Ensuring Your Construction Project Remains Insured

In too many cases, the developers, builders and designers of a construction project focus on starting work and pay inadequate attention to making sure important details of their insurance coverage are fully in place. Coverage denials can result from deferring to “standard” insurance forms, relying on informal broker assurances and not taking the time to fully the review the range of policy “endorsements” that may act to exclude particular claims. In my latest article for the Daily Journal of Commerce, I look at several of the more common insurance coverage mistakes that might reduce or negate your coverage and provide some best practices to keep in mind for your next time reviewing coverages or claims. Read the column here.

Originally published as an Op-Ed by the Oregon Daily Journal of Commerce on November 19, 2020.

OR-OSHA Publishes Model Infection Control Policy Required by New COVID- 19 Rules

On November 6, 2020, the Oregon Occupational Health and Safety Administration (“OR-OSHA”) published final temporary rules for workplace safety protections specific to COVID-19. Our alert about the new rules is available here.

Among other requirements, the new rules require employers to adopt a COVID-19 Infection Notification policy for notifying exposed and affected employees of possible exposure within 24 hours of learning that an infected individual was in the workplace. OR-OSHA yesterday published on its website a model Infection Notification policy, which you can review here.  Employers must adopt a policy (whether their own or the OR-OSHA model) by Monday, November 16, 2020.

Please join us on November 19, 2020, at 11 a.m. for a webinar to discuss the new OR-OSHA rules.  Registration information is available here.

Mitigation of Risk in the Age of COVID-19: Ten Ways Owners Can Protect Themselves Against Lien Claims in Washington

Among the many effects on the U.S. economy of the COVID-19 pandemic, construction projects that started before it began but were halted in its aftermath may be slow to resume or be abandoned altogether thanks to funding issues. Contractors, subcontractors, and suppliers feel immense pressure to protect and preserve their rights to payment for work performed on their jobs, and one tool they use to ensure they are paid is the construction lien. In my latest article for the Daily Journal of Commerce, I look at several strategies owners and developers can employ to mitigate the risk they face from lien claims. Read the article here.

Originally published as “OP-ED: Ways owners can protect themselves from lien claims in Washington,” by the Daily Journal of Commerce, October 15, 2020.

When to Have the Hard Talk About Setting Liquidated Damages

In my latest column for the Daily Journal of Commerce, I look at the concept of liquidated damages – in my experience one of the top five heavily negotiated (and litigated) clauses in a construction contract. Because a project owner’s potential delay damages are often difficult to determine with certainty at the beginning of a project, the parties stipulate what those damages will be in advance through their contract – in other words, they liquidate the amount of the owner’s delay damages. In theory, at least, the benefit of this approach is that it provides both sides with certainty for a risk that is highly uncertain: late delivery. For a few suggestions as to what to include in this important risk-shifting clause, please read the column here.

Originally published as an Op-Ed by the Oregon Daily Journal of Commerce on September 17, 2020.

California Passes Bills Expanding Rights to Both Paid and Unpaid Leave

California Assembly Bill 1867 (signed by California Governor Gavin Newsom on September 9, 2020) and Senate Bill 1383 (signed on September 17, 2020) significantly expand the rights of California employees to both paid and unpaid leave.  In addition, and especially as they relate to Senate Bill 1383, these laws will require California employers to promptly revise their policies and procedures when it comes to reviewing employee requests for unpaid leave.

Assembly Bill 1867

To recap, the Families First Coronavirus Response Act (“FFCRA”) provides that employees are entitled to up to 80 hours of paid sick leave for reasons related to COVID-19.  FFCRA, however, applies only to employers with fewer than 500 employees.  Like many ordinances adopted after the passage of FFCRA, AB 1867 attempts to fill the gap left by FFCRA by applying to employers with 500 or more employees.

AB 1867 fills this gap in two ways.  First, it creates new California Labor Code section 248, which mirrors Governor Gavin Newsom’s prior Executive Order N-51-20.  Section 248 requires entities with 500 or more employees to provide their “food sector workers” with up to 80 hours of “COVID-19 food sector supplemental paid sick leave.”  Second, it also creates new Labor Code section 248.1.  This section applies more broadly than section 248 as it requires that employers with 500 or more employees provide all employees with up to 80 hours of “COVID-19 supplemental paid sick leave.” Continue Reading

Oregon Prevailing Wage Presentation

On October 9, 2020, I will present on prevailing wages at the Oregon State Bar Construction Law Section’s seminar titled Public Contracting Issues: Federal and State. My presentation will address fundamental concepts, resources, administration, how to analyze prevailing wage issues, and tips for preparing coverage determinations. Click here to learn more and here to register online.

As COVID Continues to Cripple Businesses, New Safety Technologies Emerge

"Sorry, We Are Closed"The economic ruin caused by COVID-19 is out of control.  According to the U.S. Bureau of Labor Statistics’ report dated August 7, 2020, unemployment is at approximately 10.2%.  However, the economic impact of COVID-19 does not stop at America’s unemployment rates.

In August 2020, the Centers for Disease Control and Prevention issued an Order that does not impact a tenant’s obligation to pay rent or make a housing payment but does temporarily halt residential evictions to prevent the spread of COVID-19.  The Order was silent on remedies for owners with other financial obligations to their lenders.  Without the remedy of eviction, owners are put at serious risk for default.

According to the World Bank, school closures have left students in academic purgatory.  Most students complete an average of approximately 11.2 years of schooling; however, given the restraints of remote learning, students will only receive approximately 7.9 years of schooling if the virus continues unabated.  These long-term closures will likely have serious social and economic impacts.

The popular phrase “necessity is the mother of invention” could not be more true than it is now for entrepreneurs behind burgeoning technologies that will allow our communities to reopen and mitigate the risks of COVID-19 before a viable vaccine is available.

For example, a local Washington business owner, Jim Mischel of Electric Mirror, recently pivoted and started Safeology, a company that specializes in the design, manufacture, and supply of UVC light towers and air systems that fight against pathogens and viruses like COVID-19.  Safeology’s products harness UVC and IoT technology to allow widescale disinfection of hotels, cruise ships, restaurants, commercial spaces, classrooms, healthcare facilities, and other common areas.  Mischel has collected a team of experts, including George Diaz, M.D., who treated the first U.S. case of COVID-19; chemical engineer Joseph Anderson, Ph.D.; microbiologist David Rockabrand, Ph.D.; and electrical engineer Rolf Bergman, Ph.D. to help perfect Safeology’s products.  More information about Safeology’s products can be found here and here.

Members of the construction industry seeking to reopen their businesses and continue forward with projects might consider implementing  similar technologies to help mitigate the risks associated with coming back to the workplace.

Builder’s Risk Policy Claim Checklist

If you incur property damage on your construction project site and want to know if insurance will help you compensate for it, several challenges arise. First, you need to determine if you have an insurance policy that could provide coverage. Second, you must determine the extent to which the policy covers property damage and related losses and how to go about calculating delay costs. The most likely means to ensure coverage for property damage is the builder’s risk insurance policy, which can include delay-in-completion coverage added by endorsement to cover the delay costs and related expenses caused by the covered property damage. In my latest article for the Daily Journal of Commerce, I provide several tips to help you prepare a builder’s risk claim and maximize recovery. Read the article here.

Originally published as “OP-ED: A builder’s risk policy claim checklist to maximize recovery,” by the Daily Journal of Commerce, August 20, 2020.

Disgorgement Liability in CA for Unlicensed Contractors Runs One Year from Completion or Cessation

In a very recently published case dealing with issues of first impression in California, here, the Second Appellate District in Los Angeles determined that the disgorgement penalty under BPC 7031(b) triggers a one-year statute of limitations given that it is a penalty, and the cause of action accrues from either the completion or cessation of the work, finding that the discovery rule is inapplicable to extend the period of exposure for unlicensed contractors.

The certainty of a ruling is welcome news in an area of California law that is painfully restrictive for contractors, as we have discussed in the past. See, e.g., arguments in the unpublished SunRun decision [here], and [here], and [here].  The impact of licensing failures is legend among lawyers who have to be – usually – the bearer of bad news for contractors, with the legislatively ‘unfair’ result, but the purpose of which is set forth by the Eisenberg decision:  Section 7031(b) does not require the plaintiff seeking disgorgement to have suffered any injury.  That is because

“‘[s]ection 7031 represents a legislative determination that the importance of deterring unlicensed persons from engaging in the contracting business outweighs any harshness between the parties, and that such deterrence can best be realized by denying violators the right to maintain any action for compensation [or requiring them to disgorge compensation already paid].’”

(MW Erectors v. Niederhauser Ornamental & Metal Works Co. (2005) 36 Cal.4th 412, 423 (emphasis and citations omitted); see also White v. Cridlebaugh (2009) 178 Cal.App.4th 506, 518-520.)

The factual circumstances of the Eisenberg decision are interesting, in that the general contractor (Suffolk) was licensed using an employee as the qualifying Responsible Managing Employee (RME).  Under the RME requirements, the court explained the law clearly, stating

[a]n RME is “an individual who is a bona fide employee of the applicant and is actively engaged in the classification of work for which that [RME] is the qualifying person on behalf of the applicant.” (§ 7068, subd. (c).)

At the time of construction at issue in this appeal, the contractors’ law provided that the qualifier “shall be responsible for exercising that direct supervision and control of his or her employer’s or principal’s construction operations as is necessary to secure full compliance with the provisions of this chapter and the rules and regulations of the board relating to the construction operations.” (Former § 7068.1, subd. (a); see Stats. 1991, ch. 145 (Assem. Bill No. 425), § 1.)5 CSLB regulations provide that “‘direct supervision and control’ includes any one or any combination of the following activities: supervising construction, managing construction activities by making technical and administrative decisions, checking jobs for proper workmanship, or direct supervision on construction job sites.” (Cal. Code Regs., tit. 16, § 823, subd. (b).)

                     ____________

5 The current version of section 7068.1 provides that the qualifier “shall be responsible for exercising that direct supervision and control of his or her employer’s or principal’s construction operations to secure compliance with this chapter and the rules and regulations of the board.” (§ 7068.1, subd. (a).)

(Eisenberg Village of the L.A. Jewish Home for the Aging v. Suffolk Constr. Co., No. LC100462, slip op at 7-8 (Los Angeles County Super. Ct. August 26, 2020.)

However, Eisenberg had argued that since Suffolk’s RME had moved out of state, stopped attending meetings related to the project, and stopped having any responsibility in the project after he moved, that although perhaps originally “licensed” in 2008, the RME’s failure to comply with the RME obligations left Suffolk “unlicensed” after the RME moved out of state in late 2008.  Eisenberg also argued that it could not make that RME argument and determination until after it knew it had an unresolved construction defect claim in 2015.  After briefing and supplemental briefing at the trial court level following motions on the statute of limitations, the trial judge determined that a one-year statute of limitations applied as the statute is a “penalty” or “forfeiture,” and that in any event, the information available to or known by Eisenberg as to its potential claim was available as early as the end of 2008.  The court thereafter dismissed the disgorgement cause of action on the $49 million project.  On appeal, the court affirmed the trial court’s analysis, and declined to address the remaining arguments of whether the technical lack of compliance with the RME obligations left Suffolk “unlicensed” or not.  In part, the appellate court relied on the public policy reasons that are so harsh to also note that disgorgement is intended to be a penalty.

Instead, for reasons of policy (to deter contractors from operating without a valid license), it provides a windfall to the plaintiff, at the expense of the unlicensed contractor, since the plaintiff also retains the work completed by the contractor.

When viewed in this context, it is clear that the disgorgement provided in section 7031(b) is a penalty. It deprives the contractor of any compensation for labor and materials used in the construction while allowing the plaintiff to retain the benefits of that construction.

(Eisenberg Village of the L.A. Jewish Home for the Aging v. Suffolk Constr. Co., No. LC100462, slip op at 17 (Los Angeles County Super. Ct. August 26, 2020.)

Further, the appellate court held that it would not apply the equitable discovery rule to the accrual of the statute of limitations where “…the disgorgement mandated by section 7031(b) is not designed to compensate the plaintiff for any harm, but instead is intended to punish the unlicensed contractor.”  Highlighting the rather absurd possible applications of a discovery rule claim for disgorgement arising 10 years after completion, with no other basis for a claim against the contractor, the appellate court stated that “[t]o avoid such absurd results, and because there is no reason in equity to apply it, we hold that the discovery rule does not apply to section 7031(b) claims.”

The published opinion, while not addressing all of the potential factual and legal issues raised by the parties in the proceedings, is very instructive and helpful to advise clients (owners or contractors) regarding at least two prior matters of first impression in California.  As we have previously advised clients, in light of the restrictive rules in California regarding contractor licensing, if the question being asked is, “How close can I get to the line before it’s a violation?” you are already asking the wrong question and you should be prepared to address the arguments if not the consequences of the harsh licensing law.  At least now, however, we understand what the time limitation for such a claim will be at the outside – one year from completion of the project or cessation of the performance.

Allocate Payments Clearly to Minimize Construction Disputes

In an ideal world, a contractor performs a portion of the work on a project as provided for in a construction contract, the owner pays the contractor an installment payment for that portion of the work, and the parties continue similarly until the work is finished. However, many factors can upset the equation – changes to or an expansion of the scope of work of the project or execution of an additional contract for scope of work different than the original. With increasing complexity of a project comes increasing opportunities for confusion or disputes over the allocation of payments for the parts of a project. In an article for the Daily Journal of Commerce, I provide general guidance as to how parties can amicably resolve any issues that may arise. Read the article here.

Originally published as “OP-ED: Allocate payments clearly to minimize construction disputes,” by the Daily Journal of Commerce, July 16, 2020.

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