The Skyscrapers of the Future Will Be Made of Wood

David J. Petersen | Tonkon Torp. | September 6, 2018

On August 8, the Oregon Building Codes Division approved a new state building code called a Statewide Alternate Method. The new code authorizes the construction of wood buildings taller than six stories, which was the previous limit. Taller wood buildings have been made possible by technological advances with cross-laminated timber. CLT, as it is known, is constructed by layering perpendicular sheets of solid lumber and adhering them together. It is similar to plywood, but much thicker, creating the necessary structural support for a high rise building. 

CLT has numerous advantages over steel, masonry and concrete. It is lighter and more flexible, which provides excellent seismic resilience, reduces the need for deep foundations and shortens construction time. The base material is easily adaptable to different uses by adding or removing layers to create the desired thickness and strength. As a wood product it sequesters carbon and can be sourced from a renewable, sustainable resource. Materials can be prefabricated off site, potentially lowering construction costs. Disadvantages include current higher production costs and weak sound insulation properties. While an increased risk of fire may seem logical, in fact CLT has been shown to have equal or better fire resistance than other non-carbon based construction materials.

CLT is in common use in Europe, and the largest CLT building currently in existence is Dalston Lane, a mixed use complex in Hackney in the U.K., with towers as tall as 10 stories. The Framework Building, a mixed retail, office, and residential tower to be constructed in Portland’s Pearl District, would have topped Dalston Lane at 12 stories, but due to development challenges the project is currently on hold. Portland also hosts the USA’s first CLT building, the four-story Albina Yard.

Despite the temporary setback of the Framework project and the manufacturing defects recently found in CLT used in a project at Oregon State University, CLT has loads of promise as the high-rise construction material of the future. By using sustainably-sourced wood or wood that would otherwise go to waste (much CLT in the market today is made from pine beetle-infested trees), the carbon footprint of new high-rises can be reduced significantly. As costs come down, as they do with all successful new technologies, expect to see CLT structures rise near you.

Before skyscrapers first touched the sky in New York and other cities over 100 years ago, most buildings were built of wood. The structural limitations and fire risk of wood kept buildings short, to perhaps five or six stories at most. Steel and concrete allowed architects to blow past those limitations. Now, with the advances made possible by CLT, our built environment is on the verge of completing a full circle to the space age wood structure of the future.

Oregon Anti-Indemnity Statute Voids Sub-sub’s Duty to Indemnify Sub for the Sub’s Own Negligence

Amandeep S. Kahlon | Buildsmart | August 7, 2018

The Ninth Circuit Court of Appeals recently upheld the application of Oregon’s anti-indemnity statute to a contractual indemnity provision requiring a sub-subcontractor’s insurer to indemnify the subcontractor for the subcontractor’s own negligence. In First Mercury Insurance Company v. Westchester Surplus Lines Insurance Company, Multnomah County contracted with a general contractor for the renovation of a bridge. The general contractor hired a subcontractor to furnish materials including reinforced decking. The subcontractor, in turn, contracted with a sub-subcontractor to manufacture the decking material. The sub-subcontract required the sub-subcontractor to indemnify the subcontractor for the subcontractor’s own negligence in causing damage to a third party—in this instance, the County.

After the project was completed, several defects in the bridge were discovered, including cracks in the decking. When the County sued, the subcontractor was found to have been negligent and partially liable for the defects and resulting damage to the County. The subcontractor claimed indemnity from the sub-subcontractor per the terms of the sub-subcontract, but the trial court refused to enforce the indemnity provision because it was void under Or. Rev. Stat. § 30.140(1). The relevant portion of the statute provides that any provision in a construction agreement that requires a company or its insurer/surety to indemnify another against liability for damage to property caused in whole or in part by the negligence of the indemnitee is void. Citing the plain language of the statute, the Ninth Circuit affirmed the trial court’s judgment denying indemnity.

The Ninth Circuit opinion serves as an important reminder of the variety of anti-indemnity provisions across the nation. Many states take Oregon’s approach and restrict the scope of indemnity provisions to cover only the negligence of the indemnitor and not the negligence of the indemnitee. Other states have more lenient anti-indemnity statutes or no anti-indemnity provision at all. Still others take a harsher approach than Oregon and impose stricter limitations in their anti-indemnity laws and may even have different laws for different industries.

When negotiating agreements for work outside your company’s traditional footprint, consider whether the state where the project is located has an anti-indemnity statute and how it is applied. Indemnity provisions in construction contracts can be exceptionally consequential in terms of allocating risk between parties, so it is essential to understand how such provisions will be applied and enforced in any particular state before executing an agreement and moving forward with a project in that state.

Insurance Reciprocal Exchanges and Federal Diversity Jurisdiction

Stephanie Poll | Property Insurance Coverage Law Blog | July 25, 2018

Recently, a federal district court in Oregon clarified where one may sue an insurance reciprocal exchange. In the case of Staggs v. Farmers Insurance Exchange,1 the homeowners were Oregon citizens who brought suit under a homeowners’ policy issued by Farmers Insurance Exchange in a federal district court in Oregon. Farmers moves to dismiss, arguing that the court lacked subject matter jurisdiction because there was no diversity; that although its primary place of business was California, the Staggs were Oregon citizens.

The court granted Farmers’ motion, noting that in a reciprocal insurance exchange, individuals and businesses pool risk by agreeing to indemnify each other against particular kinds of losses. The policyholders are identified as “subscribers” who act through a common attorney-in-fact and are simultaneously both insurers and insureds. The court determined these insurance exchanges do not have a corporate existence. The court further determined that under California law, a reciprocal insurance exchange’s subscribers were its members and that Farmers’ citizenship had to be decided in relation to the citizenship of its members-subscribers.

Using this rationale, the court concluded that the Staggs were Oregon citizens and Farmers’ member-subscribers and therefore Farmers was an Oregon citizen, destroying diversity between the parties and resulting in the court lacking subject matter jurisdiction.

There are differing decisions among the federal courts on whether subscribers to a reciprocal insurance exchange are members or customers of the exchange.2 One significant fact is that when Congress passed the Class Action Fairness Act of 2005, it amended the diversity of citizenship rule for specific class actions.3 The amendment stated that for a subset of class actions, “an unincorporated association shall be deemed to be a citizen of the State where it has its principal place of business and the State under whose laws it is organized.”

The Senate Judiciary Committee remarked in its report on CAFA that the rule was frequently criticized because often an unincorporated association is, as a practical matter, indistinguishable from a corporation in the same business. Some insurance companies for example, are “inter-insurance exchanges” or “reciprocal insurance associations.” For that reason, federal courts have treated them as unincorporated associations for diversity jurisdiction purposes. Since such companies are nationwide companies, they are deemed to be citizens of any state in which they have insured customers.

Consequently, these companies can never be completely or even minimally diverse in any case. It makes no sense to treat an unincorporated insurance company differently from, say, an incorporated manufacturer for purposes of diversity jurisdiction. New subsection 1332(d)(10) corrects this anomaly.
_______________________________
1 Staggs v. Farmers Ins. Exchange, No. 3:15-cv-015020 (D. Ore. April 27, 2016).
2 Garcia v. Farmers Ins. Exch., 121 F. Supp. 2d 667, 669 (N.D. Ill. 2000); James G. Davis Const. Corp. v. Erie Ins. Exchange, 953 F. Supp. 2d 607 (D. Md. 2013); James River Ins. Co. v. Cast & Associates, Inc., No. 4:11-CV-00730 (D. Ariz. Mar. 5, 2012); Nevada Capital Ins. Co. v. Farmers Ins. Exchange, No. 2:12-cv-02166 (D. Nev. Dec. 4, 2014).
3 28 U.S.C. § 1332(d)(10).

Washington Court of Appeals Dismisses Oregon Contractor’s Collection Action for Failure to Strictly Comply With Registration Requirements

Rachel B. Greenlee | Lane Powell | April 3, 2018

In an unpublished opinion filed April 3, 2018, in HNS, Inc. v. Eagle Rock Quarry, et al., Cause No. 34695-1-III, Division Three of the Washington Court of Appeals dismissed a contractor collection action finding that the contractor failed to substantially comply with the requirements of Washington’s contractor registration act, RCW 18.27, which is a prerequisite to filing suit.

Eagle Rock Quarry, Inc., located in Mesa, Washington, entered into an oral agreement with HNS Inc., an Oregon company, for HNS to blast and stockpile gravel at its Washington location. Eagle Rock made a number of payments to HNS under the agreement, but suddenly stopped paying HNS’s monthly invoices in September 2015. Four months later, HNS sued Eagle Rock for its failure to pay.

Despite expressing sympathy for HNS having performed work without payment, the trial court granted Eagle Rock’s motion to dismiss the Complaint on the basis that HNS was not duly registered as required under RCW 18.27, which is a prerequisite to filing suit.

RCW 18.27 requires every contractor engaging or offering to engage in services in Washington to register with the Department of Labor and Industries (L&I). In any action to collect compensation for work or to enforce a contract, a contractor must prove that it was duly registered at the time it entered into the contract or performed the work. The statute states that a court may not find a contractor in substantial compliance with the registration requirements unless:

  1. L&I  has on file the registration information prescribed in RCW 18.27.030,
  2. The contractor had at all times in force a current bond or surety as required by RCW 18.27.040, and
  3. The contractor had at all times in force a current insurance as required by RCW 18.27.050.

HNS had formerly been licensed in Washington, but failed to renew its license in 2010. The Court of Appeals reasoned that by virtue of its previous registration, L&I likely had on file much but not all of the information required by RCW 18.27.030. However, the Court found that HNS’s $75,000 surety bond did not qualify as a bond required by RCW 18.27.040 because it named the State of Oregon as obligee. RCW 18.27.040 requires the contractor’s bond to name the State of Washington as obligee. To this point, the Court of Appeals quoted the trial court’s comments at oral argument that “the purpose of the statute is to protect against damage claims … [for] people that work here. People that have accidents that occur here.” (Emphasis added).

Further, HNS could not demonstrate that it possessed the required insurance because it provided only premium notices, rather than a copy of the policy, or other evidence that the insurance in place covered its operations with Eagle Rock in Washington.

Accordingly, while similarly sympathetic to HNS’s situation, the Court found that HNS did not substantially comply with RCW 18.27.080 in the manner required to enjoy access to Washington courts, and affirmed the trial court’s dismissal of the action. This case emphasizes the importance of strict compliance with the Washington contractor registration act, especially for out-of-state contractors.

Construction Law Alert: Proposed Legislation Would Make Contractors Liable for Unpaid Wages of Subcontractors

Eric A. Grasberger and W. Cory Haller | Stoel Rives | February 13, 2018

A bill proposed in the Oregon House of Representatives threatens to fundamentally alter the relationships between owners, contractors, their subcontractors, and their subcontractors’ employees. Under the bill, a contractor (defined as a person who contracts with an owner to perform construction) on a private project would be directly liable for the unpaid wages of its subcontractors’ employees. This liability would extend to employees of subcontractors at all tiers, and it would include liability for any benefit payments or contributions made as part of the employee’s total compensation. The contractor’s liability could be enforced by the Bureau of Labor and Industries, any third party owed a benefit payment or contribution on behalf of the unpaid employee, or any joint labor and management committee established under a collective bargaining agreement.

The bill provides a few minor protections for contractors. It requires subcontractors to provide payroll records and information describing payment status. Although it allows a contractor to withhold payment to a subcontractor because of the subcontractor’s failure to comply with a contractor’s information request, it does not allow a contractor to avoid liability to the subcontractor’s employees for unpaid wages based on the subcontractor’s failure to comply with such a request.

For the full text of the proposed legislation, click here. This legislation is currently pending in the House Business and Labor Committee, and we urge you to contact your representative to share your comments regarding the impact this legislation could have on your business.

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