Contractors: You Must Timely File Notice of Claims with Your CGL Carrier
Sheehan Constr. Co. v. Continental Casualty Co., 938 N.E. 2d 685 (Dec. 2010).
A contractor failed to provide its CGL insurance company with notice of claims against it for over two years. The underlying claims were based on construction defects by the contractor’s subs. The insurance company refused to tender coverage based on prejudice for the untimely notice. The court sided with the carrier and held that although the underlying claims may have warranted coverage by the carrier, failure to provide timely notice was fatal to the contractor. There was no need for the carrier to prove it was actually harmed because the contractor’s failure to notify allows the presumption of presumption of prejudice to arise in favor of the insurance company. That presumption then must be rebutted by the contractor (insured). Because the contractor failed to set forth any evidence that its failure to provide notice did not prejudice the carrier, the court held that the denial of coverage was appropriate.
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Recent SC Case on Enforceability of Liquidated Damages
The South Carolina Court of Appeals in Erie Ins. Co. v. Winter Constr. Co., 393 S.C. 455, 713 S.E.2d 318 (Ct. App. 2011), held that the administrative burden provision in a Subcontract was enforceable. The provision provided:
If SUBCONTRACTOR fails to cure an event of default within seventy-two (72) hours after receipt of written notice of default by WINTER to SUBCONTRACTOR, WINTER may, without prejudice to any of [its] other rights or remedies, terminate the employment of SUBCONTRACTOR and [ . . .] WINTER shall be entitled to charge all reasonable costs incurred in this regard (including attorney[‘s] fees) plus an allowance for administrative burden equal to fifteen percent (15%) to the account of SUBCONTRACTOR.
The Subcontractor, Fountain Electric, agreed to each provision of the Subcontract and even initialed every page. Fountain Electric defaulted and Erie, its surety, made a demand against Winter for payment of remaining contract balances. Winter withheld $350,000 based on the administrative burden provision.
Erie filed suit against Winter for breach of contract. Erie argued that the liquidated damages provision is an unenforceable penalty and that it was entitled to attorney’s fees. The trial court granted Erie’s motion for summary judgment on the issue that the provision was unenforceable.
On appeal, the court reversed the trial court’s holding and determined that the provision was enforceable. The appellate court based its analysis on the test set forth in Tate v. LeMaster, 231 S.C. 429, 441, 99 S.E.2d 39, 45-6 (1957):
Implicit in the meaning of ‘liquidated damages’ is the idea of compensation; in that of ‘penalty,’ the idea of punishment. Thus, where the sum stipulated is reasonably intended by the parties as the predetermined measure of compensation for actual damages that might be sustained by reason of nonperformance, the stipulation is for liquidated damages; and where the stipulation is not based upon actual damages in the contemplation of the parties, but is intended to provide punishment for breach of the contract, the sum stipulated is a penalty.
The court determined that the provision of the subcontract was clearly meant to compensate Winter for administrative costs in the event that Erie failed to complete the work on time. The court held that it would be impossible to determine the actual and consequential damages resulting from a subcontractor default, so a liquidated damages provision was appropriate. The sliding scale approach of the administrative burden clause was a “reasonable and fair liquidated damages provision.” In light of both contract interpretation and public policy the court upheld the provision as enforceable.
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Limited Home Warranty Waived Implied Warranty of Habitability
Jones v. Centex Homes, 189 Ohio App. 3d 668 (2010).
The Joneses entered into a sales agreement with Centex Homes for the construction of a new home. The agreement included a Limited Home Warranty provision covering defects in materials and workmanship. The provision also contained a clause purporting to waive any and all express or implied warranties of habitability or fitness.
Under the law in most states, a new homebuilder impliedly warrants to a purchaser that the home is structurally safe and free from defects. In some states, it is incredibly difficult if not impossible to disclaim this warranty. However, both the trial court and court of appeals in this Ohio case found that the buyers contractually waived their claims by virtue of the Limited Home Warranty.
The court of appeals seemed to place great emphasis on the fact that the Joneses were in their 30s and 40s and made the conscious decision to enter into this agreement without the aid of an attorney. The court relied on basic contract principles of freedom of contract and the presumption that a party reads what he signs. The court also noted that although the Limited Home Warranty provision was not emphasized in the contract, it was also not hidden or in small font. Because the language was clear and unambiguous and because the parties voluntarily entered into the agreement, the court upheld the waiver as the homebuyers' exclusive remedy.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
SC Court of Appeals Reduces Punitive Damages Award in Construction Case
Hollis v. Stonington Dev. LLC, No. 4869, 2011 S.C. Ct. App. LEXIS 215 (Aug. 17, 2011).
Two families sued a development company for damages to their jointly owned property. The Plaintiffs' land includes two man made ponds built by family members over 50 years ago. Stonington purchased land upstream from the property to build a residential subdivision. The Plaintiffs alleged that as a result of the project, they experienced severe flooding, were hindered from accessing their homes, and their ponds were raised four feet due to sediment deposits. The cost to restore the Plaintiffs' property was estimated at $250,000.
The Plaintiffs further claimed that the Defendant Stonington violated state and local laws concerning erosion control and runoff, disregarded engineer recommendations, and misled them about its remediation plans.
At trial, the jury returned a verdict for the Plaintiffs in the amount of $400,000 in actual damages and $3.5 million in punitive damages. Punitive damages are awarded when the conduct of the defendant is particularly egregious. Stonington appealed this verdict to the SC Court of Appeals, where the punitive damages amount was reduced to $2 million.
The appellate court noted that it has the authority to set an upper limit range for punitive damages while still giving deference to the jury's determination. In determining whether a punitive damage award is excessive, courts look to the degree of reprehensibility of the defendant's conduct, the ratio of compensatory damages awarded, and a comparison of the punitive damages awarded for similar misconduct.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
LLC Members are not Protected from all Liability
Sturm v. Harb Development, 298 Conn. 124, 2 A.3d 859 (2010).
Members of limited liability companies may be surprised to know that they can be sued individually when they personally direct or participate in tortious conduct. This is not the same as piercing the corporate veil, and does not require the plaintiff to allege facts to show that the corporate veil should be pierced.
In this case, a homeowner sued a contractor for breach of contract, negligence, fraud, and negligent misrepresentation in connection with the construction of a new home. The trial court held that the plaintiff failed to allege facts sufficient to pierce the corporate veil, so the contractor could not be held personally liable. On appeal, the plaintiff homeowner argued that piercing the veil was unnecessary because he was asserting liability against the defendant based on his individual actions, not trying to hold the contractor vicariously liable for the actions of the LLC. The court determined that a member of an LLC is not liable for the actions of the LLC merely because of his position within the company. However, when the member personally directs or participates in tortious conduct, he cannot hide behind the corporate shield.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Sub Lulled into Believing Contractor Would Pay
The statute of limitations tolled on a subcontractor awaiting payment from a general contractor. Usually this would bar the sub's claims, however, the court in this case held that the GC made promises to the sub that payment was forthcoming from the owner. The GC also encouraged the sub to hold off on filing suit so the two could assert a united front against the owner. The court held that under these circumstances, it was reasonable for the sub to rely on the GC's promises of payment and the statute of limitations should not bar the sub's recovery.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Liquidated Damages Upheld Unless Extraordinarily Disproportionate
Weis Builders, Inc., 2010 ASBCA No. 56306, LEXIS 13 (Feb. 17, 2010).
The U.S. Army Corps of Engineers awarded Weis Builders, Inc. a design/build contract for family housing at Minot AFB in North Dakota valued at $350 million. The liquidated damages provision of the contract and both disputed task orders stated that failure to complete the work on schedule would result in $2,400/day until the work was completed or accepted plus $35/day for each incomplete house.
Weis failed to complete both task orders on time, which resulted in a total $1.3 million in liquidated damages. Weis argued that the provision was unenforceable because the government's actual damages were less than $1.3 million and that the late turnover requirement was ambiguous. Both the contracting officer and the Armed Services Board of Appeals denied Weis's claim.
Liquidated damages provisions will be upheld unless they are extraordinarily disproportionate to the actual damages suffered, thus penalizing the breaching party. The difficulty lies in actually proving that the liquidated damages are extraordinarily disproportionate, especially in government contracts where it is hard to predict at the outset what damages the government will suffer if the contract is breached.
In this case, the liquidated damages were tied to reasonable estimates of the government's predicted losses in the event that the construction was not completed on time. $2,400/day was an adequate measure of the administrative costs and personnel costs that the government could have been expected to spend, and the $35/day was based on the need for housing military families in hotels until the construction was complete. The Appeals Board also determined that the government need not prove the exact measure of calculation of liquidated damages so long as they were based on reasonable estimates.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
Negligent Bid Recommendation
Sunland Constr. Co. v. Wilbur Smith, Inc., 387 F. App'x 361 (4th Cir. 2010).
In this recent Fourth Circuit case, a construction company sued the city of Myrtle Beach for breach of contract after the City terminated its contract to install rainwater pipes. The construction company also sued the project's design engineer. The City filed a counterclaim against the construction company and the engineer. The district court held that the design engineer was liable to the City, but dismissed the other claims. The design engineer appealed this judgment to the circuit court of appeals.
The facts of this case are simple: the engineer was to recommend a contractor for the job following a competitive bidding. The engineer recommended a contractor that bid drastically less than the other bidders. The court held that the City had a right to rely on the engineer's recommendation, which the engineer should have foreseen. Likewise, the engineer should have foreseen that the contractor bidding substantially less than its competitors would not reasonably be able to perform under the contract.
The court determined that the engineer was liable to the City for its negligent recommendation because the engineer had a duty to make a reasonable recommendation, breached that duty by negligently recommending the dramatically low bidder, and this recommendation was a foreseeable contributing cause of the City's injuries. Based on this finding, the court affirmed the district court's holding.
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
DOL Heat Illness Campaign
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North Myrtle Beach Condo Scam
Here's a link to TheSunNews.com article for the full story:
This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.
