Liability for Your Own Negligence
A general contractor may enforce an indemnification clause against its subcontractor for the damages attributable to that subcontractor's negligence.
In Brooks v. Judlau Contr., Inc., 2008 N.E.2d 549 (N.Y. 2008), the Court of Appeals of New York interpreted a New York statute that stated, in essence, that a promise related to a construction contract meant to hold the promisee (the one to whom the promise is being made) not liable for injuries resulting from the promisee's or the promisee's agents' negligence was against public policy.
An ironworker was injured when he grabbed onto a perimeter safety cable installed by the general contractor and the cable came lose causing the worker to fall 18 feet to the pavement below. The worker sued the contractor, and the contractor brought a third-party claim against the subcontractor seeking indemnification for the damages attributable to the subcontractor's negligence.
The agreement between the subcontractor and contractor contained a provision that, according to the subcontractor, violated the New York statute because it purported to relieve the contractor of liability. The Court of Appeals disagreed. It noted that the contract provision did not violate the statute because the contractor only sought indemnification for another's negligence, not for contractor's own fault. The subcontractor, therefore, was liable to the contractor for any damages the contractor may have to pay for that did not result from the contractor's negligence but from the negligence of the subcontractor.
See Section 33-2-10 of the South Carolina Code of Laws Annotated which, like the New York statute, renders unenforceable and against public policy any attempts of avoiding liability for one own's negligence.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Employers, Keep in Mind Possible OSHA Inspections
Employers should be prepared for a possible workplace inspection by the Occupational Safety and Health Administration (OSHA). An inspection may be conducted because of a complaint, fatality in the facility, a scheduled inspection, or a follow-up visit.
Violations vary depending on the nature of the operations. Common violations include machine guarding, lockout/tagout, ladders and scaffolding, hazardous chemicals, and electrical safety. Even if an inspection is limited to the area, it can be expanded if the inspectors find something inside.
The OSHA inspection has four steps. First, the employer and the inspector have an opening conference. The inspector provides a copy of the complaint, if any, but cannot mention the name of the employee who submitted it. The parties discuss the inspection process and relevant information. If lying, an employer can be subject to a fine up to $10,000 and up to a year in jail.
Then, the inspector asks to see the OSHA 300 Log and all other forms pertaining to accidents and other safety problems. Next, for the walk-through, the inspector and his assistants must wear the required
Fix any hazard that the inspector notes, even if it does not violate OSHA regulations. The company may refuse to let the inspector see machinery in operation. But it is better to allow such observation unless it is unsafe or out for repair. Keep all documentation of the walk-through.
Finally, the closing conference reviews violations and suggests correction methods. The company has the opportunity to defend itself then.
All requirements that an employer must meet are set forth in the Occupational Safety and Health Act ("Act"). The agency has compiled a OSHA Checklist for the Construction Industry to aid employers in complying with the Act. A company prepared for an inspection will be less worried about when OSHA might show up.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Contractors, Consider Upgrading Your License Over Risking Disciplinary Action
In South Carolina, general and mechanical contractors have limitations on the amount of money a project they undertake may cost, unless the contractors qualify for the unlimited group. The limit is calculated based on the licensee's net worth. There are five groups of limitations for mechanical and general contractors respectively. The groups range from limitations of up to $30,000 to unlimited cost on projects.
The limit refers to the total cost of construction: all cost incurred by the owner, all contractors, subcontractors, and other parties, for labor, materials, equipment, and other expenses. Design expenses will only be included if the construction contract expressly includes them. The same rules apply to the cost of mechanical contractors.
As a contractor, if you have a limited license you should be very careful. Unexpected additions to cost are not uncommon in the course of construction. Such increases could significantly exceed the licensee's limitation, which may lead to disciplinary action by the Contractors' Licensing Board. Consider upgrading your licenses instead of taking such risk. The form for upgrading your license is available at http://www.llr.state.sc.us/pol/contractors/Forms/DOC180T.dot.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
