The Construction Project is Late—Allocation of Delay
November 17, 2016 —
David Adelstein – Florida Construction Legal UpdatesThe construction project is late. Very late. The owner is upset and notifies the contractor that it is assessing liquidated damages. The contractor, in turn, claims that the project is late because of excusable, compensable delays and, perhaps, excusable, noncompensable delays. This is a common and unfortunate story between an owner and contractor on any late construction project. Now the fun begins regarding the allocation of the delay!
Through previous articles, I discussed that in this scenario the burden really falls on the contractor to establish that the liquidated damages were improperly assessed against it and, thus, it is entitled to additional time and/or extended general conditions as a result of excusable delays. Naturally, this requires the contractor to develop a critical path analysis (time impact analysis) allocating the impacts / delays (and the reasons for the impacts/ delays) to the project completion date. The reason the burden really falls on the contractor is because the owner’s burden is relatively easy – the project was not complete on time pursuant to the contract and any approved changed orders.
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David Adelstein, Katz, Barron, Squitero, Faust, Friedberg, English & Allen, P.A.Mr. Adelstein may be contacted at
dma@katzbarron.com
California Court Confirms Broad Coverage Under “Ongoing Operations” Endorsements
December 01, 2017 —
Kevin C. Brantley - Payne & FearsA California Court of Appeal has confirmed that additional insured endorsements (“AIE”) granting coverage for liability arising out of a named insured’s “ongoing operations,” and in effect during those “ongoing operations,” do not require that the liability arise while the named insured is performing work. McMillin Mgmt. Servs., L.P. v. Financial Pacific Ins. Co., Cal. Ct. App., November 14, 2017, Case No. D069814.
In McMillin, a construction defect insurance coverage action, Lexington Insurance Company argued that McMillin had no liability to homeowners until after their homes closed escrow; thus, McMillin did not face liability while the named insureds’ work was ongoing. The Court of Appeal rejected Lexington’s argument, finding that the “ongoing operations” AIEs provide only that McMillin’s liability “be ‘linked’ through a ‘minimal causal connection or incidental relationship’ with [the named insureds’] ongoing operations.” (internal citations omitted). The Court reasoned that Lexington had not established that all of the damage in the underlying action occurred after the named insureds completed their work, thus Lexington had not established as a matter of law that there was no potential for coverage for McMillin under the policies.
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Kevin C. Brantley, Payne & FearsMr. Brantley may be contacted at
kcb@paynefears.com
Insurer’s Confession Of Judgment Through Post-Lawsuit Payment
June 25, 2019 —
David Adelstein - Florida Construction Legal UpdatesThe recent opinion in the property insurance coverage dispute, Bryant v. Geovera Specialty Ins. Co., 44 Fla.L.Weekly D1232a (Fla. 4thDCA 2019), discusses the doctrine known as an insurer’s “confession of judgment.” In this case, an insured suffered water damage from a pipe leak. The insurer paid the insured $6,000 because of sublimits in the property insurance policy. There was a $5,000 sublimit for mold and a $1,000 sublimit for water leakage that occurs over a period of 14 days or more. The insured sued the insurer for covered water damage arguing that the sublimits did not apply.
After the lawsuit was filed, an agreed order was entered that stayed the case pending an appraisal. The appraisal award did not apply the $1,000 sublimit to the water damage from the pipe leak and segregated out damage for mold. (The insurer already paid the mold sublimit). The insurer ended up paying the appraisal award for the water damage caused by the pipe leak after deducting its pre-lawsuit sublimit payment. The insurer paid the award and did NOT challenge the application of the $1,000 sublimit in court, although it could have since coverage issues are decided by courts.
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David Adelstein, Kirwin Norris, P.A.Mr. Adelstein may be contacted at
dma@kirwinnorris.com
The Right to Repair Act (Civ.C §895 et seq.) Applies and is the Exclusive Remedy for a Homeowner Alleging Construction Defects
February 07, 2018 —
Craig Wallace – Smith Currie McMillin Albany LLC v. Superior Court (01.18.18) ____ Cal.4th _____ (2018 WL 456728)
The California Supreme Court confirmed that the Right to Repair Act (CA Civil Code § 895, et seq. and often referred to by its legislative nomenclature as “SB800”) applies broadly to any action by a residential owner seeking recovery of damages for construction defects, regardless of whether such defects caused property damages or only economic losses. This includes the right in the Act of the builder to attempt repairs prior to the owner filing a lawsuit.
Background
Homeowners sued builder for construction defects. Included in their causes of action was a cause of action for violation of the Right To Repair Act. The Act requires that before filing litigation, a homeowner must give the builder notice and engage in a nonadversarial prelitigation process which gives the builder a right to repair the defects. The builder asked the court to stay the homeowners’ action so the prelitigaiton process could be undertaken. Rather than give the builder the repair right, the homeowners dismissed the particular cause of action from their case, leaving only other so-called common law and warranty causes of action. The common law claims sought recovery for property damage caused by the defects. The builder nonetheless asked to the Court to stay the action so it could exercise its right to repair.
The trial court, relying on
Liberty Mutual Ins. Co. v. Brookfield Crystal Cove LLC (2013) 219 Cal.App.4th 98, denied builder’s request to stay the action. The
Liberty Mutual Court concluded that certain common law construction defect claims fell outside the purview of the Act. Builder appealed. The Court of Appeal disagreed with
Liberty Mutual, so did not follow it, granted the builder’s request for a stay, and directed that the homeowners afford the builder the right to repair the claimed defects as provided under the Act.
The California Supreme Court affirmed, disapproving
Liberty Mutual and the subsequent cases relying on it.
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Craig Wallace, Smith CurrieMr. Wallace may be contacted at
swwallace@smithcurrie.com
That’s Common Knowledge! Failure to Designate an Expert Witness in a Professional Negligence Case is Not Fatal Where “Common Knowledge” Exception Applies
June 03, 2019 —
Lyndsey Torp - Snell & Wilmer Real Estate Litigation BlogIn reversing summary judgment for defendants, the California Fourth District Court of Appeal recently held that homeowners suing their real estate broker for negligence did not need an expert witness to establish the elements of their causes of action. Ryan v. Real Estate of the Pacific, Inc. (2019) 32 Cal. App. 5th 637. Typically, expert witnesses are required to establish the standard of care in professional negligence cases. But in Ryan, the court of appeal held that the “common knowledge” exception applied despite this general rule, because the conduct required by the particular circumstance of the case was within the common knowledge of a layman. The conduct in question here? The broker’s failure to disclose to his client that the client’s neighbor told him that she planned extensive renovations that would obstruct the client’s property’s ocean views.
Ryan and Patricia Ryan (the Ryans) hired defendant Real Estate of the Pacific, Inc., doing business as Pacific Sotheby’s International Realty (Sotheby’s) and defendant real estate broker to sell their residence in La Jolla, California. During an open house at the residence, a neighbor informed the Ryan’s real estate broker that she planned extensive renovations at her home that would, among other things, permanently obstruct the Ryan’s westerly ocean views and take several years to complete. The real estate broker never informed the Ryans of this, nor the subsequent buyer. The subsequent buyer purchased the property for $3.86 million, and defendants received $96,500 as commission for the sale. The day after escrow closed, the buyers learned of the renovations, and sought to rescind the purchase. Based on advice of defendants, the Ryans refused, and the dispute proceeded to arbitration. The buyer obtained a rescission of the purchase, with the Ryans order to pay damages, interest, and attorneys’ fees and costs in excess of $1 million. The Ryans then sued Sotheby’s and the real estate broker to recover these amounts and damages caused by defendants’ alleged negligence.
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Lyndsey Torp, Snell & WilmerMs. Torp may be contacted at
ltorp@swlaw.com
Communications between Counsel and PR Firm Hired by Counsel Held Discoverable
March 22, 2017 —
Kevin R. Crisp, David W. Evans, & Sarah A. Marsey – Haight Brown & Bonesteel LLPCounsel handling cases involving newsworthy facts and litigation often hire public relations (“PR”) consultants. In Nicholas Behunin v. The Superior Court of Los Angeles County, 2017 DJDAR 2405 (No. B272225 March 14, 2017) the California Court of Appeal, Second District, denied a petition for writ of mandate concerning a trial court discovery order holding that communications between a plaintiff’s attorney and a public relations firm counsel hired for the purpose of creating a website for the Plaintiff were discoverable, despite claims that such communications were protected from disclosure by attorney-client privilege.
Plaintiff sued Defendants -- (the) Charles Schwab and his son Michael Schwab -- over an unsuccessful real estate investment. Plaintiff’s attorneys hired a public relations consultant to create a website (www.chuck-you.com) that sought to link the Schwabs with the late Indonesian dictator Suharto’s family. The court succinctly described the web site as “a social media campaign to induce the Schwabs to settle the case.”
Reprinted courtesy of Haight Brown & Bonesteel LLP attorneys
Kevin R. Crisp,
David W. Evans and
Sarah A. Marsey
Mr. Crisp may be contacted at kcrisp@hbblaw.com
Mr. Evans may be contacted at devans@hbblaw.com
Ms. Marsey may be contacted at smarsey@hbblaw.com
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Before Celebrating the Market Rebound, Builders Need to Read the Fine Print: New Changes in Construction Law Coming Out of the Recession
November 26, 2014 —
Alan H. Packer - Newmeyer & Dillion, LLPAs the homebuilding market continues to improve, many builders find themselves maneuvering familiar roads. That said, important new realities have taken hold since the market collapse. Navigating these changes requires extra thought for practical and legal reasons.
Using Old Designs “Off the Shelf”?
The adoption of the California Building Standards Code in 2010, with an updated schedule to go into effect January 1, may complicate the use of older designs. In addition, some builders are contemplating building on pads constructed five or more years ago, temporarily shelved until market conditions improved. Because of changes in both the applicable Code and due to possible changes in the underlying soils and drainage, these projects require additional scrutiny before starting construction.
Mechanic’s Lien Law Changes
Not too long ago, the California Legislature recently overhauled the entire mechanic’s lien law system in California. New forms, new statutory references, new rules and deadlines are all applicable to projects under construction now. Make sure your documents are up to date, as the use of older forms (particularly for liens, progress payments, and final payments) could create legal problems in the future.
Indemnity Law Changes
Since 2006, California lawmakers have passed four rounds of legislation aimed at limiting indemnity provisions in construction contracts. The laws are aimed at two aspects of indemnity law: “Type 1” indemnity provisions, and liability for the costs of defending a claim.
Type 1 Indemnity. California law previously permitted a builder to obtain “Type 1” indemnity from its subcontractors for all claims. Under a Type 1 provision, if a claim arose out of the trade’s work, the trade was fully responsible to defend and indemnify the builder – even if other trades or the Builder were partially at fault. Some cases even allowed, typically in a commercial context, the builder to obtain Type 1 indemnity even if the trade was not negligent, as long as the claim involved its work.
Defense Obligation. In 2008, California’s highest court issued an opinion in Crawford v. Weather Shield, evaluating an indemnity provision requiring trade (a window supplier/manufacturer) to defend the builder in claims involving allegations of damages arising out of the trade’s work. Because the trade had contractually agreed to defend the builder, the Court held it responsible for the builder’s defense costs -- even though, ultimately, the trade was found
not liable for the actual damages claimed.
Recent legislation after Crawford has dramatically shifted how indemnity provisions will be enforced. Builders may no longer obtain Type 1 indemnity for residential construction defect claims covered by SB800; instead, indemnity is limited to the extent a claim arises out of the trade’s work. Even more recent legislation applied these changes to claims arising out of commercial construction projects. The recent legislation allows the trades “options” on how to defend the builder, with an eye toward requiring that they pay only a “reasonably allocated” portion for the builder’s defense costs.
Smart builders are refining their contract documents to take into account these new limitations on indemnity provisions.
Insurance Market Changes
Due to uncertainties in subcontractor insurance and other factors, many builders have also converted their liability insurance from a “bring your own” model to “wrap-up” insurance, where the builder’s policy also covers their trades. Builders should carefully examine their subcontracts in light of this change as well.
Trade Partner Changes
On a practical level, many trade partners, particularly in the residential sector, have gone out of business or moved on to greener pastures. Builders need to find and negotiate contracts with new trade partners on the fly, and educate them on the builders’ procedures for payment and construction.
SB800 documentation
A decade ago, most builders updated their purchase documents and subcontracts for California’s “Right to Repair Law” (also known as SB800), which set forth functionality standards for construction defects in residential housing, and procedures for resolving claims prior to litigation. Builders ramping up to meet market demand should examine how they implemented SB800 changes in contract documents. Issues to consider:
- Whether to opt out of -- or back into -- statutory procedures.
- Whether to include arbitration or judicial reference provisions to control where claims are litigated after the SB800 process.
- Re-training personnel to preserve SB800 rights, including sign-offs on purchase documentation and recordation of key documents.
- Recent Court of Appeal decisions have complicated the SB800 landscape, potentially opening the door to “common law” tort claims in at least subrogation contexts. Strategic planning at the document stage may be a good way to mitigate this risk as the cases wind their way through the judicial process.
The continuing surge in building activity is a welcome sign for builders who have weathered the storm. Before taking too many steps, builders should consult with counsel, their designers, and their insurance advisors to take into account the new realities of this recovering housing market.
About the Author
Alan H. Packer is a partner in the expanding Walnut Creek, CA, office of the law firm of
Newmeyer & Dillion LLP whose specialties include real estate, insurance, and construction litigation. To reach Alan, call 925.988.3200 or email him at alan.packer@ndlf.com.
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Improper Classification Under Davis Bacon Can Be Costly
April 01, 2015 —
Craig Martin – Construction Contractor AdvisorThe Department of Labor announced late last year that it had recovered nearly $2 million in back wages and fringe benefits from a subcontractor that provided constructions services at the federally funded Crescent Dunes Solar Energy Project in the Nevada desert. This was not a failure to pay Davis Bacon wages, but a failure to properly classify laborers on the project. The DOL determined that the laborers should have been paid as skilled trade steelworkers, not general laborers. As the subcontractor found out, this proved very costly.
The subcontractor submitted its bid, classifying its laborers as general laborers and designating their wage at $30.00. The laborers were to assemble billboard sized mirrors on the project. There is some indication that the Department of Energy agreed with the classification, even though the Department of Labor has the final say on classifications. The Department of Labor’s investigation revealed that the laborers routinely performed duties in skilled trades, such as ironworking, electrical work, painting or bridge crane operation. Based on these activities, the Department of Labor concluded that the laborers should have been paid $60.00 per hour plus fringe benefits.
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Craig Martin, Lamson, Dugan and Murray, LLPMr. Martin may be contacted at
cmartin@ldmlaw.com
