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Inside This Issue:

  • Expert Affidavit Required with Complaint
  • No Damage For Delay Clause Not Enforced
  • Statute of Repose Passes Constitutional
  • Zurich Insurance Offers New Website

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Expert Affidavit Required With Complaint

A construction contractor on a design-build wastewater treatment construction project filed suit against the engineering firms that had entered with them into the design-build venture.  A Georgia state statute requires that an expert affidavit be filed with a complaint alleging professional malpractice.  The contractor failed to file such an affidavit with its complaint, and the trial court dismissed the case without prejudice.

Since the dismissal was without prejudice, this meant that the contractor could potentially re-file the complaint again with a properly executed affidavit.  The engineers pre-empted action, however, by filing an appeal asking the appellate court to go beyond the trial court’s remedy and direct that the case be dismissed with prejudice so that the contractor could not file its case again.

In reviewing the matter, the appellate court remanded the case to the trial court to enter judgment of dismissal with prejudice.  The court agreed with the engineers arguments that a plaintiff who brings an action alleging professional malpractice must file with the complaint an expert’s affidavit.  The affidavit must set forth at least one negligent act or omission and the factual basis for the claim.  “If the required affidavit is not filed with the complaint, the complaint is subject to dismissal for failure to state a claim.  A dismissal for failure to state a claim is a dismissal on the merits and is with prejudice.”   Jordan, Jones & Goulding v. Balfour Beatty Construction, 2000 WL 1364215, 246 Ga.App. 93.

NOTE:  This case focused on statutory language and was decided strictly on the basis on how that language was to be interpreted and applied.  The statutes vary in the different states, and the timing of when an expert affidavit must be filed may be different depending upon the jurisdiction.  Even if not required by statute to be filed with the complaint, however, an expert’s testimony is almost always required if a judge or jury is being called upon to decide whether a design professional performed its services negligently.  To prove negligence, the plaintiff  must present evidence that the designer did not comply with the generally accepted standard of care. Expert testimony is necessary to prove the standard of care and that it was violated by the defendant.   For newsletter articles analyzing cases on that point, please see the A/E Briefings subject index on the first page of the ConstructionRisk.com website.

Copyright ã 2001, ConstructionRisk.com, LLC – Virginia

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Zurich Insurance Offers New A/E Website

Zurich Insurance has a new website dedicated to its Architectural/Engineering Professional Unit.  Here you can find a risk management course and take it at no cost if you have errors and omissions coverage with Zurich.  You can also view frequently asked questions concerning contract language and you can obtain information and samples of various insurance policies.  Visit this website for a wealth of information and be sure to bookmark it. http://www.zurichna.com/designprofessional

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No Damage for Delay Clause Not Enforced

A construction contractor was delayed in completing a road construction project by a flaw in the design provided by the project engineer.  The project owner (Broward County, Florida) denied the contractor’s delay and impact claim, asserting that it was barred by a contract provision entitled “No Damages for Delay.”  The courts held that to the extent that the delay was caused by bad faith or by interference with the contractor’s  work, the contractor was entitled to recover.

The clause in question reads as follows, with the first sentence in all capital letters: “No claim for damages or any claim other than for an extension of time shall be made or asserted against the county by reason of any delays.  The contractor shall not be entitled to an increase in the Contract Sum or payment or compensation of any kind from the County for direct, indirect, consequential, impact or other costs, expenses or damages, including but not limited to costs of acceleration or inefficiency, arising because of delay, disruption, interference or hindrance from any cause whatsoever, …; provided, however, that this provision shall not preclude recovery or damages by the Contractor for hindrances or delay due solely to fraud, bad faith or active interference on the part of the County or its agents.  Otherwise, the Contractor shall be entitled only to extensions of the Contract Time as the sole and exclusive remedy for such resulting delay, in accordance with and to the extent specifically provided above.”

During construction, the contractor “Triple R Paving, Inc.” discovered an alignment problem that prevented a major portion of the work from proceeding.  When it asked the County to permit it to move its manpower and equipment off the site until the problem was corrected the county directed it not to do so.  The work then progressed slowly and out of sequence.  Triple R was paid for all the work performed, but the county refused to pay for any of the inefficiency that was caused by the inability to get site access and complete the job in the time originally anticipated.

Triple R filed suit against the County.  The County sued its engineer as a third-party defendant under the indemnification clause of the contract between the engineer and the county.  The suit survived a motion by the engineer for a directed verdict against the contract on the basis of the No Damage for Delay Clause.  A jury then held in favor of the contractor as to certain of the delay damages.  On appeal, the engineer argued that the trial court should have granted its motion for directed verdict .  Although agreeing that generally clauses providing for no damages for delay are legal and enforceable, the appellate court found that in this case the facts surrounding the delay which resulted form the horizontal sight distance design flaw were sufficient to allow a fury to decide the question of fraud, bad faith, or active interference.

Evidence of the engineer’s “knowledge of the design flaw and the subsequent failure to apprise Triple R of the problem was sufficient, said the court, to constitute willful concealment of foreseeable circumstances which impact timely performance, such that the no damages for delay clause may be overcome.  The appellate court engineer responsible for the design flaw.”   In this case, the court said that the evidence established that the engineer was well aware of the design flaw in the bridge construction, but withheld that information from Triple R.  “Thus, there is sufficient evidence to allow a jury to determine whether fraud, bad faith, or active interference vitiated the no damages for delay clause.”

In related issues, the court held that the trial court committed reversible error in the written jury interrogatories.  The questions to jury used language inconsistent with the jury instructions that had been given at the end of the trial.  This had the serious potential to confuse the jury and prevent it from awarding the full extent of damages to which the contractor was entitled.   The damages at issue were those to be awarded pursuant to the Eichleay formula to a contractor who suffers unabsorbed home office overhead when the government delays work on the contract indefinitely but requires the contractor to remain available to resume work immediately on the government’s instruction.   The court reversed and remanded the case.  A new trial on the damages would apparently be required in order that a jury may consider a proper combination of instructions and interrogatories so that it may award appropriate damages to the contractor. Triple R. Paving, Inc. v. Broward County, 2000 WL 1584452 FL, 25 Fla. L. Weekly D2517 (Oct. 25, 2000).

NOTE: This case is somewhat unusual in that the contractor was able to successfully claim damages despite the no damages for delay clause.   Such clauses are generally enforced by courts.  In another recent case, for example (DiGioia Brothers Excavating, Inc. v. City of Cleveland, 734 N.W. 2d 438, 2000), an Ohio Court held that none of the exceptions to enforceability of a no damage for delay clause applied to the facts of the case since the contract actually addressed the specific cause of the delay.   The contract for installation of a water main noted hundreds of locations where there were interferences with subsurface utilities.  The contract also advised that there may be unmarked or inaccurately located utilities and it expressly disclaimed liability for delay that might result from such interferences.

Contractual language disclaiming responsibility for information or lack of information provided by an owner must be taken quite seriously by a contractor.  Contractors must not assume that a court will get them out of a contract because it ultimately looks unfair or produces an unfortunate loss for the contractor for matters beyond the control of the contractor.  The time to manage this risk is during contract negotiation.  Particular caution should be exercised when negotiating contracts with owners who have a history of writing  hard contracts that impose risks upon architects, engineers and contractors that are not generally encountered in the standard form contracts commonly used in the industry.

Copyright ã 2001, ConstructionRisk.com, LLC – Virginia

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Statute of Repose Passes Constitutional Test

The Supreme Court of Washington held that the state’s six-year statute of repose did not violate the state constitution or the equal protection clause of the United States Constitution.  Although it found itself compelled to enforce the statute to grant summary judgment on behalf of design professionals who designed condominiums that slid down a hillside during heavy rains, the court clearly felt the statute was distasteful and unfair.  The provision of the statute is:  “All claims or causes of action set forth in [the statute] shall accrue, and the applicable statute of limitations shall begin to run only during the period within six years after substantial completion of construction, or during the period within six years after the termination of the services enumerated [  ], whichever is later. …  Provided, that this limitation shall not be asserted as a defense by any owner, tenant or other person in possession and control of the improvement at the time such cause of action accrues.”

Plaintiff, condominium association, sought to get out from under the statute of repose by arguing that the phrase “termination of services” means ALL services provided by the A/E on the improvement and that since some minor repairs were completed years after the substantial completion, it was this later date that would trigger the running of the statute.  The court rejected that argument saying that if the statute were read this way there would be no purpose if referencing substantial completion since by definition there are always services to be completed after substantial completion to bring the project to final completion.

The court also rejected an argument by the plaintiffs that until the units were sold the substantial completion could not have occurred.  Since the statute defines substantial completion as the date when the improvement MAY be used or occupied it did not matter what date the unit was first actually used or occupied.

On the plaintiff’s argument that the statute unconstitutionally benefited designers and contractors to the detriment of others, including the project owner, the court showed sympathy for the argument. In commenting critically upon the theoretical basis for the statute (i.e., that it provides protection for those in the construction industry who because of the durability of their products would have a long tail of liability), the court stated: “Contractors are not liable for the acts of owners, so that for them the fear of a long tail of liability for acts of others in unfounded, but the reverse is not true: owners may well have liability to third parties where harm is caused by construction defects revealed after the six-year repose period.  Yet the statute extinguishes their rights against the responsible contractors.  Thus, the statute provides repose to negligent contractors in order to protect them from an illusory risk, while offering no protection to those who actually have a risk – owners or tenants who had no part in creating the harm but who have potential liability for it.  The long tail attaches to an innocent owner, while the statute immunizes the wrongdoers.”  Despite its negative view of the wisdom of the statute, the court held that it was constitutional and did not violate the equal protection clause. Lakeview Blvd. Condominium Association v. Apartment Sales Corp., 6 P.3d 74 (Wash. App. 2000).

NOTE: With due respect to the court, there are a number of persuasive reasons why it is appropriate for states to enact statutes of repose to protect those involved in the construction industry.  Without such a statute, a firm could be sued indefinitely for something it completed and was paid for years before.  In those circumstances it is difficult or even impossible to price the services sufficiently to compensate for this contingent liability that could come back to haunt the design firms or contractors years later.  There have been cases where liability has been imposed on parties a half century after a project was completed.  In our litigious era where plaintiff’s attorneys are constantly inventing new theories of liability and junk science, there is dire need for some protection for those such as A/Es and contractors who earn only a reasonable (even modest) return on their work and services.  Without such protection, they would have to raise their prices to cover the contingencies.  Insurance premiums would have to be raised and additional policies would have to be purchased to cover the indefinite tail of liability.  This means the project owner and other affected parties would incur greater costs at the time of the construction.  But it is not likely that those extra costs paid to the A/Es and contractors for assuming this greater risk would ever inure to the benefit of the owner.  In the typical case, one can well imagine that when litigation arises years later, many of the firms would no longer be in business, or they would not otherwise have the resources to cover the damages alleged.   In a future issue of this newsletter, we will provide references to other articles and papers that more fully develop the reasoning behind adopting statutes of repose.  These statutes have significant benefit for the society at large, even if based upon facts of an occasional situation such as the case reported above, the individual result may seem somewhat unfair to some of the parties involved.

Copyright ã 2001, ConstructionRisk.com, LLC – Virginia

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Red Vector

Visit Red Vector for Online continuing education courses for design professionals and contractors.  http://www.redvector.com.

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Web Design by Dynamic Horizon

For information on designing a website for design professionals, consultants and contractors, visit http://www.dynamichorizon.com, as highlighted in an article in the current issue of Constructech magazine.

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No Selling or Leasing of Our Subscribers E-mail Addresses

People have asked whether we lease or sell the addresses of the over 8,000 individuals who subscribe to this newsletter.  The answer is NO.  We do not make these addresses available to anyone.  This website and newsletter are offered as a  free public service.  We want everyone to feel comfortable using both the website and newsletter.  ADVERTISING SPACE is available on a limited, first-come-first-served basis.

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Disclaimer

This newsletter is independent of any insurance company or law firm, and is distributed with the understanding that ConstructionRisk.com, LLC, and the editor and writers, are not hereby engaged in rendering 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.

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Copyright ã 2001, ConstructionRisk.com, LLC – Virginia

Editor:  J. Kent Holland, Jr., J.D.
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