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WEBINAR SERIES2017 Construction Law

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2016 Notable Construction Cases

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Two Construction Related Cases From the Ohio Supreme Court

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Stolz v. J&B Steel Erectors, Inc. 2016-Ohio-1567, 2016 WL 1592951 (Ohio 2016)

+A subcontractor on a self-insured construction-project plan is immune from liability to an injured employee of an other subcontractor.+ Allows General Contractor to create a “wrap-up” insurance, but

limited to coverage for workers’ compensation insurance.

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Boone Coleman Constr. Inc. v. Piketon, 2016-Ohio-628, 2016 WL 744304 (Ohio 2016)

+Upheld a liquidated damages provision.

+The reasonableness of a liquidated damages clause per diem rate in a public works contract must be determined prospectively, in evaluating whether the clause is an unenforceable penalty.

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Ohio Court of Claims

ACCURATE ELECTRIC CONSTRUCTION, INC. V. THE OHIO STATE UNIVERSITYAt the dispositive motion stage, Referee found that notice given after the contractor was already “off the project” was insufficient to preserve the claim.

JUTTE ELECTRIC, LTD., ET AL. V. OHIO FACILITIES CONSTRUCTION COMMISSIONReferee ruled in favor of OFCC after multi-week trial. Determined Surety did not conduct reasonable investigation when it took over principal’s work. Also, Article 8 was not satisfied.

WOOD ELECTRIC, INC. V. OHIO FACILITIES CONSTRUCTION COMMISSIONCourt ruled that notice provided by the electrical contractor was sufficient and allowed the contractor to recover 100% of its claim, including extended home office overhead. On appeal by OFCC.

Article 8

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Local Residency Requirements in Limbo

• Governor Kasich signed, H.B. 180, a law that wassupposed to go into effect on August 31, 2016.

• Bans public entities from insisting on local residencyrequirements when procuring construction services.

• Cleveland’s “Fannie Lewis law,” which requires that 20%of construction hours on Cleveland projects beperformed by Cleveland residents.

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Local Residency Requirements in Limbo

• The City of Cleveland filed for – and received– an injunction preventing the State of Ohiofrom implementing the law until the casecould be heard on its merits.

• Contractors have no choice but to adhere to localresidency requirements until the legality andconstitutionality of H.B. 180 is firmly upheld by thecourts.

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Chicago Housing Authority v. DeStefano and Partners, Ltd, 2015 IL App (1st) 142870, 2015 WL 8605437 (Ill. App. Ct 1st Dist. 2015)

Federal law preempted an owner’s breach of contract claim against an architect for failure to design in compliance with federal accessibility standards for the disabled.

The owner’s state action was a de facto indemnity claim which would undermine the owner’s non-delegable duty to comply with federal standards.

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Gongloff Contracting, L.L.C. v. L. Robert Kimball & Assoc., Architects & Engineers, Inc., 2015 PA Super

149, 119 A.3d 1070 (Pa. Super. Ct.)

Pennsylvania Appeals Court held that:

Architects potentially are subject to liability for negligent misrepresentation claims when it is alleged that those professionals negligently included faulty information in their design documents, and

Steel subcontractor alleged sufficient facts that documents supplied by architect included false information as required to survive motion for judgment on the pleadings.

Erosion of the Economic Loss Rule

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Defect Case Update

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Westfield Insur. Co. v. Custom Agri Systems, Inc.

+2012

+Ohio Supreme Court Analyzed A Typical CGL Policy and What Triggers an “Occurrence”

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Westfield Insur. Co. v. Custom Agri Systems, Inc.

Point Counter-Point

Argument Against Coverage“Claims of Defective Construction or Workmanship Brought By A Property Owner Are Not Claims For “Property Damage” Caused By An “Occurrence.”

Argument For Coverage“If the damages are consequential and derivefrom the work the insured performed, coverage generally will lie.”

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How Will That Argument Play Out?

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No Coverage

Claim Was A RESULT of Defective Workmanship

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Franklin County Common Pleas Decision Finds Coverage

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Pending Defect Cases To WatchOhio Northern University

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34

5

7

9

6

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Waverly School District Board of Education et al., v. Triad AR, Inc. et al, and Westfield Insurance Company

Pending Defect Cases To Watch

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Potholes To Avoid in 2017

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Labor Shortage

Qualified subcontractorsA low bid may come with significant risk

Increases chances of defective work claims

Exposure to Liquidated Damages

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Owners That Get In Over Their Head

These Owners Do Not Have Sufficient Funds On Hand To Handle Adversity• Unrealistic expectations• National crisis

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Project Financing With No Room For Error

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Don’t Forget the Great Recession

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Don’t Forget the Great Recession

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Lessons Learned From These Projects

+Don’t enter into agreements where lien rights are waived or subordinated to other interests.

+A lien is only as good as the Project’s value+ If the Bank’s mortgage exceeds the value – lien claimants

will likely be on the hook.

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The More Complicated It Is To Explain The Financing

The Greater The Risk

Does The Owner Have Cash On Hand? Or Is This Just A Shell Game?

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Collision Between Pay-if-Paid and Ohio’s Public Bond

Will A Surety Avoid Liability Under Its Principal’s Pay-if-Paid Provision?

Subcontractor

Construction Manager

Owner

Surety

Does Pay if Paid Apply to Surety?

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P3 Problems

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State Budget Problems

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Here in Ohio –Surety Protection

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Pointers+Make Sure Your Agreement Allows You to Suspend Work If

Payments Are Not Timely Received.

+Read and follow the Agreement’s Notice Provisions When It Comes to Suspending Work.

+Don’t Waive Your Lien and Payment Claim Rights – Either in the Agreement or By Signing Waivers In Exchange For Partial Payments.

+Choose Your Projects Carefully. Let Your Competitor Have the Troubled Project.

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Questions?Mike Madigan, DirectorKegler Brown Hill + Rittermmadigan@keglerbrown.comkeglerbrown.com/madigan614-462-5478