Indemnity provisions are often among the most negotiated and least understood provisions of commercial contracts, and construction contracts are no exception to this rule. Despite, and perhaps because of, the importance of these clauses, they have evolved into an almost impenetrable jumble of legal terminology.
This jumble of words is not, however, without meaning. Although
The apartment business is booming right now. Unfortunately, construction defects persist as well, particularly in garden-style and wood-framed construction. Most developers are savvy enough to maintain a good insurance program, but many do not understand (until too late) that the policies they bought may not cover the risk of construction defects.
As an owner-developer, neither your property insurance policy (including your builder’s risk policy) nor your general liability policy is likely to protect you from the cost of repairing defects to property you own. Most likely, your property policy has an exclusion for any damages caused by defects in construction or design. And your liability policy has exclusions for property damage to any property you currently “own, rent, or occupy.” (See exclusion J(1) below.)
Even more surprising to some is another exclusion that prevents coverage for property damage to property that you “sell, give away or abandon” (known as the “alienated property exclusion”). (See exclusion J(2) below) This means that for projects you develop, occupy (i.e., rent) and sell, you likely have no coverage during your occupancy of that project or after you sell (whether to unit owners through a condo conversion or to another apartment owner).
j. Damage to Property
“Property damage” to:
(1) Property you own, rent, or occupy, including any costs or expenses incurred by you, or any other person, organization or entity, for repair, replacement, enhancement, restoration or maintenance of such property for any reason, including prevention of injury to a person or damage to another’s property;
(2) Premises you sell, give away or abandon, if the “property damage” arises out of any part of those premises;
Upon learning of this unfortunate situation, many developers ask: What good is the policy if it doesn’t cover me when I own the project and it doesn’t cover me after I sell it? Good question. The insurer’s response is that the policy only covers damage to other people’s property (like the project next door), not damage to your own property or the property you once occupied and sold. Strangely, if you sell the project before you occupy it, coverage is more likely.
Solutions? There are steps you can take to minimize your risk:
The new year brings a reminder that owners need to be careful about changes to their contractors’ and designers’ insurance policies. Many of the most important terms of an insurance policy are in “endorsements” added to the policy. For example, a policy may
include an endorsement excluding claims between insured parties (say, a claim by
The Oregon Court of Appeals recently applied the so-called “economic loss rule” to a construction dispute (Marton v. Ater Construction Co., 256 Or App 554, __ P3d __ (2013)). Among other issues, the court decided whether the prime contractor’s negligence claim against its subcontractor was barred under the economic loss rule.
Under 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
“Construction Contracts” “Indemnity Clauses” “RCW 4.24.115”
Indemnity and additional insurance provisions in commercial construction contracts may no longer be an “arm’s-length” negotiation in California. Dramatic changes are proposed in sb 474 (2011). We most recently saw this type of legislative intrusion directing contract language in the residential construction context with the significant modifications of Civil Code section 2728 a few years
Have you noticed unusual language in a client’s contract pertaining to broad waivers of subrogation and acceptance of risks that you never thought your client would have? A brief trend in contract negotiations for many industrial projects has been the appearance of the so-called “knock-for-knock” indemnity provision. The term “knock-for-knock” is typically used for a
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
On June 18, 2009 the Washington Supreme Court issued its decision in Cambridge Townhomes, et al. v. Pacific Star Roofing, Inc., et al., 81003-6. The decision touches on several issues of interest to the construction industry in Washington. In particular, the Court clarified the law about when a corporation may be held liable as