Cases of the Month
Significant Cases and Decisions Impacting the Construction Industry
By: Ira Genberg and Ryan Stinnett
1. Application of Eichleay Formula in Florida, Broward Country v. Brooks Builders, Inc., 908 So. 2d 536 (Fla. Ct. App. 2005).
* What the Court Considered: A government contractor hired to construct a fire station sued the county for breach of contract, alleging the owner delayed completion of the work. The contractor’s suit included a claim for home office overhead costs.
* What the Court Said: The contractor could not recover its home office costs because it could not show it was suspended in much, if not all, of the work.
* What the Opinion Means: Florida follows the federal approach to Eichleay damages. Recently, the federal approach has been modified to include as a prerequisite to the recovery of Eichleay damages a requirement that the contractor show it was effectively suspended in much, if not all, of its contract work. Here, the contractor’s principal had testified that “[w]e kept working the best we could.” Also, the contractor’s invoices showed that work continued during the delay period.
2. Favoritism Necessary to Challenge Contract Award, Capasso Restoration, Inc. v. City of New Haven, 870 A.2d 1184 (Conn. App. Ct. 2005).
* What the Court Considered: An invitation to bid on a public school project included the requirement that the price be quoted in terms of cubic feet. The bidder to whom the contract was awarded quoted a price in terms of square feet. A disappointed bidder challenged the award on the basis that the successful bid was nonconforming. Furthermore, the disappointed bidder claimed that its bid would have been the lowest had it expressed its price in terms of square feet rather than cubic feet.
* What the Court Said: The contract award was upheld because the disappointed bidder could not show favoritism in the award of the contract.
* What the Opinion Means: Under Connecticut law, an unsuccessful bidder has standing to challenge the award of a public contract only where fraud, corruption, or favoritism has influenced the conduct of the bidding officials or when the very object and integrity of the bidding process is defeated by their conduct. The facts as presented by the disappointed bidder were insufficient to show such favoritism.
3. Absolute Pollution Exclusion in CGL Policy, Part I, Quadrant Corp. v. Am. States Ins. Co., 110 P.3d 733 (Wash. 2005).
* What the Court Considered: The owners of an apartment building hired a restoration company to apply a waterproofing sealant to the surface of a deck. As a result of the company’s failure to properly ventilate the area, toxic fumes entered a tenant’s apartment, causing her to become ill. The company and the building owners settled the personal injury claim with the tenant and then sought to recover under the company’s commercial general liability (“CGL”) policy. The insurance company argued that the tenant’s claim was excluded by the absolute pollution exclusion clause, which excluded from coverage injuries arising out of the “discharge, dispersal, seepage, migration, release or escape of pollutants.”
* What the Court Said: Because the plain language of the exclusion encompasses the tenant’s injuries, the claim was excluded from coverage.
* What the Opinion Means: Insurance policies are construed as contracts pursuant to Washington law. Thus, if the policy language is clear and unambiguous, it is enforced as written. Here, the policy clearly excluded injuries arising out of the escape of a gaseous irritant.
4. Absolute Pollution Exclusion in CGL Policy, Part II, Nav-Its, Inc. v. Selective Ins. Co., 869 A.2d 929 (N.J. 2005).
* What the Court Considered: A subcontractor was hired to perform painting, coating, and floor sealing work in a shopping center. A doctor, whose office was located in the facility, was exposed to the fumes from the sealant and became ill. The general contractor forwarded the personal injury claim to its insurance company, seeking defense and indemnification. The insurance company refused to provide coverage on the basis of the absolute pollution exclusion, which excluded coverage for injuries arising out of the “discharge, dispersal, seepage, migration, release or escape” of pollutants.
* What the Court Said: The insurance company was obligated to provide coverage because the exclusion applied only to traditional environmental pollution.
* What the Opinion Means: Under New Jersey law, if the language of an insurance policy is clear, it is interpreted as written. However, a policy’s exclusions must accord with New Jersey public policy and the objectively reasonable expectations of the insured. Here, the purpose of the pollution exclusion was to exclude traditional environmentally related damages. The exclusion was never intended to be read broadly enough so as to exclude claims arising from exposure to nontraditional pollution.
5. Jurisdiction of Pennsylvania Board of Claims, Pa. Dep’t of Gen. Servs. v. Bd. of Claims, 881 A.2d 14 (Pa. Commw. Ct. 2005).
* What the Court Considered: The Pennsylvania General Assembly allocated $139,955,759.48 for the construction of a prison. Many of the contractors hired to build the facility eventually filed claims totaling $16,577,950.22 with the Board of Claims. The Department of General Services (“DGS”) argued that the amount claimed by the contractors exceeded the remaining project balance of $39,989.29, and therefore the Board of Claims could only award each contractor its pro rata share of the remaining balance.
* What the Court Said: The Board of Claims has exclusive jurisdiction over claims arising out of Commonwealth contracts.
* What the Opinion Means: The Pennsylvania Constitution provides as follows: “No money shall be paid out of the treasury, except on appropriations made by law.” DGS argued that this provision limited any award by the Board of Claims to the amount of the remaining project balance. However, because the Board has exclusive jurisdiction over such claims, the court could not so limit the Board’s decision.
6. Expiration of a Contractor’s License During Construction, Kyle v. Williams, 98 S.W.3d 661 (Tenn. 2003).
* What the Court Considered: A contractor sued the owners of a new home for refusing to pay the balance due under the parties’ contract. The owners denied liability based on the contractor’s lack of a valid contractor’s license and its failure to properly construct the home. Although the contractor was licensed at the time of contract execution, its license had expired prior to completion.
* What the Court Said: The contractor was limited to a recovery of only those documented expenses which were proven by clear and convincing evidence.
* What the Opinion Means: Tennessee law requires that contractors be licensed throughout the entire construction process from contracting to completion. The contractor licensing statute was designed for the protection of the public. Accordingly, allowing an unlicensed contractor to recover in full on a contract, even if the contractor’s lack of license was unintentional, would defeat that public policy.
7. Statute of Repose as Bar to Recovery, Mair v. Trollhaugen Ski Resort, 699 N.W.2d 624 (Wis. Ct. App. 2005).
* What the Court Considered: While visiting a ski resort, a patron tripped on a recessed drain cover in a bathroom. The patron sued on both a negligence and a safe place claim, alleging that the drain should have been installed level with the floor. The ski resort was built in 1976 and the bathroom had not been remodeled since that time.
* What the Court Said: The Wisconsin statute of repose prevented recovery by the injured patron.
* What the Opinion Means: Wisconsin’s statute of repose bars claims for any injury arising out of a defect in design or construction ten years after completion. Because the faulty drain constituted a design defect, any injury claim brought more than ten years after completion was barred by the statute. The patron’s additional claim that the owner had an existing duty to provide a safe place of business was likewise barred because the owner had no notice of a problem with the drain.
8. “No Damage for Delay” Clause Bars Cost Overrun Recovery, Stelko Elec. v. Taylor Cmty. Sch., 826 N.E.2d 152 (Ind. Ct. App. 2005).
* What the Court Considered: A subcontractor was hired to perform the electrical work on a school remodeling project. The subcontractor experienced many problems, including design defects, interference from students, and equipment access problems. The school unilaterally accelerated the completion deadline and the subcontractor responded by increasing its manpower and finishing the project ahead of schedule. The subcontractor subsequently filed suit to recover its cost overruns, but the parties’ contract contained a “no damage for delay” clause.
* What the Court Said: The “no damage for delay” clause prevented the subcontractor from recovering its additional costs.
* What the Opinion Means: “No damage for delay” clauses are enforceable under Indiana law. Accordingly, the subcontractor’s available remedies were limited to an extension of time, rather than an increase in compensation.
9. “Qualified” Expert Testimony, Thompson v. Gordon, 356 Ill. App. 3d 447 (Ill. App. Ct. 2005).
* What the Court Considered: An injured motorist alleged that improper roadwork caused her automobile accident. The expert witness retained for trial by the administrator was not an Illinois-licensed engineer, and the defendant roadway designers moved to strike the expert’s affidavit on that basis.
* What the Court Said: Because licensure with the state is not required to render an expert opinion, the expert’s affidavit was admissible.
* What the Opinion Means: Under Illinois law, engineers must be licensed by the state to practice their craft. However, in rendering an expert opinion, expertise is determined by experience and qualifications, not by possession of a license.
10. Worker’s Compensation for Independent Contractors, Warner v. Potts, 2005 WL 995236 (Tenn. 2005).
* What the Court Considered: A construction worker sued the roofing company for which he had been working to recover worker’s compensation benefits after he fell off a roof. Prior to the accident, the worker had performed various jobs for the company as an independent contractor. However, immediately before the accident, the worker joined the company’s work crew and worked directly under the company’s direction.
* What the Court Said: Because an employer-employee relationship existed, the worker was entitled to worker’s compensation benefits.
* What the Opinion Means: The Tennessee Workers’ Compensation Act covers only employees. When determining whether an individual is an employee or an independent contractor, Tennessee courts consider the following: 1) the right to control the conduct of the work, 2) the right of termination, 3) the method of payment, 4) the freedom to select and hire helpers, and 5) the furnishing of tools and equipment. Each of these factors weighed in favor of a finding that the worker was an employee, rather than an independent contractor.
Ira Genberg is a Senior Partner at the Smith, Gambrell & Russell, LLP law firm in Atlanta, Georgia, and also General Counsel for Associated Owners & Developers (AOD), McLean, Virginia. Ryan Stinnett is an Associate at Smith, Gambrell, & Russell, LLP. For more information or if you have any questions, contact us at: firstname.lastname@example.org.