{"id":900823,"date":"2023-02-07T15:26:08","date_gmt":"2023-02-07T22:26:08","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=900823"},"modified":"2023-02-07T15:27:00","modified_gmt":"2023-02-07T22:27:00","slug":"liquidated-damages","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/liquidated-damages\/","title":{"rendered":"Construction Litigation Roundup"},"content":{"rendered":"\n

Daniel Lund III | Phelps Dunbar<\/a><\/p>\n\n\n\n

Fluid dynamics?<\/strong><\/p>\n\n\n\n

A surety completed a handful of publicly-bid projects in Texas and sought recovery of the contract balances from the projects\u2019 private developers. The developers asserted as affirmative defenses clauses within the general contracts which provided for liquidated damages<\/a> for late completion. If recognized, the LDs would eliminate the claim of the surety and likely obligate the surety for the balance.<\/p>\n\n\n\n

The projects had been required to be publicly bid under the Texas Water Code. That Code limits LD clauses. Citing to the Code, the contracts read on LDs: \u201cSaid $2,500 per day shall also be considered an \u2018economic disincentive for late completion of the Work\u2019 pursuant to Section 49.271(e), Texas Water Code.\u201d<\/p>\n\n\n\n

The surety fought the LDs, noting that the cited provision of the Code authorizes LD provisions only in a \u201cdistrict contract\u201d \u2013 that is, a contract with the governmental entity as a named party. As it turned out, the contracts were entered into on the owner side by private entities and not the government.<\/p>\n\n\n\n

Overriding several arguments by the developers that the contracts are \u201cdistrict contracts\u201d \u2013 even though district was not a party \u2013 the U.S. Fifth Circuit Court of Appeals, noting that if “\u2018a statute is unambiguous,\u2019 courts must \u2018adopt the interpretation supported by its plain language unless such an interpretation would lead to absurd results,\u2019\u201d ruled against the developers on the point. The court stated: \u201cWe hold that Section 49.271 allows \u2018economic disincentive\u2019 clauses only in contracts where a district is a contracting party.\u201d<\/p>\n\n\n\n

Undeterred, the developers took another approach. Because Texas law prohibits liquidated damages clauses which serve to function as a penalty (and noting that the \u201ceconomic disincentive\u201d aspect of the clauses at issue clearly speaks in terms of penalizing the contractor), the developers asked the court to find the clauses to be something other than LD provisions: \u201cThe damages clause, they say, is meant to \u2018reduce or offset any amount owed, as opposed to being used as an affirmative claim to recover liquidated damages. Therefore, the argument goes, the damages clause is not subject to Texas’s liquidated-damages jurisprudence.\u201d<\/p>\n\n\n\n

The appellate court had no problem disposing of this final argument, noting that the clauses themselves are entitled, \u201cLIQUIDATED DAMAGES,\u201d and do not simply \u201cset a mere limitation of liability or delimit damages to \u2018an agreed maximum.\u2019\u2026 Rather, the clause provides that [contractor] is liable for the liquidated damages of $2,500 for every day the Projects are late. Looks like a liquidated-damages provision to us.\u201d<\/p>\n\n\n\n

Hanover Ins. Co. v. Binnacle Dev., L.L.C., 2023 U.S. App. LEXIS 782 (5th Cir. Jan. 12, 2023)\u00a0<\/a><\/p>\n\n\n\n

\u201cI\u2019m sorry, I can\u2019t find your reservation.\u201d<\/strong><\/p>\n\n\n\n

So said the United States Fourth Circuit Court of Appeals to a pair of insurers which believed that they had reserved rights in regard to claims against its insured, the general contractor on two townhome complexes.<\/p>\n\n\n\n

Sitting in diversity and applying South Carolina law, the appellant court stated: \u201cRelying on the \u2018axiomatic\u2019 principle that \u2018an insured must be provided sufficient information to understand the reasons the insurer believes the policy may not provide coverage\u2026 generic denials of coverage coupled with furnishing the insured with a copy of all or most of the policy provisions (through a cut-and-paste method) is not sufficient.”<\/p>\n\n\n\n

The plaintiff in the case sued the contractor and was successful \u2013 obtaining a judgment and a settlement totaling multiple millions of dollars \u2013 and sought a corresponding declaratory judgment against the contractor\u2019s insurers, asserting that the insurers had not sufficiently reserved rights to deny coverage. For their part, the insurers asserted defenses based upon policy provisions on the definition of an \u201coccurrence,\u201d whether any damages occurred during the applicable policy periods, and the \u201cyour-work\u2019 exclusion\u201d in the policies. According to the court, however: “These are some of the coverage defenses the insurers raise here but did not set forth in their reservation of rights letters.\u201d<\/p>\n\n\n\n

The court further commented:<\/p>\n\n\n\n

At the very least, an insurer should \u201cdiscuss[] [its] position as to the various provisions\u201d and \u201cexpla[in] . . . its reasons for potentially denying coverage.\u201d\u2026 If the insurer’s reservation of rights is ambiguous, a court must construe the reservation \u201cstrictly against the insurer and liberally in favor of the insured.\u201d\u2026 [F]or almost all of the coverage issues here, the reservation of rights is of the \u2026 \u201cwe will let you know later\u201d variety.<\/p>\n\n\n\n

The appellate court affirmed the district court\u2019s grant of summary judgment in favor of the plaintiff against the insurers and denied the insurers\u2019 competing motions for summary judgment.<\/p>\n\n\n\n

Stoneledge at Lake Keowee Owners’ Ass’n v. Cin. Ins. Co., 2022 U.S. App. LEXIS 34292 (4th Cir. Dec. 13, 2022)<\/a><\/p>\n\n\n\n

This was bound to happen to someone!<\/strong><\/p>\n\n\n\n

The use of a standard form AIA A310 (2010) bid bond in connection with the bid on a federal project resulted in the bid being tossed as nonresponsive.<\/p>\n\n\n\n

At issue was standard language in the bid bond which \u201climits the liability of the bidder in the case of default to \u2018the difference, not to exceed the amount of this Bond, between the amount specified in said bid and such larger amount for which the [contracting agency] may in good faith contract with another party\u2019\u2026.\u201d<\/p>\n\n\n\n

Leading up to the bid, the aggrieved bidder inquired of the federal owner (the Army Corps of Engineers) \u201cwhether the Army would accept a bid bond on the American Institute of Architects Document A310, 2010 edition (“AIA Form A310”). \u2026 The contracting specialist responded that there was no special form for bidders to use, and they needed only to include a bid bond of the requisite amount.\u201d The bidder proceeded to submit a bid bond using the AIA form. As it turned out: \u201cEvery other bidder used Standard Form 24 (“SF 24”), the bid bond form provided in FAR 28.106-1.\u201d<\/p>\n\n\n\n

In contrast to the limiting language quoted above from the AIA bond, the SF 24 bond contained \u201cstatutory bond\u201d language which would allow the bond to comply with government requirements notwithstanding potentially conflicting language in the bond:<\/p>\n\n\n\n

\u201cWhen this bond has been furnished to comply with a statutory or other legal requirement in the location of the Project, any provision in this Bond conflicting with said statutory or legal requirement shall be deemed deleted herefrom and provisions conforming to such statutory or other legal requirement shall be deemed incorporated herein. When so furnished, the intent is that this Bond shall be construed as a statutory bond and not as a common law bond.\u201d<\/p>\n\n\n\n

Ruling against the aggrieved bidder, the United States Court of Federal Claims held that \u201c\u2026 the AIA Form A310 does not comply with FAR 52.228-1(e), and thus did not meet the requirements of the IFB. Not only is the language of the bid bond’s savings clause ineffective as an incorporation by reference, it also is ambiguous, at best, whether the form intends to operate as a statutory bond in response to the requirements of a solicitation in a federal government procurement.\u201d<\/p>\n\n\n\n

Leeward Constr., Inc. v. United States, 160 Fed. Cl. 446 (2022)\u00a0<\/a><\/p>\n\n\n\n

\n\n\n\n

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Daniel Lund III | Phelps Dunbar Fluid dynamics? A surety completed a handful of publicly-bid projects in Texas and sought recovery of the contract balances from the projects\u2019 private developers. The developers asserted as affirmative defenses clauses within the general contracts which provided for liquidated damages for late completion. If recognized, the LDs would eliminate… Continue reading Construction Litigation Roundup<\/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":[14,9],"tags":[9895,12,224,9112],"class_list":["post-900823","post","type-post","status-publish","format-standard","hentry","category-construction-2","category-construction-contracts","tag-advise-consult","tag-construction","tag-construction-contract","tag-liquidated-damages","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nConstruction Litigation Roundup - 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