Apologize for a Design Error?

Melissa Dewey Brumback | Construction Law in North Carolina | April 19, 2018

Have you ever apologized to a client for a failure in your professional work? Is that a good idea, or one that will get you in trouble with your partners/ lawyers/ insurance carrier/ the Court? As always, the answer is “it depends”.

Clients are people too. Even institutional clients are made up of people, and all people appreciate being told the truth and having a sincere apology when warranted. However, in general, anything that is said against your own interests can be used against you in Court. What’s a responsible engineer or architect to do?

Last week, I attended a thoughtful presentation on apologies by Burns Logan, Corporate Counsel for Jacobs, at the American Bar Association’s Construction Law Forum.Burns Logan

Burns’ main take aways:

1. You don’t have to actually say you are “sorry” (especially if you aren’t) to get the benefit of the strategy. You only have to include an explanation, accept responsibility, and make a reasonable offer of repair.

2. Deliver the “apology” in mediation where you don’t run the risk of it being used against you as evidence in court (most apology statutes don’t help in construction-related disputes)

 

The second point is key– mediation in most states (including North Carolina) is confidential.  Nothing can be quoted or held against you if it is part of mediation.  So, consider taking responsibility (with explanation), but do so at your mediation conference.

If you’d like to see Burns’ entire slide show, it can be found here.  Thanks, Burns, for a very informative presentation.

Connected Devices Bring New Product Liability Challenges

Morrison & Foerster LLP | January 18, 2018

“My Google Home Mini was inadvertently spying on me 24/7 due to a hardware flaw,” wrote a tech blogger who purchased Google Inc.’s latest internet of things (IoT) device. Following the incident, a pact of consumer advocacy groups insisted the U.S. Consumer Product Safety Commission (CPSC) recall the Google smart speaker due to privacy concerns arising when the device recorded all audio without voice command prompts.

The CPSC is charged with protecting consumers from products that pose potential hazards. Traditionally, this has meant hazards that may cause physical injury or property damage. But as internet-connected household products continue to proliferate, issues like the “always-on” Google Home Mini raise an important question: Where does cybersecurity of consumer IoT devices fit within the current legal framework governing consumer products?

The Explosion of IoT

Forecasts predict that by 2020 IoT devices will account for 24 billion of the 34 billion devices connected to the internet. According to a recent Gemalto survey, “[a] hacker controlling IoT devices is the most common concern for consumers (65%), while six in ten (60%) worry about their data being stolen.”

The rapid growth of the IoT market and continued integration into daily life raises the question of which regulatory body or bodies, if any, should be responsible for consumer safety when it comes to cybersecurity for consumer IoT devices.

The Intersection of Consumer Product Safety, Privacy and Cybersecurity

The CPSC’s jurisdiction has traditionally been limited to physical injury and property damage. It is “charged with protecting the public from unreasonable risks of injury or death associated with the use of the thousands of types of consumer products under the agency’s jurisdiction.”

Companies reporting potential safety hazards are given the option to categorize the hazard as fire, mechanical, electrocution, chemical or “other.” But “other” has never been used to describe a hazard that did not involve a personal injury or property damage risk. CPSC enforcement actions against manufacturers of IoT devices for security defects that do not lead to physical injury or property damage would be unprecedented.

One way to think about CPSC’s potential jurisdiction is over incidents that could give rise to product liability claims. Product liability primarily aims to compensate consumers and bystanders for injuries caused by unsafe products and to incentivize manufacturers and supply-chain participants to take reasonable precautions in producing and distributing products. The underlying policy rationale is that manufacturers are typically in the best position to prevent harms caused by their products.

Product recalls seek to remove unsafe products from the market and prevent product liability claims from arising in the first place. But when does a privacy or security breach reach the threshold of a safety hazard or a product defect such that it mandates a recall? And what role do product recalls even play in an age where companies can deploy firmware updates to implement a corrective action for privacy or security breaches?

The very features that are potential weaknesses for IoT devices can also be leveraged as strengths. Google demonstrated this by issuing a security patch to address the “always-on” issue in its Google Home Mini.

Protecting Your Business in the Face of Regulatory Uncertainty

How do IoT companies manage regulatory compliance where the regulatory framework is so uncertain and regulators are unable to keep up with technological developments? One possible construct is to anticipate traditional product defect claims that consumers might bring against IoT products, and use the power of connected devices to safeguard against liability while also protecting the product brand.

Take, for example, manufacturing defects. Courts may find that errors or oversights in coding, random malfunctions or bugs in the system constitute product liability claims for manufacturing or design defects. But IoT companies can also look at ways to put checks in place to catch these issues early. And the ability of connected devices to provide effective—and even fun—warnings and instructions to consumers about possible flaws is limited only by developers’ creativity.

What about failure to warn? Product manufacturers have traditionally had a duty to warn of risks that they know about or reasonably should have known about. We recently wrote about the growing role of artificial intelligence and the implications of product manufacturers’ ability to mine big data. Companies that choose to collect and store that data do assume risks, but they also have the ability to assess problems and develop innovative ways to provide warnings about them.

It will take years for government regulators to catch up to these issues and enact applicable regulations, particularly in light of the current administration’s trend toward deregulation. This is a golden opportunity for IoT manufacturers to create their own framework for how best to protect consumers and to balance the risks and benefits of IoT devices.

Where Do New Risks Fit into the Old Framework?

Undoubtedly, the existing product liability framework has limits and doesn’t map perfectly to IoT devices. Consider the “always-on” feature recently brought to the CPSC’s attention. Under the economic loss doctrine, a plaintiff cannot recover monetary damages that don’t arise from physical injury to her person or physical harm to her property. Security breaches may cause an invasion of privacy without causing any physical injury, making the product liability framework inapplicable.

As shown by the recent consumer advocacy letter, these groups may argue that security considerations and subsequent risks of IoT devices—while different from traditional public safety concerns—still fall within the CPSC’s broad mandate to “protect the public against unreasonable risk of injuries and death associated with consumer products.” But without a clear CPSC directive that an injury to privacy falls within the requirements to report a safety hazard, IoT manufacturers would be voluntarily involving CPSC should they decide to report incidents similar to the Google Home Mini.

Although new regulations could fill the cybersecurity gap, technological innovation is far outpacing regulatory agencies. By the time applicable regulations are in place, they may already be out of date. Consequently, it is incumbent upon industry leaders to work together to pave the way for a robust cybersecurity framework that avoids stifling innovation by overregulation while still protecting consumers from security vulnerabilities.

Advances in IoT technology and its continued integration into everyday life are changing traditional notions of consumer product safety. Working closely with product liability, privacy and cybersecurity specialists will allow IoT companies to anticipate legal issues and use technology to stay ahead of regulatory enforcement and consumer-driven lawsuits.

Georgia Court of Appeals Holds that Sovereign Immunity Shields County from Contractor’s Claims Based Upon Unwritten Change Orders

Robert A. Gallagher | Constructlaw | December 28, 2017

Fulton County V. Soco Contracting Company, Inc., 2017 Ga. App. Lexis 568 (Ga. Ct. App., November 15, 2017)

Fulton County contracted with SOCO Construction Company (“SOCO”) to build a cultural center near the Fulton County Airport.  The contract specified that the contract sum and the contract time could only be changed according to County procedure, which required “a written, bilateral agreement (Modification) between the County … and the contractor.”

Adverse weather conditions, design delays, change order requests, and a federal government shutdown allegedly delayed the project.  Despite the County’s program manager listing more than 30 change orders in the project’s change order evaluation log, the County never issued any written change orders, including any change orders extending the contract time to account for the delays.  The County also withheld payment from SOCO.

SOCO sued the County for breach of contract and bad faith performance of contract, and it sought attorney fees and injunctive relief. 

The parties filed cross-motions for summary judgment on all claims.  The County based its motion on the grounds that sovereign immunity barred any claims arising from unwritten change orders.  The trial court denied the County’s motion for summary judgment.  The trial court ultimately granted SOCO summary judgment on all claims based, in part, upon Requests for Admissions to which the County had failed to timely respond, and awarded SOCO attorney fees.

The County appealed the trial court’s decision to the Court of Appeals of Georgia (Fourth Division).  The Court of Appeals reversed the trial court’s summary judgment rulings and vacated and remanded the trial court’s ruling on attorney fees.

The Court of Appeals held that the County did not waive its sovereign immunity for claims arising from unwritten contract modifications.  The Court noted that “the doctrine of sovereign immunity has constitutional status and may be waived only by an act of the [Georgia] General Assembly or by the constitution itself.”  The Court agreed with the County’s argument that although it had a written contract with SOCO, it did not waive its sovereign immunity defense for claims arising from unwritten contract modifications, which did not follow the County’s procedure.

The Court specifically disagreed with the trial court’s finding that the parties complied with the County’s protocol.  The trial court had found that an exception to the protocol applied because “extraordinary circumstances” existed, which caused the County administrators to order the changed work to avoid delay.  The Court of Appeals noted a lack of evidence to support that conclusion.

The Court also disagreed with SOCO’s argument that the County had waived its sovereign immunity based upon the fact that the County had requested changes to the work, the parties’ conduct, and certain facts which were deemed admitted.  While acknowledging the harsh result, the Court held that “parties are presumed to know the law, and are required ‘at their peril’ to ascertain the authority of a public officer with whom they are dealing.”  The appeals court refused to create an exception to the rules regarding waiver of sovereign immunity based upon any reliance SOCO may have placed upon the County’s actions or the facts deemed admitted.   As a result, the Court dismissed all of SOCO’s claims arising from unwritten contract modifications.

Proof of Loss – What Is It, and Why Is It Important?

Emily Marlowe | Property Insurance Coverage Law Blog | December 23, 2017

Over the past several months the United States has experienced significant and unprecedented disaster events: Hurricane Harvey, Hurricane Irma, Hurricane Maria, California Wild Fires, and more.

In these trying times, people rely on their trusted insurance carriers to provide light in the midst of darkness. Unfortunately, not all insurance is created equal, and some people will find the insurance claims process is a bumpy road. Many insurance policies contain various features and “Duties After Loss” that both the policyholder and the insurance company must follow.

For example, most insurance policies require policyholders submit a sworn Proof of Loss—either upon request or within a set number of days following the loss. Although this term and requirement sounds simple, it is anything but simple. If a policyholder does not agree with the amount of money the insurance company or adjuster is paying for their claim, it is of the utmost importance that the policyholder submit their own detailed proof of loss.

The proof of loss is frequently a special form that must be filled in perfectly, then sworn to, or signed under the penalty of perjury, which means that policyholders should not sign the document unless they fully understand and agree with the information in the proof of loss. Most people are not aware that they do not have to sign the proof of loss that the insurance company has prepared with their estimate of damages. Policyholders can input their own amounts—that they believe are correct—into the form as their proof of loss in support of their claim.

It is important that policyholders have information and documentation to support their proof of loss amounts, and provide to their adjuster as part of the claim.

If a policyholder is confused or has questions about a proof of loss, and how to handle one, they should contact a licensed professional, such as an attorney, who has experience helping policyholders with their proof of loss. If the insurance company denies or does not pay a policyholder the amount claimed on the proof of loss form, the policyholder may have additional legal actions to pursue against the insurance company, and should contact an attorney experienced in handling property insurance claims to evaluate or advise on the next steps.

Entitlement to Overhead and Profit on an Actual Cash Value Estimate

Jason Cleri | Property Insurance Coverage Law Blog | December 10, 2017

In the New York class action suit, Mazzocki v. State Farm, 1 A.D.3d 9 (N.Y. 3rd Dept. 2003), the Appellate Court for the Third Department finally clarified the question regarding overhead and profit in actual cash value and replacement cost value claims.

Plaintiffs in the class action sustained storm damage to buildings on their respective properties and filed claims for the actual cash value of the damage under homeowner’s insurance policies issued by State Farm. State Farm then excluded overhead and profit expenses of a general contractor in calculating the actual cash value. Plaintiffs cited the loss settlement provision in the policy which read:

We will pay the cost to repair or replace buildings…subject to the following: (1) until actual repair or replacement is complete, we will pay the actual cash value of the damage to the buildings, up to the policy limits, not to exceed the replacement cost of the damaged part of the building. . . . Any additional payment is limited to that amount you actually and necessarily spend to repair or replace the damaged buildings. . . .

The issue raised by the Plaintiffs was whether State Farm’s refusal to include overhead and profit in its estimate of replacement cost in the first instance constitutes a breach of the terms of its policies. The court stated:

Actual cash value is payable regardless of whether the property is eventually repaired or replaced. Under New York law, “[t]he determination of actual cash value is made under a broad rule of evidence which allows the trier of fact to consider ‘every fact and circumstance which would logically tend to the formation of a correct estimate of the loss’” (Cass v. Finger Lakes Coop. Ins. Co., 107 A.D.2d 904, 905, 483 N.Y.S.2d (1985), quoting McAnarney v. Newark Fire Ins. Co., 247 N.Y. 176, 184, 159 N.E. 902 (1982).

The court determined that in applying the same logic as in Salesin v. State Farm Fire & Cas. Co., 229 Mich.App. 346, 367, 581 N.W.2d 781, 790 (1998), the term “replacement cost” – as opposed to “actual replacement cost” – in State Farm’s policies can reasonably be interpreted to include profit and overhead whenever it is reasonably likely that a general contractor will be needed to repair or replace the damage. Therefore, the court confirmed that Plaintiffs may bring a breach of contract action when overhead and profit is excluded from an estimate upon proof of the likely necessity of a general contractor’s services in the repair or replacement of their damaged property.