Best Practices and Construction Defect

Best Practices in Construction– What are Yours?

The following is reprinted from Craig Martin, Construction Attorney, Lamson Dugan & Murray, LLP. Best practices in construction management remain a key to eliminating subsequent CD liability.
Risks on Construction Projects

The latest Engineering News Record had an interesting article on Best Practices in Construction written by Deron Cowan of Zurich Services Corporation. In the articles, Mr. Cowan emphasizes the importance of best practices and the methodology to develop them.
As Mr. Cowan notes, best practices are intended to eliminate, reduce and manage risks and all construction companies should be fully engaged in correctly executing and accomplishing risk analysis to meet the demands of their practices.
Mr. Cowan sets forth the process to assess and implement risk management:
The problem situation must be identified and then analyzed.
When the analysis is complete, it leads to determining a potential solution.
The solution is then communicated and implemented to the workforce.
Follow-up on the best practice to determine whether it was beneficial.
By following a protocol to identify risks and best practices to avoid them, construction companies can reduce the probability and severity of accidents in the workplace.

OSHA changes injury, death reporting deadlines

WASHINGTON – The U.S. Department of Labor’s Occupational Safety and Health Administration today announced a final rule requiring employers to notify OSHA when an employee is killed on the job or suffers a work-related hospitalization, amputation or loss of an eye. The rule, which also updates the list of employers partially exempt from OSHA record-keeping requirements, will go into effect on Jan. 1, 2015, for workplaces under federal OSHA jurisdiction.

The announcement follows preliminary results from the Bureau of Labor Statistics’ 2013 National Census of Fatal Occupational Injuries*.

“Today, the Bureau of Labor Statistics reported that 4,405 workers were killed on the job in 2013. We can and must do more to keep America’s workers safe and healthy,” said U.S. Secretary of Labor Thomas E. Perez. “Workplace injuries and fatalities are absolutely preventable, and these new requirements will help OSHA focus its resources and hold employers accountable for preventing them.”

Under the revised rule, employers will be required to notify OSHA of work-related fatalities within eight hours, and work-related in-patient hospitalizations, amputations or losses of an eye within 24 hours. Previously, OSHA’s regulations required an employer to report only work-related fatalities and in-patient hospitalizations of three or more employees. Reporting single hospitalizations, amputations or loss of an eye was not required under the previous rule.

All employers covered by the Occupational Safety and Health Act, even those who are exempt from maintaining injury and illness records, are required to comply with OSHA’s new severe injury and illness reporting requirements. To assist employers in fulfilling these requirements, OSHA is developing a Web portal for employers to report incidents electronically, in addition to the phone reporting options.

“Hospitalizations and amputations are sentinel events, indicating that serious hazards are likely to be present at a workplace and that an intervention is warranted to protect the other workers at the establishment,” said Dr. David Michaels, assistant secretary of labor for occupational safety and health.

In addition to the new reporting requirements, OSHA has also updated the list of industries that, due to relatively low occupational injury and illness rates, are exempt from the requirement to routinely keep injury and illness records. The previous list of exempt industries was based on the old Standard Industrial Classification system and the new rule uses the North American Industry Classification System to classify establishments by industry. The new list is based on updated injury and illness data from the Bureau of Labor Statistics. The new rule maintains the exemption for any employer with 10 or fewer employees, regardless of their industry classification, from the requirement to routinely keep records of worker injuries and illnesses.

For more information about the new rule, visit OSHA’s website at http://www.osha.gov/recordkeeping2014.

South Carolina Supreme Court Upholds Court of Appeals Bar Using “Your Work” and Product Replacement Exclusions to Deny Subcontractor Recovery

In Precision Walls, Inc. v. Liberty Mutual Fire Insurance Co., No. 2013-000787 (S.C. Ct. App. July 23, 2014), the general contractor contracted with Precision for the installation of exterior insulation board. Precision, being an approved applicator sold the installation board in question. After Precision completed its work, a masonry subcontractor began construction of the brick veneer wall which came into contact with the Precision product. The joint sealing tape installed by Precision began to come loose due to contact with the masonry contractor’s work product. Full repair could only be accomplished via the removal of brick as it now obstructed Precision’s work. The general contractor deducted the cost of tearing down and rebuilding the brick veneer wall from Precision’s contract. Precision sought reimbursement for this amount from its CGL policy issued by Liberty Mutual. Liberty Mutual denied coverage and Precision filed a declaratory judgment action. The trial court entered judgment for Liberty Mutual determining that the amount sought by Precision failed the “occurrence” requirement of the initial two pronged coverage analysis. The trial court also cited the “your work” exclusion. The Court of Appeals affirmed.

The opinion at issue today is the Supreme Court’s ruling, which affirmed and held that all of the damages fell within the “your work” exclusion. The court largely ignores the “occurrence” aspect of the case, yet ruled further “the defective tape, and all costs associated with its replacement, fall squarely within the exclusion.” The exclusion referenced is “your work”, and I have attached the opinion for further review.

Link http://sccourts.org/opinions/HTMLFiles/COA/5250.pdf

Building On a Rebound | PropertyCasualty360

The following article discusses a resurgent construction industry and the nuances which create more liability for injuries on job sites and defect centered litigation. It seems natural that an increase in construction might lead to an increase in litigation, although this article discusses those not so obvious factors which serve as catalysts for litigation. Building On a Rebound | PropertyCasualty360.

4th Circuit: Substantial Completion Occurs When Your Contract Says It Occurs

C. Clay Olson:

Substantial completion is an often undefined milestone which has been often construed as that time after which a dwelling or commercial building may be occupied. Matt has written an excellent piece which summarizes recent 4th Circuit activity and it’s impact on the construction, insurance, and legal communities.

Originally posted on N.C. Construction Law, Policy & News:


There is no milestone more significant to a commercial construction project than substantial completion.  For an owner, it’s the long-awaited moment it can make beneficial use of its investment.  For prime contractors, it’s the moment the owner’s rights to terminate and/or assess liquidated damages is cut off.  For subcontractors, it’s the moment contractual warranties typically begin to run.  The list goes on and on.

Monday MemoIn light of how many legal rights and defenses are tied to the moment of substantial completion, you would think that contracting parties would take extra care to (1) define what constitutes “substantial completion” and (2) ensure that “substantial completion” is achieved in accordance with that carefully crafted contractual definition.

That’s not always the case, as a 2013 decision from the U.S. Court of Appeals for the Fourth Circuit (which includes North Carolina) reveals.

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Insurance Coverage for Defective Workmanship

For years, some state courts and insurance companies have been telling contractors that the construction defect claims they face aren’t covered by their insurance because faulty work is not an “accident” that insurance is intended to guard against. This situation is rapidly changing, however, as more and more courts are concluding that defective construction is an “accident.” This has opened the way for these claims to be covered by insurance.

We have covered this topic before in the blog.  As in 2011, insurance coverage remains ever evolving as it pertains to construction defect claims.

There are four questions that must be answered to determine if a construction defect claim is covered by a contractor’s standard commercial general liability insurance policy:

• Was the alleged faulty work or breach of care an accident?

• Has the workmanship resulted in tangible property damage?

If the first two items are satisfied, we move to exclusionary language, as well as exceptions to exclusions.

• Is the construction defect expressly excluded from the policy’s coverage?

• If there is an exclusion that applies, is there an exception that restores coverage?

This article will focus on the first question only, which is often referred to as the “accident” prong.  The definition of “accident” varies from jurisdiction to jurisdiction and often hinges on concepts which are lesser understood such as fortuity.

For example, in the recent case of Dusty McBride v. Acuity, the 6th Circuit Court of Appeals denied insurance coverage for claims against a contractor based on structural construction defects because under Kentucky law, construction defects are caused by the builder, or the subcontractors chosen by the builder, and not by a fortuitous or truly accidental event.

Kentucky’s rationale is becoming less and less common, as states are trending toward construing instances of faulty construction as “accidents” in that they are not purposeful acts.

Consider the following cases from 2013:

The Connecticut Supreme Court, in Capstone Building Corp. v. American Motorist Ins. Co.; the Supreme Court of Georgia, in Taylor Morrison Serv. Inc. v. HDI-Gerling America Ins. Co.; and the Supreme Court of North Dakota, in K&L Homes Inc. v. American Family Mutual Ins. Co., reached the conclusion that defective construction is an accident.

The decisions by these courts provide evidence of a rapidly growing trend in which courts have rejected arguments advanced by insurance companies to avoid covering construction-defect lawsuits. But there are still many states in which this question has not been answered.

Still, states remain undecided or, as in Utah, conflicted.  In that state judges in the U.S. District Court have come to opposite conclusions: one, that construction defects aren’t accidents under Utah law, and another, that they are.

However, given the strength of the national trend in the courts and resulting appeals decisions, an insurance company’s denial of coverage for a construction defect claim on the basis that the defective construction was not an accident likely will not be upheld in future cases.

Senate Bill 474 Changes the Rules for Indemnity Between a General and a Subcontractor

C. Clay Olson:

California Law and Indemnity Shifts

Originally posted on Law Offices of Robert L. Bachman:

The California Legislature and Governor Brown recently approved California Senate Bill 474, which general provides that in all construction contacts for private commercial project entered on or after January 1, 2013 any indemnity obligations (including cost to defend) arising out of the active negligence or willful misconduct  of the indemnified party are void and unenforceable.

The new law affects risk allocations in construction projects and may lead to insurance related litigation. California developers and general contractors typically use what is referred to as a “Type 1″ indemnity proviso in construction contracts. “Type 1″ indemnity allows one party (usually owners, developers, and general contractors) to require the other party (typically subcontractors) to indemnify them for their own active negligence or fault.

Senate Bill 474:

  • Does not apply to design professionals.
  • Includes contracts for renovations and utility, water, sewer, oil and gas lines under construction contracts.
  • Cannot be avoided by the…

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