General contractor

November 25, 2013

Construction records key to defending defect claims

Source: http://www.businessinsurance.com, November 20, 2013
By: Matt Dunning

Although most contractors acknowledge that maintaining thorough contractual and operation records can greatly reduce the severity of construction defect claims, insurance experts said Wednesday that lack of documentation among their clients remains a pervasive issue.

In 2012, in four out of five construction defect disputes involving Hartford, Conn.-based Travelers Cos. Inc.’s construction clients nationwide, vital documents and photos detailing change orders, inspections and approvals of onsite work were unavailable, said Robert Kreuzer, Travelers’ second vice president of construction risk control, during a presentation at the International Risk Management Institute Inc.’s 33rd annual Construction Risk Conference in San Diego.

“Whenever we have an allegation of construction defect on a project that was completed some time ago, we typically struggle to find the documents that we need to understand what exactly happened and why it happened,” Mr. Kreuzer said. “Eighty percent of the time, the documents are either not there, or they’re inaccurate, or we can’t find them. Sometimes it’s as simple as one piece of paper, but it comes down to one piece of paper filed somewhere in one of dozens of boxes, so it becomes quite a daunting task.”

On average, Travelers’ experts said construction defect claims — claims made against a general or specialty contractor alleging the failure of a building component or system based on defective design specifications or building materials, faulty installation or improper maintenance of a project post-completion — take an average of seven years from the initial allegation for contractors to notify their insurers of a defect claim, and many more to litigate in cases where documentation is either incomplete or missing.

“Lack of documentation is a common theme in the litigation process as well,” said Michael Koppang, Hartford-based director of construction claims at Travelers. “When you wait to collect evidence of a possible defect, and then someone on-site goes and tries to fix it, you lose the opportunity to document the as-built conditions.”

“If you can do those things ahead of time, you have a better chance of getting yourself out of the dispute, and avoiding that 11-year headache,” he added. In order to improve the quality and maintenance of their construction records, Mr. Kreuzer said many contractors have begun assembling in-house or third-party assessment teams to review and organize their contracts, project designs and material orders.

“We’ve also heard about lot of contractors doing things during construction operations, like conducting jobsite walkthroughs, change order and RFI reviews, and going back over their project diaries to look at any onsite issues or problems that came up on a given day and how those issues were resolved,” Mr. Kreuzer said.

October 21, 2013

The Right Way to Write Builders Risk Insurance

Source: http://www.constructionexec.com, October 2013
By: Jeff Cavignac

An effective construction insurance program requires the dovetailing of several different policies in order to protect each project stakeholder. General liability and workers’ compensation are critical elements of insuring a construction project, but the keystone is builders risk coverage.

Builders risk, often called “course of construction,” is a first party property coverage designed to insure the real property under construction. The coverage is purchased by one party, but the policy ideally will extend protection to all parties that may have an insurable interest in the real property.

Standardized builders risk policies are the exception; most insurance companies choose to create their own manuscripted forms and coverage varies greatly. Because no two construction projects are the same, it is important to analyze what could go wrong and then tailor the builders risk coverage to match those exposures.

The key to an effective builders risk policy is understanding the contract’s insurance requirements and indemnity sections. The insurance section specifies who is responsible for buying the builders risk insurance and exactly what coverage it includes. The indemnity section of the contract establishes the party that will be responsible for various losses that could occur during the course of construction, and under what circumstances the parties to the contract have waived their recovery rights against one another. It is also helpful to review the project’s financing documents to determine the coverage the lender requires.…

October 18, 2013

Framingham Town Meeting approves $175K settlement

Source: http://www.metrowestdailynews.com, October 17, 2013
By: Danielle Ameden

Special Town Meeting on Wednesday approved a $175,000 payout to settle lawsuits stemming from contaminated fill from a town project ending up in a Milford family’s yard.

The deal resolves a lawsuit Framingham filed in 2010 against the Walpole contractor that did roadwork for the town on New York Avenue, and a countersuit that firm, SB General Contracting, filed against the town.

Town Counsel Chris Petrini said the town’s cost is “a modest sum” and it ends the case.

“I’m in favor of this settlement because it seems reasonable,” Precinct 4 member Dick Weader said.

Petrini said the SB General Contracting and its project engineer failed to follow specifications and oversee the proper disposal of the fill, which contained asbestos.

A trucker SB hired ended up dumping the fill in the Rowe family’s yard in Milford, telling them it was clean, Petrini said.

After neighbors complained, the state Department of Environmental Protection tested the fill and found it was contaminated, Petrini said.

Under the settlement, the town will pitch in $75,000 toward the cost of hauling away the fill from the Milford yard.

SB and several other involved parties, including Kleinfelder Northeast Inc. of Cambridge, formerly known as SEA Consultants, and CJM Construction of Milford, would pay their own shares.

Framingham will also pay Lillian and William Rowe $100,000. The family will receive additional money from the other parties involved in the dispute.

The money is coming out of the appropriation for the New York Avenue Utility Corridor Project.

Petrini said the contractor and its engineers are paying the town’s legal costs for the case.

Even with the settlement, Framingham could still be on the hook for fines from the DEP for environmental violations, Petrini cautioned Town Meeting.

Special Town Meeting resumes tonight at 7:30 in Nevins Hall.

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September 19, 2013

A cautionary insurance tale for project owners

Source: http://www.lexology.com, September 4, 2013
By: Stanley A. Martin, Duane Morris LLP

The contractor’s excavator digging the foundation for a new building undermines the abutting building, which collapses, and a worker is injured. In the subsequent lawsuits, one by the abutter and one by the injured worker, the project owner tenders the defense to its GL carrier. The carrier eventually gets a court decision, that there is no coverage due to the subsurface soil movement exclusion. In the circumstances of a clear accident, and clear personal injury and damage to property, is this correct? Yes.

The appellate decision (subscription required) in this New Jersey case[1] does not explain why the owner had to defend itself and was not able to insist on a defense by the contractor or its subcontractor. But there was common ownership of the project owner entity and the contractor, and one can only surmise that the apparent absence of contractual indemnity or insurance obligations arose from this relationship.

The critical point is that standard exclusions in project owner policies – for damages arising from “movement of land or earth,” for personal injury claims of a contractor/subcontractor employee, and for property damage arising from work of a contractor/subcontractor – will be upheld. In the absence of a builder’s risk policy or other specific coverage or endorsement, project owners continue to rely on the indemnity and insurance requirements of standard form contracts. If there is no indemnity obligation, if the project owner is not an additional insured on the contractor’s policy, and if the owner is relying upon typical GL and property coverage, that owner will be defending itself with its own money from personal injury and property damage claims arising from construction.

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August 15, 2013

Three Things to Know about Occurrence-Based Insurance

Source: http://enewsletters.constructionexec.com, Vol No. 2, Issue 14

Until recently, North Dakota law stated faulty workmanship is never “accidental” and, therefore, a construction defect could never be a covered “occurrence” under Commercial General Liability (CGL) policies. In April, the North Dakota Supreme Court overturned that law, ruling that faulty construction can be accidental. On June 18, 2013, the West Virginia Supreme Court of Appeals did the same thing, overruling three prior cases on its way to holding that faulty workmanship can constitute a covered “occurrence.” On June 4, 2013, the Connecticut Supreme Court also found that CGL policies can cover damage from defective construction.

The clear trend nationwide is toward finding that claims of faulty workmanship can be covered under occurrence-based CGL policies. Judicial analysis of CGL policies in construction liability cases, which has at times been superficial and even sloppy, is becoming more careful and sound. Courts are now considering the impact of the 1986 revision of the CGL policy, which added a provision to broaden coverage of general contractors for the work of subcontractors. Judges are recognizing that nothing in the definition of “occurrence” in the CGL policy precludes coverage for construction defects. They are beginning to look at the drafting history of the 1986 CGL revision, which shows that the drafters intended to cover faulty workmanship.

Nevertheless, figuring out whether coverage exists for a particular claim can be tricky. Following are three things every contractor should know about coverage for construction defects. This discussion applies to the provisions in essentially all standard-form CGL policies.…

June 13, 2013

Constructing Professional Liability Insurance Requirements for Design-Build Projects

Source: http://www.irmi.com, Jume 2013
By: Jeff Slivka

As a project owner, it is extremely imperative to require evidence of professional liability (PL) insurance from the construction firm you hire to design and build your project. However, when you do this, what are you trying to accomplish?

Over the past year, I have seen an increasing request for contractors to evidence PL insurance. That is a good thing. In addition, many of those requirements required a dedicated PL program/limit of liability for the project. That makes a lot of sense. However, before you require any entity to provide evidence of PL insurance, you have to ask yourself, what do I want to insure against? This is a basic question, I know, but I think one that is often overlooked.

As an example, I have seen PL insurance specifications written for a design-builder to purchase PL insurance for the design team (not part of the design-build entity) and the design team subs/members. In this case, it would appear that the owner wants to insure only against design errors arising from the design services provided by the design team. Or does he? It’s clear to me that this owner doesn’t want to insure the project against PL risk, just design liability.

I have seen other instances where an owner has accepted a certificate of PL insurance from the engineering firm under contract with the construction firm, not even under direct contract with the owner. So, there is no contractual relationship between the owner and the engineering firm. Is this supposed to help owners sleep at night and protect against costly PL claims?…

June 12, 2013

New Florida statute allows limitation of design professional liability

Source: http://www.lexology.com, June 6, 2013
By: Jennifer W. Fletcher, Michael G. Kerman, Kent W. Collier , Jennifer S. Lowndes and Laura J. Stipanowich, Sutherland Asbill & Brennan LLP

Over the past fourteen years, third parties have been able to maintain a direct negligence cause of action against an individual design professional, such as an architect or engineer, arising out a construction project, despite the contractual arrangements being with the design professional’s employer.1 A new Florida statute will soon change this law.

In other words, if a general contractor contracted with an architectural firm to perform design work, and an architect employed by the architectural firm was negligent in the design, then the owner (the contractor’s client) could maintain its defect claims against the contractor, the architect (assuming no economic loss issues), and the individual architect personally. Or, in the case of a design/build firm, the action could be maintained individually against the architect employed by the design/build firm.…

May 29, 2013

Demolition Activities Cause Release

Source: Great American Environmental Division, May 2013

A redevelopment project was underway where all existing structures were being razed and the site was to be re-graded. During demolition activities, the General Contractor punctured an unknown heating oil tank. Residual heating oil was still located within the tank and was released when the tank was punctured. Due to sandy soils and a shallow groundwater table, the oil was able to spread quickly. Although the tank was only 500-gallons, the clean-up became very involved due to the required excavation of impacted soils and the regular monitoring of groundwater until closure could he granted by the environmental regulators.

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May 29, 2013

Mold Arising from Construction Defects

Source: Great American Environmental Division, May 2013

A General Contractor (CC) completed the construction of a senior care facility in 2009. The owners recent inspection revealed water intrusion and mold contamination throughout the building with damages expected to exceed $1.3 million. Experts were retained and inspections revealed multiple construction defects. $575,000 in damages were determined to he attributed to mold.…

May 21, 2013

Claim Scenario – Communication, Documentation, Negligent Supervision

Facts: Insured provided architectural services, including construction administration with review of payment applications to a church assembly group. Contractor abandoned the project after receiving $1.1 million in funds for material. Contactor could not be located at the time the lawsuit was filed, had no insurance and was bankrupt. Alleged damages in excess of $2 million.

Claim against the insured: 1) architect failed to properly advise client regarding common practices in the construction industry; 2) architect failed to exercise reasonable care in reviewing/approving payments requests; 3) architect made misrepresentations concerning the percentage of work completed at the project; 4) architect failed to properly supervise the contractor and his requests for materials; and 5) architect failed to properly advise client regarding contractor payment requests and costs of materials.

Technical error: Architect approved a line item on a payment application that did not match the invoiced amount. The payment application requested approval for $215K, but the companion documents showed $1.1M had already been paid to the contractor.

Defenses raised: Contractor didn’t follow correct protocol and contacted the church directly requesting payment on an expedited basis over the weekend. Architect wasn’t notified of this directly (although copied on an email communication).

Liability concerns: Our experts opined that a jury might agree with the plaintiff’s argument that the Insured’s approval of the payment application and the next 4 should have raised a red flag that the amount paid to the contractor did not correspond to the progress of construction and that the material that was paid for wasn’t out on the site. In order for the insured to certify the amount requested, he should have reviewed the companion documents. It took him several months to catch the mistake and by that time the contractor had already fled the project.

Policy Limit: $1 million per claim, $15,000 deductible.

Resolution: Matter settled for $650,000. Insured’s defense costs $250,000.

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