|
Avoiding Legal Land Mines —
Contractors Must Learn to Manage Legal Issues Before They
Arise
Five things firms can do to cut their
legal exposure and court costs
|
|
Christopher Bruni
ATTORNEY AT LAW
Christopher B. Bruni is a partner in the firm of Adams/Nye/Sinunu/
Bruni/Becht LLP in San Francisco. He specializes in
toxic tort, premises liability, warranty litigation
and product liability defense and has successfully tried
cases in each of these areas of practice for companies
ranging from small businesses to Fortune 500 companies.
Bruni received his law degree from the University of
Santa Clara in 1984. He also holds a B.A. in Economics
(1981) from the University of California, Davis.
Web site: www.answ.com |
Boom! Another legal land mine explodes,
and another contractor finds itself in the middle of a costly
lawsuit.
Each project, from the largest to the
smallest, is a complex undertaking requiring the coordination
of hundreds of interdependent participants-suppliers, designers,
architects, engineers, accountants, bankers, project managers,
insurance companies, and, of course, the contractors.
Every other group is concerned with describing,
planning, measuring or financing the project. The contractor
is the one in the middle that literally puts it all together.
All too often, under this pressure, contractors can overlook
legal land mines that detonate long after the battle is over.
As litigators, we see this all the time.
We often become involved after an issue has blown up and landed
in court.
While no one can prevent lawsuits altogether,
the damage can be minimized by being aware of five legal mine
fields in the construction arena-areas where contractors should
walk carefully.
Jobsite Conduct and Responsibility Issues
In construction-related litigation, a case often can turn
on what work the contractor was-and was not-responsible for.
But "responsibility" as defined in the contract
can be significantly altered by the "custom and practice"
of the jobsite. As such, it is crucial for contractors to
ensure that any significant issues or changes in responsibility,
work or practices on the job are carefully documented and
clearly communicated.
In many jurisdictions, the general contractor cannot be held
liable to employees of other subcontractors if the general
contractor does not "affirmatively control" the
manner in which the work is performed in such a way as to
result in the injury. Therefore, it is critical to keep close,
written track of all work and safety practices on a given
project.
Indemnity Issues
Indemnity clauses are a vehicle for shifting the risk on
a job from the general contractor to a subcontractor. Typically,
the general contractor also will require that the sub add
the general contractor to its insurance policy as an "additional
insured." The insurance company then is required to defend
and indemnify the subcontractor as well as the general contractor
in a lawsuit.
That is all well and good until a suit is filed years or
decades after the project is complete and the subcontractor
is bankrupt or nonexistent. Suddenly, the general contractor
is liable for everything. Even worse, if the contractor has
lost or destroyed the indemnity agreement or can't produce
the additional insured endorsement, there's no insurance coverage.
The lesson here is that any time there is an indemnity clause
with an additional insured endorsement, get the evidence-usually
a certificate of insurance and an additional insured endorsement-from
the subcontractor. Then keep it forever.
Which State's Law Will Apply If There
Is a Dispute?
Most construction contracts contain a "choice-of-law"
provision. This paragraph sets out which state's law will
apply if a dispute arises over the contract. The choice, interestingly,
often is New York.
Legal counsel and construction financing often is based in
New York, particularly for big projects, so a contract provision
may specify that any litigation or arbitration over a contract
must apply New York law.
But all too often, contractors are not aware of this provision
or assume it's unimportant. It is extremely important. New
York's statutes and case law may differ substantially from
those in your jurisdiction. The time to find this out is when
you review the contract, not when you get sued years or decades
later.
Limitations and Repose
In law, the statute of limitations is the time period within
which a suit can be filed. The statute of repose is the period
of time after which a suit cannot be filed. Increasingly,
contractors can inadvertently extend the time during which
they are vulnerable to a suit by attempting repairs or assisting
another party doing repair work.
All too often, contractors assume the limitations period has
run out when it has not and have lost or destroyed critical
documents. Assume there is no such thing as a limitations
period and retain all critical documents indefinitely.
Arbitration
The best way to prevail in court is never to go there. An
arbitration clause ensures this. A full-blown lawsuit is expensive,
unpleasant and can take a long time. An arbitration clause
in a construction contract prevents this. Arbitration-dispute
resolution through a private proceeding, typically overseen
by retired judges-is usually faster, simpler, cheaper and
much less painful than a trial. It also eliminates the risk
of a runaway jury returning an emotionally driven, exorbitant
judgment. Make sure every construction contract provides for
arbitration.
Perhaps the most famous construction adage is: "Measure
twice, cut once." There's a similar maxim that applies
to litigation, and it can save you time, money and energy:
"Handle issues when they show up-not when they blow up."
|
