Construction Law

Legal issues, news, and regulations concerning the construction industry

1
No License; No Claim; No Recovery: Oregon Contractors Beware!
2
No Recovery For an Injury Sustained at a Trailer Where Work Was Not Performed
3
Insurance for Major Design and Construction Projects
4
Subcontractor Defendant Permitted to Amend its Answer to Plead Lack of Privity
5
Question of Insurance Company Estoppel Certified to State Court
6
Not All Construction Damage Recoveries are Created Equal
7
Trial Judge Has Discretion to Accept a Late Notice of Claim
8
Labor Unions’ Jurisdictional Disputes Are Outside the Reach of Arbitration Agreement
9
No Indemnification Under a CGL Policy for a Contractor’s Allegedly Defective Work
10
Where A Public Works Contract Requires Amendments To Be Written, An Oral Modification (Including Oral Approval Of Change Orders) Cannot Be Enforced

No License; No Claim; No Recovery: Oregon Contractors Beware!

Stellar J Corp. v. Smith & Loveless, Inc., 2010 WL 3118360 (D. Or. Aug. 5, 2010)

By:  Tom Wolfendale, K&L Gates, Seattle

Overview:

A general contractor ("general") brought a claim, originally in state court, against one of its first tier subcontractors ("sub") for breach of contract; in turn, the first tier subcontractor removed the action to federal court and brought claims against the general and its surety for breach and quantum meruit.

On a public works project, the sub was to supply and install equipment for a city wastewater treatment project.  At the time of contracting with the general, the sub did not have an Oregon Contractor’s license.  During the work, the general terminated the sub for failure to perform.  The sub counterclaimed alleging the general breached and also sued the general’s surety for recovery.  The general asserted an affirmative defense that the sub did not have an Oregon license and could not prosecute its counterclaims.

The general contractor sought summary judgment against the sub claims based on the sub’s failure to obtain an Oregon license.  The federal contract dismissed the sub’s claims.

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No Recovery For an Injury Sustained at a Trailer Where Work Was Not Performed

Lynch v. 99 Washington, LLC, 80 A.D.3d 977, 915 N.Y.S.2d 353 (N.Y. App. Div. 3d Dep’t 2011)

In Lynch, the plaintiff injured his knee when stepping out of a trailer on a job site onto a free-standing stairwell that was allegedly misaligned with the trailer.  He sued under New York Labor Law and advanced common law negligence theories.  The Appellate Division, Third Department, held that the defendant’s motion for summary judgment should have been granted on all claims, reasoning that because the plaintiff was not performing construction work when the injury occurred, recovery was not available under a statute providing a cause of action for work-related injuries.

Insurance for Major Design and Construction Projects

Please join K&L Gates and Aon on January 26, 2011 for a complimentary seminar where a panel will discuss key issues relating to insurance for large construction projects.  The panel includes K&L Gates Construction and Engineering Group partners and representatives from Aon Construction Services Group and Aon Risk Solutions.  Owners, developers, contractors and design professionals will benefit from this presentation.  This program will be offered as a live event and as a webinar.

Topics Include:

  • An examination of the traditional risk allocation model – problems and benefits
  • Wrap-up policies (CCIPs and OCIPs) – benefits v. drawbacks
  • Builders risk policies – what you need to know
  • Errors and omission policies – how to properly insure professional liability
  • Key considerations when filing claims and how to respond when claims are denied

If you missed this event, please enjoy complimentary access to the slide show presentation available here.

Subcontractor Defendant Permitted to Amend its Answer to Plead Lack of Privity

Logan-Baldwin v. L.S.M. Gen. Contractors, Inc., 914 N.Y.S.2d 617 (N.Y. Sup. Ct. 2011)

In this case, the homeowner plaintiffs sued the contractor, subcontractors, and their principals alleging breach of contract and fraudulent inducement, arising out of a renovation project in their historic Rochester home.  A subcontractor moved for summary judgment, alleging lack of privity with the plaintiffs, who defended on the ground that the subcontractor failed to plead lack of privity in its answer, thereby waiving that defense.  The Supreme Court granted the defendant’s motion, finding that privity is an essential element of a breach of contract claim and allowing the defendant to amend its answer to add the defense of privity.  The court emphasized that this was a matter of judicial discretion, and the defense appeared to have merit, the general rule being that an owner has no privity with a subcontractor.  Here, the court found no clear language to the contrary.
 

Question of Insurance Company Estoppel Certified to State Court

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.
 

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Not All Construction Damage Recoveries are Created Equal

Presented by K&L Gates Partners Timothy L. Pierce, Jason L. Richey, and Lawrence M. Prosen at the 25th Annual Construction SuperConference in San Francisco, CA on December 16, 2010, this presentation explores how typical construction claims on the same project may vary depending on venue of the project.

Click here to view the presentation.

Trial Judge Has Discretion to Accept a Late Notice of Claim

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

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

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

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.

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