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Inside This Issue:

  • **Copyright to Documents May be Enforced by Architect Several Years after Normal Passing of Statute of Limitations;
  • **Contract Mods With General Release Language Did not Establish Accord and Satisfaction Defense for Government against Impact Claims Not Expressly Released ;
  • **General Contractor’s CGL Policy Covers Damages Caused by Subcontractor, Including Damage to the Work (Stucco) as well as Resulting Water Infiltration;
  • **Certificate of Payment Did not Render Architect and CM Liable to Surety for Overpayment to Defaulted Contractor

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Article 1
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Copyright to Documents May be Enforced by Architect Several Years after Normal Passing of Statute of Limitations.

When an Architect brought a copyright infringement suit against its former client (a project owner) who had terminated the architect’s services before completion, the trial court applied the three-year statute of limitations to dismiss the complaint on the basis that the architect should have discovered the grounds for its complaint and filed much sooner than it did.  On appeal, this was reversed.  The court found that there were no facts compelling the trial judge to determine that the architect was on notice of the alleged copyright violation prior to the passing of the statutory period.  In addition, the court reviewed the AIA contract agreement and held there was no basis for finding that the architect’s plans were “work for hire” or that the project owner had any contractually based copyright interest in the architect’s plans.   A termination agreement between the parties also addressed the use of the plans and was an important consideration by the court.

In Warren Freedenfeld Associates, Inc. v. McTigue et al., 531 F.3d 38 (1st Cir. 2008), a veterinarian retained an architect to design a veterinary hospital.  The contract that was used for this purpose was an AIA document.  Although the court does not state which particular AIA document was used, it is likely that it was B 141 (1987) since the court refers to Article 6 as pertaining to ownership of documents.

As stated by the court, the contract (article 6) provided that the architect would be “deemed the author” of all plans and drawings prepared for the project, and would “retain all common law, statutory and other reserved rights [therein], including the copyright.”

The relationship between the architect and owner soured, resulting in negotiations to terminate the contract.  While negotiations were going on, the architect sent a letter to the owner warning that the plans and drawings it had produced were proprietary and that neither the owner nor any successor architect could use them to complete the project.  In response, the owner wrote back stating that the plans and drawings were “useless” and that they had been “rolled up and discarded.”  The owner also complained that he would have to pay another architect “tens of thousands of dollars” to finish the project.

While the negotiations dragged along, the architect decided to protect itself by filing a formal copyright application for the plans and drawings with the U.S. Copyright Office.

Ultimately, the parties reached a termination agreement, which among other things stated that Article 6 (Use of Architect’s Drawings) would remain “in full force and effect.”   The agreement further provided that the owner would not “use any of the work solely produced by [architect].  The word “solely” was a handwritten insertion by the owner that was initialed by the architect.

Four years later, the architect came across an article in a magazine featuring a drawing of the floor plan of the veterinary hospital that was ultimately built by the owner.  The drawing apparently looked much like what the architect had produced for the owner.  He, therefore, went to the city and obtained a copy of the building plans and concluded that his copyright had indeed been infringed.  Almost six years after the termination settlement agreement had been executed, the architect filed his copyright infringement suit against the building owner.  The defendant filed a motion to dismiss the suit – claiming it was barred by the three year statute of limitations.

The trial court ruled in favor of the defendant on the summary judgment motion, finding “overwhelming” evidence that any “reasonably diligent person” in the architect’s position would have learned of the alleged infringement no later than the date when the veterinary hospital opened.  On a separate issue of whether the veterinarian was granted sole ownership of a portion of the architect’s copyrighted work and enjoyed joint ownership of other portions of that work, the trial court granted summary judgment for the architect, finding the veterinary had no ownership interest in the plans and drawings that were filed with the copyright office.

On appeal, the appellate court held that until the architect saw the magazine article he had no duty to inquire or discover the alleged copyright infringement.  As explained by the court, the question to be determined in this regard is whether a reasonably prudent person in the architect’s shoes would have discovered the alleged infringement.  This is a fact-sensitive question and requires a trial court to explore the idiosyncratic circumstances of each individual case, says the appellate court.

In this situation, the appellate court concluded that prior to the architect’s chance encounter with the magazine in five years after he had terminated his contract, there were no facts sufficient to mandate a conclusion that a reasonable person would have suspected that the copyrighted material had been used in an unauthorized manner.  This is especially so, says the court, in light of the written warning by the Architect to the owner not to use his plans, and the written response by the owner stating that the plans were “useless” and had been “discarded.”

The veterinarian argued that the availability of the as-built plans, and the fact that the veterinary hospital was open in June 2000, put the architect on inquiry notice concerning the use of the plans and drawings.  In rejecting this argument, the court stated, “Architects have no general, free-standing duty to comb through public records or to visit project sites in order to police their copyrights.”

In an interesting argument by the veterinarian, which the court found to be unpersuasive, the veterinarian argued that by inserting the word “solely” into the termination agreement to preclude the owner from using material “solely produced by [architect]”, was sufficient to put the architect on notice of the owners intent to use the plans.  The court, however, found nothing about that phraseology gave rise to a reasonable suspicion that skullduggery was afoot.  The plain terms of the Termination did not authorize the defendants to use any copyrighted material, nor did those terms hint at a clandestine intention to violate the very copyrighted interest that the agreement preserved.”

For these reasons, the appellate court held that summary judgment should not have been granted against the architect, and reversed that aspect of the trial court decision.

On the question of whether the veterinarian had any basis for claiming a copyright interest in the documents, the court found there was no basis for the veterinarian’s claim to be a sole owner of any part of the copyrighted plans and drawings, nor was there basis to find him to be a joint owner of any part.  As explained by the court, the veterinarian’s “work for hire theory suffers from obvious flaws.”  “A commissioned work can be considered a work made for hire,” says the court, only “if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.”

In this case, the court points out that neither the AIA Agreement nor the Termination Agreement “makes even a veiled reference to works for hire, nor does either contract contain any language remotely suggesting an intention to establish a work for hire relationship.”   Again, the court made short work of the veterinarian’s argument that the Termination Agreement restricting him from using “any of the work solely produced by [architect] confers upon him ownership of work not solely produced by [architect].”  This says the court is “an attempt to pass an elephant through the eye of a needle.”

Comment: Bravo to the appellate court for taking this veterinarian behind the barn for a good verbal thrashing.  It seems that the veterinarian tried to argue he had out-smarted the architect by adding the word “solely” so he could circumvent the otherwise clear intent of the AIA Agreement and Termination Agreement that the architect’s plans and drawings would not be used.  It is encouraging to see the clarity in which the court saw through what it apparently deemed to be spurious arguments, and essentially chastised the veterinarian for even raising them.

As demonstrated by the holding in this case, the AIA contract documents preserve for the architect the copyright of the Instruments of Service.  Many project owners, however, are revising and reversing this language to state that the copyright of the documents will be given to the project owner instead of the architect.  The “work made for hire” language is more frequently being included in contracts that are generated by project owners – thereby attempting to deprive the architect of the copyright and use of his own documents.

A couple pointers are in order concerning the contract language pertaining to ownership and copyright of documents.  The architect or other design professional that is creating Instruments of Service should include appropriate language in the contracts to preserve its copyright interest in the documents.  If the project owner is granted ownership of the actual documents instead of a nonexclusive license as is done by the standard form agreements, the architect should nevertheless maintain copyright interest in the documents.  The phrase “work made for hire” should be stricken from agreements.

In the event that for some reason the design professional decides to grant copyright interest to its client, then at a minimum the design professional should maintain joint ownership of the copyright.   The design professional should also be careful not to grant such broad language that it gives away the copyright to its own standard documents and standard features it has developed over the years.

If the project owner is being granted ownership, or copyright interest, in the Instruments of Service, the design professional should obtain language in the contract requiring the Owner to indemnify the design professional for damages arising out of the use of the documents on any project or for any purpose other than for which they were produced under the agreement.  An example of such a provision in a contract recently reviewed is the following:  “To the fullest extent permitted by law, the Owner shall defend, indemnify and hold the Design Architect, its officers, directors, shareholders, partners, principals, agents, employees, consultants, successors and assigns, harmless from and against all liability, loss, damages, costs and expenses, including attorneys’ fees and disbursements, which any of them may at any time sustain or incur by reason of any revision or addition to, misuse of or deviation from the Instruments of Service occurring subsequent to the Design Architect’s completion of services under or the earlier termination of this Agreement.”

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Article 2

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Contract Mods With General Release Language Did not Establish Accord and Satisfaction Defense for Government against Impact Claims Not Expressly Released

J. Kent Holland, Jr., Esq.

The U.S Court of Federal Claims finds that a contractor (Bell BCI Company (“Bell”)) that built a new laboratory building at the National Institutes of Health (NIH) facility in Bethesda, Maryland was entitled to recover on its impact claim for the cumulative effect of changes to its performance resulting from a series of over 200 contract modifications that addressed over 730 Extra Work Orders (EWOs).  The court rejected the government’s defense that the claim was barred by accord and satisfaction.  The court also rejected the government’s claim that Bell was liable for liquidated damages for failure to complete the project on time.  None of the contract modifications included any payment for cumulative impact or labor inefficiency.

Although when executing the contract Modifications, Bell did not expressly reserve a right to submit an impact claim, Bell never expressly released its cumulative impact claim in any modification.  The facts giving rise to the multiple changes and the cumulative impact at issue are that that nine months after construction began, NIH decided to add an extra floor to the five floor building under construction.  This delayed project completion by a year and a half, and increased the contract price by  approximately $21 million or 34 percent.

In awarding Bell over $6 million, plus interest under the Contract Disputes Act (CDA), the court said “there is evidence that NIH failed to satisfy its implied duty of good faith and fair dealing in the administration of this project.”  The judgment included delay damages for “extended general conditions costs” such as project management, field supervision staff, clerical support, field engineering, office trailers, equipment, supplies, storage facilities, pick-up trucks, fuel, temporary toilets, and utilities.

In addition to these delay damages and labor inefficiency costs, the court also applied a 10 percent profit for Bell on top of those costs.  The court also granted a “pass through” claim of one of the subcontractor’s in the amount of $812,092, plus CDA interest.

Facts of the Case

According to the court, the NIH lost control of the project because it failed to prevent the scientists who were going to be occupying the new building from demanding changes – including the addition of a new floor after construction had begun.  Adding the new floor, said the court, “proved to be a disastrous idea, particularly causing many mechanical and electrical changes after the work already had been installed.”  Much rip out and replacement of the contractor’s and subcontractors’ work had to be done at tremendous time, cost, loss of efficiency and cumulative impact.  NIH made matters worse by directing Bell to perform the extra work without time extensions, or authorizing acceleration of performance.

Bell and the NIH negotiated for the addition of the new floor in three phases.   The first phase was for structural steel and concrete work for the fourth floor – adding $1,579,127 and extending the schedule 30 days.   The second phase was for changes to the fourth floor that NIH made after Bell submitted its price proposal.  This added $6,891,118 for the phase two added work.  It also extended the schedule for an additional 30 days.  The phase three negotiation was for construction related to the final design plans that NIH issued for the new floor.  When the parties couldn’t agree, NIH issued a unilateral Modification 078 directing Bell to proceed with the specified work at a price of $1.8 million pending further negotiation.  It extended the contract completion another 30 days.  Mod 93 was subsequently negotiated with the parties agreeing to change this price to approximately $2.3 million and further extend the scheduled completion date.   It is this Modification number 93 that NIH argues releases any right of Bell to recover impact costs on the project.

Mod 93 stated that the parties mutually agreed to:

“Increase the contract amount by $2,296,963 … as full and equitable adjustment for the remaining direct and indirect costs of the Floor 4 Fit-out (EWO) 240-R1) and full and equitable adjustment for all delays resulting from any and all Government changes transmitted to the Contractor on or before August 31, 2000.”

The Mod further provided:

“The modification agreed to herein is a fair and equitable adjustment for the Contractor’s direct and indirect costs.  This modification provides full compensation for the changes, including both Contract cost and Contract time. The Contractor hereby releases the Government from any and all liability under the Contract for further equitable adjustment attributable to the Modification.”

The court’s interpretation of this Mod language is stated as follows:  “Modification 093 does not contain any mention of a cumulative impact or inefficiency claim.  Bell did not receive in Modification 093 any consideration for the settlement or release of a cumulative impact or inefficiency claim.”

After the contract Mod was issued, NIH issued 113 additional modifications, incorporating 216 Extra Work Orders.  Bell wrote to NIH giving notice that the continued issuance of changes would delay the project and impact Bell ’s ability to meet the completion milestones.  Bell advised NIH that to avoid impact to the schedule NIH needed to authorize resources to accelerate performance.   NIH did not authorize an acceleration effort and did not respond to Bell ’s letter.  Bell ’s attempt to include acceleration costs in its pay request was rebuffed.

Instead of cooperating with Bell to get the project under control and pay acceleration costs to keep the project on the revised schedule, the NIH decided to withhold payments. It also threatened to assess liquidated damages if milestone completion dates were not met.  The court explains that “NIH continued to issue change orders, demanded compliance with milestone completion dates, and refused to authorize Bell to accelerate performance.  NIH would not extend the schedule, and even reneged on paying Bell for changes that had been negotiated and accepted by the Contracting Officer.”

After completing the project, including all the changed work, Bell submitted a certified Request for Equitable Adjustment (REA) to the NIH Contracting Officer.  The C.O. denied the claim in its entirety, and asserted NIH claims against Bell for liquidated damages of almost $500,000, plus additional backcharge claims of almost $400,000.

In suggesting that NIH failed to act in good faith and fair dealing, the court explained that “The record further indicates that NIH was not planning to assess any liquidated damages against Bell unless Bell submitted a claim.  Apparently, upon the advice of NIH counsel, the agency asserted claims for liquidated damages and backcharges against Bell as a means of gaining leverage in settlement negotiations.”  An e-mail from the NIH’s construction quality management firm to  Contracting Officer at the time stated: “In summary, we have nothing to backcharge at this point in time, but several potentials….. If we are going to negotiate with them on the delay claim, I would throw this stuff into the mix.”

The Court’s Legal Analysis

The court begins its analysis by explaining the difference between a “delay claim” and a “disruption” or “cumulative impact claim.”  The court summarizes that a “delay” claim captures the time and cost of not being able to work, while a “disruption” claim captures the cost of working less efficiently than planned.”  A disruption claim thus compensates for damages when the work is more difficult and expensive than anticipated due to the changes.

On the issue of what proof of damages is required, the court stated that the law only requires “reasonable certainty” to support a damages award, and that “damages do not need to be proven with mathematical exactness.”  Quoting other case precedents, the court explained “Rather, [i]t is sufficient if [a claimant] furnishes the court with a reasonable basis for computation, even though the result in only approximate.”

The Changes clause in the Bell contract was FAR 52.243-4, Changes (AUG 1987).  It provides the following:

(d)  If any change under this clause causes an increase or decrease in the Contractor’s cost of, or the time required for, the performance of any part of the work under this contract, whether or not changed by any such order, the Contracting Officer shall make an equitable adjustment and modify the contract in writing.”

By this clause, the court says the contract “expressly contemplated the need for an equitable adjustment when the cumulative impact of many change orders affected the contractor’s performance of unchanged work.”  Based on its review of the facts, the court found there to be “a classic environment for cumulative impact and labor inefficiency.”  The court therefore affirmed Bell ’s cumulative impact claim.

The next part of the court’s decision addressing the government’s accord and satisfaction defense is so significant that it is quoted at length as follows:

“None of the 206 contract modifications issued on the project includes any NIH payment or other consideration to Bell for a disruption, cumulative impact, or labor inefficiency claim.  Similarly, none of the modifications contain any language explicitly waiving or releasing such a claim.  While language sporadically appears in some modifications purporting to reserve rights, the Court cannot say that any meeting of the minds between the parties ever occurred.  There is no evidence that NIH ever provided any consideration to Bell to settle a cumulative impact claim.  Many of the events relevant to the cumulative impact claim did not even arise until after the parties signed Modification 093.”

“Given the clear distinction in the law between (1) the cost of performing changed work and (2) the effect of multiple changes on unchanged work, prudent contracting parties surely would be specific in describing the exact scope of any release or reservation of rights.  The fact that Modification 093, or any other modification on this project, did not expressly address Bell ’s cumulative impact claim explains why the Court previously denied cross-motions for summary judgment, and invited testimony at trial.”

The court then focused on the fact that at trial the government offered no testimony in support of its accord and satisfaction defense.  Most significantly, the court found that the Contracting Officer would have been in the best position to know whether there was any merit to the accord and satisfaction argument, and her failure to testify at trial allows the court to “infer that her testimony would not have supported Defendant’s [NIH’s] position.” Based on a review of the 206 contract modifications, and the circumstances above described, the court concluded that NIH’s accord and satisfaction defense was without merit.

Comment: The court was undoubtedly influenced to issue such a tough, precedent setting, decision against the government based in large part on what the court deemed to be very bad behavior of the government throughout the project.  Asserting the right to liquidated damages and backcharges must have been the final straw that broke the back of  the government’s faith.  Any credibility the government had was surely lost at that point.

In government contracts, it can be difficult, to impossible, to negotiate specific reservation of rights language into the Contract Mods.  Through transmittal correspondence and other contemporaneous written documentation, the contractor may endeavor to state a reservation of rights to cumulative impacts, lost efficiency and other costs.  Sometimes the best that can be accomplished is that the government includes direct costs and time in the Contract Mod and remains silent concerning whether other costs are reserve or waived.  The Court’s decision here suggests that silence with regard to waiver and release can reasonably be interpreted to mean that the Contract Mod has not addressed impact claims and that the Contractor has therefore not waived and release any right to recovery.  Only express releases or claims will apparently be deemed by the Court to constitute “accord and satisfaction.”

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Article 3

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General Contractor’s CGL Policy Covers Damages Caused by Subcontractor, Including Damage to the Work (Stucco) as well as Resulting Water Infiltration

A commercial general liability (CGL) policy issued to a homebuilder, general contractor (GC) was held to cover a homeowner’s claims for damages caused by the negligence of a subcontractor who allegedly installed stucco siding defectively.  The claim was for breach of contract, negligence, and breach of warranty, alleging that the stucco allowed water to seep into the home and cause damage to framing and exterior sheathing.  An arbitrator awarded damages to the homeowner.  Auto-Owners Insurance Company insured the GC with a CGL policy.  It filed a declaratory judgment action asking a court to declare that its policy did not cover the damages awarded by the arbitrator.  The trial court ruled against the insurance company, finding that the damages resulted from an insured “occurrence” and that no policy exclusions applied to bar the coverage.  On appeal, the trial court decision was affirmed.  This results in an appellate decision that strengthens the arguments for finding construction defect coverage for the work itself when that work is performed by a subcontractor.

In Auto Owners Insurance Company v. Virginia Newman and Trinity Construction Company (South Carolina 2008), the CGL policy in question is a standard Insurance Services Office (ISO) form.  The policy states it will cover bodily injury or property damage caused by an “occurrence.”  The term “occurrence” is further defined as an “accident, including continuous or repeated exposure to substantially the same harmful conditions.”  The term “property damage” is defined as “physical injury to tangible property, including all resulting loss of use of that property.”   Since the policy form does not define the term “accident” the court applied a definition that several courts have used which is “an unexpected happening or event, which occurs by chance and usually suddenly, with harmful result, not intended or designed by the person suffering the harm or hurt.”

The court cited case law for the proposition that only damage to the work itself that results from faulty workmanship is not deemed an accident covered by a CGL policy.  The court went on to explain that a CGL policy may provide coverage where a claim for faulty workmanship alleges third party bodily injury or damage to other property.

In this case, the court relied upon the arbitrator’s finding that the defective stucco caused the homeowner to suffer damage because it allowed continuous moisture intrusion resulting in water damage to the home’s exterior sheathing and wooden framing.  This, said the court, establishes that there was damage beyond that of the negligently applied stucco itself.  The court found that the continuous water intrusion into the home qualifies as an accident involving continuous or repeated exposure to substantially the same harmful conditions – and therefore constitutes an “occurrence” under the policy.

Apparently desiring to address the “your work” exclusion in the CGL policy, and the subcontractor exception to that exclusion, the court went further in its analysis and presented an interesting explanation of the policy coverage as follows:

“A CGL policy in the home construction industry is designed to cover the risks faced by homebuilders when a homeowner asserts a post-construction claim against the builder for damage to the home caused by alleged construction defects…. The primary exclusion is the ‘your work’ exclusion which provides that the policy will not cover ‘property damage’ to ‘your work’.  In 1986, the insurance industry amended the ‘your work’ exclusion to provide that even if the property damage is to the builder’s own work, the ‘your work’ exclusion does not apply ‘if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.’… In doing so, the insurance industry extended liability coverage for property damage to the contractor’s completed work arising out of work performed by the subcontractor.  The facts in this case establish exactly the type of property damage the CGL policy was intended to cover after the 1986 amendment to the ‘your work’ exclusion.”

The insurance company also argued that even if the faulty workmanship were an “occurrence” under the policy, an exclusion in the policy that bars coverage for expected or intended damages would nevertheless apply to deny coverage.  Specifically, the company argued that a professional contractor would expect substantial moisture intrusion from defective stucco to result in these types of damages. In rejecting this argument, the court found it “unreasonable to believe the [contractor] expected or intended its subcontractor to perform negligently.”

Finally, the insurance company argued that even if coverage applied to damages to underlying substrate, it must not cover the replacement of the actual stucco itself.  In disposing of that argument with a mere paragraph, the court found “Because the underlying moisture damage could neither be assessed nor repaired without first removing the entire stucco exterior … replacement of the defective stucco was covered by the CGL policy as a cost associated with remedying the other property damage that resulted from an occurrence.”

Comment: This decision is another in what appears to be an increasing body of case law interpreting the GCL policy in a similar manner to find coverage where the faulty workmanship was performed by a subcontractor in contrast to being performed by a prime contractor.  With the amount of law now on point, it would seem that if carriers do not agree with the manner in which the courts are interpreting the policy language, the policy form would be revised.

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Article 4

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Certificate of Payment Did not Render Architect and CM Liable to Surety for Overpayment to Defaulted Contractor

Where the Architect and construction Manager (CM) on a project issued certificates of payment for a contractor that had fallen behind in its work, the project owner continued to make payments in reliance upon those certificates.  When the contractor was eventually default terminated, the owner submitted a claim to the surety company.  The surety refused to pay – contending that the owner, by issuing payments in excess of the work actually performed, had not complied with its contractual obligations.

In its declaratory judgment action, the surety sued the Architect, CM and owner for negligent misrepresentation.  Applying the economic loss doctrine, the court granted summary judgment for the architect and CM because there was no contract between the surety and those firms.  Nor was there an independent basis for a tort claim to be filed against them.   Summary judgment was also granted for the project owner on the basis that the owner was entitled to rely upon the payment certificates of the architect and CM in making progress payments to the contractor. This decision was affirmed on appeal.

The surety asserted that its claims against the architect and CM were brought under an exception stated in section 522 of the Restatement (second) of Torts that allows tort claims against defendants who (1) have supplied information to the plaintiff for use in business transactions with third parties, and (2) who are in the business of supplying information.   Responding to that argument, the CM argued that its responsibilities were limited to “administrative, management and related services,” and that any information it transmitted was incidental to the management services required by its contract.    It also cited the language of its contract with the owner that states: “Nothing contained in this Agreement shall create a contractual relationship with or cause of action in favor of a third party against either Owner or Construction Manager.”

The architect offered a similar argument, saying that as the producer of drawings, plans and specifications for the Project, any information it supplied was ancillary to the purposes for which it was engaged, i.e., the design and construction of a tangible building.  It likewise points to the language in its contract with the project owner that states: “Nothing in this Agreement shall create a contractual relationship with or a cause of action in favor of a third party against the Owner or Architect.”

In response to these arguments by the CM and Architect, the Surety argued that those firms were engaged to provide a number of services, at least one of which was “purely the provision of information”, and that the negligent misrepresentation claim is based upon those aspects of their services.  As explained by the court,

“ While [Architect and CM] did provide information to [Owner], information upon which [Owner] relied in issuing payment to [Contractor] , the Court finds that the Applications and Certificates for Payment were not the ‘end and aim’ of the work Indian River hired [Architect] and [Construction Manager] to provide.  Instead, the ‘end and aim’ was the construction of the Project.”  The information provided within the certificates was found by the court to be “incidentally supplied … as part of the project.”

The court granted summary judgment for the architect and CM accordingly.

With regard to the Surety’s claim against the project owner, the court held that since the owner was bound by its contract with the contractor to make payments upon certification by the Architect and CM, any overpayments that may have been made would not excuse the Surety of its obligations under the performance bond.  The rule of law is that when an owner has acted in good faith reliance upon the certifications of its architects or engineers, a performance bond surety is not discharged from its obligations even if there has been a material departure from contractual provisions relating to payments and the security of retained funds.

In this case, although surety tried to get out from under this rule by asserting that the owner had failed to act in good faith when it released the funds to the contractor, the court found that the surety had failed to present any evidence to support its contention that the owner did not act in good faith.  Consequently, summary judgment was granted for the owner as well as for the architect and CM.

RLI Insurance Company v. Indian River School District , et. al., 556 F. Supp.2d 356  (D.C., Del , 2008).

Comment: It is obvious from this correctly decided and well written decision by the appellate court that the trial judge carefully read the motions that were filed in the summary judgment proceeding and considered the facts and evidence presented by the parties.  Rather than permitting this case to go to a jury to decide whether there was sufficient evidence to find liability, the judge specifically stated that the surety “adduced no evidence in support of its contentions.”

It is unfortunate that so many judges today allow non-meritorious actions to survive summary judgment despite the lack of sufficient facts pleaded or presented by affidavit to support the cause of action.  Perhaps due to laziness, or an over abundance of caution or shaky nerves, some judges hesitate to grant summary judgments, and they instead allow parties to waste years in discovery (documents and depositions) where they get worn down and agree to settlements rather than risk further wasted cost at a trial.  It is satisfying to see the trial judge and appellate court in this case take the stand they did – and avoid an unnecessary trial.

About the author: All articles in this issue of the ConstructionRisk.Com Report are written by J. Kent Holland is a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 10, No. 5 (December 2008).

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ABOUT THIS NEWSLETTER & A DISCLAIMER

This newsletter Report is published and edited by J. Kent Holland, Jr., J.D. 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 2008, ConstructionRisk, LLC

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