Enforceability Of Subcontract “Pay-When-Paid” Provisions – An Important Update
June 15, 2020 —
Patrick McNamara - Porter Law GroupA California Court of Appeals opinion published earlier this month brings a change to payment bond claims brought by unpaid subcontractors and suppliers. The decision (Crosno Construction, Inc. v. Travelers Casualty and Surety Company of America) places limitations on a payment bond surety’s ability to rely on subcontract “pay-when-paid” language, stating that a payment provision typically found in subcontracts is contrary to the “reasonable time” statutory requirement and will not be enforced. This represents a major shift in California construction payment bond claim rights.
Plaintiff Crosno Construction, Inc. (“Crosno) was a subcontractor to general contractor Clark Brothers (“Clark”), who was principal on a public works payment bond issued by Travelers. The owner was a public agency district (“District.”) Crosno had completed most of its subcontract work when a dispute between District and Clark arose, causing the project to stop. Crosno then sought payment through a payment bond claim against Travelers. Travelers denied the claim, relying on the subcontract’s payment provisions and asserting the defense that it had no obligation to pay on the bond claim because the litigation between Clark and the District had not yet reached its conclusion.
Subcontract. The subcontract between Clark and Crosno contained a “pay-when-paid” provision stating that Clark would pay Crosno within a reasonable time after receiving payment from the District. In defining “a reasonable time,” the subcontract language provided that the time for payment “in no event shall be less than the time [Clark] and [Crosno] require to pursue to conclusion their legal remedies against [District] or other responsible party to obtain payment.”
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Patrick McNamara, Porter Law GroupMr. McNamara may be contacted at
pmcnamara@porterlaw.com
Balancing Risk and Reward: The Complexities of Stadium Construction Projects
April 15, 2024 —
Gregory A. Eichorn - Peckar & Abramson, P.C.From grand designs to opening day, stadium construction projects present a captivating blend of high-profile opportunities and significant challenges and risks. Navigating this complex landscape is not easy, but when managed properly, the potential rewards, both in terms of reputation and finances, can make it a gamble worth taking. While each stadium project is different, some of the more common risks include:
- Securing adequate labor, materials and equipment based on the size of the project;
- Logistical concerns regarding the concurrent performance of multiple trade scopes on a single site;
- Protection of work in place from weather due to the large footprint of the stadium project;
- Cash flow issues caused by protracted change order processing, conflicting and/or onerous payment requirements from project financing entities, and reimbursement of considerable monthly general condition costs; and
- Meeting the schedule requirements for the project.
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Gregory A. Eichorn, Peckar & Abramson, P.C.Mr. Eichorn may be contacted at
geichorn@pecklaw.com
Nevada Insureds Can Rely on Extrinsic Facts to Show that An Insurer Owes a Duty to Defend
November 15, 2021 —
Sarah J. Odia & Scott S. Thomas - Payne & FearsOn Oct. 28, 2021, the Nevada Supreme Court in Zurich American Insurance Company v.. Ironshore Specialty Insurance Company, 137 Nev. Adv. Op. 66, held that an insured can rely on extrinsic facts to show that an insurer has a duty to defend the insured, as long as the facts were available to the insurer at the time the insured tendered the claim. The court also held that an insured has the burden of proving that an exception to an exclusion in an insurance policy applies to create a duty to defend.
In Zurich, Ironshore refused to defend to its insured against multiple property damage claims arising out of construction defects, claiming that its policies’ continuing and progressive damage exclusions barred coverage. The underlying lawsuits made no specific allegations describing when or how the property damage occurred. Ironshore claimed that the property damage had occurred due to faulty work that predated the commencement of its policies. Two different federal trial courts came to conflicting conclusions in the underlying cases. One held that Ironshore had a duty to defend because Ironshore failed to show that an exception to the exclusion did not apply. The second granted summary judgment in favor of Ironshore holding that the insured failed to meet its burden of proving that an exception to the exclusion applied.
Reprinted courtesy of
Sarah J. Odia, Payne & Fears and
Scott S. Thomas, Payne & Fears
Ms. Odia may be contacted at sjo@paynefears.com
Mr. Thomas may be contacted at sst@paynefears.com
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Insured's Commercial Property Policy Deemed Excess Over Unobtained Flood Policy
June 10, 2019 —
Tred R. Eyerly - Insurance Law HawaiiThe court granted the insurer's motion for summary judgment, deciding that there was no breach of the policy for failure to pay for flood damage when the insured failed to obtain a policy under the National Flood Insurance Program (NFIP). 570 Smith St. Realty Corp. v. Seneca Ins. Co. Inc., 2019 N.Y. Misc. LEXIS 1773 (N.Y. Sup. Ct. April 4, 2019).
The insured's property in Brooklyn was insured by Seneca. Included in the policy was flood coverage in the amount of $1 million with a $25,000 deductible. While the policy was in effect, Hurricane Sandy hit, damaging the property. Plaintiffs timely filed a claim seeking reimbursement of up to policy limits. Seneca paid only $35,883 and later made an additional payment of $33,015.
The insured sued for, among other things, breach of the policy for failure to properly indemnify for the losses. Seneca moved for partial summary judgment dismissing the breach of policy claims. Seneca pointed out that the "Other Insurance" provision in the Flood Coverage Endorsement of the policy stated that if the loss was eligible to be covered under a NFIP policy, but there was no such policy in effect, the insurer would only pay for the amount of loss in excess of the maximum limit payable for flood damage under the policy. The maximum NFIP coverage was $500,000. The insured's loss caused by flood was less than $500,000.
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Tred R. Eyerly, Damon Key Leong Kupchak HastertMr. Eyerly may be contacted at
te@hawaiilawyer.com
First Circuit Rejects Insurer’s “Insupportable” Duty-to-Cooperate Defense in Arson Coverage Suit
October 24, 2023 —
Geoffrey B. Fehling & Yaniel Abreu - Hunton Insurance Recovery BlogIn
Philadelphia Indemnity Insurance Co. v. BAS Holding Corp., the Court of Appeals for the First Circuit rejected an insurer’s “insupportable” defense that the insured company had breached its duty to cooperate by refusing the insurer’s request for an examination under oath of the company’s president. The decision is a reminder that, while examinations under oath can be effective tools to allow the insurer to properly investigate a claim, an insured’s duty to cooperate is not boundless and does not demand attendance at examinations that are not reasonably requested.
Background
BAS Holding involves the destruction of a landmark building in Boston by an arsonist. The owner, BAS Holding Corporation, submitted an insurance claim to its property insurer to recover insurance proceeds for the damage to the building. The insurer investigated the claim to determine whether the damage to the building was covered and issued a reservation of rights letter suggesting that the policy may not provide coverage for the fire. As part of its investigation, the insurer requested an examination under oath as a condition to coverage under the policy, which led to BAS presenting the property’s operations coordinator for an interview. Shortly after examining the operations coordinator, the insurer sought another examination of BAS’s president and owner, as well as five other employees. In response, BAS questioned whether the additional examinations were “reasonably required” and said that it would consider the requests if the insurer could explain why they were necessary.
Reprinted courtesy of
Geoffrey B. Fehling, Hunton Andrews Kurth and
Yaniel Abreu, Hunton Andrews Kurth
Mr. Fehling may be contacted at gfehling@HuntonAK.com
Mr. Abreu may be contacted at yabreu@HuntonAK.com
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The CA Supreme Court Grants Petition for Review of McMillin Albany LLC v. Super Ct. 2015 F069370 (Cal.App.5 Dist.) As to Whether the Right to Repair Act (SB800) is the Exclusive Remedy for All Defect Claims Arising Out of New Residential Construction
December 02, 2015 —
Richard H. Glucksman, Esq., Glenn T. Barger, Esq., Jon A. Turigliatto, Esq., & David A. Napper, Esq. – Chapman Glucksman Dean Roeb & Barger BulletinAs anticipated in a prior CGDRB 2015 Bulletin that discussed the Fifth Appellate District Court’s noteworthy opinion in McMillin Albany LLC v. Super Ct. 2015 F069370 (Cal.App.5 Dist), the California Supreme Court has granted the petition for review of the McMillin Albany decision. The Supreme Court will attempt to resolve the conflict of authority presented by the Fourth Appellate District Court’s opinion in Liberty Mut. Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98 and the Fifth Appellate District Court’s rejection of the Liberty Mutual holding in McMillin Albany.
In Liberty Mutual, the Fourth District Court of Appeal held that compliance with SB800’s pre-litigation procedures prior to initiating litigation is only required for defect claims [violations of SB 800’s building standards] that have not yet resulted in actual property damage. Where damage has occurred, a homeowner may initiate litigation under common law causes of action without first complying with the pre-litigation procedures set forth in SB 800.
Two years later, the Fifth District Court of Appeal, in McMillin Albany, held that the California Legislature intended that all construction defect claims arising out new residential construction are subject to the standards and requirements of the Right to Repair Act [SB800], including specifically, the requirement that the claimant provide the builder with notice and an opportunity to repair prior to filing a lawsuit. According to the Court, SB 800 is the exclusive remedy for all defect claims arising out of new residential construction sold on or after January 1, 2003.
The holdings in Liberty Mutual and McMillin Albany present a conflict of authority that the California Supreme Court has appropriately deemed worthy of review. The parties will now be permitted to file briefs on the merits and amicus briefs will certainly be submitted by the defense and plaintiff bars.
Our firm will be closely monitoring this case, the outcome of which will significantly impact pre-litigation construction defect claims going forward. We will provide updates as to further activities and the Supreme Court’s decision.
Reprinted courtesy of Chapman Glucksman Dean Roeb & Barger attorneys
Richard H. Glucksman,
Glenn T. Barger,
Jon A. Turigliatto and
David A. Napper
Mr. Glucksman may be contacted at rglucksman@cgdrblaw.com
Mr. Barger may be contacted at gbarger@cgdrblaw.com
Mr. Turigliatto may be contacted at jturigliatto@cgdrblaw.com
Mr. Napper may be contacted at dnapper@cgdrblaw.com
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Pandemic Magnifies Financial Risk in Construction: What Executives Can Do to Speed up Customer Payments
August 23, 2021 —
Lori J. Drake - Construction ExecutiveConstruction businesses are waiting longer for payment in 2021, according to the newly released 2021 Construction Cash Flow and Payment Report conducted by Levelset.
According to respondents, only 10% of construction businesses get paid in full, which is a 75% drop from 2020, and only 9% get paid on time, which is a drop of 60% over last year.
The report, based on a survey of 764 construction professionals, illustrates that financial risk in the industry flowed down the payment chain. General contractors were four times more likely to get paid in 30 days, and 50% more likely to get paid in full. However, 20% of subcontractors, suppliers and other second-tier companies were kept waiting more than 60 days to collect payment.
Reprinted courtesy of
Lori J. Drake, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.
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City of Pawtucket Considering Forensic Investigation of Tower
October 08, 2014 —
Beverley BevenFlorez-CDJ STAFFPawtucket, Rhode Island’s mayor, Donald Grebien, has asked their city council to approve “a forensic investigation of the Pawtucket City Hall tower to determine whether the city should sue the contractor that repaired it eight years ago,” the Valley Breeze reported.
Back in 2011, “city officials had been unable to locate a signed contract for the tower project as they sought to hold NER responsible for continued leaking into the structure just five years after the company's $3 million renovation project was complete,” according to the Valley Breeze. “The costs of that project grew to $4.6 million once interest was factored in.”
Documents have recently been discovered that Grebien believes may open the possibility to sue NER.
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