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CONSTRUCTION DEFECT NEWS
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The prospect of a hard market has been looming for some time given massive weather driven property losses and historically low rates.

Stormy Skies Ahead? Important News Regarding a Hard Construction Insurance Market

Tuesday, August 13, 2019 — Jason M. Adams - Gibbs Giden

Word out of the construction insurance brokerage community is that the construction insurance industry has entered a hard market, seemingly overnight. Property (i.e. builder’s risk), liability and wrap-up markets are all reacting unfavorably, resulting in higher premiums and decreased availability of coverage options.

The prospect of a hard market has been looming for some time given massive weather driven property losses and historically low rates (among other factors). It appears the time is upon us.

Key takeaways for construction professionals are:

  • Expect insurance premiums to go up, potentially significantly, at renewal time and/or when seeking a new project specific program (e.g., an OCIP, CCIP, etc.).
  • Expect that the available coverage will get worse. Carriers may be unable to offer once standard coverage enhancements and/or may add new exclusions.
  • If quotes have been offered consider locking them in now, before the underwriters are forced to increase the rates/restrict coverage, or pull the quotes entirely.
  • With respect to wrap-ups and other project specific programs, consider requesting extensions now if the project is expected to go beyond the current policy term.
  • As always, the risk management team (lawyer, broker, risk manager) should work together to carefully review contracts and coverage. This will become even more important if the carriers start to introduce new exclusions as a result of the hard market.

Hard markets come and go. The tough times are when true construction insurance professionals separate themselves from the pack and become the key to weathering the storm.

Jason M. Adams, Esq. is Senior Counsel at Gibbs Giden representing construction professionals (owners/developers, contractors, architects, etc.) in the areas of Construction Law, Insurance Law and Risk Management, Common Interest Community Law (HOA) and Business/Civil Litigation. Adams is also a licensed property and casualty insurance broker and certified Construction Risk & Insurance Specialist (CRIS). Gibbs Giden is nationally and locally recognized by U. S. News and Best Lawyers as among the “Best Law Firms” in both Construction Law and Construction Litigation. Chambers USA Directory of Leading Lawyers has consistently recognized Gibbs Giden as among California’s elite construction law firms. Mr. Adams can be reached at jadams@gibbsgiden.com.



Illustration of judge sitting behind bench

Do costs associated with complying with an injunction constitute covered “damages?”

Federal Court Asks South Dakota Supreme Court to Decide Whether Injunction Costs Are “Damages,” Adopts Restatement’s Position on Providing “Inadequate” Defense

Tuesday, August 13, 2019 — Anthony L. Miscioscia & Timothy A. Carroll - White and Williams LLP

Do costs associated with complying with an injunction constitute covered “damages?” The U.S. District Court for the District of South Dakota recently certified that question to the South Dakota Supreme Court, in Sapienza v. Liberty Mutual Fire Insurance Company, No. 3:18-CV-03015-RAL, 2019 U.S. Dist. LEXIS 84973 (D.S.D. May 17, 2019). If the South Dakota Supreme Court takes on the question, it will become one of the few highest state courts to do so.[1] The Sapienza case is also notable because the court adopted § 12 of the Restatement of the Law of Liability Insurance (Restatement) regarding an insurer’s potential liability for providing an “inadequate” defense. In doing so, the Sapienza court joins a growing list of courts to rely upon or cite to the Restatement.

The Sapienza case arose out of an underlying dispute between residential neighbors over the size and location of the Sapienzas’ new house they built in a historic district in Sioux Falls, SD. The newly-built house allegedly prevented the neighbors from using their fireplace, blocked natural light the neighbors previously enjoyed, and decreased the value of the neighbors’ house. The neighbors sought a permanent injunction requiring the Sapienzas to modify or relocate the house. The Sapienzas’ homeowners’ insurer provided them with defense counsel, but the insurer instructed the Sapienzas that it would not cover any costs associated with an injunction as such costs did not constitute covered “damages.”

Reprinted courtesy of Timothy Carroll, White and Williams LLP and Anthony Miscioscia, White and Williams LLP
Mr. Schulman may be contacted at carrollt@whiteandwilliams.com
Mr. Anderson may be contacted at misciosciaa@whiteandwilliams.com


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Illustration of gavel

Frank Ingham discusses the case Sedgwick Properties Development Corporation v. Christopher Hinds.

Appellate Court reverses district court’s finding of alter ego in Sedgwick Properties Development Corporation v. Christopher Hinds (2019WL2865935)

Tuesday, August 13, 2019 — Frank Ingham - Colorado Construction Litigation

Division V of the Colorado Court of Appeals addressed, for the first time, corporate veil-piercing in the context of a single-member, single-purpose LLC that is managed under a contract by another company. On July 3, 2019, the Court of Appeals reversed the order of the Honorable Ross B. Buchannan, Denver District Court Judge (17CA2102), who held that Plaintiff/Appellee Christopher Hinds satisfied the elements required to pierce the corporate veil of Sedgwick Properties Development Corporation (“Sedgwick”).

Background

Defendant 1950 Logan, LLC (“1950 Logan”) was the developer of a building located at 1950 Logan Street, in Denver, called The Tower on the Park (“Project”), which contained 141 individually owned condominium units. The Project was completed in 2006. 1950 Logan was a single-purpose entity created for the construction of the Project, which is a common practice in the construction industry. After the units were sold in 2006, the LLC wrapped up operations.

Reprinted courtesy of Frank Ingham, Higgins, Hopkins, McLain & Roswell, LLC

Mr. Ingham may be contacted at ingham@hhmrlaw.com

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The Top 50 Construction Law Firms™: Keeping a Sharp Eye on the Contract

August 13, 2019 — Cybele Tamulonis - Construction Executive

With the explosion of new technologies in construction, changes to contract documents, and the growing challenge posed by an ever-increasing number of state and federal laws and regulations, contractors need expert legal advice more than ever to manage risk and protect profits.

Law firms specializing in construction have the unique industry experience essential to guide their clients through a complex maze of compliance and contracts to ensure the health of the construction enterprise.

Reprinted courtesy of Cybele Tamulonis, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.

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Business Risk Exclusions Bar Coverage Whether or Not Operations Completed

August 13, 2019 — Tred R. Eyerly - Insurance Law Hawaii

The federal district court found that exclusions j (5), (6) and l barred coverage for damage caused to the city's water main collector system. Sunwestern Contractors, Inc. v. Cincinnati Indem. Co., 2019 U.S. Dist. LEXIS 82642 (D. Ariz. May 15, 2019).

Sunwestern contracted with the city of Tucson for the construction of a water main collector system. During the project, Sunwestern conducted a pressure-test of the pipeline when several flanges, which connected the pipe sections, came apart. The flange failure caused water to tear out gaskets, seriously damage the pipeline, components of the pipeline, and surrounding areas. Four million dollars in damage was caused.

Mr. Eyerly may be contacted at te@hawaiilawyer.com

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Lennar Rises as Strong New Home Orders Signal Improving Market

August 13, 2019 — Prashant Gopal - Bloomberg

Lennar Corp., the first big U.S. homebuilder out of the gate this earnings cycle, reported quarterly orders that beat expectations. a sign that low mortgage rates are fueling demand. The shares rose.

In the three months through May, home-purchase contracts rose 1% from a year earlier to 14,518 homes, the Miami-based company said in a statement Tuesday.

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ABA 2019 Fall Meeting - Building a Better Construction Industry through Inclusion, Diversity, & Professionalism

August 13, 2019 — Beverley BevenFlorez – CDJ Staff

The American Bar Association (ABA) presents a three-day seminar “focused on understanding the business implications of inclusion, diversity, and professionalism across the construction industry.” It “includes advice for litigators and transactional lawyers alike, as well as in-house and outside counsel. Leaders from the ABA, ACEC, AGC, and AIA will forecast cultural and demographic shifts and provide their assessments of the industry as a whole.”

October 23rd-26th, 2019
Philadelphia Marriott Hotel
1201 Market Street Philadelphia, PA 19107-2897

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Bowling ball striking pinballs

Tred R. Eyerly analyzes Affinity Mut. Ins. v. Thacker Air Conditioning Refrigeration Heating.

Motion to Strike Insurer's Expert Opinion Granted

Tuesday, August 13, 2019 — Tred R. Eyerly - Insurance Law Hawaii

The court granted the insured's motion to strike the testimony of the insurer's expert because the opinion lacked sufficient explanation or analysis. Affinity Mut. Ins. v. Thacker Air Conditioning Refrigeration Heating, 2019 U.S. Dist. LEXIS 84713 (N.D. Ind. May 20, 2019).

The insured owned a market that needed renovations. The roof over an addition to the market extended from the wall of the extension to the top of the existing roof. The area between the old and new roofs was filled with blown-in insulation, so that the structural support from the new overbuilt roof was not visible. The weight of the overbuilt roof rested on top of the existing roof at the point where they met. This added additional weight on the trusses supporting the main roof.

In 2014, the market upgraded the building with heating and insulation. Thacker was a subcontractor for work on the hearing system. Six gas furnaces, spaced about 35 feet apart along the length of the building, were placed by Thacker. The total weight of each unit was estimated at 280 pounds.

Reprinted courtesy of Tred R. Eyerly, Damon Key Leong Kupchak Hastert

Mr. Eyerly may be contacted at te@hawaiilawyer.com

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The mechanics lien allows the claimant to sell the property where the work was performed in order to obtain payment.

Notice of Completion Determines Mechanics Lien Deadline

Tuesday, August 13, 2019 — William L. Porter - Porter Law Group

The California Mechanics Lien is one of the most valuable collection devices available to contractors, subcontractors and suppliers who are unpaid for work performed and materials supplied in relation to a California Private Works project. The mechanics lien allows the claimant to sell the property where the work was performed in order to obtain payment. The process starts with the recording of a mechanics lien in the office of the County Recorder where the property in question is located. As noted below, certain deadlines must be met.

Know Your Mechanics Lien Filing Deadlines Generally

Working within deadlines is absolutely crucial to preserving mechanics lien rights under California law. The deadlines differ, depending on whether you are a ”direct” contractor, also known as “original” or “prime” contractor (one who contracts directly with the property owner) or a subcontractor or material supplier. The primary differences are that, the direct contractor is only required to serve the “Preliminary Notice” on the Construction Lender (Civil Code section 8200-8216), whereas the subcontractor and material supplier must serve not only the Construction Lender, but also the Owner and Direct Contractor (see Civil Code section 8200(e)). Another difference is that a direct contractor has a longer period of time in which to record a mechanics lien after a valid “notice of completion” or a “notice of cessation” has been recorded (Civil Code sections 8180-8190), (60 days for original contractors as compared to 30 days for subcontractors and suppliers – See Civil Code sections 8412 and 8414). A further general description of the rules is as follows:

Reprinted courtesy of William L. Porter, Porter Law Group

Mr. Porter may be contacted at bporter@porterlaw.com

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Person signing document

Serving a Notice to Owner should be done as a matter of course.

Quick Note: Not In Contract With The Owner? Serve A Notice To Owner.

Tuesday, August 13, 2019 — David Adelstein - Florida Construction Legal Updates

A subcontractor or supplier not in direct contract with an owner must serve a Notice to Owner within 45 days of initial furnishing to preserve construction lien rights. Of course, the notice of commencement should be reviewed to determine whether the subcontractor or supplier has construction lien or payment bond rights so that it knows how to best proceed in the event of nonpayment. Serving a Notice to Owner should be done as a matter of course — a standard business operation; no exceptions.

Reprinted courtesy of David Adelstein, Kirwin Norris, P.A.

Mr. Adelstein may be contacted at dma@kirwinnorris.com

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Two business women meeting

Carefully drafted and properly used arbitration clauses can be helpful.

Mandatory Arbitration Isn’t All Bad, if. . .

Tuesday, August 13, 2019 — Christopher G. Hill - Construction Law Musings

In the past week or so mandatory arbitration has been all the rage. From those that argue that arbitration is becoming more burdensome than litigation, to my friend and fellow construction attorney Scott Wolfe who gives great advice on how to make arbitration worth it again. You can place me in the camp of those that think that mandatory arbitration clauses of the type typically found in contracts can add a layer of expense that can be unnecessary.

However, if an arbitration clause is carefully drafted, and properly used, these clauses an be helpful in assuring that the streamlining effect for which arbitration was created actually occurs. Because the contract is king in Virginia, these provisions can essentially create the rule of civil procedure used to resolve any dispute relating to the project.

Anything from the number and method of appointing the arbitrators, to the ability to use attorneys, to the time between notice and arbitration hearing and whether mediation is a requirement, to the documents and other pre-arbitration exchanges can and should be specifically outlined. The construction contract can also state who decides between court or arbitration. This can be one party or both. The possibilities are almost endless.

Reprinted courtesy of The Law Office of Christopher G. Hill

Mr. Hill may be contacted at chrisghill@constructionlawva.com

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Woman holding her temples

The project's new benchmarks are 2020 and $23.1 billion.

Crossrail Audit Blames Busted Budget and Schedule on Mismanagement

Tuesday, August 13, 2019 — Peter Reina - Engineering News-Record

In a new report on London’s Crossrail, the U.K. National Audit Office says the beleaguered transportation project is around two years late and nearly 20% over budget because of poor management. The NAO, charged by Parliament with monitoring public spending, pointed to ill-conceived “aspirational” plans that proved to be unfit for the technologically challenging and vast program when things went wrong.

Reprinted courtesy of Peter Reina, ENR
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Glasses lying on Payment Bond document

Ira M. Schulman and Emily D. Anderson discuss the nuances of Payment Bonds.

When Subcontractors Sue Only the Surety on Payment Bond and Tips for General Contractors

Tuesday, August 13, 2019 — Ira M. Schulman & Emily D. Anderson - ConsensusDocs

Payment bonds have been a staple of public construction projects since 1874, when the U.S. Congress first passed the Heard Act, which required that contractors obtain payment bonds for public projects to ensure that subcontractors and material suppliers have a way to recover their damages if an upstream contractor fails to pay for work performed and materials furnished on the project. The 1874 Heard Act has since been replaced by the 1935 Miller Act, and the concept has been expanded to construction projects funded by the states through state statutes known as “Little Miller Acts.” But the structure remains the same: On most public projects where the project’s cost exceeds $100,000, the prime contractor (the bond principal) is required to obtain a payment bond from a surety equal to the contract price to guarantee to subcontractors and material suppliers (the bond obligees) that the surety will pay for labor and materials under certain statutory or contractual conditions should the contractor fail to make payment.

A surety is jointly and severally liable with the contractor to the subcontractor, which means that the subcontractor may seek recovery against either the contractor or the surety or both, and the contractor and surety will be liable for the damages together. Put another way, in most states and in federal court, an unpaid subcontractor has the right to sue only the surety on the payment bond without joining the contractor because a contract of suretyship is a direct liability of the surety to the subcontractor.1 When the contractor fails to perform, the surety becomes directly responsible at once — it is unnecessary for the subcontractor to establish that the contractor failed to carry out its contract before the obligation of the surety becomes absolute.

Reprinted courtesy of Ira M. Schulman, Pepper Hamilton LLP and Emily D. Anderson, Pepper Hamilton LLP
Mr. Schulman may be contacted at schulmani@pepperlaw.com
Ms. Anderson may be contacted at andersone@pepperlaw.com


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Master Plan Outlines $60mil In Construction At Albuquerque's Double Eagle Airport

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Joanna Masterson discusses results of construction safety survey.

Concerns About On-the-job Safety Persist

Tuesday, August 13, 2019 — Joanna Masterson - Construction Executive

Nearly 40% of workers are more concerned with on-the-job safety this year than they were last year, according to a 360training.com survey of a thousand people across several manual labor-intensive industries. Additionally, a quarter of workers worry every day about getting injured because of their job. That number goes up to 27% for workers in the construction and oil industries.

Slips, trips and falls were the top workplace safety concern (36%), followed by electrical hazards (13%), ergonomic problems (9%), vehicle/equipment accidents (7%) and falling objects (6%). For the construction industry specifically, electrical hazards were identified as the leading cause of concern.

Reprinted courtesy of Joanna Masterson, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.



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City skyline lit up at night

Cities are full of talk—but who walks the walk?

Helsinki Stream City: A Re-imagining Outside the System

Tuesday, August 13, 2019 — Jenni Ripatti - AEC Business

Modern man lives under the illusion of being the most intelligent being out there. This is the paradox of human nature; we all want to make the best decisions with the knowledge we have at any given time, but on the other hand, our thinking is largely based on how our ancestors organized the world in their time.

Possibly the most tangible example of this in our everyday lives is infrastructure. While there seems to be plenty of candidates offering new solutions to the already existing urban environment, there are not that many looking to challenge the current urban order. Cities are full of talk—but who walks the walk?

Re-imagining Urban Environments

Olli Hakanen, a long-term specialist in re-imagining workspaces and urban environments, has an extensive background in both architecture and consultancy. His latest venture, Respace, aims to address how urban environments are being developed to better suit the needs of their residents as well as the environment. According to the ideology behind Respace, instead of always building something new, often all that is needed is a re-thinking.

Reprinted courtesy of Jenni Ripatti, AEC Business

AEC Business may be contacted at info@aec-business.com

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Red pin on the word fraud

The construction industry is more susceptible to certain types of fraud than other industries due to the nature of the work.

How Contractors Can Prevent Fraud in Their Workforce

Tuesday, August 13, 2019 — Sarah Hofmann - Construction Executive

The word fraud might conjure up images of Wall Street executives led out to police cars in cuffs, or sleazy conmen with slicked-back hair. While these ideas might be popular in movies and TV, and often in the news, many small and large businesses fall victim to fraud. Whether it’s a trusted site manager who needed a little extra cash to cover an unexpected bill or the accountant who’s been on board for years and has been slowly siphoning an extra paycheck through a ghost employee each month, fraud might be hitting businesses without them even knowing it.

The construction industry is hardly immune to such schemes. According to the ACFE’s 2018 Report to the Nations on Occupational Fraud and Abuse, organizations lose an estimated 5% of their revenue each year to fraud. The median amount lost per instance of fraud was $130,000 across all industries, but fraud cases in the construction industry cost almost twice that much at $227,000 per fraud. They also last longer on average: fraud schemes in the construction industry continue for 24 months before being detected versus the overall median average of 16 months. The more time a scheme continues, the more money is lost for organizations.

What types of fraud schemes are most common in the construction industry?

The construction industry is more susceptible to certain types of fraud than other industries due to the nature of the work. The companies may be smaller in size leading to fewer resources to combat fraud and more trust among employees. Also, construction companies inherently deal with many vendors, subcontractors, bidding organizations and other various third parties, which can all pose fraud risks.

Reprinted courtesy of Sarah Hofmann, Construction Executive, a publication of Associated Builders and Contractors. All rights reserved.



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Plane taking off

The CAA has asked Heathrow to “consider different options for this spending.”

Heathrow Speeds New-Runway Spending Before Construction Approval

Tuesday, August 13, 2019 — Elena Mazneva - Bloomberg

London’s Heathrow Airport intends to speed up spending on its controversial third runway, even before getting approval for the 14 billion-pound ($18 billion) project, according to the industry regulator.

Europe’s busiest airport plans to boost early spending to 2.9 billion pounds, in 2014 prices, so it can stay on schedule for a planned 2026 opening, the Civil Aviation Authority said in a consultation document on its website. The costs will be incurred before the airport wins permission to build the runway, which the operator expects to happen in late 2021, according to the document. The Financial Times reported the plan earlier.

Reprinted courtesy of Elena Mazneva, Bloomberg
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Builders Standard of Care Expert Witness and Consulting General Contractor area area area

Builders Standard of Care Expert Witness and Consulting General Contractor area area area

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