Monthly Archives: July 2012

Delaware Amends Building Construction and Payment Statute

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Seth A. Niederman – July 20, 2012

Delaware recently passed House Bill No. 109, which amends Delaware’s laws regarding Building Construction Payments.  Two notable revisions which may be of interest to our readers:

The amendments clarify when fees and costs may be awarded and the standard for awarding fees (see previous post on recovery of attorney’s fees here).  Specifically, the revised statute provides,

§ 3508.  Attorneys’ fees and litigation costs.

If arbitration or litigation is commenced to recover payment and it is determined that the owner, contractor or subcontractor has failed in good faith to comply with the payment terms of the contract or this title, the arbitrator or the Court, whichever applicable, may award the amount determined to have been wrongfully withheld, plus an amount equal to the amount wrongfully withheld, as additional damages.  An amount shall not be deemed to have been wrongfully withheld to the extent that it bears a reasonable relationship to the value of any disputed amount or claim held in good faith by the owner, contractor or subcontractor against whom the contractor or subcontractor is seeking to recover payment.

The party commencing arbitration or litigation shall have the burden of proof that payment has been wrongfully withheld.

Absent any agreement to the contrary between or among the parties, the arbitrator or the Court in any proceeding arising under this chapter may award to the substantially prevailing party its reasonable attorneys’ fees, arbitration or court costs and expenses, and expenses for expert witnesses if applicable.  Any award of attorneys’ fees shall not be limited by 10 Del. C. § 3912.

The amendments add a clause which prohibits construction contracts from requiring that the parties litigate in a foreign jurisdiction or apply the law of a foreign jurisdiction.  Specifically, the revised statute provides,

It shall be against public policy and shall be void and unenforceable for any provision of a construction contract to … [r]equire the contract, subcontract, agreement or understanding between a contractor and subcontractor to be subjected to the laws of a State other than Delaware or require litigation, arbitration, mediation or other dispute resolution procedures to occur in or be governed by the laws of a State other than Delaware.

via Delaware amends building construction and payment statute – Lexology.

Insurers Urge Incentives for States to Adopt Stronger Building Codes

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July 24, 2012

Property/casualty insurers are backing a measure in Congress to incentivize states to adopt stronger building codes.

The National Association of Mutual Insurance Companies (NAMIC) told members of a House panel today that the measure they are considering would help to save lives and reduce the need for federal disaster aid for the next natural catastrophe.

“One effective step Congress should immediately take to alleviate the financial pressures associated with natural disasters is to encourage mitigation measures, specifically in the form of building stronger, safer home sand businesses,” said Rod Matthews, vice president for State Farm Insurance Companies, a NAMIC member company, in testimony before the House Transportation and Infrastructure Subcommittee on Economic Development, Public Buildings and Emergency Management.

Matthews appeared on behalf of the BuildStrong Coalition, which NAMIC established to bring together advocates for stronger, safer buildings. In addition to leading insurers, the coalition includes the American Institute of Architects, International Code Council, Federal Alliance for Safe Homes, National Fire Protection Association, National Institute of Building Sciences and Associated Builders and Contractors.

Matthews said that 2011 was the fifth costliest year on record for natural catastrophes, with roughly half of the total $72.8 billion in costs paid for by federal relief or not compensated for at all.

“The ongoing need for emergency funding has often created political battles divided by both party and geographic lines,” Matthews said. “We know that natural disasters are inevitable, and while planning for the costs associated with these disasters is not a perfect science, there is a need for the federal government to budget more wisely for them on the front end. Merely hoping the weather cooperates and relying on luck is not the way to establish FEMA’s disaster relief budget.”

BuildStrong supports H.R. 2069, the Safe Building Codes Incentive Act, which would encourage states to adopt and enforce stronger codes by providing greater post-disaster grant funding to qualifying states.

According to Matthews, if H.R. 2069 were in effect today as many as 20 states would qualify for the increased funding.

“Over time qualifying states such as Florida have learned the costly lessons of building code effectiveness,” Matthews said. “Unfortunately, other states have still refused to act by adopting these minimum standards in building safety, thereby putting their citizens at higher risk and increasing the liability of all U.S. taxpayers.”

A 2005 study by the National Institute of Building Sciences’ Multihazard Mitigation Council found that every dollar spent on mitigation would save four dollars in losses. Additionally, researchers at Louisiana State University found that stronger building codes would have reduced wind damages from Hurricane Katrina by 80 percent, and a 2012 Milliman study found that H.R. 2069 would have saved the federal government an average of almost $500 million per year in hurricane relief payments if it had been enacted in 1988.

“The overwhelming evidence supporting the widespread adoption of statewide building codes proves that the Safe Building Code Incentive Act is a fiscally responsible way to empower FEMA to assist in natural disaster recovery while working to prevent future damage,” Matthews said. “The incentives associated with this legislation will cost a modest amount of money in the near-term, but significant savings will be realized in the long-term. Stronger, safer homes and businesses save lives and better protect people’s biggest investment.”

via Insurers Urge Incentives for States to Adopt Stronger Building Codes.

Bad News for Some State Farm Customers with Pending Claims

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Julie Patel – July 18, 2012

State Farm policyholders with pending claims in Broward and Palm Beach counties could have a harder time getting reimbursed for repairs to their property.

In a ruling today, an appellate court sided with State Farm and a lower court’s decision that a claim filed by policyholders Sheila and William Kramer can be denied because they did not submit detailed documents under oath describing the damage and repair costs within 60 days of the damage – even though the insurer didn’t explicitly ask for them when the claim was reported.

Most insurers ask for the documents, called a proof of loss, when the claim is reported, according to several insurance experts.

“An insurer will typically – routinely – ask for a proof of loss,” Lynne McChristian, spokeswoman for the Insurance Information Institute, wrote in an email. “There must be something submitted in writing or through photographic evidence, as requested by the insurance agent or company. When someone makes a call to an insurer with a claim, they are asked for this information and/or sent an email or letter explaining what is needed.”

The Kramers filed a claim in May 2009, more than four years after they said their roof was damaged by hurricanes, according to court documents. They didn’t have any leaks until 2008, and didn’t realize the repair costs would be more than their deductible until 2009, according to the documents. In July 2009, State Farm wrote them to say they violated their agreement with the insurer because of the proof of loss requirement. Later that month, the Kramers filed a proof of loss.

State Farm’s ability to properly investigate and handle the Kramers’ claim was compromised for many reasons, including the fact that it took so long for them to file the claim, according to State Farm Spokeswoman Michal Connolly. “All claims are handled on an individual basis with their own unique circumstances, and this case was unusual given the extended length of time that passed prior to notification,” she said. In court documents, the insurer said the proof of loss requirement is noted in its policies.

“How many State Farm [customers] know what a proof of loss even is much less that they have…to submit one with in 60 days after a loss?” said Ryan Ratliff, an attorney in Coral Springs whose firm represents policyholders.

Ratliff said the opinion could theoretically allow State Farm to deny most claims filed by people who live in Broward and Palm Beach counties because they are within the jurisdiction of the court, the Fourth District Court of Appeal.

Florida courts have been divided on whether insurers can deny claims if they didn’t receive a proof of loss in time, even if they did ask for it, according to attorneys at Merlin Law Group in Tampa, which represents policyholders. If policyholders had a good reason for not submitting the documents, they might be excused.

via Bad news for some State Farm customers with pending claims | House Keys blog.

Court Broadly Defines Subcontractors Who Qualify For Payment Bond Claims

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Edward Lozowicki and Scott A. Vignos – June 19, 2012

Can a supplier of construction materials be considered a “subcontractor” for purposes of enforcing its claim on a public works payment bond? The answer is “yes” according to a recent decision of the California Court of Appeal. In Eggers Industries v. Flintco, Inc., et al., 201 Cal. App. 4th 536 (3d Dist. 2011), rev. denied (Feb. 15, 2012). The Court affirmed the rule that a “subcontractor’s status as a subcontractor must be determined based on what the subcontractor agrees to do, not what it actually ends up doing,” citing a fifty year-old California Supreme Court decision. In so holding, Eggers provides important guidance regarding the scope of recovery against a public works payment bond permitted by Civil Code sec. 3248 and its replacement, the newly chaptered Civil Code sec. 9554, which takes effect in July 2012.

In Eggers, defendant Flintco, Inc. (“Flintco”), the general contractor on a public works project, hired Architectural Security Products (“ASP”) to provide custom doors for the project. Subsequently, ASP hired Eggers to manufacture and deliver the doors to the worksite. When ASP failed to pay the full amount for the doors, Eggers brought suit seeking recovery of the unpaid amount against the public works payment bond Flintco had obtained for the project as required by law.

The primary issue for the trial court was whether ASP was a subcontractor or a materialman to the project. This characterization was dispositive to Eggers bond claim. Pursuant to Civil Code sec. 3248(b), only a materialman who was to be paid by the contractor or a subcontractor on the project may recover against a public works payment bond. By contrast, a material supplier who was to be paid by a materialman to the project may not recover. Eggers argued that since ASP was charged with furnishing a significant amount of custom products in accordance with the project plans and specifications, it should be deemed a subcontractor. Flintco took the opposite position, arguing that because ASP did not install any of the doors for the project, it was merely a materialman to the project, cutting off any potential recovery by Eggers.

On appeal, the Court agreed with Eggers. In its decision, the Court relied on a factually similar Supreme Court case for guidance. Theisen v. County of Los Angeles, 54 Cal. 2d. 170 (1960). In Theisen, a company agreed to supply doors to a public works project, but in fact subcontracted for production of most of the doors to another supplier. The Theisen court interpreted the meaning of subcontractor broadly, finding a subcontractor need only agree with the general contractor to perform a substantial portion of the work of construction in accordance with the specific plans under which the general contractor is bound. Applying this rationale, the Eggers court recognized that to be a subcontractor “one need not actually construct any part of the project, whether on or off site,” only its agreement to do so is required. Therefore, despite the fact that ASP did not manufacture any of the custom doors called for in the plans and specifications for the project, its agreement to do so with Flintco established its role as a subcontractor to the project. On this basis, summary judgment in favor of Eggers was upheld.

Effect on General Contractors

The Eggers case provides important guidance for contractors seeking to limit exposure of the public works payment bond to claims by downstream suppliers. In its arguments, Flintco pointed out that affirming Theisen could “potentially give lien rights to second and third tier suppliers who might fabricate a custom product pursuant to specification requirements.” This, Flintco argued, would require general contractors to inquire into the scope of work for all tiers of suppliers involved in a public work to determine potential exposure of the public works payment bond. The Eggers court found this fear without merit. “To protect itself,” the Court noted, “all the general contractor has to do is condition its payment to the subcontractor on proof of releases by the subcontractor’s suppliers.” Moving forward, general contractors on public works should consider the Court’s advice to require releases from all suppliers to subcontractors prior to payment to avoid unnecessary exposure to its public works payment bond.

Impact of New Statutes Effective July 1, 2012

In 2010, the California Legislature passed Senate Bill (“SB”) 189, a major rewriting of Civil Code provisions governing works of improvements. Under SB 189, Civil Code sec. 3248(b), the statute interpreted by the Eggers court, was repealed and its replacement, Civil Code sec. 9554(b), will go into effect on July 1, 2012. In passing SB 189, the California Legislature stated that court decisions construing repealed portions of the Civil Code maintain their force with respect to new statutes that restate and continue their predecessors. Importantly, the operative language of Civil Code sec. 3248(b) is restated in essence in Civil Code sec. 9554(b). The latter statute provides that “[t]he payment bond shall provide that if the direct contractor or a subcontractor fails to pay … the surety will pay the obligation.” This provision suggests that the Eggers and Thiesen interpretations remain applicable.

via Court Broadly Defines Subcontractors Who Qualify For Payment Bond Claims – Real Estate and Construction – United States.

Ninth Circuit Upholds State Building Code Provision under EPCA Preemption Exemption

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David Erickson and Mark Anstoetter – July 13, 2012

The Ninth Circuit Court of Appeals has upheld energy-efficiency provisions in Washington state’s building code under a preemption-exemption provision in the Energy Policy and Conservation Act (EPCA). Bldg. Indus. Ass’n of Wash. v. Wash. State Bldg. Code Council, No. 11-35207 (9th Cir. 6/25/12). The panel’s unanimous decision affirms a district court ruling that “Washington had satisfied EPCA’s conditions, and therefore was not preempted.”

The state building code gives builders several options for meeting state energy standards, including whether to use higher-efficiency covered fixtures or cut energy use in other ways. Several builders’ groups challenged the state code, arguing that it expressly required efficiency levels that exceeded federal standards and that it favored certain options over others in assigning efficiency credits. They also argued that the state’s method of gauging efficiency and awarding credits was “inconsistent” and “flawed.” The Sierra Club and Natural Resources Defense Council joined the state building code council in defending the efficiency standards.

The appellate court held that defendants had demonstrated that the building code was based on a widely recognized industry standard and that perfect uniformity was not possible. The court found that negligible differences in the efficiency of one project over another that receives the same credit are not inconsistent enough with federal energy law to justify federal preemption.

via Ninth Circuit upholds state building code provision under EPCA preemption exemption – Lexology.