Insurers Attempt to Avoid Coverage (Mis)using the Professional Services Endorsement

Parties spend significant time negotiating insurance provisions for protection in the event they face claims related to defective construction, but those protections can be rendered worthless if the wrong insurance forms are used.  In my recent Daily Journal of Commerce article, I look at one particularly troublesome provision – the “professional services” endorsement – and discuss tips for avoiding the unintended exclusion of otherwise covered losses, including endorsements that are specifically tailored for use in connection with contractors’ and design-builders’ liability insurance policies. Read the full article here.

Originally published as “OP-ED: Watch for insurers misusing professional services endorsement” by the Daily Journal of Commerce on September 15, 2017.

The Poisoned Foreclosure – Lawyers Beware of the Affirmative Duty to Search Records

A Sacramento bankruptcy judge issued a hard hitting judgment against Bank of America for the way it handled a single residential foreclosure in Lincoln, California.  Referring to the famous novelist whose works evoke oppressive and nightmarish characteristics, Judge Klein wrote: “Franz Kafka lives… [and] he works at Bank of America.”  This ruling has been widely discussed for the hefty award recovered by the plaintiff.  In addition to the harsh ruling, Judge Klein memorialized a rule that was not previously addressed in case law – the affirmative duty of an attorney to search bankruptcy filings to confirm whether a violation of a stay order was likely.  While this rule could arguably be characterized as dicta, because there were no claims against the attorneys in the suit, all attorneys should take note of this rule or risk serious consequences.  The relevant facts are summarized below.

In 2008, the plaintiffs entered into a loan with the expectation that they could refinance or modify the loan immediately after closing. However, after closing, Bank of America said that it would not consider a loan modification request unless and until the homeowners ceased making payment.  Accordingly, in 2009, the homeowners defaulted on their loan payments, which triggered a series of troublesome events.  During the course of the ensuing years, Bank of America strung along the homeowners with multiple “lost” loan modification requests, while at the same time pursuing foreclosure. Continue Reading

Contracts Are King, But Don’t Forget Tort Law

The construction industry is driven by its memorialization of business terms and legal obligations in written contracts.  However, “tort” law also imposes many implied rights and obligations independent of what parties may have formally agreed to, the foremost of which is to use reasonable care so as to avoid damage to others. In my recent Daily Journal of Commerce article, I look at a recent court case that serves as a good reminder that those engaged in construction projects must consider the extra-contractual risks and remedies imposed by tort laws. Read the full article here.

“Contracts Are King, But Don’t Forget Tort Law” was published by the Daily Journal of Commerce on August 18, 2017.

Washington Supreme Court Affirms Brightwater Decision Regarding Application of Olympic Steamship to Sureties

On July 6, 2017, the Washington Supreme Court confirmed that the equitable rule announced in Olympic Steamship—providing for attorney fees where the insurer compels the insured to take legal action—applies to performance bond sureties on public projects.[1]  In King County v. Vinci Construction Grands Projects/Parsons RCI/Frontier-Kemper, the Court affirmed the trial court’s award of over $14 million in attorney fees and costs against sureties of a public works contract.[2]

In 2006, King County contracted with a joint venture of three construction companies to build the piping/conveyance system for the new Brightwater wastewater treatment project.  The joint venture contractor submitted a performance bond from five surety companies.  Under the contract, if the contractor was in default, the sureties were obligated to step in and remedy the default.  When the project was delayed, King County declared the contractor in default and asked the sureties to cure.  They refused, claiming that the contractor was not in default. Continue Reading

Draconian Results for Local Agencies Influenced to Improperly Target Private Enterprise

The federal Civil Rights Act (“Act”) was enacted by Congress in 1964 to protect individual civil liberties, but the Act has evolved over time into a vehicle that can also be used to challenge public agencies on a wide range of topics, as long as there is a constitutional right implicated. This side of the Act recently shocked the County of Sacramento, when a jury awarded a mining operator more than $100 million in compensatory and punitive damages for unconstitutional treatment affecting the business. In my recent Daily Journal of Commerce article, I look at the implications of the verdict in Hardesty v. Sacramento Metropolitan Air Quality Management District. Read the full article here.

Originally published as “Op-Ed: Draconian results for California agencies in civil rights case”  by the Daily Journal of Commerce on July 21, 2017.

Think the ADA preempts contractual risk shifting? Not so fast, says the Ninth Circuit.

Rejecting an argument that the ADA preempts all contractual claims for indemnity and contribution, the Ninth Circuit recently upheld a public owner’s right to seek contribution for damages arising out of ADA violations caused by the designer and contractor of a transportation facility. See City of Los Angeles v. AECOM Services, Inc. (here).

This decision bucks a disturbing trend. As noted elsewhere in this blog, a number of courts have held that the ADA preempts an owner’s right to enforce a contractual right of indemnity or contribution for damages arising out of a violation of the ADA.  The Ninth Circuit distinguished the other leading case on this issue – Equal Rights Center v. Niles Bolton Associates – noting that only claims for indemnity or contribution for damage arising out of a party’s own negligence frustrate the purpose of the ADA.  Where a party seeks indemnity or contribution for only damage arising out another party’s negligence, there is no conflict with the ADA and the claims are not preempted. In an interesting side bar, the Ninth Circuit also suggested that an important part of an owner’s ADA compliance program is requiring ADA compliance as part of its contracts with its designers and contractors.

Although the Ninth Circuit’s decision involved a public owner’s attempt to enforce its contractual right to contribution, the court’s holding offers a glimmer of hope to private developers who, like public entities, often do not have the expertise, personnel, or equipment necessary to construct projects themselves. To maximize their chances of recovering damages caused by the failure of contractors and designers to comply with the ADA, developers should include contractual provisions requiring their designers and contractors to comply with all legal requirements, including the ADA and FHA, and to provide defense and indemnity commensurate with their own wrongdoing.

No Right to Damages Between Public Works Bidders

In the world of public works bidding, competition can be fierce. At times the competition may even break some laws in lowering their costs in order to ensure the lowest possible bid.  Historically, the only procedure for the aggrieved bidder was to submit a bid protest, and if necessary, file a petition for writ of mandate against the awarding agency.  However, suing the agency provides a limited remedy, and in most cases, damages are not recoverable.  Other than this indirect attack, there have been no remedies available to sue the competition directly.  Several contractors decided to test a new theory, and sued the alleged wrongdoer for intentional interference with prospective economic advantage.  The California Supreme Court recently heard the matter in a case of first impression.

In Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc., several slurry seal contractors became incensed when their competitor, American Asphalt South, continued to outbid them.  Several plaintiff contractors jointly sued American, alleging several theories, including intentional interference with prospective economic advantage.  To support this allegation, the plaintiffs alleged that the costs of the materials for all of the bidders were essentially the same.  However, they alleged that American submitted deflated bids, because it failed to pay prevailing wage and overtime compensation in connection with the projects.  The plaintiffs alleged that this unlawful and unfair activity interfered with their relationship with the various agencies to successfully bid the work.

The first element of the tort is the existence between the plaintiff and a third party of an economic relationship that has the probability of a future economic benefit. Here, that would be the relationship between the plaintiff contractors and the awarding agencies.  Analyzing this element, the Supreme Court held that a bidder on a public works project does not have an “economic relationship” with an agency.  Rather, the bidder merely has the “hope of one.”  Since the aggrieved bidders failed to show the existence of an economic relationship with the various public agencies, their cause of action failed.

For now, the status quo remains unchanged. The only procedure available to aggrieved bidders is to follow bid protest procedures and seek a writ of mandate against the public agency.

Public Private Partnerships Provide an Opportunity to Leverage Private Sector Expertise and Financing for Public Benefit

Creative solutions will likely be required to bridge the gap between the cost of addressing growing infrastructure needs in the U.S., currently estimated at $4 trillion, and the amount of available public funding.  One increasingly popular possibility involves supplementing public funds with private financing through agreements that allow for greater private sector participation in the delivery and financing of public infrastructure projects.  In my recent Daily Journal of Commerce article, I look at the pros and cons of such agreements, which are often known as “Public-Private Partnerships” or “P3s.” Read the full article here.

Originally published as “OP-ED: Leveraging private expertise and financing for public benefit” by the Daily Journal of Commerce on June 15, 2017.

What’s Up with Bertha?

Regular readers of this blog know that Stoel Rives represents the State of Washington Department of Transportation (“WSDOT”) with regard to construction of the new highway 99 tunnel in downtown Seattle. The giant tunnel boring machine, named “Bertha” (not “Big Bertha” as is sometimes reported), finished its work in April and is now undergoing a combination of disassembly and demolition.  There is a limited market for used 57-foot diameter tunnel boring machines.  Some pieces of the machine are being scrapped, some are being preserved for sale or re-use, and a few are being preserved as evidence in the lawsuit between WSDOT and the contractor.  The contractor claims that WSDOT should pay for the fact that Bertha stopped working and needed two years of repairs.  WSDOT claims that the delays are the contractor’s own responsibility.  Trial of those claims is currently scheduled for June 2018.  The new highway is expected to open for traffic in 2019.

When Can You Rest Easy? A Primer on Statutes of Repose

A statute of repose provides an outside limit as to when construction claims can be brought and is intended to give contractors and design professionals a degree of certainty as to when the risk associated with claims on a particular project diminishes. In my latest article for the Daily Journal of Commerce, I give you an overview of the statute of repose, including how it differs from a statute of limitation, how it is varies in several Western states, and what a defendant must do to successfully assert a statute of repose defense. Read the full article here.

“When Can You Rest Easy? A Primer on Statutes of Repose” was originally published by the Daily Journal of Commerce on May 19, 2017.

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