The Increasing Trend of Caps in Construction Contracts and Negotiating Them
November 27, 2023 —
Jarred Trauth - ConsensusDocsRisks are inherent in every construction project and all parties involved face them: owners, designers, general contractors/builders, subcontractors, suppliers…. Equitably allocating such risks is one of the most important and most negotiated areas of any construction related contract. Limitations of liability provisions are key to risk allocation. These provisions include no damage for delay provisions and caps on delay damages, warranty limitations and exclusions, indemnity limitations, and consequential damage waivers. Another, and the focus of this article, is a liability cap fixing the total amount of damages for which a party may be liable under the contract (the “Liability Cap”). Liability Caps have become more and more common in construction and construction related contracts, including major component supply agreements and design agreements.
This article will discuss Liability Caps generally and considerations of an owner or contractor negotiating them, including carve-outs (i.e. exceptions) to them.
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Jarred Trauth, Jones Walker LLPMr. Trauth may be contacted at
jtrauth@joneswalker.com
Construction Injuries Under the Privette Doctrine. An Electrifying, but Perhaps Not Particularly Shocking, Story . . .
January 05, 2017 —
Garret Murai – California Construction Law BlogWe’ve talked about the Privette doctrine before (see
here,
here, and
here). The Privette doctrine, named after the court case Privette v. Superior Court (1993) 5 Cal.4th 689, provides in general that project owners and contractors are not responsible for worksite injuries suffered by employees of lower-tiered contractors they have hired, the rationale being that such workers should already be covered under their employers’ workers’ compensation insurance policies.
In the twenty years since Privette was decided, however, several exceptions have evolved that have narrowed the doctrine. One exception, known as the retained control exception, allows a contractor’s employees to sue the “hirer” of the contractor (that is, the higher-tiered party who “hired” the lower-tiered party whose employee is injured) when the hirer retains control over any part of the work and negligently exercises that control in a manner that affirmatively contributes to the employee’s injury. Hooker v. Department of Transportation (2002) 27 Cal.4th 198.
Another exception, known as the nondelegable duty exception, permits an injured worker to recover against a hirer when the hirer has assumed a nondelegable duty, including statutory and regulatory duties, that it breaches in a manner that affirmatively contributes to the injury. Padilla v. Pomona College (2008) 166 Cal.App.4th 661.
In a recently decided case, Khosh v. Staples Construction Company, Inc., Case No. B268937 (November 17, 2016), the California Court of Appeals for the Second District examined the application of the Hooker and Padilla exceptions where a general contractor was contractually responsible for overall site safety.
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Garret Murai, Wendel Rosen Black & Dean LLPMr. Murai may be contacted at
gmurai@wendel.com
Sixth Circuit Finds No Coverage for Property Damage Caused by Faulty Workmanship
October 21, 2015 —
Tred R. Eyerly – Insurance Law HawaiiThe Sixth Circuit affirmed the lower court's order granting summary judgment to the insurer who denied a defense for a construction defect claim. Steel Supply & Eng'g Co. v. Illinois Nat'. Ins. Co., 2015 U.S. App. LEXIS 14363 (6th Cir. Aug. 13, 2015).
Steel Supply contracted with the Carmel Redevelopment Corporation to fabricate and erect steel for a construction project in Carmel, Indiana. After the steel was erected, an iron worker at the site discovered defects in the steel. Subsequent investigations revealed additional defects.
Carmel filed suit against Steel Supply for breach of contract. The complaint alleged that a critical connection that Steel Supply designed was inadequate to handle the forces coming onto it. Carmel claimed that the immediate need to remediate the steel damaged Carmel directly, and that other contractors sought damages from Carmel for harm caused by the delays.
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Tred R. Eyerly, Insurance Law HawaiiMr. Eyerly may be contacted at
te@hawaiilawyer.com
So, You Have a Judgment Against a California Contractor or Subcontractor. What Next? How Can I Enforce Payment?
May 04, 2020 —
William L. Porter - Porter Law GroupThe Contractors’ State License Board (“CSLB”) represents the interests of the public in California construction matters. In the field of California construction, the CSLB is all powerful. The agency has the right to suspend the license of any contractor or subcontractor who does not pay on a construction related judgment against it. If you are successful in obtaining a court judgment against a contractor or a subcontractor in a construction-related case, you can utilize the services of the CSLB to suspend the contractors’ license of that contractor or subcontractor until the judgment has been paid. Once the license is suspended, the contractor or subcontractor has no legal right to work as a contractor or subcontractor and can even be arrested for doing so. Details on using the CSLB to suspend the license of a contractor or subcontractor who has a construction-related judgment against it can be accessed at this particular CSLB link:
CSLB – Judgment.
On receipt of notice of the construction-related judgment, the CSLB will either suspend the contractors’ license of any contractor or subcontractor who does not pay on the judgment or who does not appeal the judgment to the Court of Appeals or file bankruptcy within 90 days. There also exists an opportunity for the licensed debtor to file a bond with the CSLB. The bond will either have to be renewed annually or the judgment paid, whichever comes first.
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William L. Porter, Porter Law GroupMr. Porter may be contacted at
bporter@porterlaw.com
Factor the Factor in Factoring
May 03, 2017 —
David Adelstein - Florida Construction Legal UpdatesWhat is factoring? Have you heard this term used in the business context? Factoring is not uncommon in the business world. It comes up when a business is in need of cash (immediate cash flow) and sells/assigns money owed under accounts receivable to a third party known as a factor. The factor purchases the accounts receivable at a discount in consideration of an assignment of the full value of the accounts receivable from the debtor (the entity that owes the money under the accounts receivable). The factoring arrangement is a recognized relationship, implicates Florida’s Uniform Commercial Code, and places obligations on the debtor to pay the factor directly for the accounts receivable upon notice of the assignment.
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David Adelstein, Florida Construction Legal UpdatesMr. Adelstein may be contacted at
Dadelstein@gmail.com
No Escape: California Court of Appeals Gives a Primary CGL Insurer’s “Other Insurance” Clause Two Thumbs Down
December 02, 2015 —
Yas Omidi – California Construction Law Blog“No Escape” is a 2015 action movie starring Pierce Brosnan and Owen Wilson (that’s right, Owen Wilson) and which the folks at rogerebert.com described as “a dreadful…would-be thriller” and “low-grade trash.”
It’s also, in short, the California Court of Appeal’s answer to a primary insurer’s recent bid to escape its duty to defend pursuant to an “other insurance” clause in a CGL policy in Underwriters of Interest Subscribing to Policy No. A15274001 v. ProBuilders Specialty Ins. Co., Case No. D066615, California Court of Appeals for the Fourth District (October 23, 2015).
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Yas Omidi, California Construction Law BlogMs. Omidi may be contacted at
yomidi@wendel.com
Circumstances In Which Design Professional Has Construction Lien Rights
February 24, 2020 —
David Adelstein - Florida Construction Legal UpdatesIf you are a design professional (architect, landscape architect, interior designer, engineer, surveyor, or mapper) you have construction lien rights in the event you are not paid. This does not mean your lien rights are absolute so it is important to understand the circumstances which allow you to record a construction lien on a project. These circumstances are contained in Florida Statute s. 713.03:
(1) Any person who performs services as architect, landscape architect, interior designer, engineer, or surveyor and mapper, subject to compliance with and the limitations imposed by this part, has a lien on the real property improved for any money that is owing to him or her for his or her services used in connection with improving the real property or for his or her services in supervising any portion of the work of improving the real property, rendered in accordance with his or her contract and with the direct contract.
(2) Any architect, landscape architect, interior designer, engineer, or surveyor and mapper who has a direct contract and who in the practice of his or her profession shall perform services, by himself or herself or others, in connection with a specific parcel of real property and subject to said compliances and limitations, shall have a lien upon such real property for the money owing to him or her for his or her professional services, regardless of whether such real property is actually improved.
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David Adelstein, Kirwin Norris, P.A.Mr. Adelstein may be contacted at
dma@kirwinnorris.com
How AB5 has Changed the Employment Landscape
March 16, 2020 —
Jason Morris – Newmeyer DillionAs a result of California's Assembly Bill 5, effective January 1, 2020, the California Supreme Court's ABC test is now the standard for evaluating independent contractor classifications for purposes of the Industrial Welfare Commission Wage Orders, California Labor Code, and the California Unemployment Insurance Code. That dramatically ups the ante for companies that rely on independent contractors, particularly those that have not re-evaluated such classifications under the ABC test.
Misclassification cases can be devastating, especially for misclassified non-exempt employees, and can result in minimum wage violations, missed meal and rest periods, unpaid overtime, unreimbursed business expenses, record-keeping violations, steep penalties, attorneys' fees, and even criminal liability, among other consequences. Misclassifying workers creates enormous risks for companies and is fertile ground for class actions and representative actions under the Private Attorneys General Act (PAGA).
The Costs Of Misclassification Are Expensive, And Hope Is Not A Strategy
Many business owners I speak to understand AB5 has caused the ground to shift beneath their feet and recognize the resulting risks of misclassifying workers. Despite these risks, companies often balk at taking the necessary steps to evaluate their classifications and mitigate the risk of an adverse classification finding.
The most common reason I hear from resistant companies is the worker does not want to be reclassified as an employee and the company trusts the worker ("I've worked with her for years; she won't sue me because she wants to be a contractor"). I get it. Making the change from contractor to employee results in less flexibility and greater administrative burden for everyone involved. While I'm sympathetic, the government is not. Reluctance to change while acknowledging the associated risks amounts to a strategy based on hope. As we say in the Marine Corps, however, "hope is not a strategy."
Aside from the sometimes foolhardy belief that a misclassified worker can be trusted to not file suit after a business breakup (when the deposits stop and mortgage bill comes due, guess who's a prime target), companies often fail to recognize the numerous ways in which their classification decisions can be challenged even when they are in agreement with their (misclassified) contractors. Here are just three examples of how your classifications can be scrutinized despite the lack of a challenge by the worker:
- Auto Accidents: Whether delivering products, making sales calls, or traveling between job sites, independent contractors often perform work that requires driving. Of course, sometimes drivers are involved in automobile accidents. When accidents happen, insurance companies step in and look for sources of money to fund claims, attorneys' fees, costs, and settlements. One potential source is your insurance. "But the driver isn't my employee!," you say. You better buckle up because the other motorist's insurance carrier is about to challenge your classification in an attempt to access your insurance policies.
- EDD Audits: During the course of the last several years, the California Employment Development Department (EDD) has increased the number of verification (random) audits it performs in search of additional tax revenue. One reason government agencies prefer hiring entities classifying workers as employees rather than independent contractors is it's a more efficient tax collection method; employers collect employees' taxes on the government's behalf, which increases collection rates and reduces government collection costs. The consequences of misclassification include pricey fines, penalties, and interest.
- Unemployment Insurance, Workers' Compensation, and Disability Claims: In addition to verification audits, the EDD performs request (targeted) audits. Targeted audits may result when a contractor files an unemployment insurance, workers' compensation, or disability claim because independent contractors are ineligible for such benefits. Request audits, like verification audits, can result in costly fines, penalties, and interest if the EDD concludes you have misclassified your workers. Even so, that may not be the worst of it: the EDD often shares its findings with the Internal Revenue Service.
Your Action Plan
AB5 has changed the measuring stick, misclassification costs are high, and you do not have complete control of when the government or others can challenge your classifications. So what can you do? Here are several steps all prudent companies should take if they are using independent contractors:
- Conduct an audit of current classification practices;
- Review written independent contractor agreements;
- Implement written independent contractor agreements;
- Update workplace policies;
- Update organizational charts;
- Reclassify independent contractors as employees if necessary.
Jason Morris is a partner in the Newport Beach office of Newmeyer Dillion. Jason's practice concentrates on the areas of labor and employment and business litigation. He advises employers and business owners in employment litigation, as well as advice and counsel related to employment policies and investigations. You can reach him at jason.morris@ndlf.com.
About Newmeyer Dillion
For 35 years, Newmeyer Dillion has delivered creative and outstanding legal solutions and trial results that achieve client objectives in diverse industries. With over 70 attorneys working as a cohesive team to represent clients in all aspects of business, employment, real estate, environmental/land use, privacy & data security and insurance law, Newmeyer Dillion delivers holistic and integrated legal services tailored to propel each client's success and bottom line. Headquartered in Newport Beach, California, with offices in Walnut Creek, California and Las Vegas, Nevada, Newmeyer Dillion attorneys are recognized by The Best Lawyers in America©, and Super Lawyers as top tier and some of the best lawyers in California and Nevada, and have been given Martindale-Hubbell Peer Review's AV Preeminent® highest rating. For additional information, call 949.854.7000 or visit www.newmeyerdillion.com.
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