The Devil is in the Details: Contractual Additional Insured Requirements

Owners frequently require their contractors to name them as additional insureds. Owners and contractors often include requirements seeking to have the obligation to name them as additional insureds “flow down” to parties with whom they lack a direct contractual relationship (e.g., subconsultants, subcontractors, and suppliers).  Despite the simplicity and appeal of this arrangement, contractual additional insured requirements can be worthless without the appropriate insurance endorsements.

The standard additional insured endorsement, ISO form CG 20 33, requires a direct contractual relationship between the named insured and the additional insured.  The problem is apparent.  Although CG 20 33 allows an owner to assert a claim as an additional insured under its contractor’s insurance policies, it does not allow an owner to assert a claim as an additional insured under subconsultants’, subcontractors’, or suppliers’ insurance policies.  This could undermine the benefits of additional insured coverage and expose a contractor or designer to a breach of contract claim based on its failure to procure, or require the procurement of, the required insurance coverage.

Insurance companies do offer a wide variety of additional insured endorsements, and endorsement CG 20 38 provides a solution for owners, designers, and contractors seeking to avoid the problem identified above. That endorsement provides broad contractual additional insured coverage to “any other person or organization you are required to add as an additional insured under the [same] contract or agreement.”  Owners should require use of CG 20 38 and confirm that the subcontractors have provided the endorsement.  Contractors should likewise require their subcontractors to use this endorsement to fulfill these contractual requirements or they may be in breach of their contractual duties to provide insurance.

Eight Things to Remember When Reviewing an Access Easement

An access easement is a key link in the legal chain when builders need to cross another’s land to develop property. A poorly drafted easement could hobble an entire development.  Counsel should always be consulted to avoid the crippling impact of a development held hostage.  Here are eight tips to remember in reviewing an access easement where the developer is seeking easement rights. Continue Reading

Alter Ego: The $5MM personal danger of neglecting corporate formalities and utilizing substandard building materials

Many building developers utilize a single purpose entity limited liability company (an “LLC”) to purchase and develop property, such as an apartment complex, a subdivision, or a shopping center. Generally, an LLC’s debts, whether incurred or judicially imposed, belong only to the LLC, not to its members.  However, an LLC’s individual member may be subject to personal liability under the doctrine of alter ego liability if (1) the individual and the LLC share a unity of interest and ownership such that the separate personalities of the two no longer exist, and (2) treating the debts as the LLC’s alone would impose an inequitable result that rewards the bad faith of the individual.  A recent legal decision from Southern California highlights the dangers of disregarding an LLC’s corporate formalities during any construction project. Continue Reading

Brokers Beware: Acting as a Dual Agent Means Expanded Fiduciary Duties in California

It is well known that under California law a real estate broker may act as a “dual agent” for both the seller and the buyer in a property transaction, provided both parties consent to the arrangement after full disclosure. In such representation, a dual agent owes fiduciary duties to both buyer and seller.  Pursuant to a recent case, Horiike v. Coldwell Banker, these fiduciary obligations have now been expanded to also apply to “associate licensees” acting on behalf of a brokerage firm (or the salespeople of the given brokerage firm, as they are more commonly known).  In a unanimous decision, the court ruled that when an agent representing a seller is working for the same firm as the agent representing the buyer, they are considered an “associate licensee” and must properly investigate and disclose all important information related to the property subject to the transaction.

In Horiike, the seller and buyer of a luxury Malibu mansion were represented by separate real estate agents.  However, both of these agents were acting under the license of a single brokerage firm, Coldwell Banker.  The seller’s agent had reason to know that residence’s square footage was significantly different than what was represented in the sales material.  The buyer purchased the property and began making renovations.  Upon reviewing a building permit previously obtained by the prior owner, the buyer discovered that the property had thousands of square feet less living space than what was disclosed in the marketing materials.  Coldwell Banker claimed that because the seller’s agent exclusively represented the seller, there was no fiduciary duty to disclose information relating to the square footage to the buyer.  The California Supreme Court thought otherwise. Continue Reading

“Blurred Lines”: Important Caveats to Consider with Integrated Project Delivery

The shared risk/reward concept of an integrated project delivery (IPD) arrangement is an increasingly attractive collaborative approach to construction projects.  But IPD is still a relatively new concept with unique risks and challenges.  In my recent article for the Daily Journal of Commerce, I discuss some key points that should be considered before undertaking any IPD agreement.  Read the full article here.

 “‘Blurred Lines’: Important Caveats to Consider with Integrated Project Delivery” was originally published on January 20, 2017, by the Daily Journal of Commerce.

Coverage for Crane Damage Proves Tricky

Following a presentation I made at a Seminar Group conference in Oregon on crane easements, one of my colleagues brought to my attention the recent NY case of Lend Lease (US) Construction LMB Inc. v. Zurich American Insurance Co.  The NY Court of Appeals found that damage caused to a tower crane when Superstorm Sandy hit land was not covered under Zurich’s builders’ risk policy.  While the policy contained a grant of coverage for “temporary works” (such as scaffolding, shoring, formwork and fences), the policy contained a “contractor’s tool exclusion,” which the Court found excluded coverage for the tower crane.  The opinion addressed only the damage to the crane as opposed to damage caused by the crane, the latter being likely covered under other provisions of the policy.  While not alone dispositive, the Court noted that the plaintiff contractor was unable to show that the value of the crane itself was disclosed as part of the “total project value” being insured under the policy.  Given the costs and risks associated with heavy equipment, a good insurance evaluation at project inception should always consider coverage for large tools, equipment and machinery. 

SNDAs – How to Handle from the Tenant’s Perspective

At some point, almost every tenant of a commercial lease is asked to sign a Subordination, Non-Disturbance and Attornment Agreement (an “SNDA”). Generally, the SNDA comes from the landlord’s lender sometime after the tenant’s lease has been signed and the term has commenced. It can be a complex document with onerous provisions for a tenant, and, without adequate counsel early in the process, a tenant may have little room to negotiate or revise an SNDA.

At its core, an SNDA contains three key provisions. First, the tenant agrees that, notwithstanding that the lease may pre-date the lender’s mortgage, the lease is subordinate and junior to the mortgage. Second, the lender agrees that, so long as the tenant performs its obligations under the lease prior to the expiration of applicable cure periods, the lender will not disturb the tenant’s occupancy or terminate the tenant’s lease in the event of foreclosure or other enforcement by the lender.  The third prong is attornment: the tenant’s agreement to accept the lender (or other purchaser at foreclosure or its successor or assign) as the landlord following foreclosure.  This exchange of promises gives the lender a senior right to its collateral and gives the tenant security in its lease. Continue Reading

Teaming Agreements Set Out Construction Team Members’ Relationship and Responsibilities in Pursuing Award of a Contract

A written teaming agreement is useful in defining the roles and responsibilities of a team of designers and contractors seeking to win a contract for a construction project. In my recent article for the Daily Journal of Commerce, I detail several key aspects of a well-drafted teaming agreement. Read the full article here.

“Teaming Agreements: When the Best Team May Not Be Enough” was originally published by the Daily Journal of Commerce on February 17, 2017.

Under California’s Right to Repair Act, Ignore Deadlines at Your Own Peril

In a very recent decision, the Fourth District Court of Appeal in Blanchette v. Superior Court affirmed the plain language of the Home Builder’s Right to Repair Act, holding that even a facially insufficient notice of defect triggers the obligation of a builder to respond within 14 days.  The statute, Civil Code section 895 et. seq., was “expressly designed,” as the court pointed out, “to permit the parties to resolve claims without resort to litigation.”  Therefore, the court stated that allowing the builder to ignore the deadline and not raise objections within that early timeframe would not further the purpose of the statute.

The court also stated that by the very terms of the statute itself, courts are obligated to strictly construe its terms.  In this case, the court strictly construed the builder’s obligation to “acknowledge” notice – even a deficient notice – within the 14-day window after the builder’s receipt of the claim (which is typically no more than 19 calendar days under California law).  In Blanchette, the builder did not acknowledge the claim until 24 days later, well beyond 14 days from receipt.  When the builder failed to respond, the claimant filed a class action. The builder sought a stay of the lawsuit until the homeowner complied with the requirement to describe the defect in “reasonable detail.” While the trial court granted the builder’s request for a stay, following a writ to the Fourth District, the stay was ultimately lifted to allow the class action to proceed due to the builder’s failure to timely respond.

Takeaway for builders:  As I have reiterated before to my clients and in presentations, such as recently at the Forward Planning Seminar of the North State BIA, prepare at the beginning of a project to be sued so that (1) you know how to respond when you do receive such a notice or lawsuit, or (2) even if you never face a claim, you can rest easy that you won’t be caught off guard.

Design-Build Certification

One should never stop learning, so next week I will attend a three-day seminar presented by the Design-Build Institute of America. If I complete the seminar and pass a test, I will become a Designated Design-Build Professional.  The DBIA has an informative page about certification on its website.

In preparation for the seminar, I completed an online course that introduced general concepts and terminology: project delivery systems (e.g., design-build); procurement methods (e.g., public bid), and contracting format (e.g., payment terms).  The online course was a good introduction to topics that will be explored in more detail next week.

Design-build is increasing in popularity because it promotes collaboration between owner, contractor, and designer and thereby makes possible more creative and efficient solutions to design and construction problems. To be successful, however, participants in a design-build project need to have a clear understanding of the process and their roles.  That is why training is important, both for my clients and for myself as their advisor.

I’ll report again when (if) I survive next week’s seminar.

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