Forest City Revisted

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More than a year ago, the Colorado Court of Appeals issued an opinion in Rogers v. Forest City Stapleton, Inc. (2015COA167).  My post then noted the decision could significantly impact developers and construction professionals in Colorado.

The lawsuit involved a dispute between a homeowner in the Stapleton neighborhood and the master developer of the community (Forest City).  Before any new structures were built, Forest City subdivided the former Stapleton International Airport land into individual lots to create a new residential development.  Undeveloped lots were sold to a professional homebuilder (Infinity Home Collection at Stapleton, LLC).  Infinity improved and finished the lot, constructed a house on it, and sold the lot to Rogers.

Rogers claims that an undisclosed high water table beneath his house, coupled with calcite leaching from nearby roads, infiltrated his basement.  Rogers’ claim against Forest City included breach of implied warranty.  His theory was that by allowing Infinity to construct a home with a basement on the lot, Forest City had implied that the lot was suitable for that purpose.

Forest City argued that it did not have any role in the builder’s or homeowner’s decision to build a basement on the lot because it had provide the builder with all of the information available respecting the lot’s subsurface and groundwater condition.

Before the Court of Appeals decision, no Colorado appellate court had recognized an implied warranty running from a lot developer to a subsequent home buyer where the developer is not involved in construction of the house.

Although the opinion attempted to carve a narrow exception for implied warranty claims against a developer, developers, builders, contractors, and designers may now be exposed to more frequent and successful claims for breach of implied warranty.

The Colorado Supreme Court considered the case and has issued it’s ruling. The Supreme Court concluded that because breach of the implied warranty of suitability is a contract claim, privity of contract is required in such a case.

The home buyer was not in privity of contract with the developer and thus cannot pursue a claim against the developer for breach of the implied warranty of suitability.

Thankfully, the Colorado Supreme Court decision assuaged concerns raised a year ago by the court of appeals’ decision.

AIA Contract Provision Void

In early March, 2017 the Colorado Court of Appeals determined a key AIA Contract Provision was void and unenforceable in a residential project.

In Broomfield Senior Living v. R.G. Brinkmann , the Court of Appeals considered whether Section 13.7.1 of the AIA Form A101-1997 Contract was enforceable against the ownership of a senior living project.

Section 13.7.1 of the AIA contract generally states that any defect claims against the general contractor must be filed within a specified date from substantial completion of the project.

The A101 contract is a popular agreement used by owners and general contractors in construction. In this instance, it was entered into between a national general contracting firm and a national company that builds and operates senior living centers.

Brinkmann argued that the AIA’s statute-of-limitations provision (using “substantial completion” as the starting point) reflected the parties’ intent to deviate from Colorado’s 2 year statute of limitation.  The appellate court concluded that such deviation was in violation of the express purpose of the Homeowners Protection Act (“HPA”).  The decision pivoted on the determination that the senior living community was “residential” in nature.   By declaring the project to be “residential,” the Colorado Court of Appeals nullified the concept that commercially-sophisticated parties can consent to modify the statute-of-limitations by adopting long-standing AIA contract language.

Commercial contractor should be aware that Section 13.7.1, which is found in several AIA contract forms, won’t be enforced in any Colorado project involving the construction of “residential” living units.

Out west, near Hawtch-Hawtch

Out west, near Hawtch-Hawtch,
there’s a Hawtch-Hawtcher Bee-Watcher.
His job is to watch …
is to keep both his eyes on the lazy town bee.
A bee that is watched will work harder, you see.
Well…he watched and he watched.
But, in spite of his watch,
that bee didn’t work any harder. Not mawtch.
So then somebody said,

hbqrpe6s_400x400 “Our old bee-watching man
just isn’t bee-watching as hard as he can.

 He ought to be watched by another Hawtch-Hawtcher.
The thing that we need
is a Bee-Watcher-Watcher.

-Dr. Suess

With my thanks (and apologies) to Dr. Suess, the Bee-Watcher always comes to mind when defending claims alleging negligent supervision and inspection against design professionals.

A recent case from the Court of Appeals in Mississippi provides guidance as to the liability of design professionals for supervision and inspection obligations beyond those assumed in their contract.  In McKEAN, v. YATES ENGINEERING CORPORATION, an engineer was sued from injuries that resulted from scaffolding failure during the construction of a medical center.

The engineer was to provide design drawings for the scaffolding and second-story form work. The plan provided was fundamentally flawed. Even though the plan was effectively impossible to follow, the contractor had no comments or questions about the design and it ignored essential features of the scaffolding design.

After the scaffolding collapsed, the plaintiffs claimed the engineering firm was “negligent in inspecting the scaffold[ing] and failed and/or refused to correct known deficiencies and defects in the construction [that] made it dangerous to use prior to the subject incident.” The engineer, however, did not have that duty under its contract.

Plaintiffs claimed the engineer negligently failed to inspect the scaffolding before concrete was poured. However, there was no contractual duty on the engineer to do so. For this reason, the Court examined the circumstances when a design professional’s supervisory powers go beyond the provisions of a contract.  It enumerated seven factors that it believed should be considered in determining whether there was such a duty. These were: (1) actual supervision and control of the work; (2) retention of the right to supervise and control; (3) constant participation in ongoing activities at the construction site; (4) supervision and coordination of subcontractors; (5) assumption of responsibilities for safety practices; (6) authority to issue change orders; and (7) the right to stop the work. The Court found that the evidence did not support the conclusion that engineer had a duty to inspect the scaffolding.

We frequently see similar claims of failure to observe, inspect, or supervise asserted against architects as well as engineers.

This case provides a cautionary tale and useful guidelines to design professionals about the risks of assuming obligations not contained in their contract.

If a design professional performs supervisory and inspection tasks, notwithstanding the limited scope of its contract, courts may find the design professional ‘assumed a duty of safety’ which may leave it liable for damages notwithstanding any understanding to the contrary.

Casey Quillen’s firm is a member of the AIATrust Legal Network providing full legal service to design professionals throughout Colorado.  Ruebel & Quillen, LLC now has an office in Steamboat Springs, CO to better serve firms West of the Continental Divide.

Emerging Copyright Case

shutterstock_159358187The Architectural Works Copyright Protection Act provides protection to original designs of architecture in virtually any form, including architectural plans, drawings and buildings.  These designs have historically been treated as intellectual property belonging to the design firm that created it.

The concept that the design professional retains this right is plainly stated in standard form contracts such as those published by the American Institute of Architects (AIA) and the Engineers Joint Contract Documents Committee.

The standard AIA provision provides that the drawings are “Instruments of Service” and the license to use them can be withheld by the Architect in the event of a dispute between the Owner and Architect.

There have been a number of cases in which an architect’s drawings were used to complete a project when the original project developer transferred the project. In several of these situations, the original architect successfully sued the new developer for the unauthorized use of his design documents.  A recent decision from an Ohio court bolstered this principle and extended the risk of copyright infringement to the contractor and subcontractors.

In Eberhard Architects v. Bogart Architecture, an architect terminated the owner’s use license after failure to pay.  The architect also notified the contractor and subcontractors that the license to use the drawings had been terminated.  The architect sued the owner for breach of contract (due to non-payment), and also the contractor and subcontractor for copyright infringement (for continuation of work utilizing the Architect’s plans). The court held that the contractor and subcontractors could be liable for copyright infringement by continuing to work on the project.

The plain language of the AIA contract was paramount to the architect’s success.

By way of contrast, the provisions of the Construction Owners Association of America (COAA) contract form grant the owner of the project all rights to any “documents or electronic media prepared by or on behalf of the professional for the project.”  Such a clause effectively releases the design professional’s intellectual property rights irrespective of the Architectural Works Copyright Protection Act.

Although Eberhard may have little impact on Colorado design professionals, it is an excellent illustration of the importance that all construction professionals must analyze and understand the project contracts and educate themselves on the risks involved – whether those risks be waiver of intellectual property rights or potential liability for copyright infringement.

Casey Quillen is a member of the AIATrust Legal Network providing full legal service to design professionals throughout Colorado.

When Insurance Fails You

In purchasing a professional liability policy, a firm is counting on a broader financial entity – an insurance company – to absorb all or a portion of the cost of claims and litigation in exchange for premiums paid.

There are a number of articles from AIATrust regarding risk management and how to respond if a claim arises.  However, there are few mentions of what to do if your insurer denies your tender of a claim.

“Why would my insurer deny a claim? Isn’t that the whole reason I pay premiums – for coverage?” You ask.

Let’s presume you purchased your first policy from Company A in 2009.  You renewed your policy faithfully in 2010, 2011, and 2012.  Then you switched to Company B in 2013.  In the middle of that year, you received a letter from an attorney putting you “on notice” of a claim against you from a project you had designed back in 2009.  You send it you your agent – but the carrier comes back with a denial of coverage. What happened?

There are differing insurance policies.  In some, coverage is triggered based on the date the claim is made.  In others, coverage is triggered based on the date of the “occurrence”.  And some have their own unique language.

In the scenario above, the policy provides:

We will pay for damages and claim expense for any covered claim against you alleging a negligent act, error, or omission in your professional services performed on or after the policy date, provided the claim is first made against you during the policy period.

In other words, the work and claim must be presented during the same policy period to trigger coverage (under this policy).  If you did not purchase optional extended coverage from Company A or Company B – you may be left high and dry when you needed insurance the most.

If you have received an initial denial from your insurance carrier, follow these three steps:

  1. Do not panic.  Your request for coverage is not a one-bite-at-the-apple proposition.  The notice of claim may not contain sufficient facts (or urgency) to trigger coverage in the eyes of the initial reviewer.
  2. Stay involved. Do not ignore the claim, your client, or opposing counsel.  Briefly tell them coverage has been denied and you need more time to find personal counsel and respond to the claim.  You can still be proactive by participating in inspections, assembling your documents, and communicating with your client and sub consultants.
  3. Contact your legal counsel. Experienced litigation counsel can not only assist you in preparing for and defending the claim against you but will have knowledge of insurance coverage. Counsel will write a demand letter to your carrier using the “legalease” often necessary to encourage your insurer to take a more serious look at the claim and coverage.
  4. Consider your options.  An insurance policy is a juicy target for claimants.  You may have been sued even if you did nothing wrong; but that does not mean the lack of insurance will make the claim disappear.  If the carrier continues to deny coverage, you should consider whether there is an opportunity to repair the claimed defect or settle the claim out of your own pocket before you incur significant costs and attorney fees defending a matter on principle.  It is a bitter pill to settle for nuisance value, but it is a reality of doing business.  Even your insurance carrier would balance the cost of defending a claim against settlement opportunities.  There is little point in spending $50,000.00 in attorney fees (not to mention the value of your time) for victory in court when you could have ended the litigation for $20,000.00.

If your professional liability insurance was purchased from a “set it and forget it” frame of mind, dust off your policy documents and review your coverage.  If you have – or will – switch carriers during your firm’s operation it is imperative that you compare the old and new policies with an eye toward coverage gaps.

 

Casey Quillen’s firm is a member of the AIATrust Legal Network providing full legal service to design professionals throughout Colorado.  Ruebel & Quillen, LLC now has an office in Steamboat Springs, CO to better serve firms West of the Continental Divide.