Construction Law Blog
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Subcontractor Allowed to Sue Designer for Negligence: California Courts Chip Away at the Economic Loss Doctrine (Independent Duty Rule)
An architect may have to pay over $1 million to a subcontractor who was contractually obligated to rely on the designer’s plans – even though the architect was not a party to the contract. That was the ruling in U.S. f/u/b/o Penn Air Control, Inc. v. Bilbro Constr. Co., Inc. The dispute involved a $7.3 million design-build contract award to Bilbro Construction (“Bilbro”) to renovate a facility for the Naval Facilities Engineering Command in Monterey, California.
Bilbro hired an architect (“FPBA”) to serve as the designer of record and provide all the architectural design services. FPBA’s design team included an acoustical sub-consultant (Sparling). The general contractor (design builder) also retained Alpha Mechanical (Alpha) as the mechanical electrical and plumbing (“MEP”) design/build subcontractor.
Indemnity Clauses That Conflict with Oregon Indemnity Statute Can Remain Partially Valid and Enforceable
When the indemnity provision of a contract conflicts with ORS 30.140, it is voided to the extent that it conflicts with the statute, but no more. Such provisions can remain partially valid and enforceable.[i] In Montara Owner Assn., the owner brought claims against the contractor for construction defects and damage relating to the construction of 35 townhouses. Contractor then brought third-party claims against more than 20 subcontractors for breach of contract and indemnity. Before trial, contractor settled with all but one subcontractor. The subcontract contained an indemnity provision requiring subcontractor to indemnify contractor for losses arising out of subcontractor’s work, including losses caused in part by contractor’s own negligence.
Waiving Workers’ Compensation Immunity for Indemnity: Demystifying a Common and Scary-Looking Contract Term
Parties to a construction contract are often skeptical of terms in bold fonts, capital letters, or underlining, and especially terms requiring separate signatures or initials. A natural assumption is that such terms must be harmful if they require such emphasis. This concern is further heightened when the term involves complex areas of law, or waivers of rights that the party may not fully understand. In such cases, a little knowledge can go a long way.
Lawyers love writing about indemnification. There are seventeen blog articles on our website alone that deal with the subject. Before you click out of this email in disgust that we are rehashing a stale topic, this post contains some practical advice for contractors and subcontractors dealing with the perplexing issues of indemnification and additional insured provisions.
Release from Condominium Owners Association Precludes Claims by General Contractor Against Subcontractor, Except for Defense Costs
Recently, the Washington State Court of Appeals addressed a dispute between a general contractor and its windows subcontractor in connection with the construction of the Admiral Way Mixed-Use Project in West Seattle.
In Bordak Bros., Inc. v. Pac. Coast Stucco, LLC, the developer of the Admiral Way Mixed-Use Project hired Ledcor Industries (USA), Inc. (“Ledcor”) as its general contractor, and Ledcor hired Starline Windows, Inc. (“Starline”) to supply window products for the Project. After the Project was completed, the Condominium Owners Association (“COA”) discovered defects in the building and sued the developer, who then brought suit against Ledcor. Ledcor then commenced suit against its subcontractors and suppliers. Ledcor did not initially name Starline as a defendant to its claims.
This article provides an overview of the difference between indemnification and being added as an additional insured to an insurance policy. For further information on indemnification provisions, follow these links to a few of our previous blog posts: Top 10 Construction Contract Provisions – Indemnity; Anti-Indemnity Statutes to Prevent Overreaching; and Amendment’s to Washington’s Anti-Indemnity Statute.
We get more calls and are asked to review more contracts involving "indemnity" than any other construction issue. Indemnification, despite the legal mystery behind the concept, is actually quite simple. It involves an obligation by one person to provide compensation to another for a claim brought or loss suffered by a third person. Generally, in construction contracts, the owner requires the contractor to indemnify it in the event of a personal injury or property damage suffered by a third person whose damages arise out of construction operations. Oregon has a law, similar to many other states (including Washington and Alaska), prohibiting overbroad indemnity provisions in construction contracts. In the case of Montara Owners Ass'n v. La Noue Development, LLC, the Oregon Supreme Court ruled that an arguably overbroad indemnity provision is to be enforced within the statutory constraints rather than being entirely invalidated. The Court concluded that two sections of the anti-indemnity law, read together, had the effect of "saving" the overbroad indemnity clause.
Subcontractor Default Insurance ("SDI") continues to capture market popularity since its invention by the Zurich Insurance Company under the name SubGuard. SDI is an alternative to traditional surety bonding that provides the general contractor ("GC") protection from subcontractor default through a two-party contract (the GC and the insurer).
Contractor's Surety Taking Over Project was Not Permitted to Recover Progress Payment Made by Owner to Contractor's Bank Loan Account
It is commonly known in the construction industry that general contractors who perform public works projects are required to post a payment bond and performance bond, in part, to ensure that subcontractors are paid and the project is completed in the event the general contractor is unable to fulfill its contractual obligations. A typical circumstance in which these bonds are relied upon is when the general contractor becomes financially unable to pay or perform (i.e. bankruptcy) before the public works project is completed. Generally, under the payment bond, a surety would pay those subcontractors that have not been paid by the general contractor and, under the performance bond, the surety would take over the work left unperformed by the general contractor.
An indemnity clause in a contract allows the contracting parties to dictate liability, usually in the form of personal or property harms. For example, if A ("Indemnitor") indemnifies B ("Indemnitee") against all injuries caused by its construction, and C becomes injured by B's work, C will have a claim against B for the injury. B will then have an indemnity claim against A for the cost to defend and for any damages arising from C's lawsuit. We have previously discussed indemnification on our blog. See Top 10 Construction Contract Provisions and Washington’s Defense and Indemnification Statute.