Ian Crawford
Ian Crawford is an associate in the Litigation Group and has worked as an associate in the Corporate, Securities and Finance Practice Group, working with private and public companies in their arbitration, insurance, securities and corporate matters. Ian concentrates his litigation practice on insurance coverage and environmental matters. In his corporate practice, Ian has assisted clients in the Nevada commercial construction industry with debt financings and sales of limited liability company interests. He has also assisted with advising clients on securities law matters in condominium developments. Ian has lectured on limited liability entities and recent developments in Oregon business law.
Bond. Performance Bond.
Performance bonds—insurance-like arrangements in which a surety (the bonding company) contractually agrees to pay for the performance of a principal (the contractor) to an obligee (the owner) in case the principal fails to perform the obligations of its contract—should be used more often in construction agreements to provide owners with a source of funds to cover defective work in a project.
Currently, owners typically require contractors to obtain insurance policies with the hope that such policies cover defects in the work they perform for the owner. Though owners are willing to spend a lot of money, time, and effort in obtaining these policies, insurers continue to make revisions to their policies to limit, and sometimes prevent, coverage for these defects.
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Performance bonds may provide better protection to an owner. Typically, the bond provides funds to pay for repair of defective work that may not be covered by insurance as part of the bond’s guarantee of the faithful performance of the contract by the contractor.
Unlike insurance policies, performance bonds provide coverage only for the owner’s project—if an owner discovers a defect in the contractor’s work, the owner will not have to worry whether another owner’s claim against the contractor for another defective project will reduce the coverage available under the contractor’s bond. The performance bond’s recovery pool belongs to the owner for the specific project it is drafted to cover.
Not so Ahead of Schedule: OSHA Reform
Contributor: Louis A. Ferreira
Congress has proposed legislation that would amend the 
Occupational Safety and Health Act of 1970 to increase both civil and criminal penalties, expand coverage, and create new obligations for employers. Congress has not acted recently on the bill, named the “Protecting America's Workers Act," but employers should expect action sometime in the new year.
Willful violations of OSHA that result in the death of a worker would be a felony punishable by up to 10 years in prison, while willful violations resulting in serious bodily injury would be a felony punishable by up to five years in prison. Currently, the criminal penalty for a willful violations resulting in death is imprisonment for 1 year. There is no criminal penalty under the existing act for a serious bodily injury resulting from a willful violation. In addition, the maximum civil penalties in all OSHA violation categories would increase, and would be adjusted periodically according to the Consumer Price Index.
Oregon-OSHA administers its own regulations for most employers in the state but adopts standards and penalties at least as stringent as federal OSHA. In other words, if federal OSHA standards are changed, these impacts will be enforced in Oregon in short order. Employers should be concerned about the scope of these changes because like most legislation, the devil is in the details of how the law is changed. For instance, a willful violation of an OSHA standard does not necessarily require an intentional decision to violate the regulation. A willful violation is defined to exist where an employer or supervisor “recklessly” disregards the requirements of a regulation. Knowledge of the regulation is usually not required it the employer or supervisor should have known of the regulation or standard.
Additionally, employers would be prohibited from
- adopting or implementing policies or practices that discourage reporting work-related injuries or illnesses, or that discriminate or provide adverse action against any employee reporting such injury or illness; and
- reducing wages or employee benefits while employees participate in or aid workplace inspections
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The Risk of Builders Risk
Contractors and owners obtain builders risk policies to protect themselves from risks associated with construction. But a lack of care in understanding and negotiating the provision of the construction agreement governing the builders-risk policy and the policy itself may lead the parties to expose themselves to needless and significant liability.
What owners and general contractors should do to protect themselves
If a construction contract requires the owner or the general contractor to obtain a builders risk policy—and it should—then that party should in fact obtain the policy. This may seem painfully obvious, but sometimes parties do not obtain required policies.
Courts have held, unsurprisingly, that a construction contract calling for a builders-risk policy means what it says. If the party whom the contract required to obtain a builders-risk policy does not obtain a policy, that party assumes the risk of loss that ought to have been covered by the policy. So, if a construction agreement requires, say, the owner to obtain a builders-risk policy, the owner should obtain the policy, and the other parties relying upon the policy should confirm the existence of the policy and its terms.
The Builders-Risk Policy Should Allow for the Construction Contract’s Mutual Waiver of Subrogation
Construction contracts frequently include a clause in which the owner and the contractor, both covered by the builders-risk policy, waive their right of subrogation against each other regarding any damages covered by that policy. The owner should not be able to sue the contractor for a loss if the owner has already obtained builders-risk insurance that would make him whole (or vice versa)—the mutual waiver of subrogation prevents the owner or the contractor from recovering twice.
However, if the builders-risk policy itself contains a provision preventing the parties from waiving subrogation, the execution of the construction contract may violate the policy conditions and might prevent recovery under the builders-risk policy.
As the owner and contractor negotiate the construction contract and the builders-risk insuring agreement, they need to pay attention to the provisions in each agreement governing subrogation. Broadly, they need to pay attention to the effect that each agreement has on the other, and should ensure that the builders-risk policy does not prevent the parties from waiving their subrogation rights. Moreover, they need to pay attention to the interaction between a builders-risk policy and any property insurance policy the owner may have (see below). The waiver of subrogation should apply to claims brought under the property policy for a few years after termination of the builders-risk policy.
The Construction Contract Should Specify When and under What Conditions the Owner Can Terminate the Builders-Risk Policy
Builders-risk policies are, as their name suggests, designed to cover risk arising from building. Once the structure is built, though, the builders-risk policy usually terminates. Builders-risk policies also typically terminate on the occurrence of a number of other conditions.
For example, the builders-risk policy may end when the equipment in a plant is first energized, on the theory that once you fire up the plant, it is no longer under construction but is operating as a business and therefore presents different insurable risks.
Once builder-risk insurance terminates, usually the owner’s property insurance kicks in. Property insurance, however, does not usually protect the contractor because the contractor is not a named insured under that policy, and it will not protect against all the events that a builders-risk policy would. If an insurable event occurs that would have been covered by the builders-risk policy after the policy has been terminated, there may be no coverage, possibly causing the parties to argue about whether the policy was properly terminated. If the owner terminates the builders-risk policy without telling the general contractor—and yes, this does happen—the parties will then argue whether the termination actually occurred.
Simply, unexpected termination of a builders-risk policy can ruin your day. The term of a builders-risk policy, then, is a critical point to negotiate and to stick to. Owners should not terminate a builders-risk policy early, and contractors should ask for a provision in the policy requiring the owner to give them notice before termination of the policy so that the contractor can arrange for adequate coverage elsewhere.
