We hope you enjoy Bernstein Shur’s first edition of The Construction Advantage. This newsletter will provide you with insight into the current legal issues in construction, news and updates. We hope in this newsletter and those in the future to provide practical information for your everyday construction issues.
Faulty Workmanship and Defective Products – Covered By Insurance Or Not?
by Mike Bosse
Most contractors know that the availability of commercial liability coverage for construction defects is a shifting and complicated issue that the courts have wrestled with over the years, with varying and inconsistent outcomes. Many in the industry report that the majority rule is that there is no coverage for anything related to faulty work by a contractor, but the debate rages on. On December 3, 2013, a Pennsylvania appellate court went in the other direction and found an “occurrence” in the construction setting. In the case of Indalex v. National Union Fire Insurance Company of Pittsburgh, a Pennsylvania intermediate appellate court added a win in the column of those that argue that faulty workmanship, at least in some instances, can result in an “occurrence,” and thus provide insurance coverage under a commercial insurance liability policy.
In Indalex, homeowners in several lawsuits in multiple states claimed that windows and doors that had been defectively designed or manufactured resulted in water leakage that produced cracked walls and mold, among other damages. In overruling the trial court’s decision, and in distinguishing several prior Pennsylvania cases, the court held that property damage that resulted from the defective products constituted an occurrence under Indalex’s insurance policy. The court said that there existed “an off-the-shelf product that failed and allegedly caused property damage.” While the decision did not go so far as to conclude that any faulty workmanship would result in insurance coverage, it provided a cogent reminder that when a construction product or scope of work damages other work or items on a project, like a home, often the contractor can rightfully argue that insurance should cover at least some of the claimed damages.
This pro-insured holding provides another important reminder to everyone in the construction industry. When faced with a claim, you should err on the side of caution and report the claim to your insurance agent. Don’t assume there is no coverage. Failing to put an insurance carrier on notice based on the assumption that a claim for faulty workmanship or an underperforming product automatically will result in not having insurance coverage could result in having a judgment that could have been covered by insurance, but wasn’t due to lack of notice. Past experience of case law may not be the last word on the subject, and the pendulum may be shifting more towards contractors, away from insurance companies, and away from older cases that more consistently held that faulty workmanship in any form was not entitled to any insurance coverage. Insurance issues are complicated, and Bernstein Shur’s construction lawyers are well versed in the area and are available to assist you when needed, either in procuring your insurance, or in responding to a claim.
Supreme Court Enforces Forum Selection Clause In Construction Cases – Don’t End Up Somewhere You Don’t Want To Be!
by Asha Echeverria
When does a Maine subcontractor have to litigate a dispute over a Maine project with a Utah general contractor in Utah? When it contractually agrees to do so. On December 3, 2013, the United States Supreme Court unanimously ruled that a forum selection clause was valid and enforceable in the construction arena. In Atlantic Marine Constr. Co. v. U.S. Dist. Court for the W. Dist. of Tex., 571 U.S. ____, 134 S. Ct. 568 (2013), a Texas subcontractor, J-Crew Management, worked on a project for the Virginia-based Atlantic Marine Construction Co, involving the construction of a child development center in Fort Hood, in Texas. The contract between the parties contained a forum selection clause stating that all disputes “shall be litigated” in the federal court located in Norfolk, Virginia. When a payment dispute arose on the project, J-Crew sued Atlantic Marine in federal court in Texas, where it resided as a company and where the project was located. When Atlantic Marine sought to dismiss the lawsuit because of the forum selection clause, the Texas federal court denied the motion. The United States Supreme Court decided otherwise.
Writing for the court, Justice Alito enforced the forum selection clause through the doctrine of forum non conveniens. Justice Alito held that forum selection clauses should be given controlling weight and result in transfer to the preselected forum in all but the most exceptional circumstances where public interest factors weigh against a transfer. In essence, Justice Alito concluded that when parties in a construction contract bargain for a particular location where a dispute will be filed in court, the court will enforce the parties’ decision, even if it means that a Texas subcontractor will have to file suit in Virginia to resolve a dispute over a project in Texas. Whether it is convenient or inconvenient for the non-resident contractor does not matter at this stage, because the parties agreed to the particular forum in the contract and, in the court’s eyes, “waived the right” to challenge the decision. As the court said, when parties contract in advance to litigate disputes in a particular forum, courts will respect the decision, not second guess it, and “not unnecessarily disrupt the parties’ settled expectations.”
How does a Maine company avoid unwittingly agreeing to litigating a dispute over a Maine project in a faraway state or federal court? Be careful in reviewing and negotiating your contracts, and don’t enter into terms that can cause heartache down the road. This is all the more important as everyone in the construction industry rebounds from the recession by doing work in broader geographical areas. If a business decision is made to take the risk of litigation in state or federal court, make it a conscious business decision and manage the project accordingly by proactively trying to avoid disputes. Alternatively, you might want to put a forum selection clause in your own standard contracts. Bernstein Shur’s construction lawyers are ready and available to review your contracts, and to work with you to assess your risks or forum selection or any other clauses on your construction project.
Worksite Safety in 2014 by Meredith Eilers
In today’s increasingly competitive market and amid the growing pressure to finish projects ahead of schedule and under budget, it’s easy to let safety issues slide, despite the best of intentions. But injuries happen when you least expect it, and with ever increasing regulation, construction companies will need to remain vigilant about worker safety in 2014 and beyond. OSHA will be increasing its focus, and companies need to be prepared.
In OSHA’s newly reported statistics, nearly 20% of worker fatalities in private industry were in construction and the leading causes of death on construction sites were falls, followed by workers struck by objects, electrocuted, or caught in or between things on a worksite. Falls alone accounted for 36% of construction worker fatalities in 2012. Given the danger, it’s no surprise that fall protection is number one on OSHA’s 2013 list of the Top Ten Most Frequently Cited Violations:
1. Fall Protection
2. Hazard Communication
4. Respiratory Protection
5. Electrical: Wiring
6. Powered Industrial Trucks
9. Electrical: Systems Design
10. Machine Guarding
In fact, three of the top ten—fall protection, scaffolding, and ladders—are of particular importance to the construction industry, and each of these OSHA regulations has detailed standards for different construction projects. Going into 2014, contractors should check their safety standards against current OSHA regulations for these areas.