Depreciating Labor Costs May be Factor in Actual Cash Value
April 20, 2016 —
Tred R. Eyerly – Insurance Law HawaiiThe Minnesota Supreme Court considered a certified question from the the U.S. District Court regarding consideration of depreciating labor costs in determining the actual cash value of a loss. Wilcox v. State Farm Fire & Cas. Co., 2016 Min. LEXIS 50 (Minn. Feb. 10, 2016).
The insureds' home was damaged by hail. State Farm provided a written estimate that calculated the actual cash value of the loss. To estimate the actual cash value of the damaged property, State Farm first calculated the replacement costs of individual items, such as roof flashing, siding, fascia, gutters, and window screens. Next, State Farm subtracted the pre-loss depreciation of some, but not all, individual items. For example, State Farm depreciated the cost of removing and replacing certain materials, such as siding. State Farm did not depreciate the cost of the new siding separately from the cost of the labor required to install the new siding on the home. Instead, State Farm calculated the removal and replacement of the siding as a single cost, then depreciated the removal-and-replacement cost as a whole. The cost of labor to repair or replace the damaged property was referred to by the court as "embedded labor costs."
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
DoD Issues Guidance on Inflation Adjustments for Contractors
August 15, 2022 —
Jennifer Harris & Abby Salinas - ConsensusDocsThe Department of Defense (“DoD”) recently issued a memorandum to contracting officers (“COs”) guiding the use of economic price adjustment (“EPA”) clauses to address inflation-related cost increases. The memorandum, entitled Guidance on Inflation and Economic Price Adjustments, comes as the year-over-year inflation rate rose to 8.6% in May, and contractors with fixed-price contracts seek ways to recover their rising costs. EPA clauses allow the parties to mitigate cost risks that present themselves as a result of circumstances beyond the contractor’s control, e.g., inflation and supply chain price fluctuations. Generally, an EPA clause will dictate that the Government bear the cost risk up to a mutually agreed-upon ceiling. EPA clauses apply to the cost portion of a contract, but do not normally apply to the profit. DFARS PGI 216.203-4.
Memorandum: No CO Authority to Grant Contractual Relief Absent an EPA Clause
The memorandum states that absent an existing EPA clause, COs do not have the authority to provide contractual relief for unanticipated inflation under a firm-fixed-price contract.
Reprinted courtesy of
Jennifer Harris, Peckar & Abramson, P.C. (ConsensusDocs) and
Abby Salinas, Peckar & Abramson, P.C. (ConsensusDocs)
Ms. Harris may be contacted at jharris@pecklaw.com
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Killer Subcontract Provisions
January 20, 2020 —
Patrick McNamara - Porter Law GroupWe are frequently requested by subcontractor clients to review the subcontract that has been prepared by the prime contractor, before our client signs it. While no two agreements are identical, there are a number of problematic contract provisions that appear in many agreements. Here is a list of ten such provisions (and their variations) that are potential “deal breakers”:
- PAY IF/WHEN PAID (e.g. “Contractor shall have the right to exhaust all legal remedies, including appeals, prior to having an obligation to pay Subcontractor.”) “Pay-if-paid” provisions (“Receipt of payment from Owner shall be a condition precedent to Contractor’s duty to pay Subcontractor”) are illegal in California. However, the only legal limit on “Pay-When-Paid” provisions is that payment must be made “within a reasonable time.” The example above, as written, essentially affords the prime contractor a period of several years following completion of the project before that contractor has an independent duty to pay its subcontractors – not a “reasonable” amount of time, to those waiting to be paid. A compromise is to provide a time limit, such as 6 months or one year following substantial completion of the project.
- CROSS-PROJECT SET-OFF (e.g. “In the event of disputes or default by Subcontractor, Contractor shall have the right to withhold sums due Subcontractor on this Project and on any other project on which Subcontractor is performing work for Contractor.”) Such provisions are problematic and likely unenforceable, as they potentially bar subcontractors’ lien rights. Such provisions should be deleted.
- CONTRACTOR/SUBCONTRACTOR RESPONSIBILITY FOR DESIGN QUALITY (e.g. “Subcontractor warrants that the Work shall comply with all applicable laws, codes, statutes, standards, and ordinances.”) Unless a subcontractor’s scope of work expressly includes design work, this provision should either be deleted or modified, with the addition of the following phrase: “Subcontractor shall not be responsible for conformance of the design of its work to applicable laws, codes, statutes, standards, and ordinances.”
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Patrick McNamara, Porter Law GroupMr. McNamara may be contacted at
pmcnamara@porterlaw.com
Montrose Language Interpreted: How Many Policies Are Implicated By A Construction Defect That Later Causes a Flood?
March 17, 2011 —
Shaun McParland BaldwinThe Court of Appeals of Indiana recently addressed the “Montrose” language added to the CGL ISO form in 2001 in the context of a construction defect claim where a fractured storm drain caused significant flooding a year after the drain was damaged. The insuring agreement requires that “bodily injury” or “property damage” be caused by an “occurrence” and that the “bodily injury” or “property damage” occur during the policy period. The Montrose language adds that the insurance applies only if, prior to the policy period, no insured knew that the “bodily injury” or “property damage” had occurred in whole or in part. Significantly, it also states that any “bodily injury“ or “property damage” which occurs during the policy period and was not, prior to the policy period known to have occurred, includes a continuation, change or resumption of that “bodily injury” or “property damage” after the end of the policy period.
In Grange Mutual Cas. Co. v. West Bend Mut. Ins. Co., No. 29D04-0706-PL-1112 (Ct. App. IN March 15, 2011), http://www.ai.org/judiciary/opinions/pdf/03151109ehf.pdf, Sullivan was the General Contractor for a school construction project. Its subcontractor, McCurdy, installed the storm drain pipes. One of the storm pipes was fractured in 2005 while McCurdy was doing its installation work. More than a year later, the school experienced significant water damage due to flooding. It was later discovered that the flooding was due to the fractured storm drain. Sullivan’s insurer paid $146,403 for the water damage. That insurer brought a subrogation claim against McCurdy and its two insurers: West Bend and Grange. West Bend had issued CGL coverage to McCurdy while the construction was ongoing , including the date in which the storm pipe was fractured. Grange issued CGL coverage to McCurdy at the time of the flooding. Those two carriers jointly settled the subrogation claim and then litigated which insurer actually owed coverage for the loss. Significantly, the loss that was paid included only damages from the flooding, not any damages for the cost of repairing the pipe.
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Reprinted courtesy of Shaun McParland Baldwin of Tressler LLP. Ms Baldwin can be contacted at sbaldwin@tresslerllp.com
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Application of Frye Test to Determine Admissibility of Expert
April 03, 2019 —
David Adelstein - Florida Construction Legal UpdatesFlorida went back to the Frye test/standard, instead of the Daubert test utilized in federal court, to determine the admissibility of expert testimony. The Frye test is more favorable to plaintiffs because it applies when an expert renders an opinion based on new or novel scientific principles. See D.R. Horton, Inc. v. Heron’s Landing Condominium Ass’n of Jacksonville, Inc., 44 Fla.L.Weekly D109b (Fla. 1st DCA 2018) (“The supreme court has described the Frye test as one in which the results of mechanical or scientific testing are not admissible unless the testing has developed or improved to the point where the experts in the field widely share the view that the results are scientifically reliable as accurate. Stated differently, under Frye, the proponent of the evidence has the burden of establishing by a preponderance of the evidence with the general acceptance of the underlying scientific principles and methodology. However, as stated, the Frye standard only applies when an expert attempts to render an opinion that is based upon new or novel scientific principles.”).
In D.R. Horton, Inc., a condominium association sued the developer and general contractor (same entity) for construction defects that included claims in negligence, violation of building code, and breach of statutory warranties. The developer/general contractor moved in limine / to strike the association’s experts under, at the time, a Daubert analysis, but which became a Frye analysis during the pendency of the appeal. The expert opined as to construction defects and damage and the appropriate repairs – really, no different than any construction defect dispute, from what it appeared. The trial court denied the motion and during trial the experts testified and a sizable damages judgment was entered against the developer/contractor prompting the appeal. One issue on appeal was the admissibility of the expert’s opinion. The appellate court noted that a Frye analysis is not necessary because the experts used a scientifically reliable and peer-reviewed methodology.
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David Adelstein, Kirwin NorrisMr. Adelstein may be contacted at
dma@kirwinnorris.com
Alabama Supreme Court Reverses Determination of Coverage for Faulty Workmanship
August 26, 2019 —
Tred R. Eyerly - Insurance Law HawaiiAlthough the lower court held that the insured contractor was entitled to coverage and indemnification under a CGL policy despite claims based upon faulty workmanship, the Alabama Supreme Court reversed. Nationwide Mut. Fire Ins. Co. v. David Group, Inc., 2019 Ala. LEXIS 52 (Ala. May 24, 2019).
The David Group (TDG) specialized in custom-built homes. The Shahs purchased a newly built home from TDG in October 2006. After moving in, the Shahs experienced problems with their new home that TDG was unable to correct. In February 2008, the Shahs sued TDG. The complaint alleged that serious defects existed, resulting in health and safety issues, building code violations, poor workmanship, misuse of construction materials, and disregard of property installation methods. The case went to arbitration and an award of $12,725 was issued to the Shahs.
Nationwide was TDG's CGL carrier and initially defended TDG. After Nationwide withdrew its defense, TDG sued seeking a judgment declaring that Nationwide was obligated to defend and indemnify. The trial court denied Nationwide's motion for summary judgment and issued a partial summary judgment in favor of TDG on the issue of coverage. Nationwide appealed.
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Tred R. Eyerly, Damon Key Leong Kupchak HastertMr. Eyerly may be contacted at
te@hawaiilawyer.com
Breaking News: Connecticut Supreme Court Decides Significant Coverage Issues in R.T. Vanderbilt
December 16, 2019 —
Patricia B. Santelle & Ciaran B. Way - White and Williams LLPOn October 4, 2019 (almost two years after granting certification), the Connecticut Supreme Court affirmed the Appellate Court’s rulings on four key coverage issues in R.T. Vanderbilt Company v. Hartford Accident & Indemnity Company, et al. The coverage dispute in Vanderbilt concerns underlying actions alleging that talc and silica mined and sold by the insured contained asbestos and/or caused asbestos-related disease. The case has been proceeding in phases, two of which have been tried to date, resulting in the matter on appeal.
(1) “Continuous Trigger” Theory of Coverage Applies: The Court affirmed and adopted the Appellate Court’s opinion applying a “continuous trigger” for the underlying claims at issue, and agreed that the trial court properly excluded testimony from medical experts the insurers had proffered to prove that the asbestos disease process did not support a continuous trigger.
(2) The “Unavailability of Insurance” Exception to Time-on-Risk Pro Rata Allocation Applies: The Court affirmed and adopted the Appellate Court’s ruling that (a) damages and defense costs should not be allocated to any period in which insurance was “unavailable” in the market, (b) the insurers bear the burden of proving that coverage for asbestos liabilities was available to the policyholder after the date asbestos exclusions were added to the policies and (c) the insured bears the burden of proving that it was unable to obtain asbestos coverage prior to 1986 (when such insurance was generally available). The Appellate Court recognized that, in certain circumstances, there could be an “equitable exception” to the unavailability rule if the insured continued to manufacture products containing asbestos after 1986 with the knowledge that such products were hazardous and uninsurable (circumstances which the court found were not present in this case).
Reprinted courtesy of
Patricia B. Santelle, White and Williams LLP and
Ciaran B. Way, White and Williams LLP
Ms. Santelle may be contacted at santellep@whiteandwilliams.com
Ms. Way may be contacted at wayc@whiteandwilliams.com
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Force Majeure Under the Coronavirus (COVID-19) Pandemic
March 08, 2021 —
Lindsay T. Watkins - Ahlers Cressman & Sleight PLLCAs COVID-19 disrupts work and life as we know it, the question many contractors have is what protections are available against the inevitable project impacts and delays? Generally, construction contracts require a contractor to timely perform work until project completion or potentially face damages (liquidated or actual) and possible termination. When events occur, however, that are beyond our control (such as a national pandemic), it is important to review and understand what contract provisions or avenues are available for potential relief.
1.
Review Your Contract For A Force Majeure Provision.
A
“force majeure” contract provision is commonly included in construction contracts, service agreements, purchase orders, etc. It typically covers events or conditions that can be neither anticipated nor controlled. These provisions, however, will vary greatly from contract to contract and may not include the language “force majeure” but rather may be included in general delay or impact clauses. For example, some common provisions include:
- Washington State Department of Transportation Clause (2018 Standard Specifications for Road, Bridge and Municipal Construction): The Contractor shall rebuild, repair, restore, and make good all damages to any portion of the permanent or temporary Work occurring before the Physical Completion Date and shall bear all the expense to do so, except damage to the permanent Work caused by: (a) acts of God, such as earthquake, floods, or other cataclysmic phenomenon of nature, or (b) acts of the public enemy or of governmental authorities; or (c) slides in cases where Section 2-03.3(11) is applicable; Provided, however, that these exceptions shall not apply should damages result from the Contractor’s failure to take reasonable precautions or to exercise sound engineering and construction practices in conducting the Work.
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Lindsay T. Watkins, Ahlers Cressman & Sleight PLLCMs. Watkins may be contacted at
Lindsay.Watkins@acslawyers.com
