Source: http://www.myconstructionexpert.com/blog/2019/04/
Timestamp: 2019-04-21 08:35:38+00:00

Document:
April 2019 - Advise & Consult, Inc.Advise & Consult, Inc.
A statute of repose terminates the right to file a claim after a specified time even if the injury has not yet occurred. The construction statute of repose bars claims arising from construction, design, or engineering of any improvement upon real property that has not accrued within six years after substantial completion. But what constitutes an “improvement upon real property” necessitating application of the six-year bar, and when does the bar NOT apply?
The Washington Court of Appeals recently addressed these questions in Puente v. Resources Conservation Co., Int’l. There, the personal representative of the estate of Javier Puente sued several parties after Mr. Puente, an employee of a manufacturer, suffered fatal boric acid burns in 2012 while performing maintenance on a pump system installed at the manufacturer’s facility in 2002. The estate alleged claims of negligence and liability under the Washington Product Liability Act (WPLA). The trial court granted summary judgment to defendants, concluding that the installed pump system constituted a statutory “improvement upon real property” and the six-year statute of repose applied. The estate appealed.
The Court of Appeals reversed, concluding that the faulty pump system equipment, while “integral” to the manufacturing process at issue, was not so integrated into the facility as to render it an integral part of the building structure. Indeed, the court held that the equipment was an “accoutrement … to the manufacturing process taking place within the” building.
The Court of Appeals went on to contrast the decisions in Pinneo v. Stevens Pass, Inc. and Yakima Fruit & Cold Storage Co. v. Central Heating & Plumbing Co., where the improvement was found to be an integral part of the building structure and the statute of repose applied. In Pinneo, the operator of the Stevens Pass ski area retained a contractor to replace and install a ski lift. In Yakima Fruit, the repair of a building refrigeration system required the removal of an entire floor of the building structure and could not be accomplished with either the system or the building remaining intact.
The Court in Puente determined that the pump system at issue was more akin to the conveyer belt and refrigeration unit in the Condit case than the ski lift in Pinneo or building refrigeration system in Yakima Fruit because the pump system was not necessary to the function of the building and was not part of the building’s “construction” but “simply ‘house[d]’ within the … building.” Accordingly, the Court concluded that the lawsuit was subject to product liability law and not the six-year statute of repose that would bar the claim under the construction law statute.
The determination of whether a mechanical system within a building constitutes an “improvement upon real property” and is therefore subject to the six-year statute of repose hinges on whether the system must be integrated into and become a part of the building itself.
Comment: The extent of equipment’s “integration” within a structure – much like the degree to which property is a fixture or merely chattel – is not merely a theoretical academic question but has serious liability implications for the equipment’s owner. In addition to keeping in mind the statute of repose, when considering actions and defenses arising out of the installation of equipment in construction projects that is not integral to building operations, counsel should carefully consider whether product liability or construction law applies. Varying applications will have significant effect on the law governing particular claims and defenses.
Major League Baseball Stadium Pub. Facilities Dist. v. Huber, Hunt & Nichols-Kiewit Constr. Co., 176 Wn.2d 502, 511, 296 P.3d 821 (2013).
5 Wn. App.2d 800, 428 P.3d 415 (2018).
5 Wn. App.2d 800 at 813 .
101 Wn.2d 106, 676 P.2d 466 (1984).
14 Wn. App. 848, 545 P.2d 1207 (1976).
81 Wn.2d 528, 503 P.2d 108 (1972).
Yakima Fruit, 81 Wn.2d at 529-31.
Puente, 5 Wn. App.2d 800 at 812.
Earlier this week, the Washington Court of Appeals affirmed the bedrock principle in insurance-coverage cases that insurers will always lose when a genuine ambiguity controls whether an insurer will have to pay a claim. The ambiguity in this case arose both from lexicographers’ habit of capturing nuances in writing dictionary definitions of “decay,” and the insurer’s own choice to use different words for supposedly the same meaning.
This shaded difference in meaning, driven by the context of how “decay” is being used, may have tipped the scales in favor of Berkley’s proposed, and coverage-defeating, definition. One does not usually speak of the “decline in strength” of a damaged building, after all, but of rotted framing. But that is not how policy interpretation works in insurance-coverage disputes. Washington, like Oregon, favors any genuine ambiguity in favor of the insured. And because Berkley’s adjusters had found a “decline in strength” of the roof trusses caused by “higher than normal temperatures,” which then gave way in the collapse, the insured got the checkered flag. No rot required.
Winning coverage was also possible because of ambiguity in how Berkley itself described these issues in different parts of its policy. The court noted that Berkley used “decay” in the additional coverage for collapse cases, but also generally excluded losses caused by “’Fungus’, Wet Rot, Dry Rot and Bacteria.” If “decay” really meant only damages caused by “rot,” as Berkeley argued in defending its denial of coverage, then it could have simply repeated this word in the collapse-coverage provision. Using different words, the court reasoned, implied different meanings, including the broader meaning the insured provided.
Winning coverage was also possible because of ambiguity in how Berkley itself described these issues in different parts of its policy. The court noted that Berkley used “decay” in the additional coverage for collapse cases, but also generallyexcluded losses caused by “’Fungus’, Wet Rot, Dry Rot and Bacteria.” If “decay” really meant only damages caused by “rot,” as Berkeley argued in defending its denial of coverage, then it could have simply repeated this word in the collapse-coverage provision. Using different words, the court reasoned, implied different meanings, including the broader meaning the insured provided.
One cannot read many insurance-coverage opinions without developing a healthy skepticism for the first, and perhaps most natural, meaning of a term in an insurance policy. Coverage law doesn’t work that way, and Feenix Parksidereinforces that insureds and their attorneys must be able to think about what word means outside of its traditional context, where ambiguity may be born to the insured’s benefit.
A contractor who has encountered unforeseen conditions will typically rely on the contract’s differing site conditions clause as a means to recovery. Most construction contracts address those issues directly. In ConsensusDocs Standard Agreement and General Conditions between Owner and Constructor, the starting point is § 3.16.2. But what if the contract does not contain a differing site conditions clause? Or, what if the contract does contain such a clause, but the contractor failed to provide adequate notice or satisfy other conditions or requirements of the contract? When reliance on a differing site conditions clause is impractical, a contractor still may seek recovery in certain instances under one or more of the following legal theories: misrepresentation; fraud; duty to disclose; breach of implied warranty; and mutual mistake.
Misrepresentation occurs when an owner “misleads a contractor by a negligently untrue representation of fact[.]” John Massman Contracting Co. v. United States, 23 Cl. Ct. 24, 31 (1991) (citing Morrison–Knudsen Co. v. United States, 170 Ct. Cl. 712, 718–19, 345 F.2d 535, 539 (1965)). A contractor may be able to recover extra costs incurred, under a theory of misrepresentation, if it can show that (1) the owner made an erroneous representation, (2) the erroneous representation went to a material fact, (3) the contractor honestly and reasonably relied on that representation, and (4) the contractor’s reliance on the erroneous representation was to the contractor’s detriment. See T. Brown Constructors, Inc. v. Pena, 132 F.3d 724, 728–29 (Fed. Cir. 1997). These four requirements can be satisfied, for example, through the use of deposition testimony detailing the owner’s representations and the contractor’s reliance thereon. See, e.g., C & H Commercial Contractors, Inc. v. United States, 35 Fed. Cl. 246, 256–57 (1996).
Whereas misrepresentation requires a negligent representation of material fact, recovery under a theory of fraud requires proof that the contractor was intentionally misled. Fraud, sometimes referred to as intentional misrepresentation, typically involves an owner knowingly concealing a difficult or costly condition in an effort to lower fixed-priced bids. Historically, courts looked to contractors for evidence of an express statement made by the owner. This high evidentiary standard has been relaxed over time, allowing contractors to demonstrate that the owner knew one thing but represented another, and the court can then infer the necessary intent from the circumstances.
Similar to misrepresentation is failure to disclose. Under the duty to disclose, an owner is required to disclose all project-related information in its possession. A contractor can recover for an owner’s failure to disclose if (1) the contractor agrees to perform without knowledge of a material fact that will increase the cost or time of performance, (2) the government knew that the contractor had no knowledge of that material fact, (3) the contract specifications did not put the contractor on notice to inquire about that fact, and (4) ultimately, the government failed to provide the contractor with said information. Typically, the owner’s duty to disclose applies notwithstanding any specific request for information made by the contractor. Some courts, however, have found no liability when the contractor made no specific request. See, e.g., Schmelig Constr. Co., Inc. v. State Highway Comm’n, 543 S.W.2d 265 (Mo. App. 1976).
Importantly, an owner’s duty to disclose sometimes can extend beyond the confines of the specific site. For example, if the owner is aware of another nearby contractor encountering substantial rock in an adjacent area, the duty to disclose will apply. See, e.g., Jacksonville Port Auth. v. Parkhill-Goodloe Co., 362 So. 2d 1009 (Fla. Dist. Ct. App. 1978). Of course, what is considered to be sufficiently “adjacent” to trigger an owner’s duty to disclose is subject to debate.
To recover for a breach of implied warranty, a contractor must demonstrate that a valid warranty existed, the warranty was breached, and the breach caused harm to the contractor. One potential source of a valid warranty famously stems from the United States Supreme Court decision in United States v. Spearin. Under what is commonly referred to as the Spearin doctrine, the government impliedly warrants that the plans, specifications and details included in a solicitation are accurate, complete, workable, and biddable and, if followed, satisfactory results will be achieved. 248 U.S. 132 (1918). Generally, this implied warranty applies only to design specifications detailing the actual method of performance—it usually does not apply when the specifications simply establish an objective without specifying the method of performance to achieve that objective. Nonetheless, a contract’s specifications may be considered defective if a method of construction performance is specified and that method of performance cannot be followed due to an unanticipated site condition. If a contractor cannot achieve satisfactory results because of such a defect, the owner may be liable for breach of implied warranty.
A general disclaimer of responsibility for the accuracy of the owner’s plans or specifications will typically not allow an owner to escape liability for defects contained therein. See, e.g., Baldi Bros. Constructors v. United States, 50 Fed. Cl. 74, 79 (2001); Al Johnson Constr. Co. v. United States, 854 F.2d 467, 468 (Fed. Cir. 1988) (“The implied warranty is not overcome by the customary self-protective clauses the government inserts in its contracts[.]”). But this does not relieve the contractor from its duty to investigate and inquire about a patent ambiguity, inconsistency, or mistake the contractor recognizes—or should have recognized—in the specifications or drawings. Blount Bros. Constr. Co. v. United States, 171 Ct. Cl. 478, 346 F.2d 962, 972–73 (1965). This duty, however, applies only to patent errors—it does not impose on the contractor an obligation to search out hidden or subtle errors in the specifications.
A less frequently followed road to recovery is the legal doctrine of mutual mistake. Under this theory, a party alleges that no valid contract actually exists because of the parties’ mutual mistake concerning the existence of a factual condition that goes to the very essence of the contract (e.g., the parties mistakenly believed the price of steel was lower than it actually was). If successful in having the contract reformed on this basis, the contractor can then seek to recover the actual cost paid on a quantum meruit basis (i.e., the reasonable value of the goods and services furnished). There are, however, two caveats worth noting. First, the doctrine of mutual mistake will not apply if the contract placed the risk of mistake on the party seeking reformation. And second, the mutual mistake must go to an existing fact: “If the existence of a fact is not known to the contracting parties, they cannot have a belief concerning that fact; therefore, there can be no ‘mistake.’” Atlas Corp. v. United States, 895 F.2d 745, 750 (Fed. Cir. 1990).
Typically, responsibility and remedies for unforeseen conditions will be governed by contract. Even when contractual remedies do not exist or the contractor is unable to use them, there are limited avenues to recovery outside the contract. Because these remedies may exist, it is wise to be as detailed and specific in documenting events and costs related to unforeseen conditions, even if contractual remedies are lacking.

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