Archive for February 2014

Good Faith and Fair Dealing and the Differing Site Condition Clause: Alive and Well

February 26, 2014

On February 11, 2014, in Metcalf Construction Co. v. United States, the U.S. Court of Appeals for the Federal Circuit allowed a construction company to seek damages against the U.S. government in breaching its implied duty of good faith and fair dealing. In 2002, Metcalf Construction Co., a defense contractor, was awarded a $50 million contract to design and build housing units for the U.S. Navy at a Marine Corps Base in Hawaii. Metcalf filed suit in 2007 alleging it suffered delays and incurred additional costs spending more than $76 million to finish the project due to the government’s material breach of contract and stating the government’s actions breached its implied duty of good faith and fair dealing under the contract. Metcalf pointed to the government’s failure to cover the costs Metcalf spent on replacing soil prone to expansion, which risked cracking concrete foundations, and removing chemical chlordane at the construction site.

The Court of Federal Claims denied Metcalf Construction any recovery, and awarded damages of $2.4 million to the government on a counterclaim for project delays. That court relied on a decision in Precision Pine & Timber Inc. v. U.S., which had held that a breach of the duty of good faith and fair dealing can only be established by showing that the government’s actions were “specifically designed to reappropriate the benefits” of a contract.

On appeal, the Federal Circuit reversed and rejected the lower court’s view of the implied duty of good faith and fair dealing as “unduly narrow.”  The Federal Circuit observed that a breach of the implied duty of good faith and fair dealing does not require the violation of an express provision of the contract.  The Federal Circuit also corrected the lower court’s analysis of the interplay between the standard FAR Differing Site Condition Clause and the contractor’s duty to investigate the site during contract performance.  The lower court concluded that the risk of newly-discovered site conditions was on the contractor due to its site investigation duties.  The Federal Circuit rejected that interpretation and re-affirmed that the Differing Site Condition clause places that risk on the government.

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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Fraudulent Misrepresentation Claim Against Engineer Barred by Statute of Limitations

February 14, 2014

On January 24, 2014,  the Illinois Supreme Court in Gillespie Community Unit School District No. 7 v. Wight & Company,  held that a fraudulent misrepresentation claim against an engineering firm was barred by the five-year statute of limitations at 735 ILCS 5/13-205.  In the case, a school district in Benld, Illinois began plans for a new elementary school in 1998. The school district hired Wight to investigate the building site. The investigation revealed the possibility of coal mine subsidence, though the school district stated it did not receive details of those risks.  The school district built the new school in 2002, but in 2009 the coal mine subsided beneath the school causing extensive damage to the building

The school district filed suit against Wight in 2009 alleging professional negligence, breach of implied warranty, and fraudulent misrepresentation by concealment of material fact, with respect to the building of the school. Both the circuit court and the appellate court found that all of the claims were barred by applicable statutes of limitation.

The Illinois Supreme Court opinion focused on the fraudulent misrepresentation claim.   The school district argued that because Section 13-204(e) of the construction statute of limitations expressly states that it does not apply to fraudulent misrepresentation claims then no statute of limitations applies.  That argument failed.  The Illinois Supreme Court affirmed the lower courts’ holding that the claim of fraudulent misrepresentation was barred by the general five-year statute of limitations set forth in Section 13-205.

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.

Texas Supreme Court Rejects Contractual Liability Exclusion for Construction Defect Case

February 4, 2014

In a significant, highly-anticipated new opinion regarding insurance coverage for construction defects, the Texas Supreme Court in Ewing Construction Co. Inc. v. Amerisure Insurance Co. held that the contractual liability exclusion in commercial general liability (“CGL”) policies does not operate to bar coverage for ordinary breach of contract claims alleging that the contractor failed to perform its work in a good and workmanlike manner.

The facts in Ewing Construction Co. Inc. v. Amerisure Insurance Co. are relatively simple.  Ewing Construction Company, Inc. (“Ewing”) contracted with Tuluso-Midway Independent School District (“TMISD”), to serve as general contractor to renovate and build additions to a school in Corpus Christi, Texas, including building new tennis courts. Shortly after completion, TMISD sued Ewing claiming that the courts started flaking, crumbling, cracking, and were unusable for their intended purpose of hosting competitive tennis events. TMISD alleged breach of contract and negligence.

Ewing tendered defense of the suit to Amerisure Insurance Co., its insurer under a commercial package policy that included CGL coverage. Amerisure denied coverage based on the contractual liability exclusion.  Ewing sued Amerisure seeking a declaration that Amerisure had a duty to defend and indemnify.  The U.S. district court granted Amerisure’s motion for summary judgment based on the contractual liability exclusion.

After the decision of the district court was appealed, the U.S. Court of Appeals for the Fifth Circuit certified the following question to the Texas Supreme Court:  Does a general contractor that enters into a contract in which it agrees to perform its construction work in a good and workmanlike manner, without more specific provisions enlarging this obligation, “assume liability” for damages arising out of the contractor’s defective work so as to trigger the contractual liability exclusion.

The Court answered the question “no” stating that a general contractor who agrees to perform its construction work in a good and workmanlike manner, without more, does not enlarge its duty to exercise ordinary care in fulfilling its contract, thus it does not ‘assume liability’ for damages arising out of its defective work so as to trigger the contractual liability exclusion. In so holding, the Court clarified its decision in Gilbert Texas Construction, L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118 (Tex. 2010), explaining that the contractual liability exclusion applied in that case based on the unique facts because the contractor undertook obligations beyond those imposed under general law – to repair or pay for damage to property of third parties.

The Ewing decision clarifies that the contractual liability exclusion in a CGL policy does not invalidate coverage for claims alleging that a contractor failed to construct a project in a good and workmanlike manner as required by the construction contract.

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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