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Court Provides Guidance on ‘Pay-When-Paid’ Provisions in Construction Subcontracts

July 13, 2020 — Ted R. Gropman & Cindy J. Lee - ConsensusDocs
On April 17, the California Court of Appeal decided Crosno Construction, Inc. v. Travelers Casualty & Surety Company of America,1 effectively narrowing the scope of enforceable “pay-when-paid” provisions in construction subcontracts to the extent the subcontractor seeks recovery against a general contractor’s payment bond surety. Although the Crosno case involved a public works project, the rationale and holding should apply with equal force to private works projects. Basing the bulk of its decision on the Wm. R. Clarke Corp. v. Safeco Insurance Co.2 case, the court found that an open-ended “pay-when-paid” provision in a subcontract is not enforceable against a subcontractor that seeks to recover on a public works payment bond claim. This article discusses the Crosno decision and the implications for contractors on both sides of the contract moving forward. Brief Case Summary In Crosno, general contractor Clark Bros., Inc. contracted with the North Edwards Water District (the District) to build an arsenic removal water treatment plant. Clark hired steel storage tank subcontractor Crosno Construction, Inc. to build and coat two steel reservoir tanks. Clark and Crosno’s subcontract included a “pay-when-paid” provision, which stated that Clark would pay Crosno within a “reasonable time” of receiving payments from the owner, but “in no event less than the time Contractor and Subcontractor require to pursue to conclusion their legal remedies against Owner or other responsible party to obtain payment.” After Crosno completed its work, a dispute arose between Clark and the District, and the District withheld payment from Clark (including the monies earmarked for Clark’s subcontractors). Clark sued the District for payment, and Crosno filed its own action against Travelers Casualty and Surety Company of America, the surety on Clark’s statutory public works payment bond, for recovery of the unpaid subcontract balance. Travelers rejected Crosno’s bond claim as premature, invoking the “pay-when-paid” subcontract language and pointing to Clark’s pending payment action against the District. The issue on appeal was whether the “pay-when-paid” provision in the subcontract blocked Crosno from recovering under the payment bond from Travelers while Clark’s lawsuit against the District was still pending. Reprinted courtesy of Ted R. Gropman, Pepper Hamilton LLP and Cindy J. Lee, Pepper Hamilton LLP Mr. Gropman may be contacted at ted.gropman@troutman.com Ms. Lee may be contacted at cindy.lee@troutman.com Read the court decision
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One Way Arbitration Provisions are Enforceable in Virginia

October 07, 2019 — Christopher G. Hill - Construction Law Musings
Here at Construction Law Musings, I’ve discussed arbitration clauses (pros and cons) as well as the fact that in our fair Commonwealth, contracts are enforced as written (for better or worse). A case out of the Eastern District of Virginia takes both of these observations and uses them to make it’s decision. In United States ex rel. Harbor Constr. Co. v. T.H.R. Enters., the Newport News Division of the Eastern District of Virginia federal court considered the following provision and it’s enforceability:

At CONTRACTOR’s sole election, any and all disputes arising in any way or related in any way or manner to this Agreement may be decided by mediation, arbitration or other alternative dispute resolution proceedings as chosen by CONTRACTOR…. The remedy shall be SUBCONTRACTOR’s sole and exclusive remedy in lieu of any claim against CONTRACTOR’s bonding company pursuant to the terms of any bond or any other procedure or law, regardless of the outcome of the claim. The parties further agree that all disputes under this Subcontract shall be determined and interpreted pursuant to the laws of the Commonwealth of Virginia….

This provision was the crux of the argument made by T. H. R., the Defendant, in making a motion to dismiss or stay the lawsuit for payment filed by Harbor Construction. As background, Harbor Construction contracted with T. H. R. to perform work at Langley Air Force Base. Alleging non-payment of approximately $250,000.00, Harbor filed a complaint with three counts, one under the Federal Miller Act, one for breach of contract, and a third for unjust enrichment. Read the court decision
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Reprinted courtesy of The Law Office of Christopher G. Hill
Mr. Hill may be contacted at chrisghill@constructionlawva.com

When is a “Willful” Violation Willful (or Not) Under California’s Contractor Enforcement Statutes?

April 17, 2019 — Garret Murai - California Construction Law Blog
The enforcement statutes applicable to the California Contractors’ State License Board aren’t exactly models in clarity. A few examples: 1. Business and Professions Code Section 7107: Abandonment without legal excuse of any construction project or operation engaged in or undertaken by the license as a contractor constitutes a cause for disciplinary action. 2. Business and Professions Code Section 7109: A willful departure in any material respect from accepted trade standards for good and workmanlike construction constitutes a cause for disciplinary action, unless the departure was in accordance with plans and specifications prepared by or under the direct supervision of an architect. 3. Business and Professions Code Section 7110: Willful or deliberate disregard and violation of the building laws of the state, or any political subdivision thereof, . . . or of the safety or labor laws or compensation insurance laws or Unemployment Insurance Code of the State, or of the Subletting and Subcontracting Fair Practice Act, or violation by any licensee of any provision of the Health and Safety Code or Water Code, relating to the digging, boring, or drilling of water wells, constitutes a cause for disciplinary action. Read the court decision
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Reprinted courtesy of Garret Murai, Wendel Rosen
Mr. Murai may be contacted at gmurai@wendel.com

Las Vegas Sphere Lawsuits Roll On in Nevada Courtrooms

October 02, 2023 — Richard Korman - Engineering News-Record
Big concerts have yet to start at Las Vegas’ distinctive new ball-shaped entertainment venue, but the legal noise over its construction has been heard in Clark County courtrooms for more than two years. Reprinted courtesy of Richard Korman, Engineering News-Record Mr. Korman may be contacted at kormanr@enr.com Read the full story... Read the court decision
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A New Hope - You Now May Have Coverage for Punitive Damages in Connecticut

February 15, 2018 — Stella Szantova Giordano – SDV Blog

On December 19, 2017, the Connecticut Supreme Court released its decision in Nationwide Mutual Ins. Co. v. Pasiak. The decision is significant for two reasons: 1) it clarifies the amount of proof an insurer needs to determine whether an exclusion to coverage applies; and 2) it found that where an insurance policy expressly provides coverage for an intentional act such as false imprisonment, common-law punitive damages are also covered.

Underlying action

The underlying action proves that real life is often stranger than fiction. Ms. S worked as an office help for a construction company owned by Mr. P, which operated out of his home. Ms. S was working alone in the home office, when an armed, masked intruder entered the office, tied her hands, gagged and blindfolded her and, pointing a gun to her head, threatened to kill her family if she did not give him the combination to a safe in the home. As this was happening, Mr. P entered the office, unmasked the intruder, and discovered it was his lifelong friend. After Ms. S was untied, she asked to leave, but Mr. P told her to stay. She was not allowed to leave for several hours as Mr. P made her accompany him to an errand. Ms. S sued Mr. P for false imprisonment, among other things. The trial court awarded her compensatory and punitive damages. Insurance coverage for the underlying judgment is at the heart of the Pasiak case.

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Reprinted courtesy of Stella Szantova Giordano, Saxe Doernberger & Vita, P.C.
Ms. Szantova Giordano may be contacted at ssg@sdvlaw.com

No Additional Insured Coverage for Subcontractor's Work Outside Policy Period

August 19, 2015 — Tred R. Eyerly – Insurance Law Hawaii
In a dispute between two insurers, the district court determined that the contractor was not an additional insured under the subcontractor's policy. Navigators Spec. Ins. Co. v. St. Paul Surplus Lines Ins. Co., 2015 U.S. Dist. LEXIS 79338 (N. D. Cal. June 17, 2015). McDevitt & McDevitt Construction Corporation was the general contractor for construction of a condominium complex. McDevitt was insured by Navigators Specialty Insurance Company. F&M was a subcontractor for the project for providing structural steel components. F&M's subcontract required it to obtain liability insurance and name McDevitt as an additional insured under a policy that was to be primary. F&M secured a policy with North American Capacity Insurance Company (NAC) which included an endorsement for additional insureds. The endorsement provided that an entity could be an additional insured only with respect to "occurrences resulting from work performed by you during the policy period, or occurrences resulting from the conduct of your business during the policy period." McDevitt and F&M were sued for construct defect claims. Navigators defended McDevitt and NAC defended F&M. Navigators tendered McDevitt's defense to NAC because McDevitt was an additional insured under NAC's policy. NAC disclaimed coverage. Read the court decision
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Reprinted courtesy of Tred R. Eyerly, Insurance Law Hawaii
Mr. Eyerly may be contacted at te@hawaiilawyer.com

The Anatomy of a Construction Dispute Stage 3- The Last Straw

January 28, 2015 — Christopher G. Hill – Construction Law Musings
Over the past two weeks here at Construction Law Musings, I’ve discussed the first two stages of a typical construction dispute (if such a thing exists): the claim, and how to bring heat short of litigation/arbitration. As promised, this week I’ll be discussing the next step or “last straw” in a construction dispute, namely, arbitration or litigation to enforce all of those rights that you preserved in the first two stages. Construction litigation is expensive, time consuming, and, quite frankly, a pain in the neck. Because of this fact, I almost always recommend that my construction clients exhaust all of the non-litigation methods (including mediation of course) of resolving their disputes prior to “going nuclear” and filing suit. Unfortunately, even the most diligent attempts at less formal resolution means can be unfruitful and more formal means become necessary. Read the court decision
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Reprinted courtesy of Christopher G. Hill, Law Office of Christopher G. Hill, PC
Mr. Hill may be contacted at chrisghill@constructionlawva.com

Skyline Bling: A $430 Million Hairpin Tower and Other Naked Bids for Tourism

January 21, 2015 — Toluse Olorunnipa – Bloomberg
American cities are starting an architectural arms race to the sky with super-sized Ferris wheels, a 100-story observation tower and maybe even a mammoth golf ball atop a 300-foot tee planted in the Arizona desert. From Phoenix to Camden, New Jersey, city officials and developers are seeking to punctuate their skylines with exclamation points, vying for the world’s attention with the next Eiffel Tower or London Eye. Read the court decision
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Reprinted courtesy of Toluse Olorunnipa, Bloomberg
Mr. Olorunnipa may be contacted at tolorunnipa@bloomberg.net

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