Cases of the Month
Significant Cases and Decisions Impacting the Construction Industry
By: Ira Genberg and Claiborne Smith
1. Notwithstanding Architect’s Failure to Certify Substantial Completion Under an AIA Contract, Final Payment by Settlement Agreement Triggers Initiation of Statute of Limitations Period, Ferrante Immobiliare, LLC v. Pace, 68 A.D.3d 463 (N.Y. App. Div. 2009).
* What the Court Considered: In the owner’s original complaint against the architect, the owner alleged that the contractor had “completed the Project.” When the owner amended the complaint to include the contractor, a potential problem concerning the statute of limitations problem arose as to the claim against the contractor. In order to avoid dismissal of its claims, the owner argued that the statute of limitations never commenced running because the architect never certified that the contractor substantially completed its work as required by the contract.
* What the Court Said: The Court rejected the owner’s argument, and found that a settlement agreement that included “final payment” of $13,500 marked the latest possible date from which negligence and breach of contract claims could run. The Court accordingly found that the owner’s negligence was time barred.
* What the Opinion Means: Under an AIA contract, an owner can waive the protection of an architect’s certification of substantial completion through its actions. Disbursing final payment will start the statute of limitations on claims arising from the construction project.
2. Unresponsive Bidder Not Entitled to Temporary Injunction Even if it Submitted the Lowest Bid, American Engineering & Development Corp. v. Highland Beach, 20 So. 3d 1000 (Fla. Dist. Ct. App. 2009).
* What the Court Considered: A contractor submitted the lowest bid on a public project for the town of Highland Beach. Highland Beach determined that the low bid did not meet the bid specifications and therefore awarded the contract to the second lowest bidder, who had a qualified and responsive bid.
* What the Court Said: The Court stated that Florida Statute 255.20(1)(d)(1) allows for a municipality to reject the low bid, if it is from a non-responsive bidder, and award the contact to a qualified, responsive bidder.
* What the Opinion Means: Responsiveness to a bid invitation is as important in securing award of the contract as price.
3. Contractor’s CGL Insurance Provides Coverage for a Subcontractor’s Negligent Construction, Architex Association, Inc. v. Scottsdale Insurance Co., 27 So. 3d 1148 (Miss 2010).
* What the Court Considered: The Court looked at whether a subcontractor’s defective construction constituted an occurrence triggering coverage under its CGL policy. The insurer, Scottsdale, contended that coverage was not triggered because the damages caused by a subcontractor’s failure to install rebar was not accidental nor was the subcontractor’s other defective work accidental, but were rather intentional actions.
* What the Court Said: The Court, looking at the insurance policy’s language, determined that the trial court erred in finding that the subcontractor’s negligence is not an accident and, therefore, was not covered under the contractor’s CGL policy. Indeed, the Court found that the policy unambiguously extended coverage to property damage resulting from negligent acts of a subcontractor.
* What the Opinion Means: In Mississippi, a contractor’s CGL coverage will extend to property damage caused by a subcontractor’s negligence provided the policy does not explicitly exclude such coverage.
4. When an Owner Insures Non-Work Property by an Endorsement Under an Existing Insurance Policy, the AIA Waiver of Subrogation May Not Apply to Non-Work Property, Copper Mountain, Inc. v. Industrial Systems, Inc., 208 P.3d 692 (Colo. 2009).
* What the Court Considered: The owner of a resort hired a contractor for renovations and entered into an AIA A201 – 1997 contract. In the course of the renovations, a welding subcontractor inadvertently started a fire, which damaged both the renovation work as well as other parts of the resort that were not subject to renovation work. The owner’s property insurance covered the loss and sued the contractor for subrogation. The trial court granted summary judgment to the contractor, finding that the owner waived its subrogation rights under the AIA contract by adding the endorsement to its existing property insurance policy that covered the property under construction.
* What the Court Said: A divided Supreme Court of Colorado reversed. The Court interpreted the AIA contract and determined that in order for an owner to waive its subrogation rights to non-work property it was necessary for it to obtain a separate insurance policy covering the work. Because the owner did not obtain a separate insurance policy, but instead added an endorsement to its existing property insurance, there was no waiver of subrogation rights as to non-work property.
* What the Opinion Means: It means that in Colorado form, whether a separate policy or an endorsement, controls over function, the scope of insurance coverage, in determining an owner’s subrogation rights under an AIA A201-1977 contract.
5. Blasting Subcontractor not Strictly Liable for Damages to Owner’s Property, Cemex, Inc. v. LMS Construction, Inc., No. 3:06CV-124-H, 2009 U.S. Dist. Lexis 89052 (W.D. KY Sept. 28, 2009).
* What the Court Considered: The owner of property contracted with a contractor for excavation and blasting work in the construction of a limestone processing facility. The contractor subcontracted the blasting portion of the work to a blasting subcontractor. The owner proceeded to file suit against the blasting subcontractor for damage to areas where the limestone processing facility was to be constructed. Specifically, the blasting created unstable rock walls, where the facility was to be built.
What the Court Said: The Court found that the subcontractor could not be held liable under a theory of strict liability as it was hired to specifically perform the work on the owner’s property and the damage was limited to said property.
* What the Opinion Means: When an owner enters into a blasting contract, it needs to carefully determine and allocate the risk of loss when entering into blasting contracts as strict liability may not apply to damages to their own property.
Ira Genberg is a Partner at Troutman Sanders LLP in Atlanta, Georgia, and is General Counsel for Associated Owners & Developers (AOD) in McLean, Virginia. Claiborne Smith is an Associate at Troutman Sanders LLP. For more information, or if you have any questions, contact us at firstname.lastname@example.org.