PROVIDING “LABOR” UNDER THE MILLER ACT

A recent opinion out of the Northern District of California discusses the “labor” required to support a Miller Act payment bond claim on a federal construction project. It is a good case that discusses the type of labor required to support a Miller Act payment bond claim.

In Prime Mechanical Service, Inc. v. Federal Solutions Group, Inc., 2018 WL 619930 (N.D.Cal. 2018), a prime contractor was awarded a contract to design and install a new HVAC system. The prime contractor subcontracted the work to a mechanical contractor. The mechanical contractor with its sub-designer prepared and submitted a new HVAC design to the prime contractor and provided 4-5 onsite services to determine the location and layout for the new HVAC equipment, perform field measurements, obtain security passes, and plan site access and crane locations. The mechanical contractor submitted an invoice to the prime contractor and the invoice remained unpaid for more than 90 days, which the prime contractor refused to pay. The mechanical contractor than filed a Miller Act payment bond lawsuit.

The prime contractor and surety argued that the mechanical contractor had no valid Miller Act payment bond claim because it was seeking professional services and not the labor covered by the Miller Act. The trial court agreed.

As used in the Miller Act, the term “labor” primarily encompasses services involving “manual labor,” or “physical toil.” Although “work by a professional, such as an architect or engineer” generally does not constitute “labor” within the meaning of the Miller Act, some courts have found “certain professional supervisory work is covered by the Miller Act, namely, skilled professional work which involves actual superintending, supervision, or inspection at the job site.”

Prime Mechanical Service, Inc., 2018 WL at *3 (internal citations omitted).

The mechanical contractor attempted to argue that it was onsite and the onsite services it performed should constitute “labor.” However, the onsite services the mechanical contractor identified were clerical or administrative-type services which did NOT involve “the physical toil or manual work necessary to bring them within the scope of the Miller Act.” Prime Contractor Mechanical Service, Inc., 2018 WL at *3.

In this case, the mechanical contractor gave it a worthy go to support a Miller Act payment bond claim. But, because the services it performed did not rise up the type of “labor” covered by the Miller Act, it was out of luck. Had these services been coupled with actual manual labor at the site connected to the installation of the new HVAC system, the result would have been much different since the mechanical contractor would have performed “labor” covered by the Miller Act.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

CONTRACTUAL WAIVER OF CONSEQUENTIAL DAMAGES

Posted on December 1, 2018 by David Adelstein Posted in Damages | Tagged consequential damages, contractual waiver of consequential, general damages, limitation of liability, mutual waiver of consequential

Contractual waivers of consequential damages are important, whether they are mutual or one-sided. I believe in specificity in that the types of consequential damages that are waived should be detailed in the waiver of consequential damages provision. Standard form construction agreements provide a good template of the types of consequential damages that the parties are agreeing to waive.

But, what if there is no specificity in the waiver of consequential damages provision? What if the provision just states that the parties mutually agree to waive consequential damages or that one party waives consequential-type damages against the other party? Let me tell you what would happen. The plaintiff will argue that the damages it seeks are general damages and are NOT waived by the waiver of consequential damages provision. The defendant, on the other hand, will argue that the damages are consequential in nature and, therefore, contractually waived. FOR THIS REASON, PARTIES NEED TO APPRECIATE WHAT DAMAGES ARE BEING WAIVED OR LIMITED, AND POTENTIALLY THOSE DAMAGES NOT BEING WAIVED OR LIMITED, WHEN AGREEING TO A WAIVER OF CONSEQUENTIAL DAMAGES PROVISION!

Interestingly, this issue appeared in the recent case, Keystone Airpark Authority v. Pipeline Contractors, Inc., 43 Fla. L. Weekly D2601d (Fla. 1^stDCA 2018). Here, a plaintiff sued a contractor and engineer for defects to an airplane hangar and taxiways. The plaintiff claimed the engineer’s negligence through its failure to supervise the work as contractually required which resulted in defective construction. The plaintiff claimed that the engineer was responsible for the costs to repair the airplane hangar and taxiways. The engineer argued under a waiver of consequential damages provision that read:

“Passero [engineer] shall have no liability for indirect, special, incidental, punitive, or consequential damages of any kind.”

The engineer argued that the damages the plaintiff was seeking due to its failure to supervise was excluded under the waiver of consequential damages provision in the contract. The plaintiff argued that such damages are general damages and not barred. The trial court, as affirmed by the appellate court, held that the damage was barred because the damage was consequential. In doing so, the court examined the definitions of the types of damages:

General damages are ‘those damages which naturally and necessarily flow or result from the injuries alleged. . . . General damages ‘may fairly and reasonably be considered as arising in the usual course of events from the breach of contract itself. Stated differently, [g]eneral damages are commonly defined as those damages which are the direct, natural, logical and necessary consequences of the injury.

In contrast, special damages are not likely to occur in the usual course of events, but may reasonably be supposed to have been in contemplation of the parties at the time they made the contract. They consist of items of loss which are peculiar to the party against whom the breach was committed and would not be expected to occur regularly to others in similar circumstances. In other words, general damages are awarded only if injury were foreseeable to a reasonable man and . . . special damages are awarded only if actual notice were given to the carrier of the possibility of injury. Damage is foreseeable by the carrier if it is the proximate and usual consequence of the carrier’s action.

[C]onsequential damages do not arise within the scope of the immediate buyer-seller transaction, but rather stem from losses incurred by the non-breaching party in its dealings, often with third parties, which were a proximate result of the breach, and which were reasonably foreseeable by the breaching party at the time of contracting. The consequential nature of loss . . . is not based on the damages being unforeseeable by the parties. What makes a loss consequential is that it stems from relationships with third parties, while still reasonably foreseeable at the time of contracting.

Keystone Airpark Authority, supra (internal citations and quotations omitted).

Based on these definitions, the court agreed that the repairs to the hangars and taxiways were not special damages as “[i]t cannot be said that repairs stemming from improperly supervised construction work are unlikely to occur in the usual course of business.” Keystone Airpark Authority, supra. Such damages did not involve special circumstances for which the plaintiff would be required to give the engineer actual notice.

BUT… these damages were CONSEQUENTIAL:

[T]he cost of repair here did not constitute general damages, either, because the damages were not the direct or necessary consequence of Passero’s [engineer] alleged failure to properly supervise the construction work. The contractor could have completed the job correctly without Passero’s supervision. Thus, the need for repair did not arise within the scope of the immediate transaction between Passero and the Airpark. Instead, the need for repair stemmed from loss incurred by the Airpark in its dealing with a third party – the contractor. While these damages ‘were reasonably foreseeable,’ they are consequential and not general or direct damages.

The appellate, however, certified the following question of great public importance:

WHERE A CONTRACT EXPRESSLY REQUIRES A PARTY TO SUPERVISE CONSTRUCTION WORK AND TO DETERMINE THE SUITABILITY OF MATERIALS USED IN THE CONSTRUCTION, BUT THE PARTY FAILS TO PROPERLY SUPERVISE AND INFERIOR MATERIALS ARE USED, ARE THE COSTS TO REPAIR DAMAGE CAUSED BY THE USE OF THE IMPROPER MATERIALS GENERAL, SPECIAL, OR CONSEQUENTIAL DAMAGES?

Thus, there could be a ruling in future from the Florida Supreme Court relating to construction industry, specifically relating to the damages associated with a supervising architect or engineer.

QUICK NOTE: EXPERT TESTIMONY – BACK TO THE FRYE TEST IN FLORIDA

Posted on November 22, 2018 by David Adelstein Posted in Expert witnesses | Tagged Daubert, Daubert test, expert testimony, Frye, Frye Test

Expert testimony (opinions) – very important testimony in construction disputes. Whether it is a delay claim, an inefficiency claim, a defect claim, etc., expert testimony plays an invaluable role in construction disputes. Construction attorneys work closely with expert witnesses to ensure that an expert helps render an opinion to support their client’s burden of proof (including damages) or an affirmative defense.

Recently, the Florida Supreme Court ruled that the Frye test governs the admissibility of expert testimony in Florida State courts. Notably, this was the test used until circa 2013 until the Florida Legislature modified Florida’s Evidence Code to require the Daubert test to apply to determine the admissibility of expert testimony. The Daubert test is the test used in federal courts and, quite frankly, is a more rigorous standard/test. For more information on the Frye and Daubert test, please check out this article that I wrote to summarize Florida’s transition back to the Frye test. In any event, this transition back to the Frye test can be both good and bad depending on who you represent in a Florida State court action and the expert opinion you are looking to introduce.

CGL POLICY COVERING ATTORNEY’S FEES IN PROPERTY DAMAGE CLAIMS

Posted on November 17, 2018 by David Adelstein Posted in attorneys fees, Insurance | Tagged attorneys' fees, CGL, CGL attorney's fees, property damage, property damage attorney's fees

Does a CGL policy cover attorney’s fees and costs in property damages claims, to the extent there is a contractual or statutory basis to recover attorney’s fees? Naturally, you need to review the policies and this is not a clear-cut issue, but there is law to argue under.

A case I have argued in support of CGL policies providing for coverage for attorney’s fees as a component of property damage claims when there is a contractual or statutory basis is Assurance Co. of America v. Lucas Waterproofing Co., Inc., 581 F.Supp.2d 1201 (S.D.Fla. 2008). In this case, the following applied:

-The policy provided coverage for “those sums that the insured becomes legally obligated to pay as damages of… ‘property damage’….

- Property damage was defined as “physical injury to tangible property, including all resulting loss of use of that property.”

-The term damage, in of itself, was not defined in the policy.

The trial court looked at whether attorneys’ fees and costs are damages arising because of ‘property damage’ to which the insurance policy at issue applies.

If an insurer may defend against a claim that is covered by the policy without taking into account potential attorneys’ fees and costs that will be awarded if the opposing party prevails, the insurer creates an externality whereby, in the course of seeking to minimize its own liability, it imposes potential costs on the insured at no additional cost to itself. This externality undermines the very reason why an insurer can at once possess a duty and a right to defend, which is that the interests of the insured and the insurer are presumed to be aligned with respect to a claim for damages covered by the policy. Every dollar of liability for a covered claim for which the insured cannot be held liable is a dollar saved by the insurance company. If, however, when defending against a claim that is covered by the policy, an insurer can increase the liability of the insured while simultaneously decreasing its own liability, the interests of the insurer and insured are no longer aligned, giving rise to a conflict between the insurer and insured and making the coexistence of the right and duty to defend untenable.

***

Therefore, this Court finds that attorneys’ fees and costs that an insured becomes obligated to pay because of a contractual or statutory provision, which are attributable to an insurer’s duty to defend the insured against claims that would be covered by the policy if the claimant prevails, constitute damages because of ‘property damage” within the meaning of a CGL policy.

Assurance Co. of America, 581 F.Supp.2d at 1214-15.

In July of 2018, the Ninth Circuit Court of Appeals reached a similar conclusion in Association of Apartment Owners of Moorings, Inc. v. Dongbu Insurance Co., Ltd., 731 Fed.Appx. 713 (9^thCir. 2018). The issue on appeal was whether the liability insurer was required to indemnify its insured for attorneys’ fees its insured was ordered to pay against a third-party that prevailed on a water damage claim. Similar to above, the policy did not define the term “damage” and the Ninth Circuit explained:

The policy provides coverage for damages Moorings [insured] must pay “because of” covered property damage. This phrase, which is undefined, connotes a non-exacting causation requirement whereby any award of damages that flows from covered property damage is covered, unless otherwise excluded. The Bradens [third-party claimant] were awarded fees…because their home incurred water damage, and they incurred additional loss in order to recover for this damage. The fee award is thus properly considered an award of damages that Moorings must pay “because of” that covered property damage and is not otherwise excluded.

Association of Apartment Owners of Moorings, Inc., 731 Fed.Appx. at 714.