2007 – Page 8 – Construction Law

Agreement to Arbitrate Prejudices Insurers

Apr 30 2007

MacLean Townhomes, LLC v. Am. States Ins. Co., 138 Wash. App. 186, 156 P.3d 278 (2007)

In this case, a homeowners association informed its developer about certain construction defects attributable to the building’s siding subcontractor. The developer was named as an additional insured on the siding subcontractor’s commercial general liability insurance policy. However, the developer failed to give the insurer notice of the defects and potential claim. The developer further agreed (again without notice to the insurer) to enter into binding arbitration with the homeowners association.

Division One affirmed summary judgment in favor of the insurer, holding that the developer’s failure to give notice was a violation of the insurance policy, prejudiced the insurer, and was therefore fatal to the developer’s claim. Acknowledging that prejudice is normally a question of fact, the court held that the developer’s agreement to binding arbitration deprived the insurer of full judicial review of the matter. This inability to seek review of a decision, for example, in the case of an error of law, necessarily prejudiced the insurer and excused the insurer of its duty to defend the developer.

Economic Loss Rule Does Not Bar Owner’s Negligence Claim Against Subcontractor

Apr 21 2007

Lord v. Customized Consulting Specialty, Inc., 182 N.C. App. 635, 643 S.E.2d 28 (Ct. App. 2007)

In this case, homeowners sued their contractor regarding defective trusses installed in their home, and also brought a negligence claim directly against the subcontractor which supplied the trusses. A jury awarded no damages against the contractor, but did award damages against the subcontractor. The subcontractor argued on appeal that the economic loss rule barred the homeowners’ claim. The North Carolina Court of Appeals affirmed the jury verdict against the subcontractor, holding that the economic loss rule does not bar a negligence claim in the absence of a contract.

Contractors Have Lien Rights on Improvements Built on Public Property

Apr 15 2007

Haselwood v. Bremerton Ice Arena, Inc., 137 Wn. App. 872, 155 P.3d 952 (2007)

In this case, Division Two of the Washington Court of Appeals considered whether and to what extent a contractor has lien rights on a private building constructed on public property. The City of Bremerton entered into a concession agreement with Bremerton Ice Arena, Inc. (“BIA”), under which BIA would construct an ice arena on city property and would own and operate the arena for a specified period of time. After the expiration of that period of time, ownership of the arena improvements would transfer to the city.

The excavation and drainage subcontractor on the project claimed it was unpaid for a portion of its work, and filed a lien the project.

Lenders Can Pull Financing if Borrower Cannot Show It Is Ready, Willing and Able to Perform All Conditions Required for Loan

Apr 10 2007

Boise Tower Assocs. LLC v. Wash. Capital Joint Master Trust, 2007 WL 1035158 (D. Idaho Apr. 2, 2007)

In this case, the federal court sitting in Boise applied Washington law in delivering a win for a lender who refused to lend to the plaintiff developer. The lender agreed to provide financing, but only if four conditions precedent were met, including an agreement to use union labor. The developer agreed, but later took steps to have his contractor use non-union labor. The lender refused to loan, prompting a lawsuit by the developer. The court held that the lender was entitled to refuse because the developer had not demonstrated that it was willing and able to perform the conditions precedent. A party, here the developer, that claims to have been damaged by a repudiation must show that it was ready, willing and able to perform its obligations under the contract before the repudiation, and that it would have rendered the agreed performance if the defendant had not repudiated. The developer could not do so here, so the court excused the lender from making the loan.

New US Federal Rules Focus More Attention on Electronic Evidence in Construction Disputes

Apr 01 2007

This article, by K&L Gates attorneys David R. Cohen and Kari M. Horner, appears in the April 2007 edition of Construction Law International, the magazine of the IBA International Construction Projects Committee.

Important amendments to the US Federal Rules of Civil Procedure (the Rules) relating to electronic discovery in litigation became effective on 1 December 2006. Every party involved in litigation in US federal courts should become familiar with these Rules. This article provides an overview of the key provisions of the new Rules.

View the full article here.

This article was first published in the Construction Law International Vol 2 No 1, April 2007, and is reproduced by kind permission of the International Bar Association, London, UK. © International Bar Association 2006.

More Than Just Buying Paperclips

Apr 01 2007

This article, by K&L Gates London partner Christopher G. Causer, appears in the April 2007 edition of RICS Construction Journal. It explains the "ins and outs" associated with PFIs and presents arguments for making the whole process easier, and more accessible, for all parties.

PFI has its detractors and it is sometimes difficult to draw out any clear principles from the mass of claims, counterclaims and innuendo appearing in the press – and even in academic journals. But there is one undeniable fact: as a procurement method, PFI is complex and requires a high level of intervention from external legal advisors. It is hard to envisage a PFI project reaching contractual close without at least three sets of lawyers working on it.

So how has the nature of the lawyers’ work changed since PFI started in the early 1990s? What changes are likely in the next few years, and are there any obvious ways in which the delivery of services can be improved?

View the full article here. Posted with permission.

State Not Liable to Workers Who Also Recovered Under Workers’ Compensation System

Feb 10 2007

Fuhriman v. Idaho Dept. of Transp., 143 Idaho 800, 153 P.3d 480 (2007)

Idaho law provides that workers’ compensation benefits are the exclusive remedy for workplace injuries. Idaho Code §72-223, however, contains an exception to that "exclusive remedy." The exception allows a finding of liability against a third party, even where the injured employee has received worker’s compensation benefits, if the third party is legally liable for damages. This exception to the exclusive remedy rule does not apply, however, to employers described in §72-216, which includes third party that has expressly or impliedly hired or contracted the services of another, including contractors and subcontractors, and the third party is liable to pay workers’ compensation benefits if the direct employer, the contractor or subcontractor, does not.

In a February 2007 opinion, the Idaho Supreme Court held that the Idaho Department of Transportation was not subject to the exception (that is, it was protected by the exclusive remedy rule). The State was using workers employed by a contractor. Those workers were killed on the job. Their families received workers’ compensation benefits and sued the State. The Court rejected the claims, however, because the State would have been liable for the worker’s compensation benefits if the contractor/employer failed to pay those benefits. The exception therefore did not apply.

Be Very Careful When Entering into Settlement Agreements

Feb 08 2007

Ragnar Benson, Inc. v. Hempfield Township Mun. Auth., 916 A.2d 1183 (Pa. Super. Ct. 2007)

The Pennsylvania Superior Court untied the knottiest of two settlement agreements in this case. Under separate written agreements, Kirby Electric contracted with the Municipal Authority to do its electrical construction, while Ragnar Benson contracted to perform general construction on the Authority’s water pollution control plant. Each filed a lawsuit against the Municipal Authority, asserting breach of contract, and the Municipal Authority counterclaimed, and cross-claimed accordingly. Kirby and the Municipal Authority agreed to settle their claims and counterclaims, with the provision that Kirby and Ragnar would continue in litigation and that settlement payments would be calculated based upon the outcome of the two contractors’ litigated dispute.
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K&L Gates’ Arbitration World, Winter 2006/2007

Jan 15 2007

By K&L Gates attorneys Ian Meredith, Michael D. Napoli, Martin J. King, Andrew H. Davies, Douglas J. Simmons, Ben Morgan, Clare Tanner, Brian R. Davidson, Kari M. Horner, Sarah A. Munro and Rachel G. Stephens.

Arbitration World highlights the significant developments and issues in international arbitration that matter to in-house counsel and company executives with responsibility for dispute resolution.

Welcome to the third edition of “Arbitration World” and the first edition, we are proud to say, following the combination of Kirkpatrick & Lockhart Nicholson Graham LLP with Preston Gates Ellis LLP, effective 1 January 2007, to form Kirkpatrick & Lockhart Preston Gates Ellis LLP – “K&L Gates.”

In light of this development, page 3 of this issue includes a short commentary on arbitration in Asia and a profile of the firm’s Asian offices which enable the firm to advise clients in arbitration in this increasingly strategic part of the world.

For those reading for the first time, “Arbitration World” aims to highlight significant developments and issues in international arbitration that matter to in-house counsel and company executives with responsibility for dispute resolution.

Contract Specifications Defense Applies to Both Private and Public Contractors

Jan 01 2007

Craig Johnson Constr., L.L.C. v. Floyd Town Architects, P.A., 142 Idaho 797, 134 P.3d 648 (2006)

Town entered into a contract with Dean to prepare plans for condominiums in Ketchum. Once Dean received the plans, Dean contracted with Johnson to build the condominiums according to Town’s plans. The condominiums were built in two phases. In Phase one Johnson deviated from the plans, but did not do so in building phase two. The first winter the condominiums were completed, ice dams formed on the roofs of individual units in both phases of construction. All three parties then brought actions against each other for breach of contract, negligence and indemnification.

At trial, the jury found Johnson to be 90 percent at fault and Town only 10 percent at fault. The court held that “a public or private contractor following plans and specifications prepared by another party is not liable in negligence where defects in the plans and specifications cause injuries, so long as the contractor should not have reasonably known about the defects.” The court affirmed the jury’s verdict since there was sufficient evidence in the record to show that Johnson was negligent and failed to follow Town’s plans.

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