Print Friendly, PDF & Email

Inside This Issue:

  • Texas Mechanic’s & Materialman’s Liens A Complex Process Just Got More Complex
  • Construction Risk Management Using Event Chains Methodology
  • Pollution Exclusion of GL Policy Applied to Deny Coverage for Dry Cleaning Chemicals

======================================

Construction Law & Risk Management, Vol. 2 Case Notes – ConstructionRisk.com Reports  NOW AVAILABLE

This 300 page book compiles and organizes case notes, articles, and papers written by well known and respected attorneys and professional consultants for original publication in a number of newsletters.  All articles and case notes that were published in ConstructionRisk.com Report during the three years of 2003, 2004 and 2005 are included here. The cases and articles included in this book demonstrate risk management principles to be considered and applied on construction projects.  The intent is to give a sampling of issues and cases, providing risk management ideas and information to serve as a useful resource for contractors, design professionals, project owners, attorneys, educators, risk managers, and insurance professionals.  Volume I covered case notes published in Volumes 1 through 4 of ConstructionRisk.com Report.  This second volume is based primarily on case notes published in Volumes 5, 6, and 7. For a limited time, this $39.95 book is being offered for only $29.95 by purchasing directly from this link: http://constructionrisk.com/casenotesvol2/index.htm

Chapters

1.0        Accord & Satisfaction
2.0        Americans with Disabilities Act
3.0        Changes:  Managing Change Orders
4.0        Contractor Claims
5.0        Contract Language Issues & Concerns
6.0        Damages
7.0        Design-Build
8.0        Dispute Resolution
9.0        Documentation
10.0      Drug Testing
11.0      Economic loss Doctrine
12.0      Environmental Liability
13.0      Ethics
14.0      Expert Witnesses
15.0      Federal Contracts
16.0      Fiduciary Duty
17.0      Indemnification
18.0      License Requirements
19.0      Insurance
20.0      Insurance Coverage for Environmental Losses & Mold
21.0      Limitation of Liability
22.0      Mold
23.0      Site Safety
24.0      Standard of Care
25.0      Surety
26.0      Time Limitations on Suits
27.0      Warranty

======================================

___________

Article 1
___________

Texas Mechanic’s & Materialman’s Liens — A Complex Process Just Got More Complex

By Stanley P. Santire, JD

House Bill H.B. 629, passed by the Texas Legislature in 2005 impacts the statutory lien process in Texas .   H.B. 629 was codified as an addition to Section 53.107 and amendments to Section 53.103 of the Texas Property Code. (i) Chapter 53 was already notable for the State’s complex process for perfecting mechanic’s and materialman’s liens.(ii) Before H.B. 629, owners had no obligation to provide notices to anyone regarding lien rights. Now, some owners must provide notices that an original contractor has been terminated or has abandoned a project.(iii) To what degree H.B. 629 adds to the complexity is a matter of perspective.  Certainly, it is a significant change for many owners.  An owner’s failure to send a notice in compliance with this provision can reduce a contractor’s obligation in filing a lien for retainage.  From the view of some contractors, the owner’s failure could simplify the lien procedure by reducing the pressure of a very demanding notice process. Texas provides contractors with different types of possible liens including contractual, constitutional, and statutory. H.B. 629 impacts the most important of these, the statutory lien process.

Contractual Lien

A contractor can obtain a lien by contract or by operation of law.(iv)  An example of a contract for creating a lien is a deed of trust. For most contractors, particularly subcontractors, this is not viable. In the vast majority of construction situations, contractors rely on liens that come into being through the operation of law.  In Texas, the sources of such liens are the State Constitution and the Texas Property Code.

Constitutional Lien

Lien law in Texas began when Texas was still a Republic.  The Constitution of the Republic provided a lien to anyone who improved real property.  The doctrine was carried over to the Constitution of the State of Texas . (v)  The constitutional lien is self- executing and available regardless of what notices and affidavits a contractor may send or file.(vi)  Texas is alone among the states in providing this self-executing. It benefits only a contractor in privity of contract with the owner; i.e. an original contractor. Even for them the constitutional lien protection is very narrow.(vii) Later came a more powerful, and complex, statutory procedure for all contractors.

Statutory Lien

Unlike the constitutional lien, the statutory lien is a powerful tool for subcontractors as well as original contractors.  However, the statutory lien is not automatic.  Contractors must carefully follow the steps specified in Chapter 53.  These steps differ depending on the role of the contractor and the type of work done.  Every contractor doing business in the State must understand this statutory process.(viii)

Contractor Chain

The first thing to remember about the Texas statutory filing requirements is that they depend on a contractor’s position in the contract chain.  The original contractor, often referred to as a general contractor, has a direct relationship with the owner and is therefore first in the chain, followed by first tier subcontractors.(ix) Subcontractors who have a relationship only with a subcontractor are even further down the chain.(x) These are second and third tier contractors, cumulatively referred to as derivative contractors.

The obligations of derivative contractors differ considerably from first tier subcontractors. For example, to perfect a lien the derivative contractor must provide a notice not required of first tier subcontractors.(xi)  In other states, the deadline for a notice is determined by the last date a subcontractor provides equipment or material.(xii)  Texas law mandates a notice for each month that equipment or material was supplied or for which payment was not made. In other words, the Texas procedure progresses through time rather than being keyed to completion. Texas law also specifies extensive minimum content requirements for notices and affidavits.(xiii)

Notices

In addition to filing the affidavits, subcontractors must send two different notices.(xiv)  The first notice must be sent by the 15th of the 2nd month in which all or part of the labor is performed or material is delivered.(xv)  This notice describes any unpaid balance.  A distinction between a first tier subcontractor and a derivative subcontractor is the parties to whom the first notice must be sent. A first tier subcontractor must send the first notice to both the original contractor and the owner.(xvi) A derivative subcontractor must send this notice only to the original contractor.(xvii) All types of subcontractor must send a second notice that has the same information as the first notice by the 15th of the 3rd month to the original contractor and the owner.(xviii)

Affidavits

Unlike subcontractors, an original contractor does not need to send any notices to the owner to perfect a lien. However, both the original contractor and the subcontractors must file affidavits with the county clerk and send a copy to the owner.(xix) These affidavits must be filed by the 15th of the 4th month the debt accrues.(xx)  Though the deadlines for both original contractors and subcontractors are tied to debt accrual, an original contractor’s debt accrues at a different time than a subcontractor.  For the original contractor, debt accrues on the last day of the month following declaration of termination of the contract or completion, settlement or abandonment of the contract.(xxi)

Except for specially fabricated material, indebtedness to subcontractors accrues on the last day of the month in which the subcontractor’s labor was performed or material was furnished.(xxii)

Indebtedness to subcontractors for specially fabricated material by both first tier and derivative contractors accrues (1) on the last day of the last month in which materials were delivered, (2) on the last day of the last month in which delivery of the last of the material would normally have been required at the job site; or (3) on the last day of the month of any material breach or termination of the original contract by the owner or contractor or of the subcontract under which the specially fabricated material was furnished.(xxiii)

A copy of the affidavit must be sent to the owner by the 5th day after the filing.(xxiv)  A subcontractor must also send a copy of the affidavit to the original contractor.(xxv)

Homesteads

For a contractor working on a homestead, the requirements for a lien increase dramatically. The term homestead refers to the special protection given to a place that is a home or both a home and a place of business.(xxvi) Texas law is very protective of a homestead. H.B. 629 expanded this special treatment in that it does not apply to residential projects.(xxvii)  A major consideration in perfecting a lien against a homestead is the requirement for a written contract with the owner and spouse.(xxviii)  This contract must be executed before labor or material is furnished.(xxix)  It must then be filed with the county clerk.(xxx) Furthermore, in addition to notice requirements as required in any construction situation, before construction begins the owner of a homestead is entitled to a disclosure agreement as well as a list of subcontractors from the original contractor.(xxxi) The disclosure must include statutory notice language regarding the rights and responsibilities of the owner.(xxxii) Furthermore, lien affidavits for a homestead must be filed one month earlier than the deadline specified for other types of projects.(xxxiii)

Retainage

In addition to the steps necessary to have a lien directly against the property for unpaid funds, Texas law specifies a process for trapping funds to cover those same unpaid monies. Up until H.B. 629, the only responsibility owners had was to withhold funds as retainage.(xxxiv)  To trap funds, subcontractors must give notice of unpaid funds to the owner and the original contractor.(xxxv) The deadline for this notice is the fifteenth of the third month following each month in which the claimant provided labor or delivered material.(xxxvi) When a trapping notice is received, the owner is obligated to withhold payment to the original contractor in an amount equal to the claimed funds.(xxxvii)

If the trapping notice is sent after the deadline of the fifteenth of the third month, the funds are not trapped.  This is where H.B. 629 can make a difference.  Pursuant to H.B. 629, a nonresidential property owner must provide notice that the original contractor has been terminated or abandoned the project.(xxxviii)  H.B. 629 also specifies the content of the notice.(xxxix) This notice must be sent to any subcontractor that, before abandonment or termination by the original contractor, requests it and to anyone that provided notice of specially fabricated materials or notice of an unpaid account.(xl)  Failure by the owner to respond by sending the requested notice provides a lien to a requesting subcontractor even thought the subcontractor does not file an affidavit if such subcontractor meets the notice requirements.(xli)

Residential projects are exempted from H.B. 629.(xlii)  Therefore, owners of residential projects do not have an obligation to send the notice required of other owners pursuant to H.B. 629.

Through the statutory provision for retainage, Texas law places a responsibility on the owner to retain 10% of the original contract price for at least thirty days after project completion.(xliii)  If an owner does not properly trap funds in response to a trapping notice or fails to meet the retainage requirement, the owner is responsible to the subcontractor regardless of what monies may have already been paid to the original contractor.(xliv) H.B. 629 did not change this for any owner.

Conclusion

For nonresidential projects, H.B. 629 added another step to the lien process in Texas and a new responsibility for many owners involved in a construction process. A complex situation has become more complex.

About the Author: Stanley P. Santire is managing principal of the Santire Law Firm in Houston , Texas . The firm deals primarily in corporate and commercial matters with an emphasis on construction and employment issues. A frequent public speaker on the law, he may be reached at 713-787-0405 or by email at stanley@santire.com.  This article appears in ConstructionRisk.com Report, Vol. 8.,  No. 3.

Footnotes

i TEX. PROP. CODE ANN.  §53.103 &  §53.107

ii The Construction Law Briefing Paper, “We’re Not In Kansas (Or Minnesota) Anymore”, Scott A. Johnson, The Construction Law Briefing Paper, Oct. 2002.

iii TEX. PROP. CODE ANN.  §53.107

iv Horton v. Gibson, 274 S.W. 292 (Tex. Civ. App. 1925, no writ)

v TEXAS CONSTITUTION   Art.16 §37

vi In Re: A&M Operating Company, Inc., 182 B.R. 997 (E.D. Tex. 1995)

vii Infra

viii TEX. PROP. CODE ANN. CHAPT. 53.051

ix TEX. PROP. CODE ANN. §53.001(7)

x TEX. PROP. CODE ANN. §53.001(13)

xi TEX. PROP. CODE ANN. §53.056 (b)

xii Texas Mechanics’ Lien And Bond Claims, All Business, Jan. 2005.

xiii TEX. PROP. CODE ANN. §53.233

xiv TEX. PROP. CODE ANN. §53.056(a)

xv TEX. PROP. CODE ANN. §53.056(b)

xvi TEX. PROP. CODE ANN. §53.056(c)

xvii TEX. PROP. CODE ANN. §53.056(b)

xviii TEX. PROP. CODE ANN. §53.056(b) & (c)

xix TEX. PROP. CODE ANN. §53.051

xx TEX. PROP. CODE ANN. §53.051(a)

xxi TEX. PROP. CODE ANN. §53.053(b)

xxii TEX. PROP. CODE ANN. §53.053(c)

xxiii TEX. PROP. CODE ANN. §53.053(d)

xxiv TEX. PROP. CODE ANN. §53.055(a)

xxv TEX. PROP. CODE ANN. §53.055(b)

xxvi TEXAS PROP. CODE ANN. §41.002

xxvii TEX. PROP. CODE ANN. §53.107(e)

xxviii TEX. PROP. CODE ANN. §53.053(a)

xxix TEX. PROP. CODE ANN. §53.053(b)

xxx TEX. PROP. CODE ANN. §53.053(e)

xxxi TEX. PROP. CODE ANN. §53.055(a)

xxxii TEX. PROP. CODE ANN. §53.055(b)

xxxiii TEX. PROP. CODE ANN  §53.052(b)

xxxiv TEX. PROP. CODE ANN. §53.001(11)

xxxv TEX. PROP. CODE ANN. §53.056(d)

xxxvi TEX. PROP. CODE ANN. §53.056(b)

xxxvii TEX. PROP. CODE ANN. §53.056(d)

xxxviii TEX. PROP. CODE ANN. §53.107(a)

xxxix TEX. PROP. CODE ANN. §53.107(b)

xl TEX. PROP. CODE ANN. §53.107(a)

xli TEX. PROP. CODE ANN. §53.107(d)

xlii TEX. PROP. CODE ANN.  §53.107(e)

xliii  TEX. PROP. CODE ANN. §53.101(a)

xliv TEX. PROP. CODE ANN. §53.105(a)

======================================

AACE International 50th Annual Meeting

Join leading experts from throughout the world for three days packed with the most comprehensive insights on claims, scheduling, and risk at AACE International’s 50th Annual Meeting in Las Vegas , NV , June 19-22, 2006, at the Riviera Hotel & Casino.  Special attention will be devoted with professional presentation tracks in claims, dispute resolution, planning, scheduling, and risk management — to name just a few!  More information and registration opportunities are now available online at www.aacei.org.  There will also be more in-depth coverage on risk-based cost control; the basics of construction claims; and managing project costs, fi nan cial risk, and project contingency in the seminar programs that run for 2 days each before and after the Annual Meeting.  Whether you’re looking to meet with colleagues, find new contacts, or learn about new trends and opportunities, it’s all under one roof at AACE International’s 50th Anniversary Meeting in Las Vegas !

======================================

__________

Article 2
___________

Construction Risk Management Using Event Chains Methodology

By: Lev Virine, Ph.D.

Construction Project Planning and Estimations

You created a well-balanced schedule of the construction project and thought that you had taken into account almost every possible scenario and risk. However, as soon as you started implementing your project plan, something happened and your schedule became obsolete. This “something” is an unpredictable event. As a result, you have either to significantly update or create a new project schedule and then, another unpredictable event occurs. This scenario is very common for projects with multiple risks and uncertainties. Should we completely give up scheduling, risk management, and concentrate only on high-level project planning, or is there still a way to provide realistic estimates for construction project schedules that have multiple uncertainties?

We can perform estimations related to epistemic (knowledge driven) uncertainties by analyzing historical data and by tracking the current project’s performance. The problem is both methods cannot change the subjective nature of epistemic uncertainties. Analysis of historical data is subjective and negatively affected by the psychological heuristics and biases. What would happen if you kept accurate records? The answer depends on what type of tasks you are trying to estimate. Very often these records are available. However, in many cases significant number of tasks have never been done before; therefore, historical records may not be available or very useful. Very often a similar, but not exact, task has been done before. Can you use this information about previous tasks as an analog for the estimation? Another problem with historical data is that if there was a problem with the activity before, project managers will avoid making the same mistake again.

Because of these problems with historical data, the tracking of actual project performance remains one of the primary means of keeping construction projects on track. The goal is that by tracking actual performance, we can somehow reduce uncertainties during the course of an activity and derive better estimates of duration and cost. However, the problem of estimation remains for the reminder of the activity and project.

Therefore, because we recognize that it is difficult to determine a single number associated with task duration and cost, the current practice is to overcome this deficiency by defining a range of numbers or a statistical distribution associated with this range for cost and duration. For example, the range for a task can be from 4 and 7 days. However, if historical records are unavailable, we will still have the same problem. These estimates will be as subjective as if they were defined by a single number. If the range estimations are as subjective as a single number estimate, then analysis by using ‘classic’ Monte Carlo simulation may not provide estimates that are any more accurate than deterministic project schedules.

Overview of Event Chain Methodology

Therefore, we are drawn to the conclusion that if uncertainties are expressed as events with outcomes, it will significantly simplify our project management estimations. By mitigating some biases in estimation, we can develop numbers that are more accurate for task duration, cost, and other project parameters. Once we have this data, we can perform quantitative analysis and determine how uncertainties in each particular task will affect the main project parameters: project duration, cost, finish time, and success rate. However, real projects are very complex; they have multiple risks that have the potential to trigger other risks. Risks can have different outcomes; in one scenario a risk will delay a task, in another scenario the same risk will cancel it. In addition, some risks are correlated with each other. Therefore, the problem remains how to model these complex processes so that it becomes practical for construction project management.

Event Chain Methodology proposes to solve this problem. It is important to note that Event Chain Methodology is not a simulation or risk analysis method. It is based on existing analysis methodologies including Monte Carlo simulation, Bayesian approach and others. Event Chain Methodology is a method of modeling of uncertainties for different time-related business and technological processes including construction project management.

Event Chain Methodology is based on six major principles.

  1. An activity (task) in most real life processes is not a continuous uniform procedure. It is affected by external events, which transform an activity from one state to another. It is important to point out that these events occur during the course of an activity. The moment, when an event occurs, in most cases is probabilistic and we can define it using statistical distribution. Events (risks) can have a negative impact on the construction project. For example, the event “weather delay” can cause a delay in an activity. However, the opposite is also true, events can positively affect an activity, e.g. reduce costs.
  1. Events can cause other events, which will create event chains. These event chains can significantly affect the course of the project. For example, requirement changes can cause a delay of a task. To accelerate the activity, a resource is allocated from another activity; which can lead to a missed deadline. Eventually, this can lead to the failure of the project. Events may instantly trigger other events or transform an activity to another state. The notion of state is very important as states can serve as a precondition for other events. For example, if a change of requirements causes a delay, it transforms the activity to a different state. In this state, the event “reallocate resource” can occur. Alternatively, it is possible, if the task is in certain state, an event cannot occur.
  1. Once events and event chains are defined, we can perform quantitative analysis using Monte Carlo simulation to determine uncertainties and quantify the cumulative impact of the events. Sometimes we can supplement information about uncertainties expressed as an event with distributions related to duration for start time, cost, and other parameters, as done in classic Monte Carlo simulations. However, in these cases it is important to discriminate between the factors that are contributing to the distribution and the results of events to avoid a double count of the same factors.
  2. The event chains that have the most potential to affect the projects are the “critical chains of events.” By identifying critical chains of events, we can mitigate their negative effects. We can identify these critical chains of events by analyzing the correlations between main the project parameters, such as project duration or cost, and the event chains. Events or event chains can be displayed using a tornado diagram where critical event chains are shown on the top.
  1. Probabilities and impact of the events are obtained from the historical data. Monitoring the activity’s progress ensures we use updated information to perform the analysis. In many construction projects, it is hard to determine which historical data we should use as an analog for future analysis. For example in most cases, in research and development, new projects differ from the previous projects. We can accomplish the proper selection of analogs for the historical data by applying analysis using a Bayesian approach. In addition, during the course of the project, we can recalculate the probability and time of the events based on actual data.
  1. Event Chain Diagrams are visualizations that show the relationships between events and tasks and how the events affect each other. By using Event Chain Diagrams to visualize events and event chains, we can simplify the modeling and analysis of risks and uncertainties.

Event Chain Methodology Phenomena

The application of Event Chain Methodology can lead to some interesting phenomena. Here are some examples:

  1. Sometimes events can cause the start of an activity that has already been completed. This is a very common scenario for real life projects; sometimes a previous activity must be repeated based on the results of a succeeding activity. Modeling of these scenarios using event chain methodology is very simple. We do not have to update the original project schedule, we just need to create an event and assign it to an activity that points to the previous activity. In addition, we need to define a limit to the number of times activity can be repeated.
  1. Events can generate other activities that are not in the original project schedule. These are activities related to the mitigation plan. They are modeled outside of original project schedule and assigned to the event. The original schedule is augmented with these activities when the event occurs.

3.      One potential event is the reassignment of a resource from one activity to another, which can occur under certain conditions. For example, if an activity requires more resources to complete it within a fixed period, this will trigger an event to reallocate the resource from another activity. Reallocation of resources can also occur when activity duration reaches a certain deadline or the cost exceeds a certain value. Events can be used to model different situations with resources, e.g. temporary leave, illness, vacations, etc. In some cases this can create an event chain: due to an illness, a resource from another activity would be borrowed to accomplish a specific task.

  1. Events can cause other events to occur either immediately or with a delay. The delay is a property of the event. The delay can be deterministic, but in most cases, it is probabilistic. If we know the time of the original event and the delay, it is possible to determine when the new event can happen and in some cases, the activity that will be associated with it.

Conclusions

The beauty of this approach is that it is includes a very well defined mathematical model that can be easily implemented as a software algorithm. Construction project managers must define project schedules and risk lists or risk breakdown structures. For each risk, the manager defines the chance the risk will occur, the risk’s impact (delay, increase cost, trigger other risks, cancel task, etc.), and when will the risk occur during the course of activity.

Event Chain Methodology allows us to model construction projects with uncertainties in a much simpler manner. It also allows us to mitigate psychological biases related estimation and as a result provide better forecasts and project tracking. If risk and uncertainties based on Event Chain Methodology are defined properly, your project schedule should be much more robust. Remember, most project managers actively create and update project schedules and risk lists. Event chain methodology allows you to combine both lists to provide a simple answer to the central question of project management – how long will the construction project take and how much will it cost if an event occurs.

About the Author:

Lev Virine, Ph.D. is a principal with Intaver Institute Inc.; 303, 6707, Elbow Drive S.W. ; Calgary , AB , T2V0E5, Canada ;Phone: 1(403)6922252; Fax: 1(403)2594533; www.intaver.com. Intaver Institute Inc. (http://www.intaver.com) offers project risk management software RiskyProject for project planning and scheduling, quantitative risk analysis, and project performance measurement. RiskyProject analyzes the project schedule and risks together, calculates the chances that the project will be completed on time and within budget, and presents results in easy-to-understand formats.  This article appears in ConstructionRisk.com Report, Vol. 8,  No. 3.

======================================

Advertisement

a/e Pronet’s Contract & Risk Management Guide for Design professionals

If you have not yet ordered a copy of a/e ProNet’s contract guide for design professionals, it is now available at Amazon.com for $39.95.  By visiting the listing at Amazon.com you can use the “Search Inside” feature to see the table of contents and excerpts of content.  The link is:

http://www.amazon.com/gp/product/0972315829/sr=1-20/qid=

1137598872/ref=sr_1_20/104-6222945-6109501?%5Fencoding=UTF8

======================================

_____________

Article 3  –
_____________

Pollution Exclusion of GL Policy Applied to Deny Coverage for Dry Cleaning Chemicals

By:  J. Kent Holland, J.D.

The operator of a dry cleaning business demanded that her CGL carrier defend and indemnity her in connection with an administrative claim by a county government requiring her to determine the extent of pollution and then implement remedial action. Based on the pollution exclusion of the policy, the carrier denied coverage.  The operator sued the carrier, and the court granted the carrier’s motion to dismiss the case.  The court found that the discharge or potential discharge of a dry cleaning chemical resulting in soil and ground water pollution constitutes pollution that is “commonly thought of as environmental pollution” and is excluded pursuant to the pollution exclusion of the policy.

In Teiko Lewis v. Hartford Casualty Insurance Company, ( U.S. District Court, Northern District  of California, No. C05-2969, Jan. 30, 2006), the County of San Mateo issued an administrative claim letter directing Teiko Lewis, the operator of a dry cleaners, to evaluate and implement remedial action related to the discharge or potential discharge of perchoroethylene.  Following receipt of the county’s letter, Lewis tendered the claim to her insurance carrier, Hartford Casualty Insurance Company (hereinafter (“Harford”) to defend and indemnify her against the claim.

The Hartford had issued a series of twelve (12) general liability (GL) policies to Lewis starting in July 1993 and continuing through July 2004.  Each policy contained a pollution exclusion stating insurance would not apply “to bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants.”  The exclusion further provided that coverage would not apply “to any loss, cost or expense arising out of any governmental direction or request that the named insured test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants.”

What was at dispute between Lewis and The Hartford was whether or not the soil and groundwater contamination alleged in the county’s letter constituted what is “commonly thought of as environmental pollution” or “traditional environmental pollution.”  Lewis relied upon a California Supreme Court decision (MacKinnon v. Truck Insurance Exchange, 31 Cal. 4th 635 (2003)) for the proposition that not all pollution is excluded by the pollution exclusion.  The MacKinnon court had determined that the pollution exclusion must be limited to “injuries arising from events commonly through of as pollution, i.e., environmental pollution.”

In this case, Lewis offered two reasons why the contamination is not traditional environmental pollution.   First, she argued that in order for contamination to be “commonly thought of as environmental pollution,” it must be intentional, or must be an inherent byproduct of an industrial process with no outside force contributing to it.  Second, she argued that “environmental pollution” must be catastrophic.   In rejecting both of these arguments, the court found that for something to be “commonly thought of as pollution” it need not be the result of an intentional act nor be an inherent byproduct of an industrial process with no outside force contributing to it.

The court also concluded that “pollution need not rise to the level of catastrophe to be ‘commonly thought of as environmental pollution.’”  With regard to the specific contamination at issue in this case—discharge or potential discharge of perchloroethylene into the soil and groundwater—the court decided it constitutes pollution “commonly thought of as environmental pollution” and is, therefore, excluded from insurance coverage pursuant to the policy’s pollution exclusion.  The Hartford , therefore, owed no duty to defend or indemnify its insured in connection with the administrative claims by the county.

Comment:   It is interesting to see businesses such as the dry cleaning operation involved in this case, relying upon general liability policies instead of purchasing pollution legal liability (PLL) policies specifically designed to cover their pollution risks.   Based on the long history of pollution claims arising out of dry cleaning operations, it seems that prudent risk management would  suggest the wisdom of maintaining a PLL policy for the risk.  These policies are readily available from numerous carriers.

About the author: Kent Holland is a construction lawyer  in Tysons Corner, Virginia, and is a risk management consultant for environmental and design professional liability insurance and contracts.   He is also publisher of ConstructionRisk.com Report.  He may be reached at Kent@ConstructionRisk.com.  This article is published in ConstructionRisk.com Report, Vol. 8, No. 3.

======================================

RED VECTOR.COM — ON-LINE COURSES
Do you need year end continuing education courses?  Currently available on-line risk management courses written by Kent Holland for RedVector, (http://www.redvector.com/instructors/view_related_courses.asp?id=195) include: ABCs of Time, Goals and Purpose – The Big Picture.  Also available are: 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.

======================================

ABOUT THIS NEWSLETTER & A DISCLAIMER

This newsletter Report is published and edited by J. Kent Holland, Jr., J.D. , a construction lawyer and environmental and design professional risk management consultant. 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.

======================================

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