Insurance Issues Surrounding Construction Contracts

Transcription

1 AAPA Port Administration & Legal Issues Seminar Insurance Issues Surrounding Construction Contracts Andy Michels, Port of Tacoma Janet Quimby,, Port of Tacoma Debbie Bovee, Aon Risk Services, Inc. of Washington

2 Legal Framework of Risk Allocation Failure to comply with state laws requiring advertisement and award of public works contracts to the low responsive responsible bidder sufficient grounds for commissioner recall.

3 Legal Framework of Risk Allocation The recall charge that Kast violated state competitive bidding law was factually and legally sufficient. The recall process may proceed. Washington State Supreme Court, In Re Recall Of Kast Cause No , September 20, 2001.

4 Legal Framework of Risk Allocation Spearin doctrine - Owner warrants plans and specs are free of design defects, but A/E does not give this same warranty to owner, only to use reasonable skill and care. Remedies: Disclaimer of warranty (transfer) Constructability review (mitigation) Notice of defect (mitigation) Require consolidation of disputes (avoidance)

5 Legal Framework of Risk Allocation (WA) A/E agreements common challenges Terms defined by practice, e.g. detailed design vs. means and methods Requested liability limit to amount of fee Requested liability limit to insurance coverage Requested constriction of statute of limitations

6 Legal Framework of Risk Allocation (WA) Classic analysis means and methods up to the contractor But Contractor has nondelegable safety duty Contractor does not have E&O insurance Enforcement agencies hold owner liable for environmental violations of contractor

7 Legal Framework of Risk Allocation (WA) Contract clauses deemed against public policy Requiring contractor to hold it harmless from the Owner s negligence Precluding damages for delay caused by the Owner Waiving workers compensation immunity unless specifically negotiated

8 Preconstruction Strategies Tenant lease incorporate basis of design confirming functional features Constructability review by senior design advisers Internal audit program Monthly reconciliation to budget Contract administration practices

9 Preconstruction Strategies Bidder evaluation Establish criteria in specifications Verify payments of state taxes and industrial insurance Contact references for firm and key personnel Review bid worksheets with bidder

10 Contract Documents Address the limitations of additional insured status with contract provisions: The Contractor shall defend, indemnify and hold harmless the Port and its agents from all liability, claims, damages, losses and expenses, whether direct, indirect or consequential arising out of the performance of the Work.

11 Contract Documents The Port has the right to withhold making all or part of any payment otherwise due the Contractor if and so long as the Contractor is in breach of any of its obligations under this Contract.

12 Contract Documents Scenario: Port is an additional insured on Contractor s insurance Subcontractor damages Port tenant s property Contractor s insurer is not primary Contractor s insurer will not pay and chase Solution: withhold progress payments

13 Construction Insurance Commercial General Liability exclusions: Work within 50 ft. of any railroad tracks Pollution exclusion omits discharge, dispersal, seepage, migration, release or escape of pollutants i.e. any solid, liquid, gaseous or thermal irritant or contaminants, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste

14 Construction Insurance Pollution exclusion has been used to exclude liquid asphalt discharged into storm drains. Exclusion applied to waterproof deck sealant causing tenant s injury from fumes. Quadrant Corp. v. American States Insurance Wn. 2d (2005)

15 Construction Insurance Completed operations coverage is insurance covering claims arising after completion of the work, such as for mold and water intrusion. However, the actual endorsement forms may cover only the liability arising out of the contractor s ongoing operations.

16 Construction Insurance Performance and Payment Bond No specific form required? Surety s affirmative duty to respond Notice requirements Contract for substitute performance without competitive bidding Consider default insurance

17 PCT

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19 Construction Insurance USL&H considerations Difference among circuits re applicability 9 th circuit interpretation of status and situs No cause of action against Port for failure to require USL&H Port requires to the extent applicable

20 Builder s Risk If Port procures: Can control coverage Contractor s equipment excluded Business income loss excluded May pay twice for coverage Avoid warranty to contractor Terminates upon beneficial occupancy