Construction Claims

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Can parties waive both the commencement and length of the statutory limitation periods for construction defect actions?  Yes, answered the Fourth Appellate District, by allowing the parties to contractually preclude the application of the “delayed discovery” rule that normally triggers the commencement of the limitation time period and affirming case law permitting the shortening of the 10-year latent limitation period to four years.  The court did hold, however, that such waiver and shortening is permitted where there are sophisticated parties, in a commercial context, and perhaps that the contract must even be highly negotiated (or at least such negotiation is available).

On June 3, 2013, in Brisbane Lodging, L.P. v. Webcor Builders, Inc. (Cal. Ct. App., June 3, 2013, No. A132555) 2013 WL 2404154, the appellate court reviewed the trial judge’s granting of summary judgment in favor of the general contractor (“Webcor”) on the grounds that a provision in the 1997 version of the AIA 201 (General Conditions to the prime agreement between Owner and Contractor) unambiguously barred all claims, contract and tort, brought more than four years after substantial completion of the project, rather than four years after the Owner discovered the alleged breach or defect and within the 10-year statute of repose.  The key language for both the trial court and the appellate court was found in provision 13.7:

“13.7 Commencement of Statutory Limitation Period

“13.7.1 As between the Owner and Contractor:

“.1 Before Substantial Completion. As to acts or failures to act occurring prior to the relevant date of Substantial Completion, any applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than such date of Substantial Completion ….” (AIA A201, Article 13.7.1.1 (Article 13.7.1.1), bolding and capitalization omitted.)

A 2013 decision from New York reminds us that threats can be costly. In Mometal Structures, Inc. v. T.A. Ahern Contractors Corp., from the Eastern District of New York, Mometal was hired by Ahern as structural steel subcontractor. The project was delayed for reasons that were not Mometal’s fault. Mometal tried to get the information and approvals…

In my latest Daily Journal of Commerce Construction column, I discuss the case for construction claims reform. Construction industry participants all have one thing in common: they hate litigation. While avoiding claims is not always possible, the number of disputed issues can be reduced.

Some states have enacted statutes eliminating much of the uncertainty surrounding…

In my latest Daily Journal of Commerce Construction column, I discuss tips for developers to help handle claims under the Americans with Disabilities Act. In the column, I recommend several mitigation efforts to reduce liability for ADA defects including: hire vendors with a track record of compliance and competence, verify that all participants insurance policies…

Any construction litigation party faced with responding to California’s standard form interrogatories is all too familiar with the confusing use of the undefined term “incident” and the largely inapplicable “personal injury” interrogatories in a construction case. Similarly, any construction litigator dealing with the standard form interrogatories has felt the burden of sifting through the plethora of…

Following the market crash in 2008-09, the $2.8 billion Fontainebleau development in Las Vegas was halted with 70 percent of the construction completed. Naturally, numerous mechanic’s liens were filed by contractors, subcontractors, professionals and suppliers ("claimants"). In the bankruptcy proceeding, the lenders asserted novel and potentially legally destabilizing theories against the claimants’ rights: a.) the…

On September 20 & 21, 2012, The Seminar Group will present its 17th Annual Oregon Construction Law seminar in Portland, Oregon. I will be speaking at the seminar about frequently negotiated provisions in owner-contractor and owner-architect agreements, including waivers of consequential damages, indemnification, insurance, warranties and claims. Two additional Stoel Rives’ partners will be speaking…

Parties to construction contracts take notice:  the legislature enacted new consequences and contract restrictions to Oregon’s Prompt Pay Acts starting in 2012.               

On public improvement contracts first advertised or solicited on or after May 28, 2012, the newly revised Act (a) changes the interest penalty rate for a prime contractor’s failure to make timely payment…

There are now 25 states in the U.S. that hold that construction defects are not an “occurrence” and are therefore not covered under commercial general liability policies insuring contractors.  Couple this troubling statistic with the ever increasing number of policy exclusions and limitations, and we begin to realize that in many situations the contractor’s insurance policy is inadequate (or non-existent) protection against defects. 

The importance of performance bonds as security to pay for construction defects is therefore growing.  While some sureties who sell the bonds will tell you that bonds merely guarantee completion, and do not insure against latent defects, the language of the typical bond defies this position.

 

Bonds plainly state that they guarantee each and every obligation of the contractor under the contract.  Those obligations usually include the duty to perform work according to the plans and specifications, the standard of care, and without defect or nonconformity.  This author has not seen a bond that attempts to carve out construction defects from its coverage.  And bonds do not have the host of exclusions or limited coverage grants that plague the value of insurance policies.  By the same token, bonds are not perfect and owners should consider the following to get the most protection from a bond:

 

First, the bond duration should extend at least as long as the warranty period (typically one year from completion but sometimes longer) and for as many years thereafter as possible, up to the statute of repose period in the state in which the project is located.  Because construction defects often appear years after completion, the bond duration is critical.  You may pay more for a bond with a longer duration, but if the bond is needed, you should be paying less for the unreliable insurance carried by the contractor.

 

The Economic Loss Rule plays an important part in construction disputes, but it has not been clearly defined or understood, or so the Washington Supreme Court has recently stated. The Economic Loss Rule has been generally described as applying to “economic damages” in cases where the plaintiff has a contract that addresses or could reasonably address the…