Case Summaries – Page 8 – Construction Law

Question of Insurance Company Estoppel Certified to State Court

Jan 05 2011

10 Ellicott Square Court Corp. v. Mountain Valley Indemnity Co., 2010 WL 5295420 (2d Cir. Dec. 28, 2010)

In this case, the plaintiffs were, respectively, the owner and construction manager of a commercial building project in Buffalo. They contracted with a third firm for interior demolition in the building; the construction agreement required the demolition company to secure insurance to cover legal liability resulting from the demolition project. The company secured a primary policy and an umbrella policy from the defendant, which issued a certificate of insurance naming the plaintiffs as additional insureds. The primary policy specifically required the underlying construction agreement to be “executed” for any injury to be covered by the policy, but before the agreement was signed, a worker was injured and sued. The defendant declined coverage, arguing that the construction agreement had not been executed in time.

Trial Judge Has Discretion to Accept a Late Notice of Claim

Dec 29 2010

Hayes v. Delaware-Chenango-Madisonotsego Board of Cooperative Educ. Servs., 79 A.D.3d 1405, 912 N.Y.S.2d 781 (N.Y. App. Div. 2010)

In Hayes, the plaintiff was seriously injured while performing construction work at an educational agency site. He filed a late notice of claim six months later, which the Supreme Court permitted. The Appellate Division, Third Department, affirmed that discretion to accept a late notice rests with the trial court, finding no prejudice against the defendants from a “relatively brief” delay.

Labor Unions’ Jurisdictional Disputes Are Outside the Reach of Arbitration Agreement

Dec 29 2010

Chenango Sports, Inc. v. Laborers’ Int’l Union of N.A. #17, 2010 WL 5391541 (N.D.N.Y. Dec. 22, 2010)

In this case, the plaintiff contractor was hired to install field turf outside a public school. The two defendant labor unions argued that the parties had signed an agreement to use labor from their unions, but that the plaintiff then instead used labor from a carpenter’s union, claiming that the work could only be performed by a carpenter’s union (as a labor jurisdictional matter). The dispute centered around whether the labor agreement included the two unions in question – it did not include their signatures – and whether the plaintiff had actually begun using their labor before hiring the carpenter’s union workers. The defendant unions filed a motion to compel arbitration, and the plaintiff filed a motion to dismiss the underlying arbitration proceedings. The District Court for the Northern District of New York granted the plaintiff’s motion, dismissing the arbitration claims on the grounds that the dispute was jurisdictional in nature and therefore outside the reach of the arbitration agreement. After resolving this question, the only question of federal law implicated in the dispute, the court remanded to the New York Supreme Court for resolution of the factual disputes.

No Indemnification Under a CGL Policy for a Contractor’s Allegedly Defective Work

Dec 28 2010

Exeter Building Corp. v. Scottsdale Insurance Co., 79 A.D.3d 927, 913 N.Y.S.2d 733 (N.Y. App. Div. 2010)

In this case, the plaintiff Exeter served as general contractor for a condominium development project. The defendant insurance company Scottsdale issued several commercial general liability (CGL) policies that specifically excluded damage to property that arises out of faulty work. The underlying action against Exeter alleged substantial defects in the work. Scottsdale provided a law firm for Exeter’s defense but withdrew coverage on several claims when it learned of their nature. Exeter then sued for a judgment ordering Scottsdale to defend and indemnify it. The Appellate Division, Second Department, reversed the Supreme Court and granted Scottsdale’s motion for summary judgment, finding that CGL policies like this one are not intended to indemnify contractors against claims that their work is defective.

Where A Public Works Contract Requires Amendments To Be Written, An Oral Modification (Including Oral Approval Of Change Orders) Cannot Be Enforced

Dec 22 2010

By: Eric A. Bevan, K&L Gates LLP, Los Angeles

P&D Consultants, Inc. v. City of Carlsbad, 190 Cal. App. 4th 1332 (2010)

The City of Carlsbad (“the City”) contracted P&D Consultants, Inc. (“P&D”) to redesign the City’s municipal golf course project to comply with conditions imposed by the California Coastal Commission. The contract, originally for $556,745, provided that it could not be modified or amended except through written agreement signed by both parties. The parties entered into a five written amendments that approved extra work and increased the original contract price by $63,525.50. In each instance, P&D submitted a proposed change order with a fixed price to the City’s project manager. The City usually took several weeks to execute a resulting contract amendment and the City’s project manager frequently authorized P&D to start the extra work before the written contract amendment was executed. P&D eventually sought an additional $109,093.81 for what would have been the sixth amendment to the contract. P&D contended that the City’s project manager had orally instructed P&D to proceed with the work and provided assurances that the sixth amendment would be approved. The jury awarded P&D $109,093.81 for extra work. The City appealed, contending that the jury’s award of damages could not stand because there was no written change order authorizing P&D to conduct the extra work.

The Court of Appeal ruled that, unlike private contracts, public contracts requiring written change orders cannot be modified orally or through the parties’ conduct. Persons dealing with a public agency are presumed to know the law with respect to any agency’s authority to contract. Where a public contract requires amendments to be in writing, an employee of the public agency does not have authority to modify the contract through oral agreements or conduct. Thus, even if P&D had presented adequate evidence indicating that a City employee orally authorized the extra work, P&D still could not prevail because the public contract could not, as a matter of law, have been modified. The Court of Appeal ruled that the matter should not have been submitted to the jury and a non-suit should have been entered in favor of the City. The Court of Appeal reversed the award of damages in favor of P&D.

Court Refuses to Apply Economic Loss Rule

Dec 21 2010

Brian & Christie, Inc. v. Leishman Elec., Inc., 2010 WL 4724264 (Idaho Nov. 24, 2010)

By: Todd Reuter, K&L Gates, Spokane/Coeur D’Alene

Here, a restaurant owner sued a subcontractor for property damage resulting from a fire allegedly caused by defendant’s electrical work. The electrical contractor argued that the “economic loss rule” barred the restaurant owner’s claim. The economic loss rule is a principal of law that prohibits a plaintiff from recovering for purely monetary loss when he/she sues for a tort such as negligence. This is distinguishable from cases in which the plaintiff sues for physical injury or property damage: "Economic loss is recoverable in tort as a loss parasitic to an injury to person or property." In other words, those kinds of harm are not purely economic losses, even though they are ultimately compensated for with money. A purely economic loss might be, for example, lost profits caused by the defendant’s negligence. While the law of negligence imposes no duty to pay for purely economic losses, this duty can be created by contract. The Idaho Supreme Court refused to apply the rule because the restaurant owner sued for property damage, but the damage was not purely economic.

Triable Issues Remain as to Whether a Loose String Posed a “Tripping Hazard”

Dec 20 2010

Mott v. Tromel Constr. Corp., 79 A.D.3d 829, 912 N.Y.S.2d 685 (NY App. Div. 2010)

In Mott, the plaintiff was injured on an elementary school construction site when he tripped on a piece of string stretching into the hallway from a classroom. He sued the contractor, the school, and a subcontractor that was allegedly responsible for placing the string as part of a flooring project. The Appellate Division, Second Department, denied the defendant’s motions for summary judgment, finding that there were triable issues of fact regarding (1) whether or not the contractor had actual or constructive notice of the dangerous condition, and (2) whether the string posed a “tripping hazard” within the meaning of New York’s local rules, whether the hallway was a “passageway” under the law, and whether the string was integral to and consistent with the work the plaintiff was performing.

To Establish an Elevation-Related Hazard, the Danger Must be Elevated in Some Way

Dec 20 2010

Whitehead v. City of New York, 79 A.D.3d 858, 913 N.Y.S.2d 697 (NY App. Div. 2010)

In Whitehead, the plaintiff allegedly was injured when a load of steel tubes rolled out of a hoist when the bindings were removed; the plaintiff fell and was struck by two tubes. He sued the general contractor and owner under New York’s labor law and common law negligence theories. The owner impleaded the steel construction subcontractor for contribution and indemnification. The Appellate Division, Second Department, denied plaintiff’s motion for summary judgment, finding that the plaintiff was not subject to an elevation-related hazard since the steel tubes were at the same level as him. The court also denied the third-party plaintiff’s motion for summary judgment on the grounds that it was untimely submitted with no excuse offered for the delay.

Summary Judgment Turns on Notice of Allegedly Dangerous Working Conditions

Dec 14 2010

Ramsey v. Leon D. Dematteis Constr. Corp., 79 A.D.3d 720, 912 N.Y.S.2d 654 (NY App. Div. 2010)

In Ramsey, the plaintiff, an apprentice elevator mechanic and employee of a subcontract elevator company, was injured in a fall while constructing an elevator shaft as part of a school construction project. He sued the general contractor and the property owner for failing to provide proper safety protection and failing to maintain an elevated workplace free from dangerous conditions under New York’s Labor Law and common law negligence theories. The contractor had provided two aluminum planks, which stretched about a foot in either direction beyond the shaft, for the plaintiff to stand on, secured by placing wooden beams on top of either end. The Appellate Division, Second Department, denied both the plaintiff’s and contractor defendant’s motions for summary judgment, finding that triable issues of fact existed as to whether the safety precautions were sufficient, and as to whether the materials plaintiff allegedly slipped on were integral to the work or mere “debris.” But the court found that the building owner was entitled to summary judgment since it had no actual or constructive notice of the allegedly dangerous condition.

No Fraudulent Inducement for Failing to Notify of Intent to Use Outsourced Labor

Dec 14 2010

Metro. Steel Indus., Inc. v. Graphics for Steel Structures, Inc., 2010 WL 5583038 (E.D.N.Y. Dec. 7, 2010)

In Metropolitan Steel Industries, the plaintiff contractor alleged that the defendant subcontractor breached its contract with the plaintiff by failing to completely perform; the defendant counterclaimed for the unpaid balance. The plaintiff then sought to amend its complaint and assert a claim for fraudulent inducement on the grounds that the defendant failed to disclose its intention to use outsourced labor, but its motion was not timely filed.

The magistrate judge dismissed the fraudulent inducement claim on the grounds that there was no confidential or fiduciary relationship between the parties, as well as because they were duplicative of the primary breach of contract claim, since the terms in question were directly related to the parties’ agreement, rather than being collateral in nature.

Catagory:Case Summaries