Force Majeure, Construction Delays, Labor Shortages and COVID-19
April 06, 2020 —
Elizabeth J. Dye - Gravel2Gavel Construction & Real Estate Law BlogThe global effect of the Coronavirus disease (COVID-19) is still unknown, and the progress of many large-scale construction projects has been affected by “Shelter in Place” orders, although some states and localities have classified construction projects as “essential.” Just last Friday, New York shut down all construction, with few exceptions.
Several states have enacted gathering bans of all sizes (including Michigan, Oregon, New Mexico, Washington, New York, New Jersey, Wisconsin, Illinois, Indiana, Ohio, West Virginia, California) and more people are likely to be quarantined as widespread testing becomes available. These decisions will undoubtedly affect the supply of materials and labor necessary for construction projects.
Officials have turned to increasingly disruptive and measures to control the spread of the virus in addition to event prohibitions and school closures, including restricting people to their homes, and closing businesses that are not “essential.” While many companies have adopted mandatory telecommuting, this is an impossibility on the construction sites. Eventually, supply and labor shortages due to governmental restrictions or quarantines will affect the critical path of construction projects.
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Elizabeth J. Dye, PillsburyMs. Dye may be contacted at
elizabeth.dye@pillsburylaw.com
Sanctions of $1.6 Million Plus Imposed on Contractor for Fabricating Evidence
March 16, 2017 —
Paul R. Cressman, Jr.King County Superior Court issued sanctions of $1,641,721 in favor of Gefco and against Cascade Drilling, Inc. and its President, Bruce Niermeyer, composed of $1,394,435 in attorneys’ fees and $247,286 in expert fees. [i]
Cascade Drilling is a contractor. Gefco manufactures and sells large drilling machinery. The dispute centered around a project that began in 2008. Cascade was hired to drill a water well at a housing development in Wheeler Canyon, California. Cascade used a 50K drilling rig purchased from Gefco. The pump drive shafts on the drilling rig failed four times. After each failure, Cascade ordered a replacement pump drive shaft from Gefco.
In September 2008, Cascade ordered drilling equipment for an unrelated drilling rig from Gefco, but did not pay Gefco. Gefco then sued to collect. Cascade admitted not paying, but asserted counterclaims alleging that Gefco was indebted to Cascade for non-conforming and defective goods, including the replacement pump drive shafts purchased from Gefco for the Wheeler Canyon project.
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Paul R. Cressman, Jr., Ahlers & Cressman PLLCMr. Cressman may be contacted at
pcressman@ah-lawyers.com
The Overlooked Nevada Rule In an Arena Project Lawsuit
August 04, 2016 —
Scott Van Voorhis – Engineering News-RecordWhen crunching the numbers on the construction wrap-up program for the T-Mobile Arena project outside Las Vegas, insurance broker Aon Risk Services South allegedly failed to take into account a Nevada workers’ compensation rule, one of many intricate features of the state’s workers’ compensation regulations. Others had apparently missed this aspect of the rule, too. “Many business owners and executives are unaware of this regulation and … are paying more premium to their workers’ compensation carriers than they should be,” warned Bradley Rowe, a commercial insurance broker in Las Vegas, in a blog post in 2014. Two years later, the prime contractor joint venture on the completed $230-million arena is battling in court with Aon, charging the broker with professional negligence and breach of contract, according to court documents filed in U.S. District Court in Nevada.
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Scott Van Voorhis, Engineering News-RecordYou may send questions or comments to
enr.com@bnpmedia.com
Federal Court Holds that Demolition Exclusion Does Not Apply and Carrier Has Duty to Defend Additional Insureds
September 02, 2024 —
Craig Rokuson - Traub LiebermanIn the recent case of
Travelers Indem. Co. v. Trisura Specialty Ins. Co., 2024 U.S. Dist. LEXIS 101953 (S.D.N.Y. June 7, 2024), the court had occasion to consider the classic additional insured fact pattern of a construction accident. Travelers insured the general contractor and provided a defense to the general contractor as well as its wholly owned subsidiary. Trisura insured the subcontractor, who employed the injured worker. Travelers brought suit, alleging that Trisura is obligated to defend and indemnify the general contractor, its subsidiary, the owner of the building (The City of New York), and the tenant.
Trisura denied any obligation to provide coverage due to the application of the “Demolition Exclusion” to the Trisura policy, which provides, in part, that there is no coverage for injury or damage arising out of the demolition of any building or structure which has original ground height in excess of three stories. The accident occurred during the interior demolition of the fifth floor of the building. The court held that the Demolition Exclusion applies only when there is a complete tearing down, razing, or destruction of an entire building. As the accident occurred during interior demolition, the exclusion did not apply.
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Craig Rokuson, Traub LiebermanMr. Rokuson may be contacted at
crokuson@tlsslaw.com
Lost Rental Income not a Construction Defect
November 27, 2013 —
CDJ STAFFA judge in Colorado has ruled that although the homeowner’s policy excluded construction defects from coverage, lost rental income and the cost of deck repair involved in fixing a defective drainage system were.
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Does “Faulty Workmanship” Constitute An Occurrence Under Your CGL Policy?
January 08, 2024 —
David Adelstein - Florida Construction Legal UpdatesThere is nothing more scintillating than an insurance coverage dispute, right? Well, some folks would agree with this sentiment. Others would spit out their morning coffee in disagreement. Regardless of where you fall in the spectrum, they are always important because maintaining insurance is a NECESSARY part of business, particularly in the construction industry. The ideal is to have insurance that covers risks you are assuming in the performance of your work.
Sometimes, insurance coverage disputes provide valuable insight, even in disputes outside of Florida. Recently, the Western District of Kentucky in Westfield Insurance Co. v. Kentuckiana Commercial Concrete, LLC, 2023 WL 8650791 (W.D.KY 2023), involved such a dispute. While different than how Florida would treat the same issue, it’s still noteworthy because it sheds light into how other jurisdictions determine whether “faulty workmanship” constitutes an “occurrence” under a commercial general liability (CGL) policy.
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David Adelstein, Kirwin Norris, P.A.Mr. Adelstein may be contacted at
dma@kirwinnorris.com
Wait! Don’t Sign Yet: Reviewing Contract Protections During the COVID Pandemic
April 13, 2020 —
Danielle S. Ward - Balestreri Potocki & HolmesAs the circumstances of the COVID pandemic change day by day, and we all rush to keep business moving where and when we can, companies should consider hitting the “pause button” before renewing or executing any new contracts. Developing contracts often takes considerable time and expense, and companies are not in the habit of reworking them often. A change in law may prompt a company to revisit their contract terms, but otherwise business is often carried out with a standard form contract for a period of years. With the COVID pandemic affecting nearly every business and industry, life is not business as usual, and companies should make sure their contracts consider what previously seemed like an unforeseeable event.
Force Majeure clauses are included in many contracts to excuse contract performance when made impossible by some unforeseen circumstance. These clauses typically fall under two categories: general and specific. General force majeure clauses excuse performance if performance is prevented by circumstances outside the parties’ control. By contrast, specific force majeure clauses detail the exhaustive list of circumstances (acts of god, extreme weather, war, riot, terrorism, embargoes) which would excuse contract performance. Force majeure clauses are typically interpreted narrowly. If your contract has a specific clause and pandemic or virus is not one of the listed circumstances it may not apply. Whether a particular existing contract covers the ongoing COVID pandemic will vary depending on the language of the contract.
Force majeure clauses previously made headlines when the great economic recession hit in 2008. A number of courts held that simple economic hardship was not enough to invoke force majeure. The inability to pay or lack of desire to pay for the contracted goods or services did not qualify as force majeure. In California, impossibility turns on the nature of the contractual performance, and not in the inability of the obligor to do it. (Kennedy v. Reece (1964) 225 Cal. App. 2d 717, 725.) In other words, the task is objectively impossible not merely impossible or more burdensome to the specific contracting party.
California has codified “force majeure” protection where the parties haven’t included any language or the circumstances in the clause don’t apply to the situation at hand. Civil Code section 1511 excuses performance when “prevented or delayed by an irresistible, superhuman cause, or by the act of public enemies of this state or of the United States, unless the parties have expressly agreed to the contrary.” (Civ. Code § 1511.) What qualifies as a “superhuman cause”? In California, the test is whether under the particular circumstances there was such an insuperable interference occurring without the party's intervention as could not have been prevented by the exercise of prudence, diligence and care. (Pacific Vegetable Oil Corp. v. C. S. T., Ltd. (1946) 29 Cal.2d 228, 238.)
If you find yourself in an existing contract without a force majeure clause, or the statute does not apply, you may consider the doctrine of frustration of purpose. This doctrine is applied narrowly where performance remains possible, but the fundamental reason the parties entered into the contract has been severely or substantially frustrated by an unanticipated supervening circumstance, thus destroying substantially the value of the contract. (Cutter Laboratories, Inc. v. Twining (1963) 221 Cal. App. 2d 302, 314-15.) In other words, performance is still possible but valueless. Note this defense is not likely to apply where the contract has simply become less profitable for one party.
Now that COVID is no longer an unforeseeable event, but rather a current and grave reality, a party executing a contract today without adequate protections may have a difficult time proving unforeseeability. Scientists are not sure whether warm weather will suppress the spread of the virus, as it does with the seasonal flu, but to the extent we get a reprieve during the summer we may see a resurgence of cases this Fall or Winter. Companies should take care in reviewing force majeure clauses, and other clauses tied to timely performance such as delay and liquidated damages before renewing or executing new contracts.
Your contract scenario may vary from the summary provided above. Please contact legal counsel before making any decisions. During this critical time, BPH’s attorneys can be reached via email to answer your questions.
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Danielle S. Ward, Balestreri Potocki & HolmesMs. Ward may be contacted at
dward@bph-law.com
Contractual Indemnification Limitation on Florida Public Projects
July 28, 2016 —
David Adelstein – Florida Construction Legal UpdatesConstruction contract indemnification provisions are governed under Florida Statute s. 725.06. This is a very important statute to know if you are drafting indemnification provisions for any type of construction contract. (There is also Florida Statute s. 725.08 that discusses indemnification provisions applicable to design professionals that is also worth knowing.)
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David Adelstein, Kirwin NorrisMr. Adelstein may be contacted at
dma@kirwinnorris.com
