Court Provides Guidance on ‘Pay-When-Paid’ Provisions in Construction Subcontracts
July 13, 2020 —
Ted R. Gropman & Cindy J. Lee - ConsensusDocsOn 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
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Loan Modifications Due to COVID-19 Pandemic: FDIC Answers CARES Act FAQs
May 11, 2020 —
Nancy Sabol Frantz, Marissa Levy, Timothy E. Davis & Kristen E. Andreoli - White and WilliamsIn support of financial institutions and borrowers during the COVID-19 pandemic, the newly enacted Coronavirus Aid, Relief, and Economic Security Act (CARES Act) includes a number of provisions permitting lenders to suspend, during a covered period, requirements under U.S. Generally Accepted Accounting Principles (GAAP) with respect to categorizing certain loan modifications as a troubled debt restructuring (TDR) due to COVID-19. In light of the CARES Act, the Federal Deposit Insurance Corporation (FDIC) issued a series of answers to FAQs for financial institutions with respect to loan modifications. The FAQs help guide lenders as well as borrowers as they address pending defaults under existing credit facilities. The FAQs encourage financial institutions to work with borrowers who may be unable to meet their payment obligations due to COVID-19 in several ways:
Payment Accommodations
Short-term accommodations which modify, extend, suspend or defer repayment terms should be intended to facilitate the borrower’s ability to work through the immediate impact of the virus. According to the FAQs, all loan accommodation programs should ultimately be targeted towards repayment. To that end, the FDIC recommends that financial institutions address deferred or skipped payments by either extending the original maturity date or by making those payments due in a balloon payment at the maturity date of the loan.
Reprinted courtesy of White and Williams attorneys
Nancy Sabol Frantz,
Marissa Levy,
Timothy E. Davis and
Kristen E. Andreoli
Ms. Frantz may be contacted at frantzn@whiteandwilliams.com
Ms. Levy may be contacted at levymp@whiteandwilliams.com
Mr. Davis may be contacted at davist@whiteandwilliams.com
Ms. Andreoli may be contacted at andreolik@whiteandwilliams.com
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Suzanne Pollack Elected to Lawyers Club of San Diego 2021 Board of Directors
May 03, 2021 —
Suzanne Pollack - Lewis BrisboisSan Diego Associate Suzanne Pollack was recently elected to the 2021 Lawyers Club of San Diego Board of Directors for a three-year term that will begin on July 1, 2021. Founded in 1972, the mission of Lawyers Club - San Diego’s largest specialty bar association - is to advance the status of women in the law and society.
“I am honored to be joining Lawyers Club’s Board of Directors, particularly after this last year, during which we saw the dramatic impact that the pandemic had upon women in the workforce," said Ms. Pollack. "Promoting equality, diversity, and advocacy has never been more important, and I look forward to working with the Board to further these goals.”
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Suzanne Pollack, Lewis BrisboisMs. Pollack may be contacted at
Suzanne.Pollack@lewisbrisbois.com
Court Narrowly Interprets “Faulty Workmanship” Provision
March 28, 2018 —
Jeffrey J. Vita and Thersa A. Guertin – SDV BlogIn a recent victory in their home state of Connecticut, Saxe Doernberger & Vita partners,
Jeffrey Vita and
Theresa Guertin, representing owner-developer 777 Main Street, LLC, overcame a summary judgment motion filed by Liberty Mutual Fire Insurance Company. The Connecticut Superior court refused to adopt the insurer’s broad interpretation of the “faulty workmanship” exclusion in an all-risk builders’ risk insurance policy.
In 2014, 777 Main Street, LLC began renovations on the 27-story former Hartford National Bank building in downtown Hartford, converting the property from an office building to a mixed residential and commercial space. During the renovation, a subcontractor hired to perform the cleaning the concrete façade of the building accidentally over-sprayed the cleaning material onto the property’s windows. The subcontractor’s attempts to clean the overspray further damaged the structural integrity and cosmetic look of the windows. As a result, the owner was forced to replace over 1,800 windows, costing millions.
Mr. Vita may be contacted at jjv@sdvlaw.com
Ms. Guertin may be contacted at tag@sdvlaw.com
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Exception to Watercraft Exclusion Does Not Apply
September 24, 2014 —
Tred R. Eyerly – Insurance Law HawaiiThe court determined that an additional insured was not entitled to coverage despite an exception to the watercraft exclusion. Holden v. U.S. United Ocean Serv., LLC, 2014 U.S. App. LEXIS 15954 (5th Cir. Aug. 19, 2014).
United entered a contract with Buck Kreihs Company, Inc. under which Buck Kreihs would perform ship-repair work for United. Under the contract, Buck Kreihs would indemnify United for all liabilities arising out of the work or services performed by Buck Kreihs for United. The contract further provided that Buck Kreihs was to procure general liability coverage and name United as an additional insured. Buck Kreihs did so under a policy issued by St. Paul.
Holden, an employee of Buck Kreihs, was injured while preparing to remove a gangway that led from a dock at Buck Kreihs's facility to a barge owned by United. Holden sued United, which tendered to St. Paul as an additional insured. St. Paul denied coverage under the policy's watercraft exclusion. Holden and United settled. United pursued its third party suit against St. Paul. The district court granted summary judgment to St. Paul.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
A License to Sue: Appellate Court Upholds Condition of Statute that a Contracting Party Must Hold a Valid Contractor’s License to Pursue Action for Recovery of Payment for Contracting Services
June 21, 2017 —
Omar Parra & Jesse M. Sullivan - Haight Brown & Bonesteel LLPCalifornia Business & Professions Code section 7031(a) requires a party to have contractor’s license in order to maintain an action for compensation for services performed for which a contractor’s license is needed. In Phoenix Mechanical Pipeline, Inc. v. Space Exploration Technologies Corp., No. B269186 (2017 WL 2544856) (Cal. Ct. App. June 13, 2017), the Court of Appeal for the Second Appellate District considered the scope of this statute in denying, in part, Phoenix Mechanical Pipeline, Inc.’s (“Phoenix Pipeline”) appeal of a trial court ruling granting Space Exploration Technologies Corporation’s (“SpaceX”) demurrer to Phoenix Pipeline’s second amended complaint, without leave to amend.
Phoenix Pipeline filed the underlying lawsuit for, among other claims, breach of contract and breach of the duty of good faith and fair dealing arising from an agreement with SpaceX for Phoenix Pipeline to perform various plumbing, concrete removal and electrical services. Phoenix Pipeline alleged SpaceX paid for such services from 2010 to October 2013, but failed to pay Phoenix for services performed from October 2013 to August 2014, totaling just over $1,000,000. According to Phoenix Pipeline, this work was performed pursuant to a series of invoices, which constituted individual agreements between SpaceX and Phoenix Pipeline.
Reprinted courtesy of
Omar Parra, Haight Brown & Bonesteel LLP and
Jesse M. Sullivan, Haight Brown & Bonesteel LLP
Mr. Parra may be contacted at oparra@hbblaw.com
Mr. Sullivan may be contacted at jsullivan@hbblaw.com
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Negligent Construction an Occurrence Says Ninth Circuit
June 30, 2011 —
CDJ STAFFOne June 27, the US Court of Appeals has rejected an appeal from Mid-Continent Casualty Company. Mid-Continent had appealed a summary judgment granted to Titan Construction Company.
Titan Construction had built condominiums for the Williamsburg Condominium Association, which later filed a construction defect lawsuit against Titan and other defendants. Titan settled with the developer, Kennydale, assigning its rights against Mid-Continent to Kennydale. Mid-Continent filed suit, claiming that “it had no obligation to indemnify or defend Titan, Kennydale, or various other defendants.” The district court found in favor of Mid-Continent, granting a summary judgment, concluding that Titan’s insurance covered “occurrences,” and none had taken place.
On appeal, the court found that the negligent construction of the condominiums constituted an “occurrence” The case was remanded and the district court this time found in favor of Titan, “concluding that Mid-Continent failed to raise a triable issue as to the applicability of the remaining policy exclusions.
The Ninth Circuit Court of Appeals has now affirmed that decision and Titan’s summary judgment stands.
Read the court’s decision…
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Liability Cap Does Not Exclude Defense Costs for Loss Related to Deep Water Horizon
May 01, 2019 —
Tred R. Eyerly - Insurance Law HawaiiThe Texas Supreme Court found that Lloyd's endorsement imposing a cap on liability for a joint venture did not exclude coverage for defense costs. Anadarko Petroleum Corp. v. Houston Cas. Co. et al., 2019 Texas LEXIS 53 (Texas Jan. 25 2019j.
Pursuant to a joint venture agreement, Anadarko held a 25% ownership interest in the Macondo Well in the Gulf of Mexico. When the well blew out, numerous third parties filed claims against BP entities and Anadarko. Many of the claims were consolidated into a multi-district litigation (MDL). The MDL court granted a declaratory judgment finding BP and Anadarko jointly and severally liable. BP and Anadarko reached a settlement in which Anadarko agreed to transfer its 25% ownership interest to BP and pay BP $4 billion. In exchange, BP agreed to release any claims it had against Anadarko and to indemnify Anadarko against all other liabilities arising out of the Deepwater Horizon incident. BP did not agree, however, to cover Anadarko's defense costs.
Anadarko had a policy through Lloyd's. The policy provided excess-liability coverage limited to $150 million per occurrence. Lloyd's paid Anadarko $37.5 million (25% of the $150 million limit) based upon Anadarko 25% ownership in the joint venture. Anadarko argued that Lloyd's still owed all of Anadarko's defense expenses, up to the $150 million limit.
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Tred R. Eyerly, Damon Key Leong Kupchak HastertMr. Eyerly may be contacted at
te@hawaiilawyer.com
