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Construction Contracts, Risks, & Insurance

Connecting the Course of Construction to the Control of Claims & Litigation

Presented by The Seminar Group

Introduction

On June 8th, 2017 from 8:30-5:00, Pete Fowler Construction Services participated in an event sponsored by The Seminar Group in Portland, Oregon titled "Construction Contracts, Risks, & Insurance - Connecting the Course of Construction to the Control of Claims & Litigation." PFCS and a variety of Portland-based construction professionals presented a lively program about construction management and risks. To save us from the deadly-boring "standing still at a podium and reading a pre-written speech" presentation style, this program is composed of four acts where, similar to a play, the presenters performed different scenes as simplified case studies.

Program Outline

  • Introductions 8:30-8:45
  • Act 1: Negotiating Prime and Subcontracts for Construction 8:45-10:15
  • Act 2: Buying Insurance and Managing Risks 10:30-12:00
  • Act 3: An Insurance Claim for Damage During Construction 1:15-2:45
  • Act 4: Construction Defect Litigation 3:00-5:00

Who Should Care 

Construction Contracts, Risks & Insurance is for anyone involved in construction, financing, owning, improving, maintaining, or managing property. The objective of this program is to help people and professionals in the industry to avoid the most common shortcomings in construction.

Click here to register for this program. Use promo code "FAC100" to receive $100 off the price.

Faculty

Program Details

Our fictional project is a 50,000 square foot apartment with ground floor retail. The contract is a guaranteed maximum price (GMP) of $12,500,000. The structure is 3 story post-tensioned (P/T) concrete with a glass curtain wall system. 3 years after completion, the project was sold to new owners and converted to condos and sold to individual unit owners. The condo conversion entailed HVAC system upgrades, new floors, cabinets, and finishes, but no structural work.

The learning objective of the program is to deliver a complete perspective on the entire lifecycle of Construction Contracts, Risks, Insurance, Claims and Litigation, and to introduce the construction folks to the claims and litigation folks, because for many professionals on one side of the fence or the other, our paths rarely cross. The program is designed to help you avoid the most common pitfalls that cause project shortcomings, defects, delays, cost overruns, legal disputes and headaches in general. 

There will be no deadly-boring standing at a podium at this seminar! In each segment, two or more "actors" will play out a scene (a simplified, 101-level case study) with numerous key points to consider from the perspective of the key players. At the conclusion of each scene, a diverse panel will dig into the details and debate time-honored principles and case law, hot topics and new case law, and make recommendations for best practices that the audience can take away to aid in managing the risks inherent in the building business. 


Cast of Characters

  • Owen / Olivia the Owner / Developer
  • Bob / Barbara the Builder
  • Ian / Irene the Insurance Professional
  • Carl / Carla the Insurance Claim Professional
  • Paul / Paula the Plaintiff Lawyer
  • Larry / Lisa the Builder's Lawyer
  • Stan / Sue the Subcontractor
  • Pete the Construction Consultant / Expert Witness
  • Mark / Melinda the Mediator

Act 1: Signing a Prime Contract for Construction

Summary: On one side of the stage, the project developer and builder (general contractor) will act out a contract negotiation for the prime contract for construction of our fictional case study, haggling about key contract provisions. The Owner is a thinly capitalized developer who hires a big, experienced GC to build. The Owner is adamant that building will not be converted to condos. The problem is that there is no condo conversion language in the contract. On the opposite side of the stage, the same contract provisions will be negotiated by a representative from the builder and the exterior curtain wall trade (sub) contractor. At the conclusion of these negotiations, our distinguished panel will present and discuss time-honored principles and case law, hot topics and new case law, and recommendations for best practices the audience can take away to aid in managing the risks inherent in the building business. The lessons to be learned include protecting the parties with condo conversion language in the contract and to include the insurance professionals in contract formation. 

Faculty

Panelist 1 (Basics / Time-Honored / Tried & True) - Andrew Gibson

  1. When reviewing any contract provision, ask the question:  What is fair and equitable in this instance?
    • Example 1:  Consequential Damages Waiver
    • Example 2:  Limitation of Liability Clause
    • Example 3:  Payment Clauses & Retention
  2. Ensuring Continuity of Contracts to Manage Risk
    • Incorporation Clauses
    • Flow-Down Provisions
    • Insurance Requirements
  3. Condominium Conversion Language
    • When To Use Language
    • What Language To Use

Panelist 2 (Hot Topics / New Developments / Interesting Stuff) - Shon DeVries

  1. Take time during project planning phase to think through major project risks and planning the project insurance intent before contracts are developed.
  2. Try a collaborative negotiating approach instead of combative – the way you start the project will impact the way claims are negotiated.
  3. Allocate risks fairly and transparently among parties with the acknowledgement of parties “owning” risks.
  4. If planning to use a Wrap (multi-family residential, mixed use or large scale projects), start early and make sure contract drafts reflect the insurance intent.
    • Who will sponsor?
    • Who will administer?
    • How will bid credits be managed (if at all)?
    • What other insurance is needed?
  5. Consider mixing and matching who provides insurance to achieve the best fit, lowest cost program.

Panelist 3 (Recommendations / Deep Thoughts / Do's & Don'ts) - Dean E. Aldrich 

  1. Recommendations
    • Contract negotiations are about team-building and expressing concerns honestly
    • Areas of importance: payment provisions, warranty, liability limitations, insurance, indemnity, subrogation, claims procedures, attorneys fee recovery, dispute resolution
  2. Deep Thoughts
    • Don't have too many -- just get the contract done and don't bleed all over it
  3. Do's and Don'ts
    • Do use red-lines, understand your important provisions, understand Oregon law, explain risks to client in writing
    • Don't use unfair/one-sided provisions, or blow up the deal/make a scene over unimportant provisions

Contents

  • Scope of Work
  • Budget / Costs
  • Progress Schedule / Project Completion
  • Schedule of Values
  • Payment Schedule
  • Retention
  • Insurance Requirements
  • Dispute Resolution
  • Indemnity
  • Damages 

Resources

Act 2: Buying Insurance & Managing Risks

Summary: The builder and trade contractor will work with their respective insurance professionals to identify key risks, purchase insurance that meets the minimum requirements of the project, and balance the costs and protections available to the business. The parties decide on a CCIP with no condo conversion buy-back option. Laterals are discussed but GC does not explain that public utility will contract for the work outside of the wrap policy. Design-build window system was not discussed. CCIP does not cover gas line contractor because they are not part of GC scope. CCIP does not cover products liability for glass system. At the conclusion of these meetings our distinguished panel will present and discuss time-honored principles and case law, hot topics and new case law, and recommendations for best practices the audience can take away to aid in managing the risks inherent in the building business. The lessons to be learned include that we should discuss scopes that are outside of GC contract and address design-build system components.

Faculty

  • Bob / Barbara the Builder (General Contractor) - James M. Daigle
  • Ian / Irene the Insurance Professional for the General Contractor - Shon DeVries
  • Stan / Sue the Subcontractor - David Heemann
  • Ian / Irene the Insurance Professional for the Subcontractor - Jim Oliver

Panelist 1 (Basics / Time Honored / Tried & True) - Shon DeVries

  1. Roles of insurance agent/brokers and negotiating position
  2. Basic Coverage that Every Project has in place
    • General Liability/Excess Liability
    • Worker’s Compensation
    • Auto Liability
    • Builders Risk
  3. Other Coverage that may be needed
    • Pollution Liability
    • Professional Liability
  4. Contractual Risk Transfer and Additional Insured forms
  5. Certificates of Insurance Best Practices
  6. When (and why) does Traditional Insurance model break down?
  7. Why (and when) is Wrap a better solution?

Panelist 2 (Hot Topics / New Developments / Interesting Stuff) - Andrew Gibson

  1. CCIPs and OCIPs
    • Wraps affecting contract term negotiations
    • Little precedent, so confirm coverage specifics in writing, emails, etc.
    • Be aware of project-specific risks
  2. Starting an Insurance Compliance Program
    • Attach an Insurance Rider to the Contract
    • Certificates of Insurance vs. Policy Copies and Endorsements
    • Using an Insurance Tracking Log
  3. Developments in Oregon Insurance Law
    • Bad Faith?  Not yet.  But check ORS 742.061
    • Beware of Anti-Assignment Provisions

Panelist 3 (Recommendations / Deep Thoughts / Dos & Don'ts) - Jim Oliver

Contents

  • Risk Management Basics
  • Design-Bid-Build vs. Design-Build
  • Types of Insurance
  • Insurance Costs
  • Insurance for Owners
  • Insurance for Deigners
  • Insurance for General Contractors
  • Insurance for Trade Contractors
  • Key Insurance Provisions
  • Exclusions
  • Additional Insured Endorsements 

Resources

Act 3: An Insurance Claim for Damage During Construction

Summary: An accident on-site during construction causes property damage to the construction site as well as to adjacent properties. There was a gas line explosion caused by a gas line trade contractor that was not enrolled in CCIP, working for the gas company. There is $5,000,000 damage to the project and another $3,500,000 damage to adjacent buildings. The trade contractor has low (inadequate) limits. The gas company is not responsible. The gas line trade contractor's limits do not cover the extent of damage to 3rd parties. The CCIP excludes the work since the sub was not enrolled. So who pays? At the conclusion of these negotiations our distinguished panel will present and discuss time-honored principles and case law, hot topics and new case law, and recommendations for best practices the audience can take away to aid in managing the risks inherent in the building business. The lessons to be learned include that we should enroll the utility contracts in the CCIP and make sure the contract structure is clearly defined so insurance can be structured properly.

Faculty

Panelist 1 (Basics / Time Honored / Tried & True) - David Heemann

  1. The Coverage Parts
  2. Everybody for themselves
  3. Piece together the needed coverage

Panelist 2 (Hot Topics / New Developments / Interesting Stuff) - Rima Ghandour

  1. Response Plan
  2. OHSA
  3. Media

Panelist 3 (Recommendations / Deep Thoughts / Dos & Don'ts) - David Heemann

  1. Do – Understand the Project’s and Client’s needs
  2. Do – Understand the difference of CCIP v OCIP
  3. Don’t – Have Gaps in Coverage
  4. Do - Understand and Manage the Risks

Contents

  • Prepare for the Worst
  • Notice
  • Who's on the Cat-Team? 
  • Securing the Scene
  • Collecting Evidence
  • Witnesses
  • Forensic Documentation
  • Coordination and Correspondence
  • Allocation of Responsibility

Resources

Act 4: Construction Defect Litigation

Summary: Long after construction is complete, many parties are brought back to the table. The mediator tries to sort things out. The apartments had been sold to a new owner who then converted them to condos. There was a new wrap (OCIP) for the conversion that only insures the conversion work (not the original work). The window system leaks, damaging unit owners property and the window system needs to be replaced. The CCIP insurer has a condo conversion exclusion. The conversion work did not change the glass system so the OCIP excludes coverage. Who pays? At the conclusion of these negotiations our distinguished panel will present and discuss time-honored principles and case law, hot topics and new case law, and recommendations for best practices the audience can take away to aid in managing the risks inherent in the building business. The lessons to be learned include that we should include a condo conversion option in original wrap and set up the contract to protect the parties in the event of conversion.

More details about our case: 

  1. Association Management
    • Opt-In unit owners ORS 100.490
    • Common v. Unit defect/damage
    • Analyze Unit Sales Agreements (“as-is”, condition assessment, release and waiver, timing), Declaration, Bylaws
    • Interpreting/Amending Bylaws
    • Determining timing
      • Unit Sales Agreement
      • Breach of Contract ORS 12.080(3), Rice v. Rabb 354 Or 721 (2014)
      • Negligence ORS 12.110(1), Goodwin v. Kingsmen 359 Or 694 (2016)
      • Condo related claims ORS 12.110(1), Riverview Condos v. Cypress Ventures 266 Or App 574 (2014)
    • Hourly vs. Contingent fee
  2. Conversion Developer Claims
    • Condo Act violations ORS 100.175, 100.655(1)(h), (4); 100.770; 100.775
    • Breach of Fiduciary Duty (actions while on board of directors/real estate manager)
    • Breach of Contract/Warranty/Unit Sales Agreement
    • Negligence
    • UTPA ORS 646.608
    • Misrepresentation
    • Applicability of waiver clause in Unit Sales Agreement  ORS 100.780
  3. Conversion Builder and Sub Claims
    • Negligence
    • Contract/warranty
    • Applicability of waiver clause in Unit Sales Agreement, Bagley v. Mt. Batchelor, 356 Or 543 (2014)
  4. Original Builder Claims
    • Negligence
    • SOR issues ORS 12.135
    • Applicability of waiver clause in Unit Sale Agreement, Bagley
  5. Original Curtain Wall Design-Build Sub
    • Negligence
    • Professional negligence
    • SOR issues ORS 12.135
    • Applicability of waiver clause in Unit Sale Agreement, Bagley
  6. Original Curtain Wall Manufacturer
    • Products liability ORS 30.900
    • Warranty
    • Applicability of waiver clause in Unit Sale Agreement, Bagley
  7. Damages
    • Repair costs $7.5M (whisper number is $4.5M obtained in mediation from expert)
    • Loss of Use $TBD
    • Atty Fee recovery under Condo Act and UTPA
  8. Coverage issues
    • OCIP
    • CCIP
    • CGLs
    • Professional liability
    • Condo policy
    • Piercing

Faculty

Panelist 1 (Basics / Time-Honored / Tried & True) - James M. Daigle

  1. Less than 1 in 1000 cases are tried to a jury.
  2. There is a 99% chance you case will be resolved through mediation.
  3. Develop a mediation strategy.
  4. Ensure that all decision makers are engaged and agree on the plan.
  5. Identify one spokesperson for your team.
  6. Educate the decision makers.
  7. Evaluate external influences on settlement decision.
  8. Preparation for mediation
    • File dispositive motions well before your mediation.
    • Know your coverage issues.
    • Communicate your position early.
    • Have a credible scope and cost of repair.
    • Get the answers you need to questions that might delay resolution.

Panelist 2 (Hot Topics / New Developments / Interesting Stuff) - Emily S. Miller

  1. Brownstone:  Impact on documenting stipulated judgment settlements.
  2. Fountaincourt/Hunters Ridge:  Impact on determining indemnity coverage after an underlying trial.
  3. West Hills Development:  Impact on Additional Insured coverage. 
  4. Hunters Ridge: Impact on coverage for insured’s exposure to attorney fee award.
  5. Probuilders: Enforcement of Special Contractors Conditions endorsements.

Panelist 3 (Recommendations / Deep Thoughts / Dos & Don'ts) - Steven L. Norseth

  1. Notice
  2. The Policy
  3. Investigation
  4. Allegations
  5. Scope of Repair
  6. Application of Coverage
  7. Valuation
  8. Settlement

Contents

  • Activities in CD Litigation
  • Insurance Coverage
  • Investigation & Documentation
  • Property Damage
  • Early Evaluation
  • Litigation Costs & Fees
  • Expert Witnesses
  • Scope of Repair
  • Cost Estimating
  • Allocation of Responsibility
  • Settlement
  • Trial

Resources

Seminar Details

When: June 8th, 2017, 8:30am - 5:00pm

Where: World Trade Center, Downtown Portland, Oregon

Cost:

  • Attorney - $529
  • Government / Nonprofit - $429
  • Other Professionals - $399