Pay-if-Paid Clauses, Nasty, but Enforceable
March 12, 2015 —
Craig Martin – Construction Contractor AdvisorI am preparing for a presentation this week on Troublesome Contract Clauses to the Construction Specifications Institute (“CSI”), Nebraska Chapter. One of the clauses we will be discussing is the dreaded Pay-if-Paid clause, a particularly nasty provision that places the risk of owner’s solvency squarely on the subcontractor’s shoulders. While pay-if-paid clauses can create tremendous problems for subcontractors, they are enforceable.
Pay-if-Paid clauses eliminate the obligation to pay the subcontractor until the general contractor is paid by the owner. Pay-if-paid clauses usually contain something akin to the following phrases:
- payment to subcontractors are “expressly and unequivocally contingent upon receipt of payment from the Owner for the Subcontract Work.”
- the subcontractor “expressly acknowledges that it relies on payment under the Subcontract on the creditworthiness of Owner, not that of the General Contractor.”
- the owner’s acceptance of the work and payment to the General Contractor are “conditions precedent to any obligation of the General Contractor to pay the subcontractor.”
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Craig Martin, Lamson, Dugan and Murray, LLPMr. Martin may be contacted at
cmartin@ldmlaw.com
Michigan Court of Appeals Remands Construction Defect Case
February 14, 2022 —
Tred R. Eyerly - Insurance Law HawaiiAfter its prior decision holding there was no coverage for faulty workmanship was remanded by the Michigan Supreme Court, the Court of Appeals remanded to the trial court. Skanska United States Bldg. v. M.A.P. Mech. Contrs., 2021 Mich. App. LEXIS 7336 (Mich. Ct. App. Dec. 28, 2021). The post summarizing the Supreme Court decision is here.
Skanska USA Building was the construction manager on a renovation project at a medical center. Skanska subcontracted the heating and cooling portion of the project to defendant M.A.P. MAP held a CGL policy from Amerisure. Skanska and the medical center were named as additional insureds.
MAP installed a steam boiler and related piping for the heating system. When completed, the heating system did not function properly. MAP installed some of the expansion joints backwards, causing damage to concrete, steel, and the heating system.
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Tred R. Eyerly, Damon Key Leong Kupchak HastertMr. Eyerly may be contacted at
te@hawaiilawyer.com
Project-Specific Policies and Products-Completed Operations Hazard Extensions
May 31, 2021 —
Jeremiah M. Welch - Saxe Doernberger & Vita1. Understanding the “Products-Completed Operations Hazard”
ISO commercial general liability (“CGL”) policies use the term “products-completed operations hazard” (“PCOH”) to define a category of risk which is treated specially by certain exclusions within the policy and often subject to separate limits of insurance. In construction, we think about PCOH as being about coverage for completed work.
Bodily injury and property damage arising out of completed work is a significant construction risk. Most construction contracts include warranty and indemnity obligations for completed work. All states allow lawsuits to be brought alleging bodily injury or property damage because of completed work based on common law. Contract and common law claims are subject to statutes of limitation – laws which define the time in which suits must be brought. Most states provide exceptions to their statutes of limitation for common law claims – the most common example is an extension to file a lawsuit based on a latent defect until the defect is discovered. Most states also have “statutes of repose” – laws that set a date after which suit may no longer be brought, no matter what the circumstances are. A construction contractor, therefore, has potential liability until the statute of repose period has expired. Thus, a contractor looks to ensure that it has coverage for the PCOH for its full statute of repose liability period.
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Jeremiah M. Welch, Saxe Doernberger & VitaMr. Welch may be contacted at
JWelch@sdvlaw.com
Unrelated Claims Against Architects Amount to Two Different Claims
July 30, 2014 —
Tred R. Eyerly – Insurance Law HawaiiThe Second Circuit found that two claims arising from the same project were unrelated, creating two separate payments by the insurer for the two separate claims. Dormitory Auth. of New York v. Continental Cas. Co., 2014 U.S. App. 12088 (2nd Cir. June 23, 2014).
In 1995, the State agency contracted with the insured architectural firm to design and oversee the construction of a new dormitory at City University of New York. Plans drawn by the architects erred in their estimate of the steel requirement. To recover losses from the resulting delay and expense, the agency sent a demand letter in May 2002 to the architects detailing the Steel Girt Tolerance issue.
After the project was finished in 2001, another problem was discovered: excess accumulations of snow and ice were sliding off the building onto sidewalks a considerable distance away. The Ice Control Issue was studied during the winter of 2003-04. The conclusion was that the design of the facade failed to account for temperature variations appropriate for a building in New York. The problem could not be resolved by adding canopies, which would have been a cheaper fix. Study of the problem continued into 2005.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
Motion to Strike Insurer's Expert Opinion Granted
August 13, 2019 —
Tred R. Eyerly - Insurance Law HawaiiThe court granted the insured's motion to strike the testimony of the insurer's expert because the opinion lacked sufficient explanation or analysis. Affinity Mut. Ins. v. Thacker Air Conditioning Refrigeration Heating, 2019 U.S. Dist. LEXIS 84713 (N.D. Ind. May 20, 2019).
The insured owned a market that needed renovations. The roof over an addition to the market extended from the wall of the extension to the top of the existing roof. The area between the old and new roofs was filled with blown-in insulation, so that the structural support from the new overbuilt roof was not visible. The weight of the overbuilt roof rested on top of the existing roof at the point where they met. This added additional weight on the trusses supporting the main roof.
In 2014, the market upgraded the building with heating and insulation. Thacker was a subcontractor for work on the hearing system. Six gas furnaces, spaced about 35 feet apart along the length of the building, were placed by Thacker. The total weight of each unit was estimated at 280 pounds.
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Tred R. Eyerly, Damon Key Leong Kupchak HastertMr. Eyerly may be contacted at
te@hawaiilawyer.com
Court Again Defines Extent of Contractor’s Insurance Coverage
November 26, 2014 —
Craig Martin – Construction Contractor AdvisorThe ever changing landscape of insurance coverage for contractors continues to be clarified in Texas. The Fifth Circuit Court of Appeals applied Texas law in Crownover v. Mid-Continent Casualty Company, concluding that contractors do have insurance coverage to cover claims that a project was not constructed in a good and workmanlike manner.
In this case, the Crownovers hired a contractor to build a house. The contract contained a warranty-to-repair clause. Shortly after construction was completed, cracks began to appear in the walls and foundation, and there were problems with the heating and air conditioning system. The Crownovers demanded that the contractor repair the problems and the contractor refused. The Crownovers brought an arbitration proceeding against the contractor and prevailed, obtaining a judgment that the contractor must pay for repairs to the foundation and HVAC system. The contractor then filed for bankruptcy and the bankruptcy court allowed the Crownovers to pursue their claim against the contractor’s insurer.
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Craig Martin, Lamson, Dugan and Murray, LLPMr. Martin may be contacted at
cmartin@ldmlaw.com
Update Regarding New York City’s Climate Mobilization Act (CMA) and the Reduction of Carbon Emissions in New York City
July 05, 2021 —
Caroline A. Harcourt, Natalie S. Starkman & Nika Bederman - Gravel2Gavel Construction & Real Estate Law BlogIn a previous post, we described how the New York City Climate Mobilization Act, 2019 (the CMA, or Local Laws 92, 94, 95, 96, 97, and 147 enacted in 2019) was passed with the goal of reducing New York City’s carbon emissions by 40 percent by 2030 and by 80 percent by 2050 (as against a 2005 baseline as provided for in item 3 of Local Law 97). It is the most ambitious building emissions law to be enacted by any city in the world. The CMA impacts “Covered Buildings” (described below) and, besides contemplating the retrofitting of Covered Buildings to achieve energy efficiency and establishing a monitoring program for Covered Buildings, the CMA contemplates compliance by means of the purchase of carbon offset credits or renewable energy. (Note the new NYC Accelerator program, launched in 2012 by the Mayor’s Office of Sustainability, provides guidance regarding energy-efficient upgrades to properties and emission reductions.)
Pursuant to the CMA:
- Beginning in 2024, Covered Buildings will have to meet the first emission targets, which are calculated by multiplying the gross floor area of each Covered Building by the occupancy classification as set forth in Local Law 97; and
- In 2025, owners of Covered Buildings will need to establish compliance by submitting a report establishing such compliance (prepared by a certified design professional) to the newly created Office of Building Energy and Emissions Performance.
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Caroline A. Harcourt, PillsburyMs. Harcourt may be contacted at
caroline.harcourt@pillsburylaw.com
Inverse Condemnation and Roadwork
October 09, 2023 —
David R. Cook Jr. - Autry, Hall & Cook, LLPThe following case, issued yesterday by the Georgia Supreme Court, addresses the accrual of the statute of limitations on a claim of inverse condemnation based on nuisance.
Wise Bus. Forms, Inc. v. Forsyth Cnty., S22G0874, 2023 WL 6065278 (Ga. Sept. 19, 2023)
We granted certiorari in this case to clarify the standards for determining when a claim for inverse condemnation by permanent nuisance accrues for purposes of applying the four-year statute of limitation set forth in OCGA § 9-3-30 (a).
[. . .]
Permanent nuisance cases vary in relation to when the alleged harm to a plaintiff’s property caused by the nuisance becomes “observable” to the plaintiff. Forrister, 289 Ga. at 333 (2), 711 S.E.2d 641. In some cases, the harm to the plaintiff’s property is immediately observable “upon the creation of the nuisance.” Id. For example, where a landowner or governmental agency “erects a harmful structure such as a bridge or conducts a harmful activity such as opening a sewer that pollutes a stream,” and it is immediately obvious that the structure or activity interferes with the plaintiff’s interests, the plaintiff must file “one cause of action for the recovery of past and future damages caused by [the] permanent nuisance” within four years of the date the structure is completed or the harmful activity is commenced. Id. at 333-336 (2) and (3), 711 S.E.2d 641 (citing Restatement (Second) of Torts §§ 899 and 930). Phrased another way, where the “construction and continuance” of the permanent nuisance at issue is “necessarily an injury, the damage is original, and may be at once fully compensated. In such cases[,] the statute of limitations begins to run upon the construction of the nuisance.” City Council of Augusta v. Lombard, 101 Ga. 724, 727, 28 S.E. 994 (1897).
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David R. Cook Jr., Autry, Hall & Cook, LLPMr. Cook may be contacted at
cook@ahclaw.com
