Monthly Archives: November 2013

What Constitutes a Total Loss in Virginia?

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Kenneth Kan – November 26, 2013

Late last night, I was watching Bizarre Foods, one of my favorite shows on television. For those who are not familiar with the show, it follows a plump bald headed guy who travels all over in search of interesting eats. The episode I was viewing featured the State of Virginia. Apparently, the cicada (a winged insect that makes a buzzing sound) is catching on as a delicacy. I’ll pass, thank you. Anyway, the show oddly inspired me to continue the state-by-state series on total loss standards. Since Virginia has yet to be covered, I will now turn to Virginia.

In my research of Virginia law, I came across an early case that discussed what constitutes a total loss in the property insurance context. (1) In that case, the Supreme Court of Appeals of Virginia acknowledged the difficulty in attempting to define total loss or destruction with various other states adopting conflicting rules. However, the court found that the trial court’s jury instruction on total loss actually hit the mark and agreed that total loss . . .

“does not mean the complete extinction or annihilation of the property, but does mean that the property must have been so injured that a reasonably prudent owner would not use the same in restoring it to its former condition, but would abandon it and construct the property new.”

So, Virginia similar to a number of other states has adopted the “prudent person” test for determining total loss.  Under the “prudent person” test, the key consideration is the reasonableness or practicality of repair.

To date, the total loss blog series has taken us through about two-thirds of the country. We will have all 50 states covered very soon. Stay tuned.

 

(1)   Phoenix Ins. Co. v. Shulman Co., Inc. (1919) 125 Va. 281.

via What Constitutes a Total Loss in Virginia? : Property Insurance Coverage Law Blog.

Happy Thanksgiving from Advise & Consult, Inc.!

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We hope that you have a Happy Thanksgiving and that you are able to spend it with the ones you love and care about.  We count each of you among our blessings and are grateful for our association with you.  If possible, find a way to help someone less fortunate than you by providing a meal, some clothes, service, a little money or even just a smile.

Our thoughts and prayers go to those who are not able to be with family this holiday season – especially those that are serving us in the military, police and fire departments, to keep us safe so that we are able to enjoy our freedoms.

Here is to a comfortable home, a plateful of food, great relationships and a safe and happy holiday.  If it so applies, may you find the sales for your holiday shopping, and may your football team win – unless of course your not cheering for the same team as us – then you are on your own;)

We wish all those celebrating Hanukkah as well a happy and safe holiday!

Door Opening to Allow Common Negligence Claims Against Construction Professionals

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Lane Powell – November 18, 2013

For several years, design and construction professionals have been awaiting word from the Washington Supreme Court regarding whether aggrieved parties are limited to remedies set forth in their written contracts or whether they can pursue common law negligence claims. On November 14, the court decided Donatelli v. D.R. Strong Consulting Engineers, Inc., by suggesting that negligence claims could be pursued in certain circumstances unless the parties’ clearly and specifically preclude them. The result demonstrates the importance of including specific terms in the contract which delineates claims that the parties intend to either limit or preclude.

The plaintiffs in Donatelli entered into a written contract with an engineering firm, D.R. Strong Consulting, to develop two short plats. King County issued a preliminary approval for the short plats that was good for five years, but the project was not completed during this period and the approvals expired. Subsequently, the engineering firm assisted the Donatelli’s in obtaining new preliminary approvals, but the real estate market collapsed before they could obtain final approval. The Donatelli’s ran out of money and lost the property to foreclosure. They sued the engineer for breach of contract, negligence, negligent misrepresentation and violation of the Washington Consumer Protection Act (“CPA”). The engineer moved for summary judgment on all of the negligence claims, asserting as its sole basis for the motion that the claims were barred by the economic loss rule and on the CPA claim. The trial court granted summary judgment on the CPA claim but denied summary judgment on the negligence claims.

The contract between the Donatelli’s and the engineering company contained a limitation of liability provision that limited the engineer’s liability to $2,500 or the fee charged, whichever was greater. The limitation could be waived if the client agreed to pay an additional 5 percent of the fee or $500, whichever was greater. The Donatelli’s had chosen not to waive the liability limitation by paying the additional fee.

The Supreme Court upheld the trial court and Court of Appeal decisions denying summary judgment on the tort claims. On the plaintiffs’ negligence claim, the court decided that it was unclear which duties the engineer assumed under the written contract. Because the record didn’t adequately establish the scope of the professional obligations incorporated into the contract, the court refused to determine if any of the engineer’s duties to the plaintiffs arose independently of the contract and sent the case back to the trial court.

The Donatelli case emphasizes the importance of clearly delineating in a contract the duties assumed in construction contracts, whether arising specifically from the contract or created by law.

This case should also serve as a reminder to include integration and limitation of liability clauses in all contracts. An integration clause is intended to preclude any claims that the parties orally modified the contract to include (or exclude) specific terms. Likewise, detailed limitation of liability clauses that incorporate potential negligence or professional liability damages are necessary to limit the potential exposure of design professionals to extra-contractual claims.

via Door opening to allow common negligence claims against construction professionals – Lexology.

Default Termination: Construction Contract’s Death Penalty

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Eugene J. Heady – November 10, 2013

Most well-drafted construction subcontracts expressly recognize the general contractor’s right to terminate the subcontract upon the default of the subcontractor.  Typically, the specific events and circumstances that constitute a default are enumerated in the subcontract.  A typical subcontract, for example, may provide that the subcontractor shall be deemed in default if the subcontractor (a) fails to prosecute the work with promptness and diligence, (b) fails to prosecute the work in a workmanlike, skillful, cooperative, safe, and careful manner, (c) fails to supply sufficient, adequate or competent supervision, (d) fails to furnish a sufficient number of properly skilled workmen, (e) fails to supply sufficient materials and equipment of the proper quality and quantity, (f) fails to promptly correct defective or deficient work, (g) fails to promptly pay its sub-subcontractors or suppliers or otherwise fails to faithfully discharge its financial obligations on the project, (h) fails to maintain the project schedule or otherwise materially delays the work of the contractor or other subcontractors, or (i) fails to submit any required progress, procurement, and man-hour completion schedules.

Most well-drafted construction subcontracts also provide the subcontractor with an opportunity to cure a default before the contractor is allowed to exercise its right to terminate the subcontract.  Termination is an option not to be invoked lightly.  Given that a termination for default is the construction industry equivalent of capital punishment, it is important that the subcontractor be given an opportunity to cure a default.  Similarly, alternatives to termination should be carefully considered in advance and addressed in the subcontract.  The extreme act of termination should not be the contractor’s only option in dealing with a subcontractor’s default.

Most well-drafted construction subcontracts will give a contractor several different options if the subcontractor fails or refuses to cure a default within the contractually specified time period.  Such options might include (a) supplementing the subcontractor’s workforce, (b) having a second subcontractor take over a portion of the subcontractor’s work, (c) making direct payments to the subcontractor’s material and equipment suppliers, subcontractors, and laborers, or (d) accelerating the subcontractor’s work.

Against the possibility that termination may become inevitable if the subcontractor fails or refuses to perform or otherwise cure a default, the subcontract should give the contractor the express right to terminate the subcontract in whole or in part.  The termination provision should allow the contractor to take possession of the subcontractor’s drawings (including as-built drawings), materials, tools and equipment as may be necessary or desirable to complete the subcontractor’s work with the contractor’s forces or with another subcontractor.  It would also be prudent to have the subcontract language clarify that the contractor’s decision to first pursue one or more alternatives to termination does not prejudice the contractor’s right to later terminate the subcontractor or to claim damages against the subcontractor or the subcontractor’s surety.

The subcontract should also provide that if the contractor opts to pursue one or more of these alternatives to termination then the contractor may deduct its costs, together with resulting losses or damages, from any money due or that may become due to the subcontractor under the subcontract.  The subcontract should make clear that in the event the unpaid balance due under the subcontract exceeds the contractor’s cost of supplementing or completing the subcontract work then the difference shall be paid to the subcontractor; but if such cost exceeds the balance due, then the subcontractor must promptly pay the difference to the contractor.

The facts and circumstances of construction contract defaults vary widely and are oftentimes both factually and legally complex.  Given the potentially harsh results and consequences of a default termination and the death sentence that a default termination suggests, it is prudent to contact an experienced construction lawyer at the first sign of trouble and certainly well before taking the extreme action of terminating a construction contract.

via Default termination: construction contract’s death penalty – Lexology.