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David Frankenberger to Speak at West Coast Casualty Construction Defect Seminar

Posted on February 27th, 2014

David Frankenberger, a partner in the Fresno office, will speak at the West Coast Casualty Construction Defect Seminar May 15th and 16th in Anaheim, California.  Mr. Frankenberger will be on a panel discussing “The Perils Awaiting the Recalcitrant Insurance Carrier” on Friday, May 16th at 11:00 a.m.

The conference will be held at the Disneyland Hotel and Resort.  The cost is $499 per person or $449 per person if registered before April 15, 2014.  More information can be found here: http://www.westcoastcasualty.com/dyncat.cfm?catid=3322.

Mr. Frankenberger can be reached at 559.449.2600, or dfrankenberger@ericksenarbuthnot.com.


The Use of Extrapolation in Construction Defect Litigation

Posted on February 27th, 2014

Geoff Wood, a partner in the Oakland office, and Fred Webster, PhD, PE of Fred Webster & Associates, will present a seminar on “The Use of Extrapolation in Construction Defect Litigation” to the Western Construction Consultants Association (Westcon) on Wednesday, March 19.  The presentation will discuss the meaning and use of the term “extrapolation,” and describe the various extrapolation methods used in construction defect cases.  It will explain how statistical extrapolation is developed and used in discovery, mediation and trial.  It will include a list of common statistical terms, as well as various sources for additional information.  The presentation will refer to common examples of everyday use of extrapolation principles.

The seminar will touch briefly upon the applicable law that allows an expert to testify about statistical findings and how extrapolation is different for mediation/settlement than for arbitration/trial.  It will also cover how to use extrapolation properly, starting with framing the problem, initial testing to understand the issues, using a statistician to select the appropriate sampling unit and defining the population of sampling units to be investigated.

There will be a discussion of identifying the random sampling units from the population for inspection, investigating and recording the data obtained from the field, submitting the findings/data to the statistician in objective terms, and finally developing mathematical statements, i.e. probability statements of the results.  There will also be a discussion of how to defend against extrapolation evidence.

The Westcon meeting begins at 6:15 pm with a social hour, followed by dinner at 7:00 pm and the presentation at 8:00 pm.  It will be held at the Berkeley Yacht Club, 1 Seawall Drive, Berkeley, CA. The cost is $48 for members and $60 for non-members. Please visit http://www.westcon.org/meeting.html for more information and to register.


David Frankenberger To Speak at MC Consultants 19th Annual Conference

Posted on August 15th, 2013

David Frankenberger will speak at MC Consultants 19th Annual West Region Construction Defect & Insurance Coverage Conference at the Hilton San Diego Bayfront September 18-20, 2013. Mr. Frankenberger will speak on Friday, September 20 at 9:00 a.m. regarding Coverage and Current Trends. The topics he will cover include Title 24 of the updated Energy Code, the new Americans with Disabilities Act standards and the updated Green Building Code requirements for non-residential building alterations and additions.  In addition, he will present on SB 474 and Indemnity/Risk Transfer Limitations.

For more information about the conference, please click here.

Mr. Frankenberger is in the firm’s Fresno office.  He can be reached at dfrankenberger@ericksenarbuthnot.com or 559.449.2600.


Brian Sanders to Speak at the 2013 Claims Conference of Northern California

Posted on August 15th, 2013

Brian Sanders will be one of the featured speakers at the 20th Anniversary Claims Conference & Tradeshow: Pillars of Education at the Hyatt Regency, being held in Downtown Sacramento on September 16-17, 2013. 

Mr. Sanders will give his presentation on Monday, September 16 at 1:00 p.m.  He will address The Post-SB 474 Playing Field: Evolving Claims Issues in Construction Litigation.  For more information regarding the conference, please click here.

Mr. Sanders is a partner in the Oakland office.  He can be reached at bsanders@ericksenarbuthnot.com or 510.832.7770.


Can Sophisticated Parties Avoid the Delayed Discovery Rule to Shorten the Statutory Time for Bringing Construction Defect Actions?

Posted on June 18th, 2013

The California Court of Appeals for the First Appellate District decided this issue – which was one of first impression for California Courts – in its June 3, 2013 Brisbane v. Webcor[i] decision.  Despite courts in other states who said “no” by finding the delayed discovery rule applicable in such situations, the First District’s answer was “YES.”  The basic facts were these:

Webcor contracted with Brisbane Lodgings to construct a 210-room, eight-story hotel, to be known as the Sierra Pointe Radisson Hotel.  The agreement was extensively negotiated between the parties and, in its final form, contained what they had agreed was “mutually acceptable language,” including the 1997 American Institute of Architects [AIA] “Standard Form of Agreement Between Owner and Contractor (Cost Plus Fee) and the AIA Document A201 General Conditions.” 

The AIA A201 provisions included Article 13.7.1.1, limiting the time in which to bring defect actions with respect to work completed before substantial completion of the project.  It stated that, with respect to acts or failures to act occurring before substantial completion of the project:

“[A]ny applicable statute of limitations shall commence to run and any alleged cause of action shall be deemed to have accrued in any and all events not later than such date of Substantial Completion.”

The Court found that it was “undisputed that the Radisson was substantially completed on July 31, 2000.”  In early 2005, Brisbane learned of a kitchen sewer line break from which waste was escaping and flowing under the hotel.  Brisbane notified Webcor and attempted temporary repairs.  Webcor inspected and concluded that the problem was a latent defect in the work of plumbing contractor Therma Corporation, which was contacted and, in July 2005, made repairs. 

In October 2007 Brisbane discovered additional plumbing problems had arisen and notified Webcor and Therma.  Webcor decided it wanted Therma to investigate and identify the source of the leak.  Therma visited the property but investigated a different section of pipe, running a camera through it.  The camera fell out of the pipe, indicating the pipe had become disconnected, but Therma did not inform Brisbane of the discovery. 

In January 2008, Webcor told Brisbane it and Therma considered the issue closed.  Brisbane objected and, after further investigation, discovered that Therma had used ABS pipe instead of the cast iron product required by building code.  Brisbane filed its complaint in May, 2008 and Webcor sought summary judgment on the assertion that Brisbane’s filing was time barred by the terms of the contract.

Explaining its findings, the Court said, in the published portion of its opinion:

 “…[W]e conclude that public policy principles applicable to the freedom to contract afford sophisticated contracting parties the right to abrogate the delayed discovery rule by agreement. Under the clear language of the parties‟ contract, Brisbane’s action was untimely. The time for bringing Brisbane’s claims against Webcor started to run upon substantial completion of the project, and Brisbane’s lawsuit was brought more than four years after the agreed-upon accrual date, which was outside the applicable limitations period. (Code Civ. Proc., §§ 337, 337.1.)1 Accordingly, we affirm [the trial court’s summary judgment for Webcor].”  Brisbane v Webcor, Id., at 2:1 – 8.

What do we see as the take-away, here?

Contract negotiations are of vital importance, for the life of the project and well beyond.  This has always been true, but even more so now.  Consequently, all negotiations must be conducted with all eyes wide open and with singular care to ascertain and effectuate the parties’ actual intent and to determine the intended and unintended consequences of each provision that is proposed and/or accepted.

Attorneys in each of our offices throughout the state are available to assist with your needs.  We are pleased to provide you with full-spectrum business defense and advising services in each of our offices.  Please contact us at your convenience to discuss your specific concerns.

 

 


[i] Brisbane Lodging, L.P. v. Webcor Builders, Inc. (Cal. Ct. App., June 3, 2013, No. A132555) 2013 WL 2404154 (Pursuant to California Rules of Court, rules 8.1105(b) and 8.1110, this opinion is certified for publication with the exception of sections 5, 6, and 7 of part III.)


If I’m Just Consulting, Do I Need a License?

Posted on May 29th, 2013

Probably, YES.  The new definition of “contractor” in Business and Professions Code section 7026.1 went into effect January 1, 2013.  It states that a contractor includes a consultant to an owner-builder on a home improvement project.  The pertinent language, found at section 7026.1(b), is as follows:

“(b) (1) Any person, consultant to an owner-builder, firm, association, organization, partnership, business trust, corporation, or company, who or which undertakes, offers to undertake, purports to have the capacity to undertake, or submits a bid to construct any building or home improvement project, or part thereof.

(2) For purposes of this subdivision, a consultant is a person, other than a public agency or an owner of privately owned real property to be improved, who meets either of the following criteria as it relates to work performed pursuant to a home improvement contract as defined in Section 7151.2:

(A) Provides or oversees a bid for a construction project.

(B) Arranges for and sets up work schedules for contractors and subcontractors and maintains oversight of a construction project.”

If you performed this kind of work before January 1, 2013, this revision should not affect that work.  However, from January 1, 2013 going forward, if you are performing this type of construction-manager-type consulting work in California, you will likely need a contractor’s license. 

There are severe penalties for performing contractor work without a license.  Business and Professions Code section 7031 provides that an unlicensed person performing work that requires a license does not have the right to be paid for the work and can be forced to return to the client all amounts paid for the work.  This seemingly draconian provision is meant to protect both the property owners and the contractors they hire.  Owners get an increased pool of contractors who meet certain basic requirements and standards. Properly licensed contractors end up losing less work to unlicensed persons who can be unqualified to do the work and who may have an unfair advantage by not dealing with licensing requirements and the attendant costs.

If you are unsure whether your work is covered by the new B&P Code § 7026.1 provisions, you should contact trusted counsel immediately to analyze your particular situation.


Howell and Luttrell – a One-Two Punch to Injury Plaintiffs Seeking Windfall Recoveries for Unpaid Medical Expenses

Posted on May 8th, 2013

The construction industry has its fair share of workplace injuries and accidents.  Some would say more than its fair share.  Construction companies are frequently faced with personal injury claims and the dollar amounts plaintiffs are seeking to recover climb higher with each passing year.  Even more poignant is the case where the injured person’s medical expenses were entirely paid – at a significant discount from the invoice amounts the worker is seeking to recover from you – by an insurer or public payor like Medicare or MediCal.  It seems unfair to many in the industry that a plaintiff whose expenses were paid at a hefty discount from the amounts actually billed, and who as a result has received treatment at no expense to him/herself, should be able to “recover” money that was never paid to anyone and for which (s)he is not liable by seeking the amount billed rather than the amount actually paid and accepted by the provider(s) as payment in full. 

Here is a typical construction injury scenario: 

  • Someone on the job site is injured (for simplicity, someone other than your own employee);
  • Injured person receives medical services and treatment;
  • Medical services and treatment provided to the injured person are paid 100% by insurance;
  • Payment accepted as payment in full by the providers is significantly less than the amounts billed by the providers, pursuant to an agreement with the payor(s); and
  • Injured person sues company operating the job site (among others, usually) to “recover” the entire invoiced amounts, despite the providers having accepted much less from the payor(s).

Prior to the California Supreme Court’s decision in Howell v. Hamilton Meats & Provisions, Inc.[1] , this situation often ended in the injured person actually getting a jury award for all of the invoiced amounts, or a significant portion thereof, over and above what was actually paid.   Defendants argued this was a pure windfall to the plaintiff.  The Howell court agreed with defendants and held that a plaintiff’s recovery is limited to the amount actually paid and accepted by the provider as payment in full.

Plaintiffs have not entirely given up, however, on seeking full invoice amounts.  Plaintiffs argue that, because Howell was decided in the context of a private insurer paying the medical providers, it does not apply when payments are made by a public source, such as Medicare or Medi-Cal.  They argue that, in this public payor situation, plaintiffs are still entitled to plead and recover the full amount of the provider’s invoice despite the provider having accepted a much lower amount as payment in full from the public payor.

Howell Rule Also Applies Where Expenses Paid By Medicare and Medi-Cal 

The latter situation has just been addressed by the California Court of Appeals, First District in its April 8, 2013 decision in Luttrell v. Island Pacific Supermarkets.[2]  Luttrell was the latter situation in which plaintiff’s medical providers were paid by a public payor.  Plaintiff argued, among other things, that he should be entitled to recover the full amount invoiced by his providers, notwithstanding the dramatically reduced amount accepted by his providers as payment in full, because the providers were paid by public payors Medicare and Medi-Cal, not a private insurer as in Howell.  Ruling that the analysis in Howell “plainly must” be applied in this situation, the Court reasoned that:

“[A] plaintiff in a tort action is not to be placed in a better position than he would have had if the wrong had not been done. (internal cite omitted) Thus, a plaintiff typically may not recover more than the actual amounts paid by him or on his behalf for past medical services, even though the amounts billed for those services were greater. [citing Howell  (plaintiff may recover as economic damages the lesser of the reasonable value of the medical services received and the amount paid by the plaintiff or private insurance on the plaintiff’s behalf, not the amount billed)[.]”

Luttrell Provides Guidance in Applying the Howell Cap in Conjunction With a Reduction for Failure to Mitigate Damages

Luttrell suffered a hip injury.  He also suffered a decubitus ulcer during his recovery.  The court found that Luttrell was 50% responsible for his own damages for failure to reasonably care for himself because the ulcer was much worse as a result. 

In the Trial Court

The total billed for medical services was $179,443.72 for the hip injury and another $511,105.21 for the decubitus ulcer.  Applying the Howell rule, the trial court capped Luttrell’s medical damages at $138,082.25 (the sum of $50,348.49 actually paid by Medicare on the hip injury and $87,733.76 actually paid by Medicare on the ulcer), which was the amount his health care providers accepted as full payment under their Medicare contracts.  The trial court also cut Luttrell’s recovery for ulcer-related treatment by 50 percent. Luttrell appealed the trial court’s ruling.

On Appeal

The appellate court ruled that, as had been done by the trial court, the Howell amount-paid-cap is applied first, then the reduction for failure to mitigate is applied to the remaining amount.  It reasoned that if, as plaintiff argued should be done, the reductions had been taken: 

“first from the amounts billed (reducing the $511,105.21 award to $255,552.60), and then the court applied the Howell cap equal to the amounts paid ($87,733.76), Luttrell would have recovered the entire amount paid ($87,733.76), and his failure to mitigate would have had no consequence whatsoever.  The result would have provided a windfall to Luttrell and imposed liability upon Island Pacific in excess of the damage it caused.”


[1] Howell v. Hamilton Meats and Provisions, Inc. (2011) 52 Cal 4th 541

 

[2] James Luttrell v. Island Pacific Supermarkets, Inc. (April 8, 2013 [filed], California Court of Appeals, First District, Division Five) A1354089 (Alameda County Superior Court No. RG09469504)


Subcontractor Liability for SB800 Repairs Limited by Civil Code § 916(e)

Posted on May 8th, 2013

As we all know, SB800[1] changed the way construction defect actions are handled in California, from pre-litigation claims all the way through settlement and/or judgment.  One of the more subcontractor-friendly provisions of the new law is the requirement of actual notice to subcontractors of the pre-litigation inspection and repair process, which is found at Civil Code § 916(e).

In a nutshell, the provision virtually eliminates the previously all-too-common practice among builders to make the ‘repairs’ that claimants demand, then shift the cost to their subcontractors in later litigation. The cost of repair then becomes their evidence of damages suffered, with no way for the subcontractor to disprove that the ‘repairs’ were necessary.  In stark contrast to that practice, section 916(e) requires the builder to provide the subcontractor a notice providing sufficient time to attend the inspection(s) and to participate in the repair process.[2]  If such notice is not provided, the general contractor will not be able to hold subcontractors or others liable for the repair costs.

Be careful how you use this provision, however.  In Greystone Homes, Inc. v Midtec, Inc. (2008) 168 Cal.App.4th 1194, a plumbing fitting manufacturer sought to avoid liability under the builder’s cross-complaint for equitable indemnity and negligence by asserting the economic loss rule.[3] The courts have held that the economic loss rule explained in the Aas decision was abrogated by the legislature’s enactment of SB800.  The manufacturer lost on a summary judgment motion, and appealed.  The crucial argument — that the builder failed to comply with the pre-litigation notice requirement of Civil Code § 916(e) — was not adjudicated on appeal because the manufacturer did not raise them issue in its summary judgment motion.  The court’s comments in rejecting the argument seem to telegraph a likelihood that the issue would have been decided in the manufacturer’s favor if the argument had been made at the trial court level. We will have to wait for an opinion decided directly on this provision of the statute to be sure.


[1] SB 800 was codified at California Civil Code sections 895 to 945.5.

[2] If a builder intends to hold a subcontractor, design professional, individual product manufacturer, or material supplier, including an insurance carrier, warranty company, or service company, responsible for its contribution to the unmet standard, the builder shall provide notice to that person or entity sufficiently in advance to allow them to attend the initial, or if requested, second inspection of any alleged unmet standard and to participate in the repair process. The claimant and his or her legal representative, if any, shall be advised in a reasonable time prior to the inspection as to the identity of all persons or entities invited to attend. This subdivision does not apply to the builder’s insurance company. Except with respect to any claims involving a repair actually conducted under this chapter, nothing in this subdivision shall be construed to relieve a subcontractor, design professional, individual product manufacturer, or material supplier of any liability under an action brought by a claimant.”  CA Civil Code § 916(e).

[3] See Aas v. Superior Court (2000) 24 Cal 4th 27


SB 474 Extends Bar on Type 1 Indemnity Agreements to Commercial Construction Contracts Entered Into On Or After January 1, 2013

Posted on February 11th, 2013

On June 1, 2011 by majority vote, the California Senate passed Senate Bill 474 amending Civil Code section 2782 and adding Civil Code section 2782.05. The passage of this new law is a critical event for real estate developers, general contractors and subcontractors because it will affect how construction projects are insured and how related disputes are resolved.

Type I Indemnity Now Barred in Commercial Construction Contracts

The identification of a contract’s indemnity provision as Type I, Type II, or Type III comes from case law (MacDonald & Kruse v. San Jose Steel (1972) 29 Cal.App.3d 413,420).  Type I indemnity is that version in which the party being indemnified (indemnitee – usually the owner or general contractor) is to be indemnified for its own active negligence.  The opinion noted above described it as a contract term “which provides ‘expressly and unequivocally’ that the indemnitor is to indemnify the indemnitee for, among other things, the negligence of the indemnitee. Under this type of provision, the indemnitee is indemnified whether his liability has arisen as the result of his negligence alone (citation omitted), or whether his liability has arisen as the result of his co-negligence with the indemnitor (citation omitted).”

 The new law amends Civil Code Section 2782 to extend to commercial construction contracts entered into on or after January 1, 2013 the Type 1 indemnity prohibitions that exist already for residential construction contracts. It also prohibits these construction contracts from requiring a subcontractor to indemnify, insure, or defend a general contractor for the active negligence or willful misconduct of the general contractor, its agents or other persons or subcontractors responsible to the general contractor. This bill, signed by the Governor and chaptered on October 9, 2011, has no stated retroactive effect and so should not revise the rights and obligations of construction project owners, contractors and subcontractors in existing agreements.

 Indemnitor May Elect to Pay Its Share or Defend

An option previously available only in the context of residential construction is now made available in connection with commercial construction contracts: after receiving claim information from the general contractor, a subcontractor on a commercial construction contract may now elect to either defend the claim or pay its portion of the claim and arguably terminate any defense/indemnity obligation at that point. The bill was supported by a wide range of subcontractor associations and by some public agencies. However, it was and continues to be strongly opposed by general contractors and property owners, who are likely to start testing its provisions and limitations in the courts relatively quickly.

Written Tender and Specific Claim Info Required to Trigger Defense Obligation

Before a builder or general contractor can assert a right to defense or indemnity from a subcontractor, the builder or general contractor must provide:

• Written tender of the claim, or portion thereof, to the subcontractor, including

• All information provided to the builder or general contractor by the claimant or claimants, including, but not limited to, information provided pursuant to Civil Code Section 910(a), relating to claims caused by that subcontractor’s scope of work.

• This written tender shall have the same force and effect as a notice of commencement of a legal proceeding.”

Statutory Pre-Litigation Notice Deemed an “Occurrence”?

In addition to all the other effects of this new law, it also seems to decrease the likelihood of an insurer successfully denying coverage under a general liability policy for claims asserted prior to the filing of litigation by statutorily giving the written tender by the GC or builder “the same force and effect as a notice of commencement of a legal proceeding.”  Both insurers and insureds will likely be seeking judicial determinations of the meaning and potential impact of this language.

No Application to Design Professionals – Glitch for Design-Build Contractors?

It is important to note that SB 474 does not apply to design professionals. It is unclear whether the statute will construe design-build subcontractors as design professionals, per se. This is another likely hot area for litigation.

Renovation Contractors Now Included in the Type I Indemnity Ban – Maybe

SB 474 expands the Civil Code definition of “construction contract” to include agreements for renovations (as well as such subjects as utility, water, sewer, oil and gas lines). However, there are some potentially conflicting provisions that will likely lead to early litigation. The new law provides that construction contracts with owners of privately owned real property to be improved, where the owner is not also acting as a contractor or supplier, cannot require indemnity of those owners for their own active negligence. A related provision states that the new law does not apply where an individual homeowner is performing improvement projects on his/her own single family dwelling. One interpretation of these seemingly contradictory provisions is that one deals with non-residential property and the other deals with single-family 1-4 residences. We expect that there will be a round of litigation to work out the nuances.

No Opt-Out, Choice-of-Law Provisions Ineffective to Avoid New Law

SB 474 applies to construction performed on property located in California, even if the parties have attempted to opt out of these changes or have agreed to a non-California choice of law provision in their contract.

 


Meet Your Construction Attorney Blogger

Posted on February 2nd, 2013

BRIAN M. SANDERS, Partner

As a member of the Real Estate and Construction practice groups, Brian’s primary focus is on complex construction defect litigation. He also has experience in personal injury, mortgage and real estate broker/agent defense and other professional responsibility and business defense, and premises liability matters.

Prior to law school, Brian’s business experience included government loan collections and serving as general manager of a consumer collection agency in Santa Ana, California, training and working as a DRPA mediator, and an appointment to the board of directors at the former Center for Community Mediation in Costa Mesa, California.