Saturday, March 17, 2018

Substantial Completion or Final Acceptance? 11th Circuit Rules Statute of Limitations had Run on Supplier's Bond Claim

The timing of bond claims is the focus of the dispute in Devin Strickland v. Arch Insurance Company which was recently ruled upon by the Eleventh Circuit Court of Appeals. The plaintiff was Devin Strickland (Strickland), a supplier of sand to Douglas Asphalt Paving Company (Douglas) on a Georgia Department of Transportation (GDOT) road improvement project.  Douglas held a contract with the GDOT that included GDOT’s standard specifications which required: 1) the Contractor to provide repairs to the work until final written acceptance by GDOT; and 2) furnish documentation of payment to all material suppliers. Defendant Arch issued a payment bond to Douglas in 2003.  In 2007, the GDOT found Douglas to be in default and terminated its contract thus forcing Arch to hire a third party to complete the balance of the work.  Strickland did not provide any materials for the project after Douglas was terminated.

GDOT determined the work was substantially complete in August of 2010 and the following month a final inspection was performed which generated a punchlist for the third-party contractor to complete. The punchlist was completed in September of 2011 and Arch requested GDOT accept the project for maintenance citing the project had been 1) open to unrestricted traffic; 2) punchlist items were complete; and 3) all outstanding payments had been settled.  In February 2012, an area GDOT engineer requested that GDOT accept maintenance responsibilities which was granted in March 2012 retroactively to September of 2011.  Arch received semi-final payment in July of 2012.

In September 2012, Strickland sent a demand letter to Arch on Douglas’s payment bond.  Arch acknowledged the claim and requested further documentation which went unanswered by Strickland.  In 2014, Strickland learned from a GDOT engineer that the project was about to be closed and it needed to file any claims immediately, which Strickland did in August of 2014.  In September of 2014, GDOT issued its letter of final acceptance stating the project had been accepted since April 2012.

At trial, the court granted summary judgement for Arch due to Georgia’s one year statute of limitations having run on Strickland’s bond claim.  Strickland appealed.

The Court of Appeals began its analysis by pointing to the Georgia statute that states “[n]o action can be instituted on payment bonds or security deposits after one year from the completion of the contract and the acceptance of the public works construction by the proper public authorities.” O.C.G.A. § 13-10-65.  Additionally, the Court defined the start of the one-year period as “[commencing] at the completion of the actual construction work and acceptance thereof by the public authority.” U.S.F. & G. Co. v. Rome Concrete Pipe Co., 353 S.E.2d 15, 16 (1987)

Strickland presented three arguments to the Court.  The first was that the project was not completed until 2014 because GDOT’s standard specification contained language that a contractor had a repair requirement until final written acceptance of the work, which happened in September of 2014. Strickland’s second argument was that a genuine dispute of material existed due to the GDOT engineer’s email to Strickland that stated the project had “not received final acceptance and approval.” Finally, Strickland argued that the statute of limitations had not run on the payment bond and it remained in “full force and effect” until every supplier on the project was paid by the contractor.  The Court rejected each of these arguments.

Strickland’s first argument was rejected by the Court because it determined the project was substantially completed in 2010 when Arch requested GDOT’s final inspection and when the punch list items were completed in September 2011.  By any interpretation of Georgia’s definition of project completion, Strickland was outside of the one year statute of limitations when it filed its bond claim.

The Court further ruled that the GDOT engineer’s email to Strickland in 2014 stated the project had not received final acceptance and approval, but the engineer was only referencing final “written final acceptance.”  The two year gap between Archer’s semi-final payment in 2012 and final acceptance in 2014 was explained by GDOT because it was awaiting and processing test results before it could complete the project, a GDOT administrative function.  Georgia’s definition of completion of “actual construction work” does not rely upon such administrative functions.

Finally, Strickland’s third argument that the statute of limitations on the bond had not run because it had not been paid was rejected by Court.  The Court found that such an interpretation would make a statute of limitation meaningless because the limitations period would never start running so long as a supplier had not been paid.

The Court affirmed the lower court’s ruling that the statute of limitations had run on Strickland’s bond claims.

The author, Brendan Carter, is a contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA.  He may be contacted at 781.786.8916 or

Saturday, February 24, 2018

Pay-if-Paid Enforced Opening Door to Subcontractor Claim Against Owner
In Superior Steel, Inc. v. Ascent at Roebling's Bridge, LLC, No. 2015-SC-000204-DG, 2017 WL 6380218 (Ky. Dec. 14, 2017), a subcontractor and a sub-subcontractor sued the general contractor and owner for the failure to pay for extra work. The general contractor and owner cross-claimed against the other for, inter alia, indemnification.  At the jury trial, the subcontractors recovered under theories of implied contract and unjust enrichment.  All parties appealed, in particular, as to the pay-if-paid jury instruction. The Court of Appeals vacated the judgment and remanded.  In turn, all parties petitioned to the Supreme Court of Kentucky.
The key questions in the petition were whether the pay-if-paid provision was enforceable as between the general contractor and subcontractors and, if so, whether the subcontractors could pursue the owner directly for payment notwithstanding the lack of privity between owner and subcontractors.
The Supreme Court concluded that, as a result of the pay-if-paid clause, the general contractor had not breached subcontract for the failure to pay for the subcontractor's extra work.  The relevant subcontract provisions stated:
  • "no compensation . . . for any claim arising out of the performance of this Subcontract, unless the Contractor has collected corresponding additional compensation from the owner, or other party involved"
  • And more directly - "payment [to] the Contractor from the Owner for the Subcontractor Work is a condition precedent to payment by the Contractor to Subcontractor. The Subcontractor hereby acknowledges that it relied on the credit of the Owner, not the Contractor for payment of the Subcontract Work."
Reading these together, the Supreme Court agreed that the general contractor's receipt of payment from owner was a condition precedent to its obligation to pay the subcontractors.  Because the general contractor did not receive payment from the owner, there could be no breach. The Court did note that "pay-if-paid clauses have fallen out of favor in some states, [but] the prohibition against their use has come from the legislature rather than the courts." In Kentucky, no such statutory prohibition existed.
However, because the subcontractors were left with no useful contract remedy against general contractor, the Court held that the subcontractors were not barred from bringing unjust enrichment claims against the owner.  The Court acknowledged that typically “unjust enrichment is unavailable when the terms of an express contract control.”  But noted that, here, the "adequacy" of a "legal remedy" (or the "actual realization of that contractual remedy") was absent due to the "contractual gridlock" caused by the owner.  Indeed, if the contract was the only avenue for the subcontractors to obtain relief, that result would allow the owner to take advantage of its own failure to pay after receiving "a substantial benefit" from the subcontractors' work.
The author, Katharine Kohm, Esq. is a committee member for The Dispute Resolver.  She practices construction law at Pierce Atwood, LLP in Providence, Rhode Island. 

Friday, February 16, 2018

Its Good to be the King: GA County Avoids Payment on Thirty Open Change Orders by Claiming Sovereign Immunity

Fulton County, Georgia (County) entered into a contract with SOCO Construction Company, Inc. (SOCO) in 2013 to construct the Aviation Community Cultural Center.  The contract contained a performance period of 287 days from NTP or the start of the work, whichever came first.  The contract’s general conditions provided that changes in the performance period could be made due to changes in the scope of work, or delay events not the responsibility of SOCO. The specific change language required that, “the Contract Sum and the Contract Time may be changed only by approved Change Order pursuant to Fulton County Procedure 800-6…”

Fulton County Procedure 800-6 (800-6) requires that a change orders be a clearly defined “written, bilateral agreement” between the County and the Contractor.  800-6 allows for change orders for design deficiencies, unforeseen conditions, abnormal inclement weather, or owner directed changes to the work.  Additionally, 800-6 provides for “Extraordinary Circumstances” where the County Manager may execute change orders before the Board of Commissioners can act in the event of “delay to the critical path schedule.”

SCCO began construction of the project on May 29, 2013 and achieved substantial completion a year later on May 29, 2014.  SCCO claims that it could not achieve the performance period due to adverse weather, design driven delays, the untimely processing of change orders, and a federal government shutdown that impacted certain permits. As a result of these issues, the County’s program manager logged thirty change orders in its change log as of September 2014.  SCCO was not able to provide bilaterally executed copies of the open change orders and admitted than no extension of time had been given by the County.  Final retainage was withheld on the contract until January 2015 and an official Certificate of Substantial Completion was not issued until February 2015.  As a result, SOCO filed suit against the County for breach of contract and bad faith.

The County filed a motion for summary judgement which stated the court lacked subject matter jurisdiction due to sovereign immunity which the lower court rejected.  The County then appealed stating that although sovereign immunity may not apply to breach of contract actions, it was not waived for actions stemming from failure to follow change order procedures outlined within a contract.

To begin its analysis, the Court quoted the Georgia Constitution which states sovereign immunity is, “is hereby waived as to any action ex contractu for the breach of any written contract…” and “sovereign immunity of the [S]tate and its departments and agencies can only be waived by an Act of the General Assembly…” The Court then stated that the contract contained specific provisions for both obtaining a written change order and a means to bypass those provisions in the event of “extraordinary circumstances.” The lower court’s reasoning for rejecting the County’s motion for summary judgment was that SCCO change orders were required to avoid delay to the project schedule’s critical path which would fall under the “extraordinary circumstances” provision.

The Court rejected the lower court’s reasoning by pointing to the fact that the “extraordinary circumstances” provisions requires, “at a minimum” five specific procedures be followed which include a detailed description of scope and cost for the change, approval of the Purchasing agent, approval of the County Manager, 60 days after approval the change it shall be placed in the consent agenda, and timely processing of all change orders.  Of the thirty open change orders claimed by SCCO, none of them followed any of the five procedures the Court found.  The Court then referred back to previous rulings where it found sovereign immunity cannot be waived by the County’s actions outside of the written contract which would apply “to evidence [that] shows any agreements to extend did not meet the written contract requirement set forth in the applicable statute and constitutional provision relating to the waiver of sovereign immunity.”

Accordingly, the Court found it could not create an exception to the constitutional waiver of sovereign immunity due to SCCO’s reliance of the County’s requests for change orders or upon the County’s course of conduct. The Court remanded the case for further consideration.


The author, Brendan Carter, is a contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA.  He may be contacted at 781.786.8916 or

Saturday, February 3, 2018

Signature Required: The Nuances in the Tennessee Uniform Arbitration Act (TUAA) in Residential Construction, Interstate Commerce and the Federal Arbitration Act (FAA)

By: I’Ashea Myles-Dihigo, Esq.

Arbitration continues to be the preferred method in the resolution of many construction dispute cases. Many residential general contractors and others working in the residential construction industry place a general arbitration agreement in their contracts in an effort to control the venue for dispute resolution. Because arbitration requires a written agreement, it is usually easier to  negotiate the terms of the arbitration before the dispute arises. Therefore, clients should be advised to give some attention to the language used when drafting such agreements to avoid costly disputes regarding the interpretation on the back end. Clients should also be advised to give attention to any state statutory schematics that may determine if a particular arbitration agreement is enforceable or not. So, what happens if you don’t want to arbitrate, or like many industry professionals, don’t pay attention to the paperwork? Do you still have to arbitrate, or can you force another party to do so?

The answer to those questions depends on the type of contract you are dealing with when it comes to residential construction. In Tennessee, Tennessee Code Annotated § 29-5-302 (a) governs arbitration agreements relative to residential construction. It states in pertinent part, “A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable save upon such grounds as exist at law or in equity for the revocation of any contract; provided, that for contracts relating to farm property, structures or goods, or to property and structures utilized as a residence of a party, the clause providing for arbitration shall be additionally signed or initialed by the parties.” Tenn. Code Ann. § 29-5- 302(a). The legislature in the state of Tennessee, as in many other states, intended to try to ensure that parties to a written contract understand full well that by entering into a [residential] contract, they are agreeing to resolve future disputes by arbitration and are waiving their right to pursue claims in state or federal court. Hubert, et al. v. Turnberry Homes, LLC, No. M2005-00955-COA-R3-CV, 2006 Tenn. App. LEXIS 648, *22 (Tenn. Ct. App. 2006).

In the case of Hubert, et al. v. Turnberry Homes, LLC, the Plaintiffs hired Turnberry Homes to construct a new house for them. Id. at *2. Once the construction was finished, they were dissatisfied with the work, and they sued the builder. Id. Turnberry filed a motion to compel arbitration and to stay the litigation pursuant to the FAA. Id. at *3. As a part of its motion, Turnberry filed an affidavit which identified various areas of interstate commerce that the building project touched. Id. The trial court ultimately denied Turnberry’s motion. Id. at *4.

When Turnberry appealed the ruling of the trial court, the Court of Appeals addressed the interplay between the FAA and TUAA. Under the TUAA, the legislature intended to provide a heightened duty requirement when seeking to enforce arbitration agreements relating to farm property, structures or goods, or to property and structures utilized as a residence of a party. Id. at *13-14. In those cases, the clause providing for arbitration shall be additionally signed or initialed by the parties. Id. However, the Court held that where the state has adopted the UAA's enforcement provision without modification, there was no conflict between the FAA and the state's arbitration act. Id. at *15. However, as in Tennessee, where the state legislature has placed additional restrictions on the enforcement of arbitration agreements that are not present in the FAA or the UAA, cases will arise where a state court will be required to enforce an agreement to arbitrate under the terms of the FAA but be prohibited from doing so under the state arbitration statute. Id. But Turnberry is distinguishable because it involved a purchase and sale agreement which, on its face, involves interstate commerce. What about other arbitration agreements in Tennessee that relate to farm property, structures or goods, or to property and structures utilized as a residence of a party but don’t touch interstate commerce?

The Court of Appeals took up this exact issue in Wells v. Tennessee Home Safe Inspections, LLC. In that case, Ms. Wells entered into a contract and an addendum to the contract which was an agreement to arbitrate as part of her home inspection contract with Tennessee Home Safe Inspections (THSI). Wells v. Tenn. Home Safe Inspections, LLC, No. M2008-00224-COA-R3-CV, 2008 Tenn. App. LEXIS 802, *1-2, (Tenn. Ct. App. 2008). Ms.Wells signed the addendum, and her realtor signed as well; however, no representative from THSI signed the addendum. Id. at *2. Ms. Wells sued THSI when she purchased a home and used THSI as the inspector because they failed to identify some issues with the home. Id. THSI filed a motion to compel arbitration in the Circuit Court. Id. When that motion was denied by the court, it appealed to the Court of Appeals. Id. The Court distinguished this case from Turnberry when it held that, “there is nothing in the record to suggest that the home inspection contract at issue involved interstate commerce.” Id. at *8. Where there is no conflict between the FAA and the UAA or state statute, the state’s statute will apply to the arbitration agreement. Turnberry, 2006 Tenn. App. LEXIS 648 at *15. Therefore, the Wells Court held that that home inspections do not involve interstate commerce, and the FAA did not apply. Wells, 2008 Tenn. App. LEXIS 802 at *8. Where the FAA does not apply to an arbitration agreement, the state statute does apply. Turnberry, 2006 Tenn. App. LEXIS 648 at *15. Therefore, the Wells Court held that the heightened duty requirements set forth in Tennessee Code Annotated § 29-5-302(a) require that in contracts involving a party's residence, the arbitration clause must be "additionally signed or initialed by the parties." Wells 2008 Tenn. App. LEXIS 802 at *6. Because THSI failed to sign the arbitration agreement with Ms. Wells, the arbitration agreement was unenforceable and Ms. Wells did not have to submit to arbitration. Id. at *9.

Therefore, for those who want to make the most of the arbitration process, it is critically important for the client to know the type of contract that they are dealing with and what the statutes in your specific state say about enforcement. In Tennessee, the law is clear, the FAA will apply to purchase agreements involving interstate commerce, but in other agreements, that do not involve interstate commerce, the TUAA’s heightened duty requirements will apply to certain agreements involving residences…so to be on the safe side, make sure to have everyone sign the arbitration agreement.

Wednesday, January 24, 2018

Midwinter Meeting - D1 Breakfast Program - Getting it Right Early: Expert Retention Best Practices

It's no secret that construction disputes frequently involve one or more expert witnesses on each side. Our Division 1 panel -- Joshua B. Levy of Husch Blackwell LLP and Bill Manginelli and Mary Jay Torres-Martin both from Trauner Consulting Services, Inc. -- offered some best practices for those expert engagements starting at the initial meeting through the expert's trial testimony.

Joshua Levy and Bill Manginelli

Using a creative presentation approach (and apropos for the upcoming 2018 Winter Olympics), Joshua, Bill, and Mary Jay set the scene for a dispute between Olympic Mechanical and Bobsled Contractors over the mechanical subcontractor's claimed costs for extra work and delay.  Joshua served as counsel for the defendant Bobsled Contractors and Bill was Bobsled's expert.  Over the course of three acts marshaled by Mary Jay, Joshua and Bill held mock meetings to discuss the claims, exchange of documentation, initial opinions, written reports, and preparation for depositions and trial. The pair offered important and practical reminders to ensure the expert testimony will meet the requirements of the rules of evidence and civil procedure.  As a coda to the presentation, Eric J. Meier also from Husch Blackwell LLP, played the opposing expert for Olympic and faced stiff cross-examination from Joshua.  This mock cross-examination illustrated the worst case scenario if best (or even good) practices for preparing experts are not followed.  

Saturday, January 20, 2018

Risky (shifting) Business: Pay-if-Paid Provision Enforced to Subcontractor's Detriment
In Baker Concrete Const., Inc. v. A. Pappajohn Co., No. FSTCV166028187S, 2017 WL 4106383, at *1 (Conn. Super. Ct. 2017), at issue was the age-old dispute of non-payment for work performed.

The Baker Court first recounted the direct avenues for collecting on a construction project when payment is not made in the regular course: "[A] mechanic's lien may be available, and in connection with public works projects, a payment bond is statutorily required given the unavailability of a mechanic's lien in such projects."   That said, "[d]epending upon the equity in the property . . . a mechanic's lien may be insufficient (especially if a project has been financed with a mortgage placed on the property as a first lien)." Even with these direct avenues along with filing suit, insolvency of the parties in the project chain can thwart any collection efforts of the lower tier contractors.  In addition, contractual language, for example a pay-if-paid provision, too can arrest an unpaid party's effort to be paid. The Baker Court considered the requirements for applying such provisions. In Baker, the general contractor-subcontractor contract stated, in pertinent part, that:
Progress payments to the Subcontractor for satisfactory performance of the Subcontractor's Work shall be made only to the extent of and no later than ten (10) working days after the receipt by the Contractor of payment from the Owner for the Subcontractor's Work. The Subcontractor agrees that the Contractor shall be under no obligation to pay the Subcontractor for any Work until the Contractor has been paid by the Owner . . . The Subcontractor expressly acknowledges and agrees that payments to it are contingent upon the Contractor receiving payments from the Owner.
By its plain language, this pay-if-paid provision appeared to foist all risk of the owner's potential insolvency onto the subcontractor.  For its part, the subcontractor argued that "the provision is a timing issue (or should be interpreted and applied as such) rather than a risk-shifting provision." In other words, notwithstanding that the general contractor was not paid by the owner in a reasonable period of time after the work was performed by the subcontractor, the subcontractor was still entitled to be paid.  The court disagreed.

After disposing of a burden of proof argument raised by the subcontractor, the Baker Court resolved the contract interpretation question. It examined the caselaw and observed that where the provision does not explicitly "creat[e] a condition precedent to payment" the courts will construe the provision as "setting the time of payment" rather than establishing a defense to payment. However here, the contingency was explicit and moreover the contract provision also put the risk of insolvency explicitly onto the subcontractor: "The Subcontractor expressly accepts the risk that it will not be paid for the Work performed by it if the Contractor, for whatever reason, is not paid by the owner for such Work. The Subcontractor states that it relies primarily for payment for Work performed on the credit and ability to pay off the Owner and not of the Contractor[.]"

In light of the foregoing the Baker Court held that there was no ambiguity in the terms and therefore the contract's pay-if-paid provision would be enforced as written.  The court summed up the reality of working in the construction industry (and frankly any industry): "It is clear that the defendant [contractor] took advantage of its superior bargaining position in this contract; the plaintiff [subcontractor], however, seemingly made a conscious decision to [get the job by] sign[ing] a contract containing this risk-assumption provision which, in these unfortunate circumstances, has come into play."

As an aside, observe that Connecticut's statutory prompt payment provisions do not preclude contractual pay-if-paid clauses. See Conn. Stat. 42-158i et seq.

The author, Katharine Kohm, Esq. is a committee member for The Dispute Resolver.  She is an associate at Pierce Atwood, LLP in Providence, Rhode Island. 

Sunday, January 14, 2018

Court Finds Arizona’s Prompt Payment Act does not Apply to Federal Projects in a Subcontractor Payment Dispute

In 2013, The National Park Service (NPS) contracted with Caymus Corporation (Caymus) in the amount of $292,300 to furnish and install road signs within the Grand Canyon National Park.  Caymus was prepared to furnish bonds for the project in accordance with the Miller Act, but the NPS told Caymus bonds were not required as it was services contract, not a construction contract.  Caymus then subcontracted the actual sign fabrication and installation activities to Zumar Industries (Zumar) in the amount of $92,793.  In March 2014, Zumar delivered sign panels to the jobsite and NPS immediately identified deficient and missing sign panels which lead to a multi-month discussion among the parties regarding the sign work.  On June 30, 2014, Caymus submitted a payment application to NPS where it certified the sign installation work was 100% complete.  Caymus issued $59,278 in payment to Zumar, withholding $35,632 pending satisfactory performance.  

In response to Caymus withholding its contract balance, Zumar entered into discussions with NPS to recover the funds, even proposing a series of joint-checks for work completed at one point.  Caymus would not agree to any payment terms unless Zumar warrantied the sign panels or NPS agreed to accept them as is.  In December 2014, NPS issued a punch list for the sign scope of work that included twenty-two signs in need of repair with an additional three that were missing.  Zumar completed the punch list work at a cost of $15,000. Earlier in September, Zumar filed the present breach of contract claim against Caymus, seeking $35,632 and prevailed in compulsory arbitration.  Caymus appealed and Zumar was awarded summary judgement for violations of state and federal prompt payment laws which constituted a material breach of the contract. Caymus again appealed.

The Court began its analysis by defining the purpose of the Arizona prompt payment act (PPA) as, “a framework for ensuring timely payments from the owner to the contractor and down the line to the subcontractors and suppliers whose work has been approved." Stonecreek Bld’g. Co., Inc. v. Shure, 216 Ariz. 36, 39, (App. 2007). The Court then presented the competing arguments. First, Caymus argued that federal agencies are not “owners” within the context of the PPA. Conversely, Zumar argued that the provisions of the PPA are not dependent on who the owner of a project is, but rather the PPA applies to the contractor-subcontractor relationship.  Furthermore, Zumar argued that the PPA does not impinge upon federal supremacy because “it does not regulate, compel, or otherwise apply to the federal government.” 

In its analysis, the Court examined the contractual relationship between Caymus and Zumar within the language of the PPA.  The Court found Caymus is a “contractor” because it has a "a direct contract with an owner to perform work under a construction contract” as the PPA defines.  Zumar is a subcontractor because it has a “"direct contract with a perform a portion of the work under a construction contract" as the PPA further defines.  The Court then presented the PPA’s definition of an “owner” as a “person; firm; partnership; corporation; association or other organization; or any combination of those previously listed.”  The Court points out that absent from the definition is “any form of government, government agency, or political subdivision.”  Against these definitions, the Court rejected Zumar’s argument that the PPA is a contractor-subcontractor based statute.  The Court found at the crux of the legislation is the owner-contractor contractual relationship and any payment responsibilities that may flow down from contractor to subcontractor, start with the owner-contractor relationship.  Accordingly, if the federal government cannot be an “owner” within the definition of the statute, then the statute is not applicable to lower tiers of contracts between contractors and subcontractors.  

The Court next found that Zumar was not entitled to summary judgment for its breach claim based upon the Federal Prompt Pay Act (FPPA).  The Court stated that the FPPA applies to federal construction projects and requires payment from contractor to subcontractor with seven days of payment from the government.  The Court pointed to the fact that the bond requirements of the Miller Act were not required by the NPA for the project, and as a result it was not a construction project.  Therefore, the FPPA was not applicable and summary judgment should not have been granted.

In conclusion, the Court reversed and remanded the trial court and awarded Caymus its costs and reasonable attorneys' fees.

The author, Brendan Carter, is a contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA.  He may be contacted at 781.786.8916 or

Saturday, December 23, 2017

Suit Up: Fla. Supreme Court Holds Statutory Defect Notice is a "Suit" Under CGL Policy
Recently, the 11th Circuit was presented with an appeal concerning a commercial general liability ("CGL") insurer's duty to defend a general contractor.  At issue was whether statutory-required notice from an owner to the general was a "suit" under the policy triggering the defense duty.

The 11th posed this certified question to the Florida Supreme Court:
Is the notice and repair process set forth in chapter 558, Florida Statutes, a “suit” within the meaning of the commercial general liability policy?
The Court, in Altman Contractors, Inc. v. Crum & Forster Specialty Ins. Co., No. SC16-1420, 2017 WL 6379535, at *1 (Fla. Dec. 14, 2017), answered yes, Chapter 558 defect notice is a suit for purposes of CGL coverage. As such there insurer had a duty to defend. The holding has potential implications for insurers in other states that subscribe to similar defect notice schemes or rights to repair. See, e.g., Cal. Civ. Code §§ 895 et seq.; Colo. Rev. Stat. § 13-20-801 et seq.; Tex. Prop. Code. Ann. §§ 27.001 et seq. There are upwards of 30 states nationwide.

First of all, what is Fla. Stat. chapter 558?  In Florida, before suit can be commenced by any owner claiming that a construction defect exists, the owner must follow a certain notice and response procedure. Basically the owner must give notice to the contractor or design professional of the alleged defect.  Then those receiving notice provide notice to any lower-tier subcontractors that may have responsibility for the defect in question and all recipients can respond to the owner.  If the owner does not receive adequate responses, it then can file suit.  The legislative findings specifically identified this process as an "alternative dispute resolution mechanism" such that the inspections involved and any findings or settlement offers made as a result of the inspections become inadmissible if there are future proceedings.

Under the CGL policy, the insurer has the "right and duty to defend the insured against any 'suit' seeking those damages [of personal or property damage]." The definition of a "suit" is a "civil proceeding in which damages . . . to which this insurance applies are alleged." It also includes "an arbitration proceeding . . . to which the insured must submit or does submit with our consent" or "any other alternative dispute resolution proceeding . . . to which the insured submits with our consent."

Therefore, the question was whether Fla. Stat. ch. 558 notice is a "suit."  The Court analogized the notice to "other alternative dispute resolution proceeding" (especially given the legislative history) and confirmed it was indeed a suit.  The issue of insurer "consent" was a hurdle that the Court did not need to cross in the decision.  The Court observed that "whether [the insurer] consented to [the general contractor's] participation in the chapter 558 process . . . is outside the scope of the certified question and an issue of fact disputed by the parties."

The author, Katharine Kohm, Esq. is a committee member for The Dispute Resolver.  She is an associate at Pierce Atwood, LLP in Providence, Rhode Island.  Katharine thanks Anthony Lehman, Esq. of Hudson Parrott Walker in Atlanta, Georgia for his input on this post.

Saturday, December 16, 2017

Are Your Punch Lists Signed Off and O&Ms Submitted? NJ Court Rules not Delivering all Closeout Items Could be a Basis for Withholding Final Payment for Over Two Years

General Contractor Wallace Brothers, Inc. (Wallace) entered into a contract with the East Brunswick Board of Education (Board) for the construction of the New Memorial School in the amount of $18,233,000.  During the course of the project, the Board paid Wallace a total of $19,713,664.11 through the change process. Even though the school had been in use by the Board for two years, it was holding a contract balance of $366,130.26 that it refused to issue to Wallace.  The Board claimed that it had issued several punch lists for Wallace to complete but were still outstanding.  Conversely, Wallace claimed that it did not receive a final punch list from the Board until this current action was initiated. The trial court granted summary judgment to Wallace finding that the Board had delayed the issuance of punch lists and then only provided punch lists full of maintenance related items wholly separate from the contract.  The Board appealed.

As there were numerous material facts disputed at trial, the Court began its analysis by reviewing some of the conflicted details.  At trial, the Board presented evidence that its architect issued two signed Certificates of Substantial Completion, one in November 2012 and another in October 2013.  In the certificates, the architect struck language from the forms that denoted a punch list was enclosed.  The architect claimed that the strike-through merely represented that the punch list was not attached. Wallace countered the strike-through language meant that construction was in fact complete. 

The Board further claimed Wallace was issued a punch list in April 2013, before litigation ensued in March 2014. That April 2013 punch list was referred to as the “Final Punch List” by the architect and it contained about 300 yet to be completed items.  Updates to this punch list were released in August 2013, October 2013, and November 2014.  Items that remained on the updates included:

“caulking all exposed steel, removing "stub conduit," touching up paint on a door frame, repairing a damaged wall, installing the vinyl base at a casework counter, removing paint from an entry frame, installing a "backer rod," patching bolts at a side-court basket, sanding and painting "hose bibbs," replacing crumbling grout, and installing concrete floor sealer.”

The trial court was not swayed by the Board’s argument on the April 2013 punch list or its contents stating that its items were “maintenance things that would occur in the ordinary course of using the premises, but basically it sounds like you're holding their money hostage to make them come and do repairs that they would not have been called upon to do.”

Notwithstanding the above, the Board additionally argued that the trial court had disregarded material disputes of fact such as the final payment balance contained almost $56,000 worth of back charges and approximately $170,000 of liens on the project.   Wallace’s contract required it to refund any lien amounts back to the Board.  The Board further stated it was within its rights to withhold the contract balance as the trial court ignored the fact that contractually required close out documents such as “proof of payment of all vendors, proof of insurance, subcontractor waivers, recorded drawings, proof of tests and inspections, and the maintenance package containing manufacturers' warranties” were never submitted by Wallace to the Board.  Finally, the Board pointed to the November 2014 punch list which denoted $163,890 worth of work remained and the architect had yet to issue its final Certification for Payment, which is a condition precedent for final release of all contract sums per Wallace’s contract.

Ultimately, the Court reversed and remanded finding that there were material facts in dispute as to whether Wallace fully completed the contract.

The author, Brendan Carter, is a contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA.  He may be contacted at 781.786.8916 or

Thursday, December 7, 2017

The early bird deadline to sign up for the Midwinter Meeting in Fort Myers, Florida, is tomorrow! This program, which is focused around issues particularly relevant to subcontractors, will be an excellent opportunity to hear the latest issues and trends that subcontractors across the country are dealing with. You can save $60 by signing up before the end of the day tomorrow. The brochure can be viewed at this link

The Division 1 practicum featuring Jason Rodgers-da Cruz, Joe Imperiale, Stuart Sobel, Terry Brookie, and Esther Mignanelli  is limited to 60 attendees and is going to be a great program.  The details are as follows:   

Wednesday, January 17, 2018
2:00 P.M - 5:00 P.M.
Young Lawyer Practicum

Construction cases are technical and complex matters that may not be easily understood by the Jury or even the Judge or Arbitrator. As construction trial lawyers, we must distill such technical and complex matters and present them in easily understood and relatable concepts. While we develop the case, we must also navigate the evidentiary and presentation issues that, as trial lawyers, routinely confront us. The practicum focuses on utilizing the fundamental building blocks to build your construction case whether prosecuting or defending one. Separate Registration Fee: $75 per person

Sponsored by: Division 1 - Litigation and Dispute Resolution, Young Lawyers Division, and the Forum Leadership Circle

Please sign up for the practicum and make your travel arrangements now to arrive in time for the practicum.

Montana Supreme Court Holds That a Waiver of Consequential Damages and a Partial Limitation of Liability in a Design Contract Are Not Contrary to Montana Law

Zirkelbach Constr., Inc. v. DOWL, LLC, 2017 Mont. Lexis 591 (Mont., Sept. 26, 2017)

In interpreting a state statute which makes contractual limitations on a party’s liability unenforceable in certain instances, the Supreme Court of Montana recently upheld the validity of a contract provision in a professional services agreement between a general contractor and a designer in which the parties waived consequential damages against each other and limited the liability of the designer to $50,000.00.

Zirkelbach Constr., Inc. (“Zirkelbach”) and DOWL, LLC (“DOWL”) entered into a professional services agreement (the “Agreement”), whereby DOWL agreed to provide design work to Zirkelbach, a general contractor, for the construction of a FedEx Ground facility in Billings, Montana.  The original contract price was $122,967, but was adjusted to approximately $665,000 after the parties made several addenda to the Agreement to account for additional services.
The Agreement contained a provision (the “limitation of liability clause”) – which the parties did not renegotiate when they modified the Agreement through addenda – in which the parties agreed to waive against each other “any and all claims for or entitlement to special, incidental, indirect, or consequential damages arising out of, or resulting from, or in any way related to the Project,” and also agreed that DOWL’s total liability to Zirkelbach under the Agreement “shall be limited to $50,000.”

After Zirkelbach brought suit against DOWL asserting claims of negligence and breach of contract in the amount of $1,218,197.93 for problems allegedly caused directly by DOWL’s design plans, DOWL filed a motion for partial summary judgment arguing that DOWL could not be liable to Zirkelbach in any amount exceeding $50,000 due to the limitation of liability clause. The District Court granted DOWL’s motion and Zirkelbach appealed.

On appeal, Zirkelbach argued that the limitation of liability clause was unenforceable as against public policy under Section 28-2-702, MCA, which provides:

All contracts that have for their object, directly or indirectly, to exempt anyone from responsibility for the person’s own fraud, for willful injury to the person or property of another, or for violation of law, whether willful or negligent, are against the policy of the law.

The Supreme Court disagreed.  In holding that the limitation of liability clause was valid under § 28-2-702, the Supreme Court emphasized the importance of the freedom of parties to mutually agree to the terms governing their private conduct, provided those terms do not conflict with public laws, and emphasized that Zirkelbach and DOWL were two experienced, sophisticated business entities with equal bargaining power.  The Court relied on case law in both Montana and California, which has an identical statute, in concluding that “it would be difficult to imagine a situation where a contract between relatively equal business entitles would be able to meet the required characteristics of a transaction that implicated public interest.”

Additionally, the Court noted that the limitation of liability clause only capped damages and did not exempt DOWL from all liability under the Agreement, as the Court had previously held that § 28-2-702, is not violated when business entities contractually limit liability, but do not eliminate liability entirely, or when a limitation of liability applies only to a narrow type of damages, but not all damages.  DOWL remained exposed to liability on the negligence claim asserted by Zirkelbach and for $50,000 under the Agreement.

Finally, the Court rejected Zirkelbach’s argument that the $50,000 limitation of liability indirectly exculpated DOWL from liability because it was a nominal amount compared to DOWL’s total adjusted fee.  The Court pointed out that the limitation was a much larger percentage of DOWL’s fee before the parties modified the Agreement to add additional services by addenda, and stressed that it would not “allow Zirkelbach to avoid a term of the contract simply because it [had] become more burdensome due to its own failure to renegotiate.”  Each time the Agreement was modified, Zirkelbach had an opportunity to renegotiate the cap on liability, but did not.

Accordingly, the Supreme Court affirmed the grant of summary judgment in DOWL’s favor.

The author, Emily D. Anderson, is an associate in the New York City office of the Pepper Hamilton Construction Practice Group.

Federal Court Holds That, Under Louisiana Law, a Contractor Need Not Show a Total Work Stoppage to Recover Extended Home Office Overhead Under Eichleay

Team Contrs., L.L.C. v. Waypoint NOLA, L.L.C., No. 16-1131, 2017 U.S. Dist. LEXIS 162172 (E.D. La. Oct. 2, 2017).

Waypoint NOLA (“Waypoint”) was the owner of a hotel construction project in New Orleans (the “Project”).  Waypoint contracted with Team Contractors (“Team”) to serve as the Project general contractor and HC Architecture (“HCA”) to serve as the Project architect.  HCA, in turn, subcontracted with KLG to prepare the mechanical, electrical, and plumbing (“MEP”) plans.
HCA delivered a complete set of specifications, including KLG’s MEP plans, to Team, and Team began work.  It was later discovered that the MEP plans did not comply with code requirements.  Team was forced to remove and reconstruct the MEP work before proceeding with its work as scheduled.

Team filed suit for breach of contract against Waypoint and for negligence against Waypoint, HCA, and KLG.  Team alleged it experienced delay and incurred damages when it was forced to remove and reconstruct the MEP work.  Its damages included extended home office overhead related to the delay.  Team’s expert used the Eichleay formula to calculate these damages.

In Louisiana, courts apply a three-prong test to determine if a claimant is entitled to recover damages under Eichleay:  First, the contractor must demonstrate that there was an unexcused delay. Second, the contractor must show that it incurred additional overhead expenses.  Third, the contractor must establish that it was required to remain “on standby” during the delay.  To show that it was “on standby,” a contractor must show (1) the delay was of an indefinite duration, (2) the contractor was required to return to work at full speed and immediately during the delay, and (3) most, if not all, of the contract work was suspended.

The Defendants filed a motion for summary judgment, arguing that Team could not recover damages under Eichleay, because there was no suspension or stoppage of the work.  In response, Team presented evidence that there was, at minimum, a “functional” stoppage of “all or most of the work performed” pursuant to the contract.

The District Court determined that Louisiana court decisions had not decided whether a “functional” work stoppage would satisfy Eichleay, and if so, what degree of work stoppage would be sufficient.  As such, the District Court was required to predict how the Louisiana Supreme Court would resolve the issue.  The District Court noted that the Louisiana courts which had decided the application of Eichleay had adopted the doctrine from the federal courts without alteration, and accordingly, federal analyses of this issue should weigh heavily in a prediction of what the Supreme Court of Louisiana would hold.

Because the federal courts applying Eichleay had held that a claimant need not show a total stoppage of work to recover extended overhead damages, the District Court held that it is sufficient, for purposes of establishing standby, if a contractor can demonstrate that work has stopped or significantly slowed.  Because Team had presented evidence of such a functional stoppage, the District Court denied the Defendants’ motion for summary judgment.

The author, Jane Fox Lehman, is an associate in the Pittsburgh, Pennsylvania office of the Pepper Hamilton Construction Practice Group. 

Tuesday, November 21, 2017

Make Sure Delay Claims are Timely and Discrete: MI Court Finds $3,000/Day Liquidated Damages are Enforceable on a Project 644 Days Late

In December of 2007, specialty contractor Abhe & Svboda, Inc. (ASI) entered into a contract with the Michigan Department of Transportation (MDOT) to clean and paint certain sections of the Mackinac Bridge in Michigan’s Upper Peninsula.   The contract required the work be completed by October 30, 2009 with a liquidated damages (LDs) provision of $3,000 per day for each calendar day of delay.  MDOT’s “Standard Specifications” were incorporated into the contract which contained a mechanism to request a time extension due to delays.  The provision required that a contractor submit a claim 14 days "following the end of the delay" or "following the end of the calendar month in which the delay occurred,” depending on if the delay was weather-related or for another reason.  

ASI began work on the painting project but missed the contractually required finish date with MDOT ultimately determining completion of the project on August 5, 2011.  Accordingly, MDOT assessed LDs for 644 days worth of delay.  During the course of construction, ASI contends that it and MDOT engaged in an ongoing dialogue that led it to believe, “MDOT would fairly and equitably address these issues at the end of the project.” ASI filed suit against MDOT claiming that LDs should not have been assessed in whole or in part because of MDOT’s own obstructionist actions and environmental conditions that were beyond ASI’s control.

At trial, ASI argued that 515 days were improperly assessed due to 56 days of delay being the result of MDOT’s failure to approve work task prerequisites in a timely manner, with a further 459 days of work being excusable due to: 1) site conditions being “substantially worse” than could have been anticipated; 2) additional stripe coating work outside of the original contract scope; and 3) the impossibility of working in the winter (even though winter work was allowed in the contract).  ASI also argued in the alternative that LDs should not be applied to the winter shutdown’s 362 days where MDOT could not have experienced any losses, or that LDs should be void as an unenforceable penalty for failing to be a good faith estimate of potential losses incurred.  The trial court ruled for MDOT finding that the LDs were not an unenforceable penalty and that ASI had not submitted a proper request for time extension in compliance with the contract documents, thereby waiving any right to relief.   ASI appealed the lower court’s ruling.

The Michigan Court of Appeals began its review with ASI’s assertion that the LDs were an unenforceable penalty which would make any assessment impermissible. In its argument, ASI pointed to a progress schedule it attached to the contract that explicitly identifies a “winter shutdown” of work activities. ASI contended that any calculation of LDs which included dates when work was not schedule to be performed was not an honest attempt to ascertain actual damages incurred.   The Court rejected ASI’s argument by pointing to the fact that MDOT’s damages were not based upon if work was completed on a specific day during the course of the project, but rather the impact of the total delay on MDOT’s organization. The Court stated:

“The implied logic behind plaintiff’s argument would suggest that if it had simply taken a day off work in the middle of an ordinary week, defendants would have suffered some kind of harm irrespective of the timeliness of the entire project. In fact, the opposite is true: the liquidated damages clause reflects the parties’ agreement that defendants would suffer harm if the project was incomplete after a certain date, irrespective of how or why it was incomplete.”
The Court ruled that the LD’s provision was not a penalty and was based upon MDOT’s administrative overhead for the project and concluded LDs were “clearly based on the total delay.”

The Court next reviewed ASI’s claim that MDOT’s inability to approve its scaffold plan in a timely manner caused a domino effect of other delays that resulted in the project’s late delivery.  The Court examined the term “delay” within the contract and Standard Specification and whether it refers to a discrete impediment to the work, or to the entire duration of the lateness of the project.  The Court concluded that “delay” “refers to individual, specific, discrete impediments to ongoing work.”  The Court pointed to the fact that the Standard Specification contemplates multiple delays occurring during the course of project.  The Court further muses that the only reasonable reading of the Specification would be after every individual and discreet occurrence of delay, the contractor would have 14 days after work resumes to submit a delay claim or a time extension request.  The Court found that ASI did not submit a credible request for an extension of time in accordance with the Standard Specification’s time frame and as a result waived its right to any extension of time or relief to LDs.

The Court affirmed the lower court's rulings in full.

The author, Brendan Carter, is a contributor to The Dispute Resolver and a former Student Division Liaison to the Forum on Construction Law.  He is the Director of Industry Advancement & Labor Relations with the AGC of Massachusetts based in Wellesley, MA.  He may be contacted at 781.786.8916 or

Friday, October 27, 2017

Enjoy the post from I'Ashea Myles-Dihigo:

Money for Women and Minority Owned Contracting Businesses… An Introduction to Winning Government Contracts - Part 1: Certifying as a Small Business

            I can’t help but think of the song by The O’Jays, “For the Love of Money” when writing this piece, so let that soundtrack play in your mind’s ear as you read this.
I get together with a group of my friends about every 6-8 weeks for “Wine and Woodworking,” the brain-child of my talented friend, Natalie.  As a construction lawyer, I felt the need to be able to at least attempt to build something with my hands.  I get to interact with a cross-section of women. We laugh, drink wine, use table saws and various other tools and build amazing furniture pieces.  At one of these events, a friend of mine approached me about starting her own construction company. I was all about helping her out.  The information I found in walking her through the process is useful for any general contractor or sub-contractor that is looking to start or grow her or his business.    
            The current administration spoke very boisterously on the campaign trail about its plans to “revitalize” the country’s infrastructure.  There is also a large push in many areas of the country for housing and new construction as affordable housing shrinks across the nation.  This series will be used to introduce minority and women owned contractors, and those aspiring contractors to the United States Small Business Administration (SBA).  It will provide a broad overview of the programs it offers to small businesses and specifically the certifications and set-asides for women and minority owned businesses which are in place to position those companies to win some of those government contracts.
            In 2016, the U.S. Bureau of Labor Statistics reported that women in construction related fields represented about 9% of the workforce.  Latinos and/or Hispanic Americans 28.9%, African Americans made up 5.8% and Asian Americans 1.9%. These statistics are shocking, especially when new construction is booming in almost every quadrant of the country.  As the statistics show, construction is an often missed and lucrative field for minority and women owned businesses.  According to the SBA, the U.S. government awards about $500 billion in contracts annually, and at least 23% of those contracts are awarded to small businesses.  There are additional federal mandates that some of those dollars and contracts must flow to businesses that are owned by women and minorities.   
Size Matters: Certifying as a Small Business

            The SBA has identified various programs to encourage women and minorities to enter into federal government contracting.  For the record, the business registration process for minorities, women and service-disabled and/or veterans does not differ at all from the standard process that all businesses must follow.  You will need to register your business with the state, choose a name for your business, obtain a federal tax identification number, and secure any pertinent certifications and/or permits for your business to legally operate under the rules and laws of your state.
            You must also ensure that your business is a small business as defined by the SBA.  For most industries, small business is defined by either the average number of employees over the past 12 months or average annual receipts over the past three years. U.S. Small Business Administration (October 2, 2017), available at  This is the definition used for the construction industry. This information will be used in the System for Award Management (SAM) when you register as a government contractor in addition to your self-certification as a small business. Id. Additionally, the SBA defines a small business as one that:
  • Is organized for profit;
  • Has a place of business in the U.S.;
  • Operates primarily within the U.S. or makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor;
  • Is independently owned and operated;
  • Is not dominant in its field on a national basis.  Id.
All federal agencies must use the SBA defined size standards for contracts identified as small businesses. Once you have gone through the process to determine if you’re in fact a small business, you may register and certify your business as such.  The small business standards are the ceiling on how large your business can be and still remain classified as a small business under the SBA guidelines.
NAICS for General Contractors

            Once you’ve determined your business size, you have to determine the classification under which your service would fall.  The North American Industry Classification System (NAICS) is a system used to classify businesses to collect, analyze and publish statistical data related to the U.S. economy. United States Census Bureau (October 2, 2017), available at  The NAICS industry codes define establishments based on the activities in which they are primarily engaged in and services and/or goods a business produces. 
            The 2017 NAICS code for new single-family construction is 236115. Id. This code is used for general contractor establishments that are responsible for the entire construction of new single-family housing that is separated from neighboring houses by a ground-to-roof wall and has no housing units constructed above or below the unit.  This code would cover firms working in single-family design for firms handling the construction management for single family homes.
The 2017 NAICS code for commercial and industrial construction is 236220. Id. This code is for contractors focused on the construction of commercial and institutional buildings and related structures, such as parking garages, airports, office buildings and schools.  This code would also cover design firms and commercial and institutional construction management firms.  There are also specialty codes within the construction subsection for contractors that specialize in trades like flooring (238330), electrical (238210), structural and foundation (238190) and roofing (238170).  Id. The NAICS defines the size of the business by monies earned in annually in millions of dollars. Id. For instance, if you are a framing contractor (23810), your size standards are calculated in either the number of employees or average annual receipts; therefore, if your business, inclusive of subsidiaries and affiliates, makes less than $15 million in receipts annually, then you are considered a small business. Many small start-up to mid-sized construction companies would qualify under this definition of small business.  So, some of the governmental contracts for construction work on roads, infrastructure, natural disaster relief and many other areas could go to businesses of this size.
            Next time, I will talk about the government set-asides that are specifically designed to be awarded to businesses that self-certify to be women and minority owned and how to qualify for those contracts.
For more information on the SBA visit

I'Ashea Myles-Dihigo            
Leitner Williams Dolley and Napolitan

Monday, October 23, 2017

In a matter of first impression, California Court declares subcontractor's CGL coverage includes subcontractor's work & delay to general contractor
In Glob. Modular, Inc. v. Kadena Pac., Inc., 222 Cal. Rptr. 3d 819 (Cal. Ct. App. 2017) the underlying dispute concerned construction of 53 roof-less modular units for a rehabilitation center.  The Plaintiff-subcontractor constructed the units and another contractor planned to install the roofs. The subcontractor sued for non-payment and the general contractor counterclaimed that the units were defective. After a partial settlement, the remaining issue was whether the subcontractor's commercial general liability (CGL) insurer must cover the general contractor's claim for water damage to the tarp-covered, but roof-less units caused by heavy rains or if exclusions barred recovery.

The California Appeals Court concluded that the CGL insurance policy was not limited to risk of damage to third party property. The Court explained that the policy language referred to ‘property damage‘ without any reference to who owned the property.  Also there was no impediment to coverage due to the exclusion for "faulty workmanship." There was no indication that the exclusion applied broadly to any damage to the subcontractor's work before project completion.

More specifically, and as a matter of first impression, the Court held that the CGL policy's exclusion for damage to property on which the subcontractor is “performing operations” applied only to damage caused during the subcontractor's physical construction activities. Therefore, this exclusion did not bar coverage for the repair or replacement costs incurred to the units from rain and flooding damage to the units after they were delivered to the site.  Although the units were unfinished, because the subcontractor was not working on the units once delivered to the site, the subcontractor was not performing "active physical construction activities." Accordingly the exclusion did not apply.

As for the exclusion of "[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it,” the Court held that "your work" referred only to the specific part of subcontractor's work, not broadly to the general area of the construction site where the subcontractor was working. The Court explained that this exclusion "applies only to the particular component of the insured's work that was incorrectly performed and not to the [subcontractor's] entire project. Here . . .the only arguably defective components or parts of [subcontractor's] work are the plastic tarps, as they failed to keep the water out." Importantly, "there was no allegation the items for which [general contractor] sought repair and replacement costs—the drywall, insulation, framing, and ducting [inside the units]—were defective.  [Rather,] those items were acceptable until it rained and they suffered water damage."  Accordingly the exclusion did not apply.

In addition, the Court determined that delay damages for the 131 days the general contractor spent remediating the water damage did constitute “property damage” within meaning of insuring clause of CGL policy.  The Court explained that the remediation was extra time that general contractor spent. And had the units not been damaged, the general contractor would not have needed to spend that time and instead could have been working to finish the project.  The delay therefore constituted a consequential loss and was deemed part of the damages insurer must pay “because of” the property damage.

The author, Katharine Kohm, is a committee member for The Dispute Resolver. Katharine practices construction law and commercial litigation in Rhode Island and Massachusetts. She is an associate at Pierce Atwood, LLP in Providence, Rhode Island. She may be contacted at 401-490-3407 or