|
ConstructionRisk.com
Report
Vol.
2, No. 8 - Aug. 2000
In
This Issue:
*
Who Sues A/E's?
*
Quantum Meruit Recovery by Contractor Against Cher
*
Contractor Can't Recover Insurance for Damages Caused by Its Breach of Contract
*
OSHA Standards Create no Liability for Engineer and Contractor for
Injuries to Non-employee
______________________
About
this Newsletter
This
newsletter is edited by J. Kent Holland, Jr., Esq., and published by
e-mail once per month. Archived issues (plus this current issue) are
maintained on our website at http://www.constructionrisk.com.
The formatting on the website is easier to read and print.
At our website you will find an extensive library of risk
management materials, including articles indexed by subject matter.
It is organized as a free construction risk management library.
offered as a public service by J. Kent Holland, Jr., an attorney
with 20 years of legal experience as a construction lawyer and risk
management professional.
Articles in this newsletter are written by Mr. Holland unless otherwise
indicated.
________________________
Who
Sues A/Es?
According to a benchmarking study by CNA/Schinnerer for the AIA
Trust, claims data show that the majority of claims against the design
professional are brought by the owner client.
As reported in AIA Architect (May 2000), 55 to 60 percent of
claims against architects are brought by owners.
And an even higher percentage (65 to 70 percent) of claim dollars
are from owner claims. The balance of claims against architects are reported to be
13 percent by contractors and subcontractors, 12 percent by injured
nonworkers, 10.4 percent for other property damage or economic loss and
7 percent for worker injuries.
As suggested by the AIA article, the fact that over three fourths
of all claims against architects are made by parties that have direct
contact (but not necessarily contract) with them, "good
communication and cooperation [are] paramount in preventing or
mitigating professional liability claims."
A separate review of claims against Zurich American Insurance
Company insureds likewise reveals that owners account for the most
significant percentage of claims.
Risk management continuing education courses by Zurich, CNA/Schinnerer
and others, consequently, stress the importance of good communication
starting with contract negotiations and continuing through project
management and documentation.
________________________
Quantum
Meruit Recovery by Contractor Against Cher
Contractor began construction on a $4.2 million home for Cher
(movie star and singer/entertainer) based on a oral agreement that Cher
would execute a written contract that had allegedly been negotiated
between the parties. Although
Cher is alleged to have promised to sign the contract, she never signed
it. The contractor
performed work under the oral agreement based upon its understanding and
belief that Cher would honor an alleged promise to pay for the work
being performed. Ultimately,
however, Cher terminated the work and refused to pay the contractor over
$400,000 that was then due.
In the suit for breach of contract against Cher, the trial court
dismissed the complaint because the contractor didn't obtain a signed,
written contract. On
appeal, the California Court of Appeal reversed that decision.
The court stated that the California Business and Professions
Code requires that "every contract and any changes in a contract,
between an owner and a contractor, for the construction of a
single-family dwelling to be retained by the owner for at least one year
shall be evidenced in writing signed by both parties."
According to the court, this provision of law is intended to
provide safeguards to consumers who contract for "home
improvement" work. And
as a general rule, the court notes that a contract made in violation of
a regulatory statute is void. Significantly, however, the court
concluded that the general rule concerning a voidable contract has
flexibility so that it does not have to be applied in its fullest rigor
under any and all circumstances.
Citing other case precedent, the court stated that the purpose of the
regulation is to protect "unsophisticated consumers."
In this case, Cher was not an "unsophisticated
consumer." Factors
considered by the court were that Cher was a sophisticated homeowner who
had prior experience with residential construction projects, she had the
assistance of counsel in negotiating the contract (which was never
signed), she had permitted
the contractor to complete a substantial portion of the work and
finally, Cher would be unjustly enriched by not compensating the
contractor for the work performed.
For these reasons, the court held that non-compliance by the
contractor with the California code was not an absolute bar preventing
the contractor from suing to enforce the oral agreement with Cher.
The case was reversed and remanded to the trial court for further
proceedings, and presumably a trial.
Arya Group, Inc. v. Cher, 91 Cal. Rptr. 2d 815 (Cal. App. 2000).
____________________________
Contractor
Can't Recover Insurance for
Damages Caused by its
Its Breach of Contract
A contractor sought recovery from its commercial general
liability (CGL) policy for damages that the project owner claimed for
water leakage and damage caused by the Exterior Insulation System
furnished and installed by the contractor.
The insurance company filed a declaratory judgment action asking
the court to declare that the insurance policy provided no coverage and
that the company had no duty to defend the contractor in the litigation
that was filed by the owner.
In the owner's legal action against the contractor the owner
alleged that the system installed by the contractor allowed water to
leak into the building from the time tenants first leased the building
all the way up to the present time.
Contractor did repair work under its warranty but this apparently
failed to correct the problem. The
owner complains that the contractor also failed to repair interior
drywall and ceiling tile and has made no further efforts to remedy the
problem. Owner alleges that
"as a direct and proximate result of these breaches of contract by
Defendant, [Owner] has incurred extensive structural and aesthetic
damage to the exterior and interior" of the Building.
As basis for denying coverage for the above "damages"
the insurance company argued in its court pleadings that the owner's
complaint does not alleged an "occurrence" as defined by the
policy; there are no allegations of "property damage" as
defined by the policy, and coverage is precluded by three separate
exclusions in the policy. In
reviewing the policy, the court explained that as a general matter, CGL
policies "are intended to provide coverage for injury or damage to
the person or property of others; they are not intended to pay costs
associated with repairing or replacing an insured's defective work and
products which are purely economic losses."
CGL policies respond when an "occurrence" causes
"damages." The
policy defines "occurrence" as "an accident, including
continuous or repeated exposure to substantially the same general
harmful conditions." No
definition of "accident" is provided.
But "when construing CGL policies, courts define an accident
as 'an unforeseen occurrence, usually of an untoward or disastrous
character or an undesigned sudden or unexpected event of an inflictive
or unfortunate character.'"
The court says that the "mere failure of a product to perform as
warranted is not beyond the realm of expectation and is foreseeable by
the parties." Moreover,
the court says that the law is well settled "that the natural
results of negligent and unworkmanlike construction of a building do not
constitute an "occurrence."
In this case, the owner's complaint alleges damages caused solely
by the contractor's breach of contract in failing to properly install
the System and in failing to remedy the problem, and the court concludes
that the damages alleged were the natural and ordinary consequences of
the alleged breach of contract. As
a result, the court concludes that the damages alleged in the underlying
owner's complaint were not the result of an "occurrence" and
are not covered, or potentially covered, under the CGL policy.
Consequently, the insurance carrier was not required to defend
the contractor. American Fire & Casualty Company v. Broeren Russo
Construction, 54 F.Supp.2d 842 (C.D. Ill. 1999).
An interesting twist to this case is that the contractor argued
that its situation was different from others cited by the court because
the owner's complaint alleged damage to property other than that
which was supplied by the contractor, such as interior drywall and
ceiling tile. Regardless of
the fact that this other property was damaged, the court concluded that
"the resulting damages were clearly were 'encompassed by the normal
expectancies which are inherent in the risk of product or performance
failure.'" The underlying complaint did not include a claim for
damage to property other than the building itself and, therefore, the
court finds no "occurrence" and no coverage.
One final argument that was rejected by the court was that if the
damages resulted from negligence of subcontractors rather than the
insured prime contractor, there would be coverage.
The court stated that even if the damages were caused by
subcontractors, the alleged damages from water leaking were still the
foreseeable result of negligent and unworkmanlike conduct in installing
the system. "Accordingly,
the damages alleged in the underlying complaint were not the result of
an "occurrence."
_________________________
OSHA
Standards Create no Liability for Engineer and Contractor for Injuries
to Non-employee
An employee of a project owner sued the engineer and contractor for injuries
he sustained when he fell through a partially open hatch door on the
mezzanine level of a catwalk in his employer's production area. He claimed that the engineer (CRS Sirrine) was negligent is
designing the hatch door and that the contractor (Flour Daniel) was
negligent in constructing it. He
also argued that both had violated OSHA rules and regulations.
The employee (Mr. Duncan) worked as a production coating operator
and was apparently working at
the time of his fall.
In answer to Duncan's complaint, the engineer admitted that it
had designed the hatch door. Subsequently,
however, during a deposition, a structural engineer for CRS Sirrine
testified that, in fact, Sirrine was not involved in the design of the
platform or hatch. Based on this new information, Sirrine file a motion for
summary judgment and the trial court granted judgment in its favor.
On appeal, the appellate court held that permitting Sirrine to
amend its answer to the complaint to deny having designed the hatch was
appropriate since pleadings should be amended in the interest of
justice.
Flour Daniels also asked the trial court to grant a motion for
summary judgment on the basis that it had only provided maintenance and
fabrication services and never provided any engineering, design, or
drafting services related to the hatch. Deposition evidence stated that the owner had reviewed
Flour's installation performance "and would not have accepted the
work if Flour Daniel's construction failed to meet the design, assembly,
quality, or safety specifications provided by [owner]."
The trial court granted this motion for summary judgment.
With regard to the alleged OSHA violations, Duncan asserted that
OSHA and ANSI standards imposed a duty on Flour to ensure an open hatch
was guarded. Duncan also
contended that an implied warranty of workmanship burdened Flour with a
duty to fulfill its construction obligations in accordance with OSHA
standards. Whether OSHA's
regulations imposed a duty on Flour under a negligence theory depends,
says the court, on whether Flour Daniel is subject to the OSHA
regulations.
The court's conclusion is that the "OSHA standards protect
employees working for any business qualifying as an employer under the
[Act]. . . . The key factor in determining whether a party constitutes
an employer under OSHA regulations is whether the party has the right to
control an employee's work." Since
Duncan didn't produce any evidence showing Flour had the right to
control his work, the court concluded that Flour was not constituted as
his employer and that the OSHA regulations were, therefore,
inapplicable. As concerns
the ANSI standards, they "only purport to be a guide and thus do
not impose any extra duty on Flour Daniel."
As a final basis for ruling in favor of Flour Daniel, the court stated
that OSHA and ANSI standards do not impose liability on a contractor
when the contractor merely assembled a project with design
specifications provided by a third party.
The court cited a long accepted notion that "the contractor
is not liable if he has merely carried out carefully the plans,
specifications and directions given him, since in that case the
responsibility is assumed by the employer, at least where the plans are
not so obviously defective and dangerous that no reasonable man would
follow them." Since
the plaintiff's own expert testified that one solution to render the
area safe while the hatch door was open would be to station a person to
guard the hatch, and this solution is completely unrelated to
construction, would ameliorate the potential hazard, the design
specifications were not so obviously defective as to require Flour
Daniel to supplement the design on its own.
Duncan v. CRS Sirrine, 524 S.E.2d 115 (S.C. App. 1999).
________________________
Submit
an Article or a Website link
If
you have an article you have written which you would like us to consider
adding to our library of articles, or including in the
ConstructionRisk.com Report, please send us an e-mail with the article
attached. ________________________
Disclaimer
This
newsletter is distributed with the understanding that
ConstructionRisk.com, LLC is not engaged in the rendering of legal
services. Further, the comments in this newsletter are for general
distribution and cannot apply to any single set of specific
circumstances. If you have a legal issue to which you believe this
newsletter relates, we urge you to consult your own legal counsel.
ConstructionRisk.com expressly disclaims any responsibility for damages
arising from the use, application, or reliance upon the information
contained herein.
Copyright
2000, http://www.ConstructionRisk.com, LLC
Editor:
J. Kent Holland, Jr., J.D.
6505 Chesterfield Ave.
McLean, VA 22101
703-623-1932 |
