Georgia House Bill Addresses Construction Statute of Repose

Jason Gropper | Autry, Hall & Cook

On March 2, 2020, by a unanimous vote, the House passed HB 968.  This Bill seeks to clarify which civil actions are subject to Code Section 9-3-51, which is the eight-year statute of repose for deficiencies in connection with improvements to realty.  If passed by the General Assembly, it would explicitly state that the statute of repose will not apply to breach of express warranties.  If the Bill is passed, O.C.G.A § 9-3-51 would include a subsection that provides: “This Code section shall not apply to actions for breach of contract, including, but not limited to actions for breach of express contractual warranties.” 

This Bill arises from the October 2019 Court of Appeals decision in Southern States Chemical v. Tampa Tank, which we covered in a prior post.  Southern States argued the statute of repose did not apply to claims for breach of express warranty, especially to long-term warranties that extend well beyond the eight-year statute of repose.  The Court of Appeals did not agree and, instead, held that when a statute’s text is clear and unambiguous, the court will apply the plain meaning.  Therefore, the court declared that the claims of Southern State were barred under O.C.G.A § 9-3-51(a).  HB 968 seeks to negate this court ruling.  

Builders Beware: Georgia Court Rejects Suit by Unlicensed Contractor for Unpaid Work

Kevin Levy | Saul Ewing Arnstein & Lehr

Unlicensed contractors in Georgia recently were dealt a blow by the state’s Court of Appeals when three judges held that a contractor’s failure to possess a valid state contractor’s license precluded the contractor from bringing a lawsuit for unpaid fees. In Fleetwood v. Lucas, __ S.E.2d __, 2020 WL 1149734 (Ga. Ct. App. March 10, 2020), a panel of judges ruled against a contractor, who completed extensive repair and renovation work on two properties, because the contractor was not properly licensed by the state government.  

Property owners hired the contractor to perform renovations and improvements at a home and a commercial property in excess of $100,000. During the work, the contractor informed the property owners that the project was over budget by about $10,000. The property owners responded by stopping payments. The contractor subsequently filed a lawsuit against the property owners for breach of contract and unjust enrichment.

The property owners argued in a motion for summary judgment and a motion for a directed verdict during trial that a state law prohibited courts from enforcing a contract or an equitable claim (such as quantum meruit or unjust enrichment) for the benefit of an unlicensed contractor if the underlying work required a state license. See Ga. Code Ann. § 43-41-17(b). The trial judge rejected the property owners’ motions, and a jury awarded damages to the contractor.

The Appellate Court reversed. Focusing almost entirely on the Georgia general residential and contracting statute, Ga. Code Ann. § 43-41-1 et seq., the panel of judges held that the fact the contractor did not hold a valid state license was fatal to the contractor’s breach of contract and equitable quantum meruit claims. Importantly, the contractor might have been able to recover if he had disclosed his lack of a license to the property owner before the project. However, the contractor testified at trial that he never previously disclosed his lack of a license. 

Like most states, Georgia requires professionals performing residential or general contracting work to be licensed as part of an effort to “safeguard homeowners, other property owners, tenants, and the general public against faulty, inadequate, inefficient, and unsafe residential and general contractors.” Ga. Code Ann. § 43-41-1. Contractors should take care to follow applicable state laws.

Who Decides Whether A Reinsurer Is A Run-Off Reinsurer?

Larry P. Schiffer | Squire Patton Boggs

In the past 10 years or so, several ceding companies began adding run-off reinsurer clauses to their reinsurance contracts to mitigate disputes that might arise with reinsurers no longer actively in business. In a recent case, a Georgia federal court had to address whether it or an arbitration panel should determine whether the reinsurer was, in fact, a run-off reinsurer.

In Builders Insurance v. Maiden Reinsurance North America, Inc., No. 1:19-cv-02762-SDG, 2020 U.S. Dist. LEXIS 34722 (N.D. Ga. Feb. 26, 2020), a dispute arose between a cedent and its reinsurer over a series of reinsurance contracts reinsuring underlying commercial general liability policies issued to a home builder. Underlying lawsuits arose allegedly because of construction defects. The cedent settled the underlying lawsuits and sought recovery from the reinsurer.

Before the cedent settled the underlying litigation, it notified the reinsurer about the litigation and provided information. Shortly after, the reinsurer was acquired by a large international group that is known for its runoff operations. The cedent demanded payment from the reinsurer, but no payment was forthcoming for some time (well after 30 days). Approximately five months after demand was made for payment, and after the cedent commenced this law suit, the reinsurer paid the principal amount of the breach of contract claim. Nevertheless, the case continued on bad faith grounds.

After the case was removed from state to federal court, the reinsurer moved to compel arbitration. The cedent opposed the motion claiming that arbitration was no longer available to the reinsurer because it was a Run-off Reinsurer as defined in the reinsurance contracts.

The reinsurance contracts had two relevant provisions. First, Article 27, which was the Run-off Reinsurer article. This provision provided that if the reinsurer met the criteria of a Run-off Reinsurer the provisions of the arbitration article no longer applied. A Run-off reinsurer was defined as a reinsurer that “has ceased reinsurance underwriting operations; or has transferred its claims-paying authority to an unaffiliated party; or . . . in any other way has assigned its interests or delegated its obligations under this Contract to an unaffiliated entity.”

The second relevant provision was the arbitration article, which except for the first year, stated: “Except as provided in the Special Termination, Commutation and Run-Off Reinsurer Articles, any dispute arising out of the interpretation, performance or breach of this Contract, including the formation or validity thereof, shall be submitted for decision to a panel of three arbitrators . . . .”

As the court noted, whether the reinsurer was a Run-off Reinsurer mattered because, if the answer was yes, the parties must litigate their dispute in court. The parties also disagreed about whether the reinsurance contracts delegated this issue to the arbitrators to decide.

The court first determined that it and not the arbitrators would decide whether the reinsurer was a Run-off reinsurer. The evidence, found the court, indicated that the parties did not intend to delegate arbitrability questions concerning the Run-off Reinsurer article. Delegation requires clear and unmistakable evidence that the parties intended to submit to the arbitrators disputes about Article 27. The court pointed to the arbitration article that, except for the first year, explicitly excluded the possibility that arbitrators should decide whether the reinsurer was a Run-off Reinsurer. Thus, held the court, the exception language in the arbitration provision specifically removed matters related to the interpretation of Article 27 from arbitration. Article 27, itself, also supports this analysis when providing that the arbitration article did not apply to any reinsurer that became a Run-off Reinsurer. At the very least, said the court, these provisions prevent the court from concluding that there was clear and unmistakable evidence of the parties’ intent to delegate this question to the arbitrators.

After concluding that the parties did not delegate to the arbitrators the issue of whether the reinsurer became a Run-off Reinsurer, the court held that the reinsurer was not a Run-off Reinsurer. The court accepted evidence from the reinsurer that it had not ceased underwriting operations, had not transferred its claim-paying authority to an unaffiliated entity, and had not assigned its interests or delegated its obligations to an unaffiliated entity. The court found that the reinsurance contracts did not void the arbitration provisions when a reinsurer is in run-off in the ordinary sense. The court concluded that whether the reinsurer continued to accept new risks was beside the point. The reinsurer had not ceased reinsurance underwriting operations according to the evidence accepted by the court. The court also addressed the unaffiliated arguments and rejected their applicability.

Accordingly, the court granted the motion to compel arbitration on the remaining claims, including whether those claims were arbitrable.

Georgia’s Court Of Appeals Holds That Lien Waivers Waive Breach Of Contract Claims

Derek M. Andre, Darren G. Rowles and William E. Burnett | Smith Gambrell & Russell | November 15, 2019

A recent decision by the Georgia Court of Appeals will force most construction professionals to radically change their view of the scope and effect of statutory lien waivers in the state of Georgia. In ALA Construction Services, LLC v. Controlled AccessInc., the Court of Appeals held that a lien claimant’s executed statutory lien waiver waived not only the claimant’s lien right but also rights the claimant may have to bring a related breach of contract action.1

In ALA Construction, ALA Construction Services, LLC (“ALA”), contracted with Controlled Access, Inc. (“Controlled Access”), to provide equipment and other services for a project in Gwinnett County, Georgia. Controlled Access signed two statutory lien waivers with the expectation that it would be paid for its work. However, Controlled Access was never paid, but it did not file either a statutory Affidavit of Nonpayment or a Claim of Lien within 60 days of its execution of the lien waivers, which had the effect of nullifying Controlled Access’ rights to assert a claim of lien. Having waived its lien rights, Controlled Access instead brought a breach of contract action against ALA seeking payment for the work performed by Controlled Access. The trial court held that Controlled Access did not waive its right to assert a breach of contract claim against ALA by executing the lien waivers.

On appeal, the Court of Appeals reversed, holding that Controlled Access’ lien waivers waived not only its lien rights, but also any related claims for breach of contract. The court relied on portions of the lien waiver statute, O.C.G.A. § 44-14-366, which provides that:

“(1) When a waiver and release provided for in this Code section is executed by the claimant, it shall be binding against the claimant for all purposes, subject only to payment in full of the amount set forth in the waiver and release. (2) Such amounts shall conclusively be deemed paid in full upon the earliest to occur of: (A) Actual receipt of funds; (B) Execution by the claimant of a separate written acknowledgment of payment in full; or (C) Sixty days after the date of the execution of the waiver and release, unless prior to the expiration of said 60 day period the claimant files a claim of lien or files in the county in which the property is located an affidavit of nonpayment[.]”2 (emphasis in original).

The Court held that the “plain and unambiguous language” of the statute showed that the “[Georgia] General Assembly intended for [the lien waivers] to be binding against the parties for ‘all purposes,’ not just for purposes of preserving the right to file a lien on the property,” reversed the trial court’s decision, and ruled in favor of ALA. In doing so, the Court stated:

“[T]he statute clearly and unambiguously provides that upon signing the Waivers, Controlled Access had a statutorily imposed responsibility to file either a claim of lien or an affidavit of nonpayment if it wished to keep the debt alive beyond 60 days. Controlled Access did neither and the debt is extinguished.”3

The decision in ALA Construction marks a substantial shift in most construction professionals’ understanding of the treatment of lien waivers in the state of Georgia. Previously, most lien claimants and their counsel believed that a statutory lien waiver waived a claimant’s lien rights, but did not affect the claimants’ right to bring a breach of contract action. As a result of this decision, lien claimants who execute lien waivers risk losing their rights to bring breach of contract actions unless they file an Affidavit of Nonpayment or a Claim of Lien within 60 days of execution of a particular lien waiver. Simply put, it makes the timely filing of the foregoing documents more important than ever before. Under the Court’s holding, a party executing a lien waiver without receiving payment that does not subsequently file an Affidavit of Nonpayment or a Claim of Lien risks losing its ability to seek collection of payment for its work even if it can show that it performed the work and was not paid for it.

If you have questions about Georgia’s mechanic’s lien law or this particular case, please contact the construction group at Smith, Gambrell, & Russell, LLP. We can help businesses in the construction industry navigate this recent change to Georgia lien law and provide recommendations on how to protect against the effects of this decision.

Footnotes

1 ALA Constr. Servs., LLC v. Controlled Access, Inc., No. A19A0923, 2019 WL 4463305 at *1 (Ga. Ct. App. Sept. 18, 2019). A copy of the decision can be accessed at https://law.justia.com/cases/georgia/court-of-appeals/2019/a19a0923.html (last visited 10/30/2019).

2 Id.

3 ALA Constr. Servs., LLC, supra.

Georgia Supreme Court Addresses Anti-Indemnity Statute

David R. Cook, Jr. | Autry, Hall & Cook | September 14, 2019

In prior blog posts, we addressed Georgia’s anti-indemnity statute. One of the posts addressed the statute in the context of an electric utility easement near an airport. That case made its way to the Supreme Court Georgia, which provided some additional clarity to the statute. Milliken & Co. v. Georgia Power Co., — Ga. –, 829 S.E.2d 111 (2019).

When a plane crashed and several passengers and crew died or were injured, their representatives sued several defendants, including a nearby plant owner, Milliken & Company (“Milliken”), based on claims that transmission lines on Milliken’s property were too close to the runways, were too high, and encroached on the airport easements. Milliken cross claimed against Georgia Power Company (“GPC”). Milliken’s claim was based on an easement it granted to GPC, which required GPC to indemnify it for any claims arising out of GPC’s construction or maintenance of the transmission lines.

On appeal, the Supreme Court considered whether the clause was unenforceable under O.C.G.A. § 13-8-2(b). In general, “a party may contract away liability to the other party for the consequences of his own negligence without contravening public policy, except when such agreement it prohibited by statute.” Id. at 113 citing Lanier at McEver v. Planners & Eng’rs Collaborative, 284 Ga. 204, 205 (2008). As one such statute, O.C.G.A. § 13-8-2(b) applies when an indemnification provision (i) “relates in some way to a contract for construction, alteration, repair, or maintenance of certain property” and (ii) “promises to indemnify a party for damages arising from that own party’s sole negligence.” Id. at 114 (internal punctuation omitted).

Since the easement required GPC to “construct, erect, install, operate, maintain, inspect, reconstruct, repair, rebuild, renew and replace” a substation on Milliken’s property, the Supreme Court ruled that it was within the scope of provisions governed by the anti-indemnity provision. As to whether it violated the “sole negligence” prong, the Supreme Court ruled that it did not. In contrast to the statutory prohibition, the easement did not require GPC (the indemnitor) to indemnify Milliken (the indemnitee) for damages resulting from Milliken’s sole negligence. Instead, it required GPC to indemnify Milliken for GPC’s negligence – which is not prohibited by the statute.

GPC cited cases that invalidated indemnity provisions that required indemnification without regard to fault and were thus broad enough to include the indemnitee’s negligence. Relying on these cases, GPC cited Milliken’s pleadings which sought indemnification from GPC ostensibly without regard to fault. The Supreme Court rejected this argument because, even though Milliken’s pleadings sought such broad indemnification, the underlying indemnity provision did not.