Wednesday, February 26, 2014

VALUABLE RESEARCH TOOL -- Forum's Construction Industry Knowledgebase

We all know the quality the Forum's written materials for its programs are excellent.  Through the oversight of the GC, the Program Co-Chairs and GC Liaison, to Program Coordinators (aka Cat Herders), the written materials are routinely law review quality. 

The written materials for the Forum's programs going back to 2002 are available online!  The Forum calls it the Construction Industry Knowledgebase

There are numerous ways to search for content and, unlike the current online member directory, it is fast!

So, for your next research project, remember to visit the Knowledgebase for a head start. 

In case the links don't work, the website is:

Tuesday, February 25, 2014

Effective Risk Management Planning - Step 1 - Identify Your Team

Our Division's name is the Dispute Avoidance and Resolution Division of the Forum on the Construction Industry.  A lot of our posts relate to "resolution" component of our name through mediation, arbitration, and litigation. 

In this series of posts, we focus on dispute "avoidance" strategies our clients can implement during the project.  We asked Andrew Englehart of Construction Process Solutions to provide us his views on effective risk management and claims avoidance. 

Mr. Englehart's first step about picking the risk management team is below.   

* * * 

Effective Risk Management and Claims Avoidance via a Project-Specific Plan
by Andrew T. Englehart, Principal, Construction Process Solutions, Ltd,

Step 1: Picking your Risk Management Team 

“Claims Avoidance” does not mean “document the #!$$%%##@& out of the project.” (That is another topic . . . how to minimize losses due to claims once you do find yourself embroiled in one. Another blog, another day.)  If that is your strategy to maximize project return, you are already acknowledging you are going to have some defeats in some battles, but hopefully not lose the war. (Though having a “standing army” of the right documentation (again, a different blog for a different day) is necessary to being a sovereign construction company (or project owner) in today’s world.)

Effective claims avoidance requires a plan that must be developed at the outset of the project during the “nuts & bolts” planning of the project. The first material step in developing the Risk Management Plan is to identify possible impediments to the success of the project. This is a large elephant and needs to be eaten 1 bite at a time. BUT, before even getting to that process, you must pick the right team members that will identify those (possible) risks, and who will then work through developing the Risk Management Plan. The team should have depth and breadth. Examples: Depth . . . team members should range from executive level personnel down to the key labor foremen on the project. Those tradesmen with boots on the ground are a construction company’s front line risk assessors and they have seen it all. The breadth should have a similar wide range, including the estimator who estimated the key parts of the project, and all the way to the safety coordinator, and perhaps even the shop manager. Perhaps the lead engineer or draftsperson?  Without these diverse perspectives and the information that can be provided, the resultant planning process will likely end in a myopic and distorted plan, ultimately being unsuccessful in its goal in maximizing project return via minimizing project risk.

It’s refreshing that this “team approach” to identifying risks and developing Risk Management plans is increasingly being used across a project, incorporating multiple organizations (owners, designers, contractors, etc.) in a collaborative fashion. Sadly, many of these planning processes, and the resultant plans, are defective because the teams are generally focused on the upper level management and executive level, and miss where the risk battles start, on the project front lines on a day to day basis among those with boots on the ground.  


Friday, February 21, 2014

Texas Court Clarifies What Is Required to Order a Party to Turn Over Hard Drives During Discovery

As with most complex commercial litigation, lawsuits over construction often involve investigations into electronically stored information (“ESI”). In Texas, a recent case has clarified the requirements necessary to order a party to turn over hard drives during disputes over production of ESI.

In 2013, a Texas Court of Appeals in Houston granted a writ of mandamus and vacated an order to compel production of computer and network hard drives.
In the lawsuit, several former co-owners of businesses had a falling out and sued one another alleging various claims. Central to the case was whether one of the parties had misrepresented his educational background to the other.

After several disputes regarding whether responsive ESI had been produced, the trial court issued an order requiring production of forensic images of the defendants’ computer hard drives and the drives of their network servers. Forensic images are digital duplicates of hard drives prepared used to prevent any changes being made to the original source of the ESI.
The defendants sought mandamus relief from the court of appeals, arguing the trial court had abused its discretion. They argued that the order was overly broad, giving the plaintiff “carte blanche to rummage through” their hard drives without any reasonable limits to address privilege, confidentiality, or privacy.

The court of appeals granted the writ of mandamus and vacated the order. It examined the Order in light of the applicable Texas Rules of Civil Procedure, as well as a seminal Texas Supreme Court case on electronic discovery, In re Weekley Homes, 295 S.W. 3d 309 (Tex. 2009). In Texas, courts have held that providing direct access to electronic information systems is particularly intrusive and should be discouraged. An order requiring electronic data storage systems to be turned over is not appropriate unless and until the moving party has shown that existing discovery responses were inadequate and the proposed searches of the storage systems could recover the relevant missing information.

In this case, the court found that a conclusory statement that “emails must exist” was insufficient to overcome the threshold question of whether there was an inadequate production. The moving party had to present actual evidence that the production was somehow deficient. Moreover, even with such a showing, the moving party had not shown that there was deleted relevant information which could feasibly be recovered by taking a forensic image of the hardware. To do so, the requesting party should have provided information from his forensic imaging expert as to why his methods would have produced relevant deleted information.
The court also examined the requests for production at issue, and found them insufficiently specific to justify the trial court’s order. The moving party made a blanket request for servers, tablets, and laptops, which was insufficient because it did not inform the opposing parties of the exact nature of the information sought.  Specific discovery requests must be aligned with the request for the production of hardware.

The widespread use of ESI to conduct business continues to require attorneys and courts to evaluate how far parties may go to uncover documents through discovery. This case suggests that a party seeking to search its opponents’ hard drives must prepare a detailed and thorough justification of the request before a trial court can permit the searches to proceed.

West Virginia Recognizes that Property Damage Caused by Defective Construction Is an “Occurrence” Under a CGL Policy

In July 2013, the Supreme Court of Appeals of West Virginia joined with a majority of states and ruled that defective workmanship resulting in property damage constitutes an “occurrence” under a standard Commercial General Liability (“CGL”) insurance policy. The case was styled Cherrington v. Erie Insurance Property and Casualty, Co.

The underlying case involved defects to a family’s home. There were three insurance policies in place: CGL, homeowners, and personal catastrophe. The lower court ruled that none of the three policies covered various defects in the home including an uneven concrete floor, water infiltration through the roof and chimney joints, and cracks in the drywall. The court found that these problems were economic losses and not property damage because the defects were caused by faulty workmanship, which was not an “occurrence” triggering coverage under a CGL policy.

The Supreme Court of Appeals reversed the decision, holding that property damage resulting from faulty workmanship is an “occurrence” under the CGL policy. In prior cases, the Court had held that faulty workmanship was not an occurrence under a CGL policy unless coverage is specifically included in the policy. It also had stated that CGL policies are not designed to cover poor workmanship. In this case, the Supreme Court of Appeals recognized that a majority of other jurisdictions had either legislatively or judicially found that poor workmanship was an occurrence under a CGL policy. The Court decided to join the majority.

The Court relied on two lines of reasoning. First, it examined the property damage in light of the policy’s definition of “occurrence,” which included an “accident.” The court found that faulty workmanship must be accidental because no contractor would hire subcontractors that would intentionally perform defective work. Thus, the property damage defective resulting workmanship was an “accident,” and therefore an “occurrence.” Second, the Court explained that excluding subcontractors’ defective work from coverage would violate the intent of the CGL policy, which is to provide coverage for subcontractors’ acts.

This case shows a continuing national shift towards expanding the scope of CGL policies and helps to resolve uncertainty about the scope of CGL policies in West Virginia.

Tuesday, February 18, 2014

Admitting Animations into Evidence

Last week, before the Atlanta snowstorms so rudely interrupted my work week, I posted an article written by Ed Josiah from Nautilus Consulting regarding whether and how a construction lawyer can get what otherwise might appear to be a demonstrative exhibit admitted successfully into evidence.

Today, thanks to Paul McCullough at S-E-A -- another Forum sponsor -- we will walk through the  issues that Mr. Josiah raised using S-E-A's capabilities shown in the video above as our example.  I would like to thank Paul for giving Division 1 the right to use this video as a practical example to make the abstract more concrete.

S-E-A created this video from a point cloud.  Wikipedia defines a point cloud simply as "a set of data points in some coordinate system."  S-E-A uses a 3D scanner to create the point cloud you see in the video.  In essence and as Paul McCullough stated to me in an e-mail, "What you are looking at is not a 3D 'model' and it is not an animation.  [Instead] it is millions and millions of data points all with a relative x, y, and z location and a color.  The sum total of these millions of data points [is] the point cloud."  In other words, we have a three-dimensional survey of actual conditions at the project site -- not a modeled hypothesis of what someone believes exists at the project.

In identifying how to admit this point cloud into evidence and as Mr. Josiah's article stated, there are four factors to address to get this video admitted into evidence as an exhibit.  These factors are:
  • Witness Competence to testify about the exhibit
  • Relevance of the exhibit to an issue or issues in the case
  • Proper Identification of the exhibit
  • Trustworthiness/Authentication of the exhibit

Let's discuss each briefly after the jump.  For our discussions, we will assume that we have allegations of excessive slab deflection for a poured-in-place concrete floor.

Tuesday, February 11, 2014

Demonstrative Evidence: Evidentiary Issues & Laying a Proper Foundation

In this post, we are reprinting an article (with the author's permission) that Ed Josiah, the Forum's tech guru from Nautilus Consulting, wrote regarding how attorneys can lay a proper foundation to turn what otherwise would be considered as demonstrative evidence into substantive evidence that a jury or fact finder can rely on in reaching its decision. Later this week, we will be using an example of this type of presentation to walk through the issues that Mr. Josiah raises in a practical manner.  At any rate, after the jump is Mr. Josiah's excellent discussion of these issues.

Information regarding the Division I Program in the Bahamas

The Division 1 program for the Mid-Winter meeting, entitled "How to Catch Flies – With Honey or a Fly Swatter?  Negotiation Tactics and Strategies," will consist of a panel discussion of various negotiation strategies and tactics designed to assist in the favorable resolution of disputes.  Panelists will include Frank Adams, Interface Consulting International Inc., Houston, TX;  Devon Coughlan, Conflict Solutions, Raymond, ME;  and George Meyer, Carlton Fields PA, Tampa, FL.  Scott Griffith of Griffith Davison & Shurtleff PC in Dallas, TX will moderate.

The decision of how one should approach and handle a dispute, especially when engaging the opposing party, can mean the difference between success and failure from a settlement perspective.  As with first impressions, the approach you take can have lasting consequences and will certainly impact the probability of a successful resolution.  Whether you have been negotiating disputes for years, or are still learning the ropes, we welcome you to join Division 1 in what will undoubtedly be a lively, informal discussion lead by an esteemed panel of experts in the field of negotiation strategies and techniques.

See you at Paradise Island! 

Friday, February 7, 2014

In Texas, Contractual-Liability Exclusions Do Not Exclude Coverage for Property-Damage Claims Based on Failure to Perform Work in a Good and Workmanlike Manner.

The Texas Supreme Court recently held that insurance coverage for property damage resulting from violations of a general contractor's contractual duty to perform work in a good and workmanlike manner are not excluded by the standard exclusion for "contractual liability" in a commercial general liability policy. Ewing Const. Co., Inc. v. Amerisure Ins. Co. --- S.W.3d ----, 2014 WL 185035 (Tex. Jan. 17, 2014).

 In Ewing, a general contractor had constructed some tennis courts for a school district. After construction was completed, the tennis courts began cracking and became unsuitable for use. The school district sued the general contractor for repairs, claiming the work had not been performed in a good and workmanlike manner.  

The general contractor sought defense and indemnity from its liability insurer, but the insurer denied coverage. In the ensuing coverage lawsuit in federal court, the insurer relied on the contractual-liability exclusion in the policy to deny it had any obligation to defend or indemnify the general contractor. 

Contractual-liability exclusions are common in commercial general liability policies in Texas.  The provision at issue in Ewing excluded coverage for property damage "for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.” The construction contract with the school district required the general contractor to perform its work in a good and workmanlike manner. As the school district claimed the problems with the tennis courts resulted from the general contractor's failure to meet this standard, the insurer argued the contractual-liability exclusion applied. 

The district court granted summary judgment in favor of the insurer based on the contractual-liability exclusion. The Fifth Circuit initially agreed with the district court, but then vacated its opinion and certified the question of whether the exclusion applied to the Texas Supreme Court. The Texas Supreme Court held that the exclusion does not apply.

Central to the Court’s decision was an opinion issued several years ago that interpreted the contractual-liability exclusion. In Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London, a contractual-liability exclusion excluded coverage for claims based on liability outside of what the general contractor would have had absent the contract. 327 S.W.3d 118 (Tex. 2010). Specifically, the contractor in Gilbert had agreed to assume liability for damage caused to adjacent landowners' property. 

The Ewing Court distinguished its holding in Gilbert by pointing out that Gilbert addressed whether a CGL policy’s contractual liability exclusion applied to exclude indemnity coverage for a third party’s property-damage claim where the only basis underlying the claim was the insured’s contractual agreement to be responsible for the damage. The contractual agreement at issue in Gilbert specifically obligated Gilbert to repair or pay for damage “resulting from a failure to comply with the requirements of th[e] contract,” thus extending Gilbert’s obligations beyond what would exist under general principles of law.
            In Ewing, the general contractor's agreement to construct the work in a good and workmanlike manner did not enlarge its obligations beyond any general common-law duty it might otherwise have. In Texas, contractors are obligated to perform their work with skill and care even absent an express contractual provision requiring them to do so. The Court reasoned that the exclusion “means what it says,” and excludes liability for damages the insured assumes by contract, such that “assumption of liability” means liability for damages that exceeds the liability an insured would have under general law.  Thus, the Court concluded that a general contractor who agrees to perform its construction work in a good and workmanlike manner, without more, does not enlarge its duty to exercise ordinary care in fulfilling its contract and does not “assume liability” for damages arising out of its defective work so as to trigger the Contractual Liability Exclusion. 
            This decision is generally positive for contractors insured under CGL policies in Texas, as it reduces the substantial uncertainty about coverage of property-damage claims based on construction defects that arose after the Gilbert decision was issued in 2010. However, as the Court acknowledged in Ewing, CGL policies are not performance bonds. Claims based on faulty workmanship are often excluded from coverage by other exclusions specific to the construction industry. For example, CGL policies often exclude claims for property damage to the insured's own work under the "your work" exclusion.

Tuesday, February 4, 2014

Forum Webinar: Choosing Between Judge, Jury and Arbitrator: What’s the Real Difference?

Choosing Between Judge, Jury and Arbitrator: What’s the Real Difference?

Live Webinar:
Thursday February 6 - 1 pm ET

Click HERE to register

Join trial communication and strategy experts along with a construction trial attorney experienced in persuading judges, juries, and arbitrators to answer the following questions:
• Which fact finder is more likely to favor equities over the dictates of the law?
• Which fact finder is better suited to handle highly technical cases?
• Which fact finder is more likely to award reasonable damages?
• Which fact finder is more likely to have anti-corporate bias?

Register for the latest CLE specialty program from the American Bar Association here: