constructionattorneyblog

Florida Supreme Court follows Texas' Lamar Homes

On December 20, 2007, the Florida Supreme Court issued a ruling in United States Fire Insurance Company v. J.S.U.B., Inc. Here is an excerpt:

We conclude that defective work performed by a subcontractor that causes damage to the contractor’s completed project and is neither expected nor intended from the standpoint of the contractor can constitute "property damage" caused by an "occurrence" as those terms are defined in a standard form commercial general liability policy. Accordingly, a claim made against the contractor for damage to the completed project caused by a subcontractor’s defective work is covered under a post-1986 CGL policy unless a specific exclusion applies to bar coverage. In this case, the terms of the policy included an exception to the "Your Work" exclusion for faulty workmanship by a subcontractor and did not include a breach of contract exclusion.

This follows the lead of the Texas Supreme Court in Lamar Homes, Inc. v. Mid-Continent Cas. Co., 50 Tex. Sup. Ct. J. 1162, 2007 WL 2459193 (Tex., Aug. 31, 2007)

Seventh Circuit Rules for Injured Construction Worker - Interprets Section 414 of Restatement

In Aguirre v. Turner Construction, decided September 7, 2007 by the Seventh Circuit, the plaintiff was injured when he fell from a scaffold while working for a masonry subcontractor. He sued the general for negligence based on Section 414 of the Restatement of Torts and res ipsa loquitur. The district court granted the general summary judgment based on the general not having retained sufficient control over the subcontractor's work to give rise to any duty of care or supply a basis for liability on the res ipsa theory.

The Seventh Circuit reversed, after analyzing several Illinois cases that had analyzed Section 414. The theory is often called the "retained control" theory of negligence liability. The court explained that Section 414 allowed for direct liability against a general contractor by an injured worker for a subcontractor based on the existence of a duty of reasonable care. That duty is triggered when the GC has retained supervisory control over the independent contractor without retaining control over all operative details of a project. Liability then arises when the GC knows or by the exercise of reasonable care should know that the sub's work is being done dangerously, and has the opportunity to prevent it by exercising the power of control which the GC has retained. Liability also arises if the GC knows or should know that the sub has carelessly done its work in such a way as to create a dangerous condition, and fails to exercise reasonable care either to remedy it himself or by the exercise of his control to cause the sub to do so.

In this case, the GC had extensive safety oversight. The sub was required to follow 23 rules specific to scaffold construction. The GC's employees regularly walked the site and could require the sub to correct any deficiencies observed in scaffolds. Finally, the GC imposed specific alternative design requirements on the scaffold from which the plaintiff fell.

Finality in the Initial Decision under the 2007 A201

One of the new provisions of the 2007 AIA Documents is the establishment of an Initial Decision Maker. See Section 15.2 of AIA Document A201. In the past, this role was fulfilled by the architect, but there were often problems with this setup. Many contractors, justifiably or not, believed this to be a conflict of interest for the architect. This new provision, if implemented by the parties (the owner and contractor), calls for a third-party neutral to be named in advance and to make preliminary decisions concerning disputes between the owner and contractor. If no one is named, then the architect undertakes this role by default.

Buried within the various paragraphs that discuss how this will work, is an opportunity for owners to limit future litigation if done properly. Here is the relevant paragraph:

§ 15.2.6.1 Either party may, within 30 days from the date of an initial decision, demand in writing that the other party file for mediation within 60 days of the initial decision. If such a demand is made and the party receiving the demand fails to file for mediation within the time required, then both parties waive their rights to mediate or pursue binding dispute resolution proceedings with respect to the initial decision.

What this contemplates is that an initial decision will be made by the Initial Decision Maker (either the architect or a third party) concerning a dispute between the owner and contractor. Most of these disputes will likely revolve around changes or extras to the contract. Often, the contractor will make a claim for additional money that will be the subject of such an initial decision. Once that initial decision is made, under most circumstances, nothing else will happen until the conclusion of the project, when the unhappy party (most likely the contractor) will aggregate all of these decisions and begin the final claims process consisting of mediation first, followed by either arbitration, if selected, or litigation (the default). The more of these unsuccessful claims there are, the more likely it is that the contractor will pursue litigation to obtain relief after the conclusion of the project.

However, if the owner is aware of Section 15.2.6.1, he can, effectively, cut off such future litigation by making a 30 day demand. Under this procedure, within 30 days of the date of an initial decision, the party in whose favor the decision is made can file a written demand with the other party to commence mediation within 60 days after the date of the initial decision. The failure to commence mediation (this would be done by filing a written demand for mediation with the American Arbitration Association) within this time period cuts off that particular claim and waives it for all future purposes.

Of course, this theoretically works the other way, with a decision in favor of the contractor by the Initial Decision Maker, followed by a 30 day written demand by the contractor served on the owner to commence mediation. If the owner fails to commence mediation within 60 days, the initial decision is final and, presumably, a change order to reflect that would be processed by the architect. In most cases, it can be assumed, this will not work in favor of the contractor, since most claims are by the contractor against the owner, not the other way around.

The parties, and their attorneys, should be aware of this powerful tool. While this is similar to Section 4.4.6 of the 1997 version of A201, this does not require any special language in the initial decision itself. The burden is on the parties to invoke this for their own benefit.

Fiduciary duty of an architect

The issue of whether architects owe a fiduciary duty to a client occasionally shows up. The majority of courts seem to come down on the side of no such duty. Two recent cases reflect these differing views. In Carlson v. SALA Architects, 732 N.W.2d 324 (Minn.App., 2007), the owners hired an architectural firm to design a new home. After spending almost $300,000 in architectural fees, the owners were not happy with the designs and terminated the firm. They then sued the architect for breach of contract and professional negligence, seeking the return of the fees. They then amended their claim to add statutory claims related to lack of a professional license by one of the architect's staff. The trial court entered summary judgment for the owners on the license issue, but the appellate court reversed. The architectural firm had assigned a staff member who was not licensed in Minnesota to work on the project, along with a licensed principal in the firm. The owners claimed to be deceived into believing that this person was licensed, and that this was a breach of the architect's fiduciary duty. The court stated that there was no fiduciary duty per se between an architect and the client.

In E-Med, Inc. v. Mainstreet Architects, 2007 WL 1536803 (Cal.App. 2 Dist., May 26, 2007), the appellate court appeared to adopt the position that an architect owed a fiduciary duty to a client. However, in that case, it was not a breach of fiduciary duty by the architect to urge an owner to develop affordable housing. The owner claimed that the architect should have advised him to develop single family detached residences instead of high density housing and that the architect failed to develop this more profitable option. The jury's verdict in favor of the architect was upheld.

These cases also demonstrate that owners continue to try to expand the architect's supposed duties well beyond any contractual duties and beyond what architects actually do. In effect, owners want architects to guarantee the project, although they are unwilling to actually pay the architect for the work that would be required to implement such a guarantee.

Indemnity Agreement

The Illinois Appellate Court, Fifth District, issued an opinion on September 26, 2006 in Blackshare v. Banfield (No. 5-05-0456) construing the following indemnification language:

'Contractor shall defend and indemnify and save Owner and all of Owner's employees harmless from any and all claims, losses, damages, demands, suits, actions, payments, judgment, costs[,] and expenses, including attorneys' fees, arising or alleged to arise from personal injuries, including death, or damage to property, occurring during the performance of the work and due to the negligent acts or omissions of the Contractor'

This was a third party action in which SIPC sought indemnification from Martin, including for SIPC's negligence. The court held that Martin was contractually obligated to provide indemnification only to the extent that Martin was ultimately found to be at fault.

Be careful on construction sites, especially when using a cell phone!

A California court affirmed a jury's finding in favor of the defendants in a case where a "seasoned and mature" construction worker  was injured by a fallen plank from scaffolding that was being disassembled. The plaintiff was apparently absorbed in a cell phone conversation and failed to hear warnings.   The court said that this was "tantamount to strolling on a battlefield wearing 'horse blinders' and ear-plugs. While we regret that he was injured, he should be grateful that he wasn't killed."

CGL policy -- conflict of interest between builder and insurer

In the recent Illinois opinion in American Family Mutual Insurance v. W.H. McNaughton Builders, 843 N.E.2d 492 (2nd Dist. 2006), the appellate court allowed the builder to select his own defense attorney over the objections of the carrier where there was a potential conflict of interest between the insurance company and the builder who had been sued by a home purchaser.

New Lennar Opinion issued

The Texas Appellate Court has issued substituted concurring and dissenting opinions in Lennar v. Great American Insurance on April 11, 2006 (14-02-00860-CV). This case (in particular, the underlying opinion) presents interesting discussions concerning "occurrence" issues and what is covered by insurance policies.

Justice Roberts finds for architect

In a 2005 opinion by Justice Roberts while he was on the Court of Appeals, the court affirmed summary judgment in favor of an architect where the owner failed to show a connection between the damages and the architect's conduct.

Specifications - "or equal" - patent infringement

In Fieldturf v. Sprinturf, 2006 WL 44166 (Fed.Cir. 2006), a school district was constructing a sports playing field. The specifications required "pro series soccer synthetic grass system manufactured by FieldTurf ... or equal." The defendant in the case was a competitor of FieldTurf and complained to the school district that California does not favor sole source procurement. The specifications were amended and the defendant was awarded the contract. The plaintiff sued the defendant for patent infringement, claiming that the amended specifications could only be met with the FieldTurf product and, therefore, the bid constituted an illegal "offer to sell" under 35 USC 271(a). The court rejected the argument, finding no infringement because the specifications contained an "or equal" clause, either explicitly or implicitly. The winning bidder intended to use its own product and not an infringing product.