Archive: May 2008

1
Damages Awards for Delay in Construction of Home and Alternate Living Arrangements Were Not Impermissibly Duplicative
2
International Arbitration: A Tool to Manage Risk When Dealing in High Growth/High Risk Markets
3
Consequential Damages in Today’s Construction Industry
4
Exclusion of Coverage for Claims Arising from Breach of Contract Includes All Claims with Substantial Nexus to Breach or Having “But For” Relationship with Breach
5
Surety Found Not Liable for Attorneys Fees without Express Provision in Bond
6
Court Holds Claims Arising from Zoning Violations Subject to Professional Liability Exclusion, Insurer Not Obligated to Defend or Indemnify
7
Court holds Surety has Common Law Claim for Indemnity Against Subcontractor, Despite Absence of Privity
8
Statute of Limitations for Contractor Negligence and Breach of Warranties Does Not Accrue until Turnover of Control of Condo Association to Unit Owners
9
Under Business and Professions Code § 7031, Contractor Must be Licensed Prior to Preparing Shop Drawings or Ordering Materials for Construction Project
10
Discretionary Right to Adjudicate No Basis for Stay of Arbitration

Damages Awards for Delay in Construction of Home and Alternate Living Arrangements Were Not Impermissibly Duplicative

Fisher Island Holdings, LLC v. Cohen, 983 So. 2d 1203 (Fla. Dist. Ct. App. 2008)

In this residential construction case, an owner entered into a short-term lease because of substantial delays in the completion of his single family home.  The owner sued the contractor for delay, and the jury awarded the owner both delay damages and damages for alternative living arrangements.  The appellate court held that this was not a double recovery.  The jury permissibly awarded delay damages (measured by the rental value of the building under construction during the delay period) for the period of the contractor’s delay up to the commencement date of the owner’s nine month lease.  The jury then awarded alternative living damages for the duration of the lease.

International Arbitration: A Tool to Manage Risk When Dealing in High Growth/High Risk Markets

By K&L Gates partner, Ian Meredith, and published in The Metropolitan Corporate Counsel.

As many businesses experience declining growth in their domestic and traditional markets, they are looking increasingly towards the "BRIC" countries (Brazil, Russia, India and China) and other high growth economies outside their traditional trading areas.  The report of the International Monetary Fund entitled the "World Economic Outlook" which was released on 9 April 9, 2008 downgraded projections for growth in 2008 and 2009 across the major Advanced Economies including those of the US, Canada and Western Europe whilst continuing to project relatively higher rates of growth across certain Emerging and Developing Economies including China and India.  It seems likely that the move by many US businesses to target Emerging and Developing Economies will gather pace.

This article will assess the extent to which international arbitration can play a role in assisting US businesses in managing commercial risk when seeking to invest and/or trade in higher risk overseas markets and it will provide a number of suggestions on ways to limit risk[1].

Read the full article here.

Consequential Damages in Today’s Construction Industry

Pittsburgh partner Jason Richey recently teamed up with associate Bill Wickard to write “Consequential Damages in Today’s Construction Industry,” which appears in the May 5, 2008 issue of Constructioneer.

In the article, Jason and Bill stress the importance of project-specific consequential damages waivers, noting that f ailure to include such a waiver can leave construction managers open to costly lawsuits.  Waivers should be both "project-specific" (anticipating the potential types of damages that could arise with a certain project) and mutual (the list of damages should be the same for the owner and contractor).

Jason and Bill point to Perini Corp. v. Greater Bay Hotel & Casino to illustrate the importance of these waivers.  In the Perini case, the construction manager responsible for the renovation of the Sands, an Atlantic City, N.J. hotel and casino, produced his façade for the building four months late.  The original contract did not include a damages waiver and the Sands argued that their lost profits were due to the lateness of the façade.  An arbitration panel awarded the Sands $14.5 million in damages, nearly 24 times the contract fee.

To read the full article, please click here (posted with permission).

Exclusion of Coverage for Claims Arising from Breach of Contract Includes All Claims with Substantial Nexus to Breach or Having “But For” Relationship with Breach

N. Plainfield Bd. of Educ. v. Zurich Am. Ins. Co., 2008 WL 2074013 (D.N.J. May 15, 2008)

In this case, the Board of Education had been sued by various contractors and subcontractors for breach of contract and various tort claims, and sought specific performance from Zurich American Insurance Co. to defend against the claims under their insurance policy.  Zurich denied coverage, citing the policy provision excluding from coverage all claims arising from breach of contract.  The court found that that this exclusion covered any action that alleged a breach of duty, neglect, error, misstatement or omission and that grew out of or had substantial nexus with breach of contract, or any injury that would not have occurred but for the contract breach.  Thus, Zurich was justified in refusing coverage and indemnity for those claims, and the court granted Zurich’s motion for summary judgment against the Board.

Surety Found Not Liable for Attorneys Fees without Express Provision in Bond

Titan Stone, Tile & Masonry, Inc. v. Hunt Constr. Group, Inc., 2008 WL 2038857 (D.N.J. May 12, 2008)

In this case, the court ruled on a motion for reconsideration of a finding that a subcontractor who defaulted on performance, but not the surety, was responsible for the attorneys fees of the general contractor, Hunt Construction Group.  The court applied the principle that a surety can be held liable only in accordance with the strict terms of its undertaking, and found that the surety bond in this case did not specifically provide for reimbursement of attorneys fees.  Hunt argued that the obligations of Titan under the performance bond should be coextensive with those of Titan under the agreement.  The court rejected this argument as inconsistent with the purpose of a performance bond, which is to provide the general contractor with the funds to complete the project upon the default of the subcontractor, not to make the general contractor whole.

Court Holds Claims Arising from Zoning Violations Subject to Professional Liability Exclusion, Insurer Not Obligated to Defend or Indemnify

W. World Ins. Co. v. Azoff, Civ. No. 07-00494-BLS2, 2008 WL 4107481 (Mass. Super. Ct. May 15, 2008)

In this case, the Superior Court granted an insurer’s motion for summary judgment and denied the insured contractor’s cross-motion for summary judgment, holding that the insurer was not obligated to defend or indemnify the contractor for a claim brought against it in a separate action, because the claim fell under a professional liability exclusion in the relevant policies.

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Court holds Surety has Common Law Claim for Indemnity Against Subcontractor, Despite Absence of Privity

J.C. Gibson Plastering Co. v. XL Specialty Ins. Co., 2008 WL 1931348 (M.D. Fla. May 2, 2008)

In J.C. Gibson Plastering, the U.S. District Court for the Middle District of Florida held that a surety could state a claim for common law indemnity against a subcontractor despite the absence of privity.  The court found that the two elements necessary to state a claim for common law indemnity were satisfied:  (i) the surety may be constructively, vicariously or derivatively liable for the subcontractor’s failure to pay sub-subcontractors, and (ii) the surety was without fault in causing the loss it was required to bear, despite failing to timely respond to the claim.

Also, despite the lack of Florida authority on the question, the court also held that a surety’s failure to respond to the subcontractor’s claim for payment under a payment bond within forty-five days (as required under the bond) barred the surety from challenging the claim or from asserting counterclaims to the extent the surety could have reasonably identified the bases of its affirmative defenses or counterclaims’ during the forty-five day period.  By failing to respond timely, the claim was undisputed and subject to summary judgment.

Statute of Limitations for Contractor Negligence and Breach of Warranties Does Not Accrue until Turnover of Control of Condo Association to Unit Owners

Saltponds Condo. Assoc. v. Walbridge Aldinger Co., 979 So. 2d 1240 (Fla. Dist. Ct. App. 2008)

In this case, a condo association sued a contractor in connection with alleged construction defects discovered after the control of the association passed from the developer to the unit owners.  The contractor argued that the claims were barred by the three-year “statute of limitations” set forth in Florida Statute Section 718.203.  That Section, however, merely sets the warranty period for construction improvements and materials, not the statute of limitations.

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Under Business and Professions Code § 7031, Contractor Must be Licensed Prior to Preparing Shop Drawings or Ordering Materials for Construction Project

Great West Contractors, Inc. v. WSS Ind. Constr., Inc., 162 Cal. App. 4th 581 (2008)

WSS Industrial Construction, a steel subcontractor, sued general contractor Great West Contractors, to recover for work performed on a public works project in Riverside, California.  At the time that WSS submitted its bid proposal to Great West, WSS had applied for but not yet obtained a corporate contractor’s license.  WSS did receive a license after the bid was accepted, but only after it had already ordered multiple sets of shop drawings and some of the material necessary for the project.  WSS initiated the lawsuit by suing Great West and its surety, Fidelity and Deposit Company of Maryland, for $91,000 due under the contract and subsequent change orders.

At trial, Great West and Fidelity moved for a nonsuit on the grounds that WSS was statutorily barred, pursuant to Business and Professions Code section 7031, from any recovery because WSS was not duly licensed at all times during performance of the contract.  The trial court determined that WSS’s president had held valid individual licenses at all times and that, in any event, WSS was not required to have a license for the work that it performed prior to receiving its license.  The court held that “there was substantial compliance with the licensing during the contract and work was performed in good faith.”  The jury awarded WSS $220,000 in damages, including statutory penalties and interest.  Great West and Fidelity appealed after the court rejected their post-trial motions for a new trial, vacation of judgment and judgment notwithstanding the verdict. Read More

Discretionary Right to Adjudicate No Basis for Stay of Arbitration

Cubitt Bldg. & Interiors Ltd. v. Richardson Roofing (Ind.) Ltd., [2008] EWHC 1020 (Queen’s Bench Div., Tech. & Constr. Ct.)

Cubitt, the contractor on a construction project in London, engaged Richardson as sub-contractor.  Under the relevant sub-contract, both parties had a discretion to refer disputes to adjudication.  Richardson completed its works, Cubitt alleged delay and indicated that it intended to deduct liquidated damages from the amount payable to Richardson.  Richardson started arbitration proceedings against the Cubitt.  Cubitt sought a stay of the arbitration so that it could refer the dispute to adjudication. Read More

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