Cases of the Month
Significant Cases and Decisions Impacting the Construction Industry
By: Ira Genberg and Cory Menees
1. Contractor Cannot Contract for Indemnification Against Own Negligence, Kempski v. Toll Bros., Inc., 582 F. Supp. 2d 636 (D. Del. 2008).
* What the Court Considered: The terms of a contract between a residential builder and HVAC sub provided that the sub would indemnify the builder against all claims, including those resulting from the builder’s negligence. When one of the sub’s employees was injured on the job, he sued the sub, which in turn sued the builder. The sub sought summary judgment on the resulting indemnification claim brought by the builder, arguing that it had no obligation to indemnify the builder against its own negligence.
* What the Court Said: A sub cannot be contractually obligated to indemnify a contractor against the contractor’s own negligence.
* What the Opinion Means: In Delaware, indemnity clauses purporting to obligate subs to indemnify contractors against their own negligence are void as against public policy.
2. Contractual Limitation on Liability Held Not to Violate Arizona’s Anti-Indemnity Laws, 1800 Ocotillo, LLC v. WLB Group, Inc., 176 P.3d 33 (Ariz. 2008).
* What the Court Considered: A contract entered into with a surveyor limited the surveyor’s liability to damages resulting from its negligence. A plat prepared by the surveyor was discovered to contain a mistake, and the mistake prevented a developer who had relied on the plat from obtaining needed permits. The developer consequently sued the surveyor for breach of contract and professional negligence, arguing that the liability-limiting clause in the contract violated Arizona’s anti-indemnity statute.
* What the Court Said: The liability-limiting provision merely capped the surveyor’s liability. As the provision did not altogether shield the surveyor from liability for its negligence, it did not violate the state’s anti-indemnity statute.
* What the Opinion Means: In Arizona, liability-limiting provisions will be enforced provided they do not altogether eliminate parties’ liability for their own negligence. Liability-eliminating clauses will likely be held void as against public policy (and/or anti-indemnity statutes), as they allow the parties benefiting from such clauses to abdicate their duty of care.
3. Inclusion of Overhead and Profit in Lien Amount Held Not to Render Lien Fraudulent, Politano v. GPA Constr. Group, 2008 Fla. App. LEXIS 18495 (Fla. Ct. App. 2008).
* What the Court Considered: Following its termination by an owner, a contractor filed a lien against property to which it had supplied labor and materials. The contractor included overhead and profit in the lien amount. At trial, the court simply reduced the lien amount, finding that the inclusion of impermissible costs in the lien was “a result of mistake and not a willful exaggeration.” The owner appealed, claiming the lien was fraudulently exaggerated and void.
* What the Court Said: As the trial court found that the amount of the lien was not willfully exaggerated, the court did not abuse its discretion in refusing to void the lien.
* What the Opinion Means: While there was ultimately no consequence to GPA’s inclusion of impermissible amounts in the lien it filed, caution must be exercised to ensure that liens are filed in the correct amounts. Where the amount claimed in a lien can be shown to be excessive, for whatever reason, the lienor runs a serious risk that the lien will be ruled void.
4. Builder Successfully Asserts Statute of Repose as Defense to Suit Arising from Construction Activities, Gundogdu v. King, Mai, Inc., No. A120323 (Cal. App. Ct. 2009).
* What the Court Considered: A developer committed to make repairs to a house as a condition of its sale. After the home’s purchase, the developer failed to live up to its commitment. Nearly six years after the sale of the home, the homeowner sued the developer for negligence and breach of implied warranty. The developer asserted California’s ten-year statute of repose as a defense, noting that the house was constructed almost eleven years before the suit was filed. After the developer was granted summary judgment by the trial court, the homeowner appealed, claiming the suit was timely given that it was filed within ten years of the developer’s sale of the home to the homeowner.
* What the Court Said: The suit was untimely, as the statute of repose began to run upon the home’s substantial completion.
* What the Opinion Means: In California, a statutory provision providing that the statute of repose cannot be asserted as a defense by an owner of an improvement in certain cases (Cal. Code of Civ. Pro. § 337.17(e)) may not prevent builder-owners from asserting the statute as a defense where the cause of action arises from the builder’s construction activities, not activities related to the builder’s ownership of the property at issue.
5. Responsibility for Utility Protection Held to Be That of Designers and Developers, Opincar v. F.J. Spanulo Constr., 2008 Ohio 6286 (Ohio 2008).
* What the Court Considered: A homeowner decided to serve as its own GC on a home-addition project and hired a contractor to work on the project. After the addition was completed, the homeowner learned that it was constructed over a natural gas pipeline and would have to be demolished. After demolishing the addition, the homeowner sued the contractor for negligence and breach of contract, claiming the contractor had failed to locate utilities and continued work after learning of the pipeline’s location.
* What the Court Said: Under Ohio law, the responsibility for protecting utilities belongs to designers and developers – including GCs. As the owners had assumed the role of GC, the responsibility for locating utilities was theirs.
* What the Opinion Means: In Ohio – and many other jurisdictions – certain parties have a non-delegable duty to locate and protect utilities. In Ohio, the duty generally falls to those with responsibility for determining the location of improvements.
Ira Genberg is a Partner at Troutman Sanders LLP in Atlanta, Georgia, and is General Counsel for Associated Owners & Developers (AOD) in McLean, Virginia. Cory Menees is an Associate at Troutman Sanders LLP. For more information, or if you have any questions, contact us at firstname.lastname@example.org.