{"id":896102,"date":"2019-07-03T13:36:19","date_gmt":"2019-07-03T19:36:19","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=896102"},"modified":"2019-07-03T13:36:27","modified_gmt":"2019-07-03T19:36:27","slug":"construction-defect-dispute-construction-defect-act-not-suit","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/construction-defect-dispute-construction-defect-act-not-suit\/","title":{"rendered":"Construction Defect Dispute Governed by Contract Disputes Act not yet Suited to being a “Suit”"},"content":{"rendered":"\n

William S. Bennett | SDV Insights<\/a> | May 14, 2019<\/p>\n\n\n\n

The Southern District of California recently held that a series of demands for a general contractor to investigate and repair several construction defects at a U.S. Army facility did not constitute a \u201csuit\u201d within the meaning of the general contractor\u2019s commercial general liability (\u201cCGL\u201d) policy.<\/p>\n\n\n\n

In Harper Construction Co., Inc. v. Nat\u2019l Union Fire Ins. Co. of Pittsburgh, Pa.,<\/em> the U.S. Government hired Harper Construction Company (\u201cHarper\u201d) to construct a U.S. Army training facility for the Patriot Missile System in Fort Sill, Oklahoma. No. 18-cv-00471-BAS-NLS (S.D. Cal. Mar. 28, 2019). During the project, Harper hired Harper Mechanical Contractors (\u201cHarper Mechanical\u201d), an independent company, as a subcontractor \u201cto perform demolition, grading, and other work at the Project.\u201d<\/p>\n\n\n\n

After Harper completed the project, the government informed Harper of property damage at the project, \u201cincluding, but not limited to, gypsum wallboard cracks and binding doors.\u201d Harper attempted to repair the issues, but the problems continued. The issues were apparently the result of Harper Mechanical\u2019s grading work. Subsequently, the government sent two letters requesting an investigation and asking Harper to \u201cpropose a plan to correct the issues.\u201d As Harper undertook an investigation spanning multiple years, the government became increasingly frustrated with the delays. The government threatened to initiate \u201cformal administrative recourse\u201d and to demolish the project, forcing Harper to re-build from the ground up. It also sent Harper another letter requesting Harper submit a formal proposal to correct the issues.<\/p>\n\n\n\n

Harper\u2019s general liability carrier was National Union Fire Insurance Company of Pittsburgh, PA (\u201cNational Union\u201d). Harper Mechanical was listed as an additional insured on Harper\u2019s policy. Four years after the government\u2019s first notification to Harper of the issues with the project, Harper\u2019s broker submitted a claim to National Union. The broker noted that Harper was seeking additional insured coverage for Harper Mechanical under Harper\u2019s own policy for investigation and repair costs resulting from Harper Mechanical\u2019s work.<\/p>\n\n\n\n

National Union issued a reservation of rights letter and sought more information from Harper. The parties corresponded for the next year and half, until National Union issued a denial letter indicating that there was not a \u201csuit\u201d against Harper seeking damages because of \u201cproperty damage,\u201d based on the policy\u2019s definition of \u201csuit.\u201d<\/p>\n\n\n\n

The policy contained the standard ISO CGL definition of \u201csuit,\u201d which is defined, in pertinent part, as \u201ca civil proceeding in which damages because of \u2026 \u2018property damage\u2019 to which this insurance applies are alleged. \u2018Suit\u2019 includes: \u2026 b. Any other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.\u201d<\/p>\n\n\n\n

Harper sued National Union. National Union moved for summary judgment. In opposition, Harper argued that the government\u2019s demand constituted a \u201csuit\u201d because the demand falls within the Contract Disputes Act (\u201cCDA\u201d), which includes administrative and court proceedings and qualifies as \u201cany other alternative dispute resolution proceeding\u201d under the policy definition. The CDA applies to \u201ccontracts made by an executive agency for, among other things, the procurement of construction \u2026 of real property.\u201d<\/p>\n\n\n\n

The court acknowledged that the CDA applied to the contract, given the Army\u2019s status as an executive agency. However, the CDA does not automatically consider all disputes to constitute a \u201cclaim.\u201d A dispute does not become a \u201cclaim\u201d unless one of the contracting parties issues a \u201c[w]ritten demand or written assertion \u2026 seeking \u2026 the payment of money in a sum certain,\u201d at which point \u201ceach claim by the Federal Government against a contractor relating to a contract shall be the subject of a written decision by the contracting officer.\u201d Without the claim being \u201csubmitted for a written decision by the contracting officer, which is the first step in the dispute resolution process under the CDA,\u201d the court determined that there was \u201cno evidence that Harper was faced with a \u201ccivil proceeding in which damages \u2026 are alleged\u201d or \u201cany other alternative dispute resolution proceeding,\u201d as required by the policy\u2019s definition of \u201csuit.\u201d The court also noted that there was no evidence that National Union had consented to any of the processes involved in the dispute, which is a further requirement of the definition of \u201csuit.\u201d<\/p>\n\n\n\n

The court granted summary judgment for National Union based on the conclusion that the CDA demands did not constitute a \u201csuit.\u201d This case is an unfortunate example of what can happen when a contractor does not consider coverage when making strategic decisions throughout the process of investigating and repairing construction defects. The result could potentially have been favorable for Harper had it notified National Union early (and often) of the issues, involved coverage counsel to work with its defense and\/or general counsel to strategize about how to cast the proceedings as a \u201csuit\u201d under the CDA, and followed the proper channels under the CDA to solidify its position that the parties were involved in ADR proceedings under existing California law.<\/p>\n","protected":false},"excerpt":{"rendered":"

William S. Bennett | SDV Insights | May 14, 2019 The Southern District of California recently held that a series of demands for a general contractor to investigate and repair several construction defects at a U.S. Army facility did not constitute a \u201csuit\u201d within the meaning of the general contractor\u2019s commercial general liability (\u201cCGL\u201d) policy.… Continue reading Construction Defect Dispute Governed by Contract Disputes Act not yet Suited to being a “Suit”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[4,30],"tags":[9895,4739,19],"class_list":["post-896102","post","type-post","status-publish","format-standard","hentry","category-construction-defects","category-general-liability-policy","tag-advise-consult","tag-commercial-general-liability-policy","tag-construction-defects-2","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nConstruction Defect Dispute Governed by Contract Disputes Act not yet Suited to being a "Suit" - 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