Construction Claims and Litigation

A California Appellate Court recently clarified the burden of proof for an insurance company seeking contribution from another insurance company in settlement of a construction defect action. When a company involved in construction is sued for allegedly causing property damage to the building or structure it built (i.e. a construction defect), the company typically turns to its commercial general liability insurance policy. Depending on the nature of the defect claim the construction company may have more than one policy that could potentially provide coverage. Different insurance carriers may respond to their insured’s tender in different ways. When one carrier agrees to defend and indemnify its insured from a claim potentially covered by another carrier, but the second carrier refuses to cover, the first might settle the claim and then seek a court ruling that the second provide “equitable contribution” to the settlement amount paid. In that situation, what does the settling carrier have to show? That the claim was absolutely and certainly with in the coverage of the second insurance policy?
Continue Reading A Construction Defect Insurance Carrier Need Only Demonstrate That Another Insurance Carrier’s Policy May Potentially Cover The Claim In Order To Recover Equitable Contribution To A Settlement

The amount of a mechanic’s lien in California is generally the lesser of: 1) the reasonable value of the work; or 2) the price agreed upon in the lien claimant’s contract. But does the same measure apply if a lien defendant was not a party to the contract? In Appel v. Superior Court of Los Angeles County, 214 Cal. App. 4th 329 (2013), the appellate court clarified that the same measure does apply.
Continue Reading New Court Decision Clarifies Mechanic’s Lien Valuation Statute

Contractors usually assume that the statutory prohibition on submitting “false claims” refers to inflated invoices, phony change order costs, and the like. However the courts are giving the relevant statutes a broader meaning which public works contractors should take into account. For example, the United States Ninth Circuit Court of Appeals recently ruled that a bidder for a government contract that is found to have knowingly underbid the contract may have liability under the federal False Claims Act (“FCA”). In Hooper v. Lockheed Martin Corporation, 688 F.3d 1037 (9th Cir. 2012), Lockheed was the successful bidder for a contract with the Air Force to automate and modernize software and hardware used to support U.S. space launch operations. The contract was structured as a reimbursable cost plus “award fee” contract, where the contractor would be paid its costs of performing the work, plus “award fees” given at periodic intervals based on overall performance, including factors such as “spending less money than estimated.” Id. at 1041. Because the extent of the work required was uncertain, bidders were to submit their estimated costs of performing the work. Lockheed initially submitted a bid of $439.2 million, and later submitted a “Best and Final Offer” of $432.7 million. Id. at 1042. After the award, the government paid Lockheed more than $900 million for its work.
Continue Reading Knowingly Underbidding For Government Contract May Lead to False Claims Liability

Binding arbitration of construction disputes is frequently required by standard industry contracts. For example, the contract forms published by the American Institute of Architects either require or provide an option for arbitration under the Construction Industry Rules of the American Arbitration Association (“AAA”). The latter rules authorize the arbitrator to decide whether the contractual arbitration agreement is enforceable. (See, e.g. Rule 9 of AAA Construction Industry Rules). However some courts have decided this issue should be determined by the courts, rather than the arbitrator.
Continue Reading Arbitrators can decide validity of arbitration provision in construction contracts

By Candace L. Matson

In California, the payment of contractors is governed by so-called “prompt payment statutes” which are sprinkled through various legislative codes, and which impose sanctions on the paying party for non-compliance. Progress payments by general contractors to their subcontractors on private and most public works of improvement are governed by section 7108.5 of the Business & Professions Code. Retention payments to subcontractors on public works of improvement are governed by section 7107 of the Public Contracts Code, and on private works of improvement by section 3260 of the Civil Code. In some cases the statutes permit withholding of payments only where there is a “good faith” dispute. But what constitutes “good faith”?Continue Reading “Good Faith” In Prompt Payment Disputes

This article is the fourth in a series summarizing construction law developments for 2010.

By Candace Matson, Harold Hamersmith & Helen Lauderdale

  1. Yassin v. Solis, 184 Cal. App. 4th 524 (2d Dist. May 2010)

Homeowners entered into an agreement with a contractor for home improvement work. The agreement called for the contractor to be paid fixed amounts upon reaching specific milestones on the project, with the final payment of $7,500 due once the work was complete and a certificate of occupancy issued. The homeowners became dissatisfied with the contractor’s work, terminated him from the project, and hired another to complete the work.
 Continue Reading The Year 2010 In Review: Prompt Payment Statutes

By Edward Lozowicki

In a recent decision the California Supreme Court expanded the implied warranty of specification suitability to include claims for a public agency’s failure to disclose material information. In doing so it resolved a split in the decisions of the lower appellate courts. Notably, the Court adopts virtually the same rationale recognized by the Federal Circuit and Court of Federal Claims on federal procurement contracts, namely, the "superior knowledge" doctrine. In Los Angeles Unified School Dist. v. Great American Ins., 49 Cal. 4th 738, 2010 WL 2720825 (July 12, 2010), the Court held that a contractor need not prove intentional misrepresentation to recover compensation for a public entity’s failure to disclose material information. The Court expressly disapproved Jasper Construction v. Foothill Junior College, (1979) 91 Cal. App. 3d 1, which held to the contrary.
 Continue Reading Contractors Can Recover for Public Agency’s Failure to Disclose Material Information

By John A. Yacovelle and Matthew W. Holder

In a recent case the California Court of Appeal confirmed in an unpublished decision that, when a construction manager is tasked with supervising and managing a general contractor, the construction manager does not owe a duty of care to the general contractor to prevent economic loss. The Court reasoned that imposing such a duty would subject the construction manager to an untenable conflict in loyalties. Appellate courts in other states are split on this issue. Ledcor Builders, Inc. v. Janez Development, LLC, 2010 WL 925876 (Mar. 16, 2010).
 Continue Reading California Court of Appeal Limits Duties Owed by Construction Managers to General Contractors

By Edward B. Lozowicki and Bram Hanono

Dillingham-Ray Wilson v. City of Los Angeles, 182 Cal.App.4th 1396 (opinion modified by 106 Cal.Rptr.3d 691, (April 16, 2010, No. B192900))

In Dillingham-Ray Wilson v. City of Los Angeles, the California Court of Appeal signaled its holding in the first sentence of its opinion: "The City of Los Angeles (City) obtained millions of dollars worth of construction work that it does not want to pay for." The City argued it was absolved of any obligation to pay the contractor, Dillingham-Ray Wilson (DRW), pursuant to Public Contracts Code sections 7105 and 7107 and Amelco Electric v. City of Thousand Oaks (2002) 27 Cal.4th 228 on the theory that they dictate a method of proving contract damages, a method DRW said was impossible under the circumstances. The Court disagreed because "section 7107 [sic] and Amelco impact the measure of damages, not the method of proving them . . . ." The Court also held that the modified total cost method of proving damages is permissible in California.
 Continue Reading Modified Total Cost Method of Proving Damages: Approved For California Public Works

By Candace L. Matson

As most construction professionals know, California law requires that any person engaged in the business of a contractor, or that acts in the capacity of a contractor, must be properly licensed by the Contractors State License Board (“CSLB”). Cal. Bus. & Prof. Code § 7028. A contractor is defined broadly, as follows:
 Continue Reading Courts Uphold Disgorgement Penalty For Unlicensed Contractors

The Fifth Day, LLC v. James P. Bolotin, et al., ___ Cal.App.4th ___(March 27, 2009, No KC047712)

By Jon E. Maki & Bram Hanono

The California Court of Appeal for the Second Appellate District determined that an entity which provided construction management services to a private owner developing commercial real property was not required to be licensed as a contractor pursuant to the Contractors’ State License Law ("CSLL") (opinion by Acting Presiding Justice Armstrong, concurrence by Justice Krieger). In a lengthy dissent, Justice Mosk disagreed, highlighting that the intent of the CSLL is to protect consumers from unqualified and unlicensed contractors and predicted that the decision on a case of first impression creates a loophole in the license requirements by allowing unlicensed contractors to call themselves "construction managers."Continue Reading Construction Manager Not Required To Be Licensed Pursuant To The Contractors’ State License Law