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06/04/2014

Construction Law Update

Gordon & Rees’s Construction Group is pleased to publish the latest issue of our Construction Law Update, a quarterly take on trends of interest to design professionals, contractors, and developers throughout the country.

In this edition of the Construction Law Update, we discuss commercial design professionals’ liability for faulty plans and inspections; whether insurance brokers owe a duty to procure coverage needed for a project; new developments related to SB 800; construction managers, licenses and disgorgement; and bonded stop notices as a tool to secure payment.

Gordon & Rees’s Construction Group looks forward to bringing you this essential analysis on the impact of legal changes in the industry. Plus, Gordon & Rees’s Construction Law Blog (www.grconstructionlawblog.com) enhances our quarterly newsletter to bring you additional timely and insightful information.

INSIDE THIS ISSUE
  1. Contract Is King: Assessing Commercial Design Professionals’ Liability for Flawed Plans, Inspections

  2. Insurance Broker Sold You a Worthless Policy? Tough Luck

  3. New Developments Related to SB 800

  4. Disgorgement? But I’m a Construction Manager, NOT a Contractor

  5. Show Me the Money!
     
  6. Construction Attorneys Making Headlines
     
  7. About Gordon & Rees's Construction Group
I. Contract Is King: Assessing Commercial Design Professionals’ Liability for Flawed Plans, Inspections

 

Jon Ludwig



 

 



 

 


By Jon Ludwig - Las Vegas Office

Recent decisions made in the Las Vegas CityCenter complex litigation confirm that “contract is king” in assessing commercial design professionals’ liability for faulty plans and inspections.

The main dispute in the litigation involves the alleged defective construction of Harmon Tower. During construction of the tower certain construction defects were discovered on the 23rd floor of the structure. Specifically, it was discovered that certain structural elements were nonconforming due to the alleged incorrect installation of structural steel. As a consequence of the discovery, it was agreed that the construction of the top 20 floors of the structure (the condominium units) would be deleted and the building would be topped out at 27 stories.

Remedial efforts were attempted but soon the relationship between the owner and the contractor deteriorated and litigation ensued. The owner (MGM) filed suit against the general contractor (Perini Building) for breach of contract and construction defects and Perini Building counter-sued for amounts owed. Inevitably, the structural steel subcontractors were joined to the litigation on claims of breach of contract, construction defects and indemnity.

To read a full, expanded version of this article, click here.

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II. Insurance Broker Sold You a Worthless Policy? Tough Luck 

 Christine Barker

 


By Christine D. Barker, Orange County Office

Did you know that your insurance broker does not owe you a duty to get you the insurance coverage you need on a project?  That’s right, according to a recent Court of Appeal case, San Diego Assemblers, Inc. v. Work Comp for Less Insurance Services, Inc. (2013) 220 Cal.App.4th 1363, an insurance broker is only obligated to procure the insurance you ask for, not necessarily the insurance you need.

In 2000, prior to beginning work on a restaurant remodel project, San Diego Assemblers contacted its insurance broker, Work Comp for Less (broker) to obtain general liability insurance coverage for the project.  Assemblers told the broker the policy limits its client required, but did not describe the types of coverage it wanted.  The broker procured policies and provided them to Assemblers.  Once Assemblers received the policies it did not ask the broker questions nor did it request different policies or coverage.

In April 2004, Assemblers performed work on the restaurant remodel project and in July 2008, an explosion and resulting fire occurred at the restaurant, causing substantial property damage.  Assemblers tendered to its insurance companies - Lincoln General, which provided insurance coverage in 2004, and Preferred Contractors, which provided insurance coverage in 2008 – but both denied coverage.  Preferred denied coverage based upon a prior completed work exclusion and Lincoln General denied based upon a manifestation endorsement, which limited coverage to injuries or damages that first manifested during the policy period.  Although Assemblers told the broker it needed insurance specifically for the remodel project, the policies the broker sold Assemblers did not actually cover Assemblers’ work.  In essence, the broker sold Assemblers policies that did not cover Assemblers’ work on the project.

To read a full, expanded version of this article, click here.

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III. New Developments Related to SB 800

  Amy Kuo Alexander

 


By Amy Kuo Alexander, San Francisco Office

The Right to Repair Act, more commonly known as SB 800, applies to all new residential construction sold after January 1, 2003.  It establishes a process to resolve certain construction defect claims prior to the filing of any lawsuit by a homeowner of new residential construction.  Few cases discuss or provide clarification about SB 800 until recently. 

SB 800 Is Not the Exclusive Remedy

The Liberty Mutual Co. v. Brookfield Crystal Grove, LLC (2013) and Burch v. Superior Court (2014) cases provide that SB 800 is not the sole remedy for construction defect claims for homes to which SB 800 applies.

In Liberty Mutual, a case involving a subrogation claim by an insurer, the California Court of Appeal held that SB 800 does not provide the “exclusive remedy” for construction defect claims involving “actual” as opposed to mere “economic” damages in new residential construction.

In Burch, the Court of Appeal reaffirmed that SB 800 is not the exclusive remedy for homeowners – in fact, this decision broadened the previous Liberty Mutual decision beyond subrogation claims by an insurer.  The Court of Appeal held that the Liberty Mutual case applies to claims by a homeowner directly against a builder and allows the homeowners to pursue claims against the builder for negligence and breach of implied warranty.

To read a full, expanded version of this article, click here.

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IV. Disgorgement? But I’m a Construction Manager, NOT a Contractor

 

 Christine Baker

  

By Christine D. Barker – Orange County Office

You say potato, I say potahto.  You say construction manager, California says, where’s your contractor’s license?  And if you don’t have one, disgorgement.  Construction management is a growing profession in the construction industry.  Commonly referred to as CMs, construction managers fill the gap between owners, design professionals, and general contractors, helping to coordinate project administration, construction meeting, scheduling, sequencing, project safety and a slew of other important, but often forgotten, tasks on a construction project.  However, just because CMs don’t swing a hammer doesn’t necessarily mean they don’t need a license.  More and more, we are seeing that for CMs to protect their rights and avoid the harsh reality that is disgorgement, they should be licensed.  Why you ask? The short answer is because California says so; for the long answer, read on.

To read a full, expanded version of this article, click here.

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V. Show Me the Money!

 

 Julie Haddon

 

 

 

 

 

By Gregory J. Gangitano, San Francisco Office

Traditionally, the contractor’s mechanic’s lien remedy on private projects was a highly effective mechanism for securing payment.  As large construction loans for financing private projects become the norm, however, the lien remedy has arguably lost some of its potency because loan trust deeds typically take priority over liens.   These deeds are usually recorded prior to construction and well in advance of any payment claim.  They often wipe out competing lien claims where the value of unpaid loan amounts exceeds the value of the work of improvement. 

However, the private works stop notice (now referred to as “stop payment notices” under the July 2012 changes to the code) is a practical and powerful tool for making sure undisbursed loan funds don’t disappear before they’re spent.  Under California law, if a lender fails to withhold funds required by the bonded stop notice, it is personally liable to the claimant for the full amount of the claim. But what happens when the lender pre-allocates itself interest, loan points, and underwriting fees at the inception of the loan, before the work even starts?  Can these funds be recouped by the stop notice claimant after the work is finished?  The February 2014 California appellate decision of Brewer Corp. v. Point Center Financial, Inc. confirms that stop notice claims still have priority over such self-paid funds.  While nothing prevents borrowers and lenders from pre-allocating interest, points, fees and other related costs from the undisbursed construction loan, courts have the power to reclaim such funds to satisfy a stop payment notice claim. 

To read a full, expanded version of this article, click here.

 

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VI. Construction Attorneys Making Headlines


In May, Gordon & Rees partner Thomas G. Cronin of the Chicago office spoke about new issues affecting design professionals at the PLUS Midwest Chapter Conference at the University of Chicago.  At the presentation, titled “Hot Topics in Real Estate and Architects and Engineers E&O,” Cronin was part of a three-member panel and spoke about a variety of topics and issues that are having an increased impact on architects and engineers, including resuming old or unfinished projects, designing for extreme weather, and fracking. More than 75 people attended the presentation.

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VII. ABOUT GORDON & REES'S CONSTRUCTION GROUP


Gordon & Rees's Construction Group consists of more than 80 lawyers covering the nation in 31 offices. Indeed, in September the firm opened a Raleigh, N.C., office and recently launched offices in Charleston, S.C., and Oakland, Calif.

Gordon & Rees’s construction attorneys focus their practice on the comprehensive range of legal service required by all participants in the construction industry – architects, engineers, design professionals, design joint ventures, owners, developers, property managers, general contractors, subcontractors, material suppliers, product manufacturers, lenders, investors, state agencies, municipalities, and other affiliated consultants and service providers.

We serve clients who design, develop, or build all types of structures, including commercial buildings, single and multifamily residential projects, industrial facilities, universities, hospitals, museums, observatories, amusement parks, hotels, shopping centers, high-rise urban complexes, jails, airports, bridges, dams, and power plants. We also have been involved in projects for tunnels, freeways, light rail, railway stations, marinas, telecom systems, and earth-retention systems. Our experience includes private, public, and P3 construction projects.

If you have questions about this issue of the Construction Law Update or our nationwide construction practice, click here to visit our practice group page or contact Mark Russell or George Milionis.

        

 

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