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ConstructionRisk.com Report
http://www.ConstructionRisk.com
Vol. 7, No. 5, September 05
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Inside
This Issue:
• New
Book -- Risk Management & Contract Guide for Design Professional
• Store
Owner not Liable for Injuries Sustained by HVAC Contractor's Employee
• DeFacto
Takeover: Are a Surety's Rights Protected?
• Indemnity
Clause Requires Subcontractor to Indemnify Prime for Injuries Arising
out of Prime's Own Negligence
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NEW
BOOK – AVAILABLE in October– a/e ProNet’s Risk Management &
Contract Guide for Design Professionals by J. Kent Holland
In this a/e
ProNet book authored by Kent Holland, detailed examples of over 30
contract clauses are provided. The
discussions include risk management ideas and suggestions for
negotiating contracts with reasonable allocation of risk between the
contracting parties. Much
attention is given to explaining how contract language may affect the
availability of insurance coverage for claims against design
professionals. Several
chapters address managing communication and documentation, with
particular emphasis on e-mail, and records maintenance, retention, and
destruction. Three
continuing education courses are included.
Each is registered with the AIA.
Additional payment is required to receive credit for taking the
courses. The cost of the
book is only $39.95. A
separate announcement will be e-mailed to you in a few weeks providing
the information on how you can purchase the book.
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ARTICLE #1
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Store
Owner not Liable for Injuries Sustained by HVAC Contractor’s Employee,
by J. Kent Holland
Where a
contractor’s employee was injured by falling from a ladder it borrowed
from the owner of the location where he was repairing an HVAC system,
the court held the owner was not legally responsible for the
individual’s injuries because the availability of the ladder was at
most a favor to the person doing the work.
This was nothing more than a mere gratuity, for which the owner
owed no duty to the individual.
In the case
of Semler v. Sears, Roebuck and
Company, 268
Neb.
857, 689 N.W. 2d, 2004, Lawrence Semler, an employee of The Waldinger
Corporation was dispatched by his employer to the Sears store to repair
the heating unit. Upon his
arrival at the store, Semler noticed a ladder leaning against the
heating unit, and he climbed it in order to take a look at the heating
problem. He came back down,
went to his truck to get an electric meter, then returned to the heating
unit and climbed the ladder a second time. While
he was on the ladder, the bottom slipped out across the floor, causing
him to fall to the ground.
Semler
testified at trial that he believed the ladder’s lack of rubber shoes
caused the ladder to slip out on the concrete floor.
He also testified that he “most likely” adjusted the ladder
before climbing it, but that he did not notice until after the accident
whether the “shoes” on the ladder had rubber on them.
He further testified that his employer, Waldinger, provided all
the tools needed for the job, including an extension ladder which was on
the roof of the truck he drove to the job.
He said he chose not to use that ladder, however, because there
was already a ladder on the premises.
The trial court weighed conflicting testimony and concluded that
Sears employees did not retrieve or move the ladder for Semler to use,
but that Semler, himself, made an independent decision to use the ladder
without any involvement by Sears.
The
appellate court stated that the issue for consideration was not whether
Sears had retained control over Semler’s work.
Nor did the court believe there was a legal issue of whether or
not Sears had a non-delegable duty to provide a safe workplace for
Semler. In fact,
Semler did not argue that Sears
had retained control over an independent contractor who had caused him
harm. And he did not argue
that Sears had vicarious liability for actions of an independent
contractor. Nor did he
argue that his injuries were due to Sears’ failure to protect him form
a condition or activity existing upon its land.
Instead, Semler sued Sears for direct negligence in supplying a
defective ladder for his use on its premises.
The trial
court found no legal basis for the claim and granted a summary judgment
in favor of Sears against Semler. On
appeal, the appellate court affirmed the summary judgment, finding that,
“At most, the presence of the ladder leaning against the unit could be
viewed as a ‘favor to the person [Semler] doing the work.”
As such, “its availability would be nothing more than a mere
‘gratuity.” Consequently,
under the Restatement of Torts, Sec. 392, as cited by the court, Sears
owed no duty to Semler.
About
the author: Kent
Holland is a construction lawyer with the law firm of Wickwire Gavin,
P.C., in Tysons Corner, Virginia, and is risk management consultant for
the environmental and design professional liability unit of Arch
Insurance Group in New York. He
is also publisher of ConstructionRisk.com Report.
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ARTICLE #2
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De
Facto Takeover:
Are a Surety’s Rights Protected?
By
Michael J. Carrato, Esq.
A
Miller Act surety needs to be aware of certain notice requirements if it
decides to take over performance for its principal on a federal
construction contract. Informal
or “constructive” notice that a surety intends to take over
management of a project may not be enough to protect the surety’s
interest in the contract balance. A
recent decision from the United States Court of Federal Claims
illustrates the problems which may arise if a surety does not provide
the contracting officer with formal notice.
In
American Ins. Co. v.
United States
, 62 Fed. Cl. 151 (September 28, 2004), American acted as surety for
G&C Enterprises, Inc. on an Air Force construction contract.
G&C requested and received progress payments from the Air
Force during the course of construction.
However, as the project neared the contractual completion date,
G&C began to experience difficulties.
Concerned that its principal, G&C, might default, American
assumed de facto managerial control of the contract and engaged
another contractor to complete the work.
American did not formally notify the Air Force that it had
assumed responsibility for its principal’s contractual obligations.
After
assuming control of the project, American discovered that G&C had
been paid 97% of the contract price by the Air Force while only
performing 80% of the work. American
filed a suit against the Air Force claiming damages in the amount of
$842,000, which represented the difference in the amount paid to G&C
by the Air Force and the value of the work it had performed.
American argued that it should be equitably subrogated to the
United States
in the amount of the overpayment.
In
granting summary judgment for the Air Force, the Court held that before
an obligation arises on the part of the Government to withhold or divert
contract funds, the Government must be notified that the surety believes
the contractor is in default and cannot complete the contract.
Absent such notice, the Government owes no duty to the surety to
protect the contract balance. Because
the surety may decide that its interests are best served by continuing
to have the Government make progress payments to its principal,
constructive notice that a contractor has defaulted and that the surety
has taken over the performance of the contract is insufficient.
Only when the surety becomes a party to the contract with the
United States
by entering into a takeover agreement with a federal agency does the
Government owe the surety any duty.
Based on the undisputed facts of the case, American’s rights to
equitable subrogation never attached.
It not only failed to properly notify the Air Force to stop
making payments to the contractor, but instead asked the Air Force to
continue making payments to G&C.
Further,
the Court held that American failed to demonstrate that the Air Force
departed from the terms of the contract in making the overpayments to
G&C. Under the payment
provisions in the contract, the contracting officer was vested with
discretion to pay a contractor in excess of the value of the work
performed. Pursuant to that
language, the contracting officer could use his/her discretion in
balancing the Government’s interest in proceeding with the contract
against possible harm to the surety.
The Court found that the contracting officer in this case did not
abuse that discretion. The
overpayments were made to provide G&C with the cash flow to complete
the project. Based on these
findings, the Court held that American was not entitled to recover any
amount of the overpayments made to G&C.
Comment:
According
to the American Insurance decision, a surety faces a tricky
decision when its principal is experiencing financial difficulties.
On the one hand, encouraging the Government to continue making
progress payments to its principal could help the contractor address its
difficulties and successfully complete the contract.
However, such payments reduce the funds available to the surety
to complete the work in the event its principal defaults.
Diligent monitoring by sureties of their principals’
performance under their bonded contracts and financial condition is key
to avoiding the situation the surety faced in the American Insurance case.
To the extent a surety is convinced that its principal cannot
complete the contract, it should promptly and explicitly notify the
contracting officer to stop payments to the contractor.
Additionally, once a principal has defaulted, the surety should,
with the assistance of counsel, promptly negotiate an appropriate
takeover agreement with the Government.
About
the Author: Michael
J. Carrato
is an attorney with the law firm of Wickwire Gavin, P.C., located at
8100 Boone, Blvd.,
Suite
700
,
Vienna
,
VA
, with a practice focusing on construction law and litigation.
He is also a certified engineer.
He can be reached at 703-790-8750 or at mcarrato@wickwire.com.
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RED
VECTOR.COM --- ON-LINE COURSES by KENT HOLLAND
Currently available risk management courses written by Kent Holland for
RedVector, (http://www.redvector.com/instructors/view_related_courses.asp?id=195)
include the following:; Contract Guide for the Design Professional,
Design Build Professional Liability Risk Management and Insurance; Site
Safety Risk and Liability; Risk Management for the Design Professional;
Managing Communication, Documentation and Reports; Insurance for
Design-Build and Complex Projects; Construction Contract Law; Contract
Claims against Design Professionals; Insurance Coverage Disputes; and
Environmental Claims. This is an efficient, easy and cost-effective to
get your continuing education credits.
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ARTICLE #3
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Indemnity
Clause Requires Subcontractor to Indemnify Prime for Injuries Arising
out of the Prime’s own Negligence,
by
J. Kent Holland, Esq.
Where the
indemnity clause of a contract expressly exculpated a prime contractor
from the consequences of its own negligence that resulted in injury to a
subcontractor’s worker, the prime was entitled to be indemnified by
the subcontractor because the claim arose out of the performance of the
contract.
In Spawglass,
Inc. v. E.T. Services, Inc., 143 S.W.3d
897 (
Tex.
2004), the appellate court
reversed a summary judgment that had been granted by the trial court in
favor of the subcontractor. The
contractor, SpawGlass Construction Corporation had subcontracted with
E.T. Services, Inc.(“ETS”) for
ETS to perform structural steel erection for a high school.
An employee of ETS, Brian Sanders, was working as a welder on the
site. While he was rolling up an oxygen hose, he was struck by a sheet
of plywood that blew off of the roof during a sudden storm.
Sanders sued SpawGlass for negligence.
SpawGlass in turn sought indemnity from ETS pursuant to the
indemnity provisions of the contract.
SpawGlass
contended that the contract clearly and unambiguously required ETS to
indemnity SpawGlass for claims of injury to ETS’s workers attributable
to SpawGlass’s negligence. ETS,
in contrast, contended that the indemnity provision applied only to
injuries resulting from ETS’s performance.
Flying plywood, says ETS, did not arise out of ETS performance.
ETS argued that the indemnity may only be triggered if the
incident arose out of its performance, not its mere presence on the
site.
The
appellate court rejected ETS’s argument completely.
First, the court found that the indemnity provision was clear and
unambiguous with regard to meeting what is known as the “express
negligence rule.” That
rule requires that the intent of the party seeking indemnity from the
consequences of its own future negligence must be expressed in
unambiguous terms within the four corners of the contract.
In this case, the court held that the language clearly required
that ETS would indemnify SpawGlass from the consequences of
SpawGlass’s own negligence that resulted in injury to ETS’s worker.
With regard
to whether the injury arose during ETS’ “performance”, the court
held that despite ETS’s argument that the injury arose from
SpawGlass’s performance
completely unrelated to the work that ETS and its employee were hired to
perform, the injury occurred while all the parties were “engaged in
the construction of a high school auditorium.”
Thus, the court concluded, “The claim asserted by Brian
Sanders arises out of the performance
of ETS’s contract with SpawGlass.
For these reasons, the appellate court reversed and remanded the
trial court decision.
Comment
Based on
the reasoning of this decision, it is important for parties that are
negotiating indemnity provisions in contracts to carefully determine
what they want to be indemnified and to craft the language to accomplish
that. As explained in this
case, the “express negligence rule” that is applicable in most
states means that if you want to be indemnified for your own negligence,
you need to clearly state that intent in the contract.
The contract in this case accomplished that for the prime
contractor.
It is also
not uncommon to see language like that in the contract at issue here
which states that the indemnity applies to injuries or damages arising
out of “performance of the contract.”
This does not necessarily mean that the injury has to arise
directly out of the performance of the work performed by the party that
is the Indemnitor. As
explained in this case, just the fact that the worker was on the site
because his employer was performing work for the primer under a contract
was enough to trigger the indemnity obligation – and it didn’t
matter whether the employee or his employer had anything to do with
causing the plywood to blow off the roof.
If you want
to limit the indemnity to apply only to damages and injuries caused by
your own performance, you can clearly state this in the contract.
For example, if you are a design professional, you might state
something to the effect that you will only indemnify the other party for
damages “to the extent that they arise from the negligent acts, errors
or omissions of the design professional.”
If you are a contractor, you might not be able to limit your
indemnity to negligence based acts, but you might nevertheless limit
your indemnity to apply only to damages “to the extent that they are
caused” by you.
About
the author: Kent
Holland is a construction lawyer with the law firm of Wickwire Gavin,
P.C., in Tysons Corner, Virginia, and is risk management consultant for
the environmental and design professional liability unit of Arch
Insurance Group in New York. He
is also publisher of ConstructionRisk.com Report.
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ABOUT
THIS NEWSLETTER & A DISCLAIMER
This newsletter Report is published and edited by J. Kent Holland,
Jr., J.D., risk management consultant for the Environmental and
Design Professional Liability Units of Arch Insurance Group. The
Report is independent of any insurance company, law firm, or other
entity, and is distributed with the understanding that
ConstructionRisk.com, LLC, and the editor and writers, are not hereby
engaged in rendering legal services or the practice of law. Further,
the content and comments in this newsletter are provided for educational
purposes and for general distribution only, 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, LLC, and its writers and editors,
expressly disclaim any responsibility for damages arising from the use,
application, or reliance upon the information contained herein.
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Copyright 2006, ConstructionRisk.com, LLC
Publisher & Editor: J. Kent Holland, Jr., Esq.
8596 Coral
Gables Lane
Vienna, VA
22182
703-623-1932
Kent@ConstructionRisk.com
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