Archive for the ‘Litigation’ Category

Tropical Storm Lee – Prepare for Insurance Claims

On September 4, 2011 Author By Seth Smiley

Contractors and property owners should be very knowledgable of the claims process after a natural disaster. Over the Labor Day weekend the New Orleans metro area, along with southern Louisiana experienced high winds and double-digit rainfall totals due to Tropical Storm Lee.

Contractors who have equipment, property and unfinished work need to report any flood, wind or wind driven rain damage to your general liability insurer in a timely fashion so that you may collect reimbursement for damages sustained from this storm. Your insurer will assign a claims specialist to assess the damage and this person is who you will work with to obtain reimbursement. Be sure to read the policy to make sure you follow all the specific guidelines, otherwise your insurer may use this against you as an excuse not to timely pay up on the claim.

Homeowners in south Louisiana should be well versed in the drill of making claims against your homeowners insurance. This, too is a situation whereby you must read the policy to make sure you follow the set guidelines and timely file a proof of loss. If the insurance company does not value your damage to a level where you are satisfied, then you may want to hire a public/private adjuster by searching the Louisiana Dept of Insurance – Public Adjusters search or reaching out to an reputable firm such as Louisiana Adjusters. The final step is to hire an attorney to escalate your claim.

Due to Hurricanes Katrina and Gustav, firms like the Wolfe Law Group have valuable experience with handling these matters. The mere hiring of an attorney will escalate your claim to another level within the insurance hierarchy and depending on your claim, it may render more effective results.

Remember that you typically have 60 days to file a satisfactory proof of loss and you have one year to file suit against the insurer, both from the date of the loss.  It is important to take photographs and video if possible before clean up to maintain evidence of your loss. Another important tip is to keep good records of invoices and receipts of all work performed on your repair. The insured (contractor or property owner) has a duty to mitigate its damages, so do what you can to prevent damage from getting worse once the storm has passed.

Remember to consult with an attorney or your insurance agent when reviewing the terms of your policy. The policy is the set of rules by which you and the insurer operate when making claims. Do not fight for your claim alone against your insurance company, hire an an attorney who can help you navigate the claim as well as the reconstruction of your property in an efficient manner. Whether you are a contractor or a property owner, contact Seth Smiley with the Wolfe Law Group to discuss your Tropical Storm Lee claims so that you get the results you deserve.

Posted in:     Collections, Construction News, Damages, Insurance, Litigation  /  Tags: , , , , , , , , , , , , , ,   /   Leave a comment

Common Law Analysis – Pay-if-paid, Pay-when-paid & Liquidating Agreements in Construction Contracts

On August 9, 2011 Author By Seth Smiley

In a recent decision, Sloan & Company v. Liberty Mutual Insurance Company (“Sloan”), the US Court of Appeals for the Third Circuit has an in depth discussion regarding some technical yet very important clauses found within many construction contracts between general contractor, subcontractors, owner and the surety. Although the court interprets Pennsylvania law, these concepts are good to know for any jurisdiction.

Pay-If-Paid & Pay-When-Paid

The pay-if-paid discussion starts on page 9 and is defined as “a subcontractor gets paid by the general contractor only if the owner pays the general contractor for that subcontractor’s work.” The court goes on to next define pay-when-paid in contrast to the pay-if-paid. “[A] pay-when-paid clause does not establish a condition precedent, but merely creates a timing mechanism for the general contractor’s payment to the subcontractor.”

The basic difference here is pay-if-paid may never happen if the the owner does not pay the general contractor for the work performed by the subcontractor, in theory. But the pay-when-paid acts more as a timing mechanism for the general contractor to pay the subcontractor, regardless of what the owner has paid for.

Generally courts will look to the four corners of the contract between the parties to determine which way to interpret the meaning of the clause. The interesting part of this holding and a common practice in construction contracts is a clause which modifies the pay-if-paid clause to become a pay-when-paid and this was done here by eliminating the condition precedent after a stipulated amount of time.There are many reasons why this may be done but typically many subcontractors will not agree to an absolute pay-if-paid clause, as the end result can place too much of the risk of loss on the subcontractor. Click here for Daniel S. Brennan’s The Construction Contracts Book.

Liquidating Agreement

Another technical term that is not often discussed in construction, yet is present in many construction contracts is the mechanism know as a “liquidating agreement” Sloan pg 16. The Sloan court defines a liquidating agreement clause as a “process by which a general contractor may assert the claims of its subcontractors against the owner.” This is similar to subrogation in the insurance context. Do not confuse a liquidating agreement with liquidated damages. A liquidating agreement clause can act like a lien, in that it gives causes of action to the subcontractor against the owner where there is no privy of contract. Sloan pg 17.

“Liquidating agreements that enable pass-through claims, such as the one in the contract before us, can also serve to limit the subcontractor’s damages to the amount the contractor recovers from the owner. See Carl A. Calvert & Carl F. Ingwalson, Jr., Pass Through Claims and Liquidation Agreements, Constr. Lawyer, Oct. 1998, at 32, 33.” Sloan pg 18.

Conclusion

The end result here, is that typically the general contractor bears the risk of loss when the owner does not pay up, but they can use contractual mechanisms to lower that risk and allocate some of it to the subcontractors. Liquidating agreements and pay-if-paid/pay-when-paid clauses, carefully negotiated at the contract phase of construction projects can lead to limiting liability at the end of a project when things do no go as planned. In the Sloan holding, the general contractor did not bear all of the loss but was forced to pay its subs in a proportional manner to the work performed, keeping nothing for itself. Sloan pg 20. Prevent this from happening to your construction company by working through these clauses when forming your next contract.

Further reading: California Pay-if-paid Wm. R. Clarke v. Safeco Insurance (distinguished by other jurisdictions); Pay-when-paid. A google search of these terms will provide a wealth of information. Always consult with an attorney before negotiating contracts in the construction industry no matter how large or small the project.

Posted in:     Construction Contracts, Construction News, Damages, Federal, Insurance, Litigation, Payment Requirements, State & Federal Contracting  /  Tags: , , ,   /   1 Comment

Louisiana Supreme Court Decides Ebinger Case Proving The Law Can Be Unfair

On July 29, 2011 Author By Scott Wolfe Jr

On July 1, 2011, the Supreme Court of Louisiana decided a case, Charles Ebinger, et ux. v. Venus Construction Corporation, et al., that focused on the interpretation of La. R.S. 9:2772. This Louisiana statute has established a specific time limit of five years to bring an action against residential building contractors.  Here, the Supreme Court reversed the decision of the Third Circuit Court of Appeals, making it very clear where the law stands regarding this issue.

Let’s get our feet wet with the facts of the case to better understand the real issues and implications of this case.

The Ebinger family hired Venus Construction to build their home. Venus then hired Post-Tension Slabs, Inc. to supply the foundation. In 1997, the Ebingers moved into their home and obtained a certificate of occupancy. Six years later, the Ebingers decided to sue Venus for certain construction defects, like cracks in the wall, brick, and floors.

Before the case between the Ebingers and Venus was decided with finality by the court, Venus filed a “third-party demand” in 2006 seeking indemnification from Post-Tension. In other words, because Venus believed Post-Tension was partially responsible for these defects it was being sued for, Venus attempted to bring Post-Tension into the suit to share the potential liability if the court did end up ruling against it.

The real question that this case presents is two-fold: when does the time frame to sue under La. 9:2772 begin and does one always have the right to bring a cause of action against a residential building contractor within that time frame?

This court determined that the time frame for Venus’ third-party indemnification action against Post-Tension began when the Ebingers obtained a certificate of occupancy in 1997.

Which brings me to the second fold of this two-fold issue: one does not always have the right to a cause of action under this statute. Your right must be “vested.” Whether a right to take action is vested is contingent on the outcome of the original claim itself. At the time Venus’ attempted the third-party action against Post-Tension, the outcome of the Ebinger suit was not settled. And by the time that suit was settled, the five-year time period had passed. So, tough luck for Venus, as they are basically punished because the Louisiana court system can be so slow…

Two bottom lines here:

The five-year time period for actions involving construction defects by residential building contractors always begins when the building is first occupied, i.e. when the certificate of occupancy is obtained; but

Just because the time period starts to run does not mean that you, as a contractor being sued for defects, have a right to bring a third-party contractor into the same suit for indemnification; your right is established if and when the original case is settled against you.
Remembering these nuances as a residential building contractor can make all the difference when it comes to how much liability you will bear if you are ever sued for construction defects.

Posted in:     Litigation, Louisiana  /  Tags: , , , , ,   /   Leave a comment

Oregon Clarifies Statute of Limitations on Construction Breach of Contract Action As 6 Years…But Opens Door to Negligence Claims.

On November 23, 2010 Author By Scott Wolfe Jr

Two interesting decisions from the Oregon Courts of Appeals in 2008 and 2009 are indirectly related, and of interest to folks in the construction industry.

In the earlier decision, the Oregon court clarified the statute of limitations in a breach of contract claim for construct defects. Surprisingly, because of some ambiguity in two Oregon statutes, it has not been settled whether these suits were to be brought within 6 years from the date of breach, or ten.

The Court in Waxman v. Waxman & Associates, Inc. appears to have settled the rub, holding the claim must be brought within six years from the date of the breach – regardless of when the breach was or should have been discovered. 224 Or. App. 499, 198 P.3d 455 (Or. Ct. App. 2008).

Which leads us to a case the following year before the Oregon Court of Appeals, Abraham v. T. Henry Construction Inc., 230 Or. App. 564, 217 P.3d 212 (2009).

In this case, the plaintiffs brought suit against their contractors for breach of contract (defects) and negligence….8 years after the breach. As we just learned from the Waxman case, therefore, the breach of contract claims were prescribed, and the Abraham court found as such.

Interesting about this case, however, is that the negligence claims were allowed to proceed. This, despite application of the economic loss doctrine.

Typically, the economic loss doctrine will prohibit a tort claim between contracting parties when the claim arises out of a failure to perform contractual obligations. In other words, since negligence is a duty/care claim, one party must breach a standard of care….not simply a contractual obligation.

The plaintiffs in Abraham argued, however, that the contractors had breached a standard of care because it had violated the Oregon Building Code.  The Oregon Court of Appeals agreed that the Oregon Building Code did create a standard of care, and allowed the claim of negligence to proceed.

Posted in:     Building Codes, Litigation, Oregon  /  Tags: , , ,   /   Leave a comment

Great Summary of Louisiana E-Discovery Developments

On November 16, 2010 Author By Scott Wolfe Jr

As a technology junkie, I’ve always had an interest in the development of E-Discovery.   The Louisiana Law Blog just posted an outstanding summary of recent e-Discovery developments in Louisiana federal courts.  It’s so impressive that I had to link to it from the Construction Law Monitor:  Recent Developments in E-Discovery in Louisiana.

E-Discovery is an important concept for our clients and those in the construction industry.   Everyone in the industry understands how much documentation and correspondence goes into every project.  So, think about all of this documentation and ask yourself:

How is that documentation created?   On a computer.   How is that correspondence sent?   By email.

The electronic nature of the way we do business and communicate is inescapable.   If a dispute arises and proceeds to litigation, the litigants ought be prepared to produce all of these emails and electronic documents in their native formats (i.e. not on paper!).

To give you a bit of background on the e-Discovery concept, I’ll give a brief explanation and point you to some great resources.

The Explanation:

The 2007 Louisiana legislature made a number of amendments to the Louisiana Rules of Civil Procedure that mirror contemporaneously-made amendments to the Federal Rules of Civil Procedure governing the production of electronic documents and files.   In large part, La. C.C.P. art 1462 governs the situation facing the parties today. Therein, art 1462(A) allows a party to specify in a requests “the form or forms in which information, including electronically stored information, is to be produced.”

If a specific form is not requested, La. C.C.P. art 1462(C) requires that parties shall produce ESI “in a form or forms in which it is ordinarily maintained or in a form or forms that are reasonably usable.

In jurisprudence regarding the FRCP language (substantially similar to Louisiana’s amendments), the form in which files are “ordinarily maintained” is commonly called ‘native format.” A “reasonably usable format” is not paper or PDF printouts of the electronic documents, as such an interpretation has been rejected by the courts. See White v. Graceland Coll. for Lifelong Learning, Inc., 2008 WL 3271924 (D. Kan. Aug 7 2008) (paper print out of PDF is not ‘reasonably usable format’ under FRCP).

In August 2007, the Louisiana Eastern District rejected an argument that the production of ESI in “native format” was overly burdensome. Auto Club Family Insurance Company v. Ahner. 2007 U.S. Dist. Lexis 63809 (E.D. La. 2007). In this case, Magistrate Wilkinson stated he will “not automatically assume that an undue burden or expense may arise simply because electronic evidence is involved.” The magistrate cited the seminal Zubulake decision in support of the observation that “Electronic evidence is frequently cheaper and easier to produce than paper evidence because it can be searched automatically, key words can be run for privilege checks, and the production can be made in electronic form obviating the need for mass photocopying.” Id. citing Zubulake v. USB Warburg, LLC, 217 F.R.D. 309 (S.D.N.Y. 2003).

A plain english definition of the term “native format” can be found on Wikipedia.

Great Resources:

Now, for the resources.   Here are two great places to go when you’re looking for information (or help with) e-Discovery issues:

  • Ernie the Attorney:   A Louisiana lawyer and friend of mine, Ernie has an impressive grasp on e-Discovery law and technology, as he is a leading expert in the country on how lawyers use or should use the PDF.   Check out his blog:  PDF For Lawyers.
  • K&L Gates E-Discovery Blog.   This is the best e-Discovery blog out there, and even has information specific to Louisiana (as well as all the other states).
Posted in:     Around The Web, Litigation  /  Tags: , , ,   /   Leave a comment
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