Archive for October 2013

5th Circuit Finds “Stop Notice” Law Unconstitutional

October 25, 2013

In Noatex Corp v. King Construction of Houston, LLC, Case No. 12-60385 (5th Cir. Oct. 10, 2013), the Fifth Circuit Court of Appeals found Mississippi’s “stop notice” statute, Miss. Code Ann. Section 85-7-181, unconstitutional. The federal appeals court affirmed the decision of the U.S. District Court for the Northern District of Mississippi which held that the law was unconstitutional because it deprived a corporation of its property without due process of law.

Mississippi’s “stop notice” statute allows unpaid subcontractors to notify the owner of a project of its claim against a contractor and freeze the funds owed to the contractor by the owner. The statute required that a contractor’s money be held by the owner once the owner received a written notice from an unpaid subcontractor.

The Fifth Circuit Court of Appeals found that the “stop notice” statute does not contain sufficient procedural safeguards to protect the property of the contractor, and thus violates the U.S. Constitution’s guarantee of due process for the taking of property. The court stated that the statute “deprives contractors of a significant property interest, the right to receive payment and be free from any interference with that right.” Further, the court found that the statute authorizes the withholding of money earned from the contractor for an indefinite period of time and could prevent a contractor from paying its ordinary business obligations.

Additionally, the court stated the statute was unconstitutional because it provides for no pre-deprivation notice or hearing prior to freezing the funds, requires no posting of a bond by the subcontractor prior to attachment, requires no showing of exigent circumstances for attachment, and the statute fails to require an affidavit or other writing setting out the facts or the legal rationale for the attachment.

This Blog is made available by Laurie & Brennan, LLP for general educational purposes only. The purpose of the Blog is not to provide specific legal advice on any particular matter. By using this Blog site you understand that there is no attorney client relationship between you and this firm and the authors or members of the firm. This Blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Under rules applicable to the professional conduct of attorneys in various jurisdictions, the material on this Blog may be considered advertising material.

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Insurer’s Duty to Defend Additional Insured May Derive From Third Party Complaints Filed By Other Parties

October 15, 2013

Even if an employee of a subcontractor files a personal injury suit against only the contractor and alleges only direct negligence of that contractor, a court may nonetheless look to allegations in third-party complaints (including those filed by other parties) to establish that the additional insured (contractor) could have been found negligent solely due to the actions of the primary insured (subcontractor).

In Illinois Emcasco Insurance Co. v. Waukegan Steel Sales, Inc., 2013 IL App (1st) 120735 (September 13, 2013), Waukegan Steel Sales, Inc. (“Waukegan”) was hired to perform work on the Minooka High School construction site, and entered into a subcontract agreement with I-MAXX Metalworks, Inc. (“I-MAXX”).  John Walls, an employee of I-MAXX, injured himself while on the jobsite, and filed a personal injury action alleging direct negligence against Waukegan.  The trial court found Illinois Emcasco Insurance Company (“Emcasco”), I-MAXX’s CGL insurer who named Waukegan as an additional insured on its CGL policy, had a duty to defend Waukegan.  Emcasco appealed.

On appeal, Emcasco argued that the trial court erred in finding that it had a duty to defend Waukegan because the underlying complaint failed to allege facts of vicarious liability as required for additional insurance coverage to apply based on the language of the particular endorsement.  The court clarified the issue, stating that the allegations of the third-party complaints (filed by other co-defendants) only need to raise the potential for the allegations to fall within the ambit of the insurance policy.  The contract between Waukegan and I-MAXX demonstrated the intent of both parties to limit the liability of Waukegan in relation to I-MAXX’s employees and equipment.  Both third-party complaints, filed by two co-defendants but not Waukegan, alleged I-MAXX’s liability for Walls’ injuries, thus raising the potential for Waukegan to be held vicariously liable for I-MAXX’s sole negligence.  The Appellate Court affirmed the trial court’s ruling in favor of defendant Waukegan Steel, finding that Emcasco had a duty to defend.

This Blog is made available by Laurie & Brennan, LLP for general educational purposes only. The purpose of the Blog is not to provide specific legal advice on any particular matter. By using this Blog site you understand that there is no attorney client relationship between you and this firm and the authors or members of the firm. This Blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. Under rules applicable to the professional conduct of attorneys in various jurisdictions, the material on this Blog may be considered advertising material.


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