Spring 2020 WomenBreaking Ground in Construction

A publication of Benesch Friedlander Benesch’s Construction Law Coplan & Aronoff LLP’s Construction Group Webinar Series

Benesch’s Construction Law Practice prides itself on being the construction law group that educates In this issue: the industry. We present nearly 100 seminars each year at industry conferences and meetings to our Construction Contract Impacts as a clients in their offices. Given the impact and pandemic of COVID-19, we are joining many colleges and Result of COVID-19: Force Majeure, universities in moving our educational programs online in order to best facilitate learning opportunities for Impossibility, and Impracticability members of the construction industry. Gender-Based Discrimination in the April 2 will begin our webinar series as we more comprehensively address Force Majeure clauses in Construction Industry and What relation to the current COVID-19 crisis facing our nation as a whole. Employers Should Be Doing Indemnity: A Complex Puzzle That Can The Effects of Substance Abuse on the Construction Industry Be Solved Thursday, April 9, 2020 | 12:00 p.m. – 1:00 p.m. ET No Contract, No Problem Presented by: RICHARD D. KALSON, Partner, Benesch The Spearin Doctrine: Providing a CLICK HERE to register. Recovery Mechanism for Contractor’s Differing Site Condition Claims for 101 Years Gender Considerations in Construction - A Primer on Gender- Do You Know What Your CGL Policy Based Discrimination and Women-Owned Business Enterprise Covers? Regulations Contractors and Subcontractors Continue Thursday, April 16, 2020 | 12:00 p.m. – 1:00 p.m. ET to Squander Claims By Not Properly Preserving Physical Evidence Presented by: CHERYL DONAHUE, Associate, Benesch; MARGO WOLF O’DONNELL, Partner, Benesch SUSAN M. WHITE, Associate, Benesch Losing the Protection of the Corporate Shield: One of the Greatest Risks Facing CLICK HERE to register. Any Contractor, Especially Those Who Utilize Union Labor and Face Potential Withdrawal Liability Exposure Managing the Unmanageable—Workplace Safety in a Cannabis Revolution

www.beneschlaw.com Women in Construction Spring 2020

Women in Construction Contract Impacts as a Result Construction of COVID-19: Force Majeure, Impossibility, Benesch Breaking Ground and Impracticability

Welcome to Women in Construction, a platform to foster growth and connections for women across all levels of the construction industry. In 2019, women held only 10.3% of all construction jobs, a drab increase from 9.5% a decade ago. While other industries have seen tremendous growth in the number of positions held by women, construction has remained Susan White Allyson Cady Abby Riffee stagnant, hovering between 9% and 10% In light of the COVID-19 pandemic, excusable phenomenon and is thus an Act of God. since 1995. delay clauses are at the forefront of everyone’s Conversely, a defense against the same is that The question then turns to why. Why aren’t mind. The effects this pandemic has had on such pandemic was foreseeable in light of more women flocking to an industry that is in the construction industry and supply chains recent health emergencies such as H1N1 and the midst of a labor shortage? Why aren’t more is only just beginning. While only a handful of SARS. women advancing up the leadership ranks in jurisdictions have drastically limited construction The force majeure clause may include a this industry? Studies have shown that women operations, projects across the country are catchall phrase in an attempt to broaden its in construction feel held back from advancement being adversely impacted by labor and material scope or expand its covered events. A colorable because of unconscious gender bias, a lack shortages caused by this crisis. argument that the language “including but not of role models, a lack of adequate training, Most construction contracts contain delay limited to” or “other causes” could be read to discrimination in the workplace, and an aura clauses, and many include force majeure imply that COVID-19 should be a covered event of exclusion they feel from being left out of the language, to address which party will bear the under such force majeure clauses. However, boys club. risk of delay. Force majeure (meaning “superior under the doctrine of ejusdem generis (“of the Women in Construction aims to fill in these gaps force”) may excuse (or suspend) a party’s timely same kind”), such phrases may not actually by offering legal bulletins, training, webinars, performance of its contractual obligations when encompass all events beyond the contractor’s networking events, and a forum to foster unforeseeable circumstances, or a supervening control. If the catchall language follows a list connections in the construction community, event not within the control of either party, of particular events or other specific language, educate one another on ways to perform more arise; however, its applicability to COVID-19 then only events similar to those listed will fall efficiently, and provide guidance on operating a will depend on the express written terms of the within the scope of the broader language. successful construction business. underlying contract. Force majeure clauses will If the force majeure clause includes no other vary drastically from contract to contract, and Please enjoy our first newsletter and be sure to qualification related to health or government are traditionally narrowly construed by courts. register for Benesch’s upcoming webinar series. functions, then under the contract interpretation We aim to transition to more female-generated Issues arise when the force majeure clause is rule of expressio unius est exclusion ulterus content—please reach out with any questions, not specifically defined. If the clause expressly (“express one thing, excludes the other”), topics, or issues you’d like to see covered. lists pandemics, epidemics, public health no other cause of delay would excuse emergency, and/or acts of government, then nonperformance. We also invite you to join the dialogue in our the COVID-19 outbreak may very well excuse LinkedIn group, Benesch-Women in Construction. Force majeure clauses are not boilerplate, and performance. More than likely, the phrase “Act it’s possible your contract may be completely Feel free to share this newsletter and invite other of God” may be the only contractual basis for silent on this issue. In these instances, colleagues to join us as well. Together we can a party seeking to excuse its performance as common law will control. There are two do more! a result of COVID-19. Such basis is untested doctrines that may excuse a party’s contractual and will depend on your jurisdiction. Arguments performance: the doctrine of impossibility and are being made that COVID-19 is a natural

2 www.beneschlaw.com the doctrine of impracticability. While often used must establish the occurrence of an event, the However, note that in a fixed-price contract, a interchangeably, these doctrines are uniquely nonoccurrence of which was a basic assumption party has expressly assumed the risk of price yet subtly different. of the contract. Finally, the party claiming increases—be that labor costs and/or costs discharge must show that it did not expressly of materials—thus, impracticability may not The doctrine of impossibility can be used as or impliedly agree to performance in spite of apply to excuse such performance. Further, a defense to breach of contract actions to impracticability that would otherwise justify a subcontractor’s duty to provide and install excuse one party’s performance regardless nonperformance. material for a general contractor will not be of the language of the underlying contract: excused as a result of its supplier’s inability “where parties enter into a contract on the In the context of COVID-19, impracticability to provide conforming goods where substitute assumption that some particular thing essential of performance may stem from availability of material is available from an alternative to its performance will continue to exist and be material and government interference that supplier.2 available for the purpose and neither agrees to drastically impacts one’s ability to perform. be responsible for its continued existence and availability, the contract must be regarded as Key takeaways: subject to an implied condition that, if before the • Review Your Contracts: Check your agreements for other clauses that may offer relief, such time for performance and without the default of as emergency clauses, both owner and contractor suspension and termination provisions, and either party the particular thing ceases to exist clauses that may provide for time extensions, price escalations, or standby time. or be available for the purpose, the contract • Incorporation: Look for incorporation language in your contract that can be used to invoke shall be dissolved and the parties excused from and rely on applicable definitions or clauses from the prime contract. performing it.”1 • Protect Your Claims: Review all notice requirements, timely respond to notices received by In light of COVID-19, to rely on the doctrine others, and begin contemporaneously documenting all schedule impacts and costs incurred of impossibility, one may not rely solely upon as a result of COVID-19. (Owners need to review loan documents to determine whether his or her own inability to perform, but must corresponding notices need to be sent to their lenders.) also negate the possibility of performance by • Alternatives: Absent express contract language, look into whether the doctrines of others and exhaust all alternative sources of impossibility or impracticability may excuse your timely performance. performance in order to objectively prove that performance cannot be done, rather than the • Insurance: Don’t forget about your insurance contracts; review closely to see if COVID-19 subjective standard of “I cannot perform.” may qualify as an “occurrence” to trigger business disruption coverage. The doctrine of impracticability has emerged as a modern, broader take on impossibility. SUSAN M. WHITE is an associate in Benesch’s Litigation and Construction Practice Groups and In contrast to performance being objectively can be reached at [email protected] or (216) 363-4541. ALLYSON CADY is an associate impossible, the concept of impracticability is in Benesch’s Litigation Practice Group and can be reached at [email protected] or viewed as an excuse where performance of the (216) 363-6214. ABBY RIFFEE is an associate in Benesch’s Litigation Group and can be reached contract is “vitally different” from that originally at [email protected] or (614) 223-9387. contemplated by the parties—performance is still possible and the purpose of the contract can still be fulfilled, however, due to a change 1 Florida Power & Light Co. v. Westinghouse Elec. Corp., 826 F.2d 239, 263 (4th Cir. 1987). in circumstances, the performance of the 2 Absent express contractual provisions, the Uniform Commercial Code will govern disputes regarding purchase promisor’s obligations has become commercially and supply of material directly between contractors and material supplier. While similar to these common law impractical. Impracticability will not excuse doctrines, the UCC has its own set of standards that may excuse performance including § 2-615. performance if another alternative remains open. Further, the party claiming discharge

Breaking Ground 3 Women in Construction Spring 2020

Gender-Based Discrimination in the Construction Industry and What Employers Should Be Doing

In the era of the industry personnel believing that the industry an employer to harass or discriminate against #MeToo movement, has been too slow to confront such issues.4 an employee based on the employee’s gender sexual harassment and (including pregnancy, childbirth, or related Engineering News Record (ENR) followed gender bias are at the medical conditions), gender identity, gender in the EEOC’s steps and conducted its own forefront of many minds, expression, or sexual orientation. Discrimination survey in 2018.5 Over the course of six weeks, with employers in all or harassment is an act committed to make 1,200 participants from diverse demographics, industries struggling to another feel unwelcomed, uncomfortable, employer sizes, and industry positions logged Susan M. White maintain an inclusive offended, or oppressed. And contrary to belief, it their personal experiences with sexual culture as a means to does not have to be motivated by sexual desire, harassment and gender bias in the construction maintain a happy workforce and attract top-tier and often is not. industry. Surprising to some, but maybe not to talent. others, 60% of ENR’s respondents reported they Discrimination is unlawful when (1) it creates an In January 2015, the U.S. Equal Employment had witnessed sexual harassment or gender intimidating or offensive work environment or Opportunity Commission (EEOC) impaneled bias in the workplace, and 66% indicated they unreasonably interferes with work performance a task force to study harassment in the had personally experienced it in the workplace.6 (known as hostile work environment workplace.1 During its investigation, the task Of the 66% who reported a personal experience, harassment), (2) a job benefit such as a force found that in FY2015, approximately about half indicated it occurred out on a jobsite, promotion, offer of employment, or continued 28,000 charges alleging harassment had been while the other half noted it was experienced in employment is conditioned on submission to filed with the EEOC from employees working for a construction sector workplace.7 sexual advances or other gender bias (known private employers, or working for state or local as quid pro quo harassment), or (3) it is done What is sexual harassment governments.2 Of those 28,000 charges, 45% in retaliation. Employers can be held liable for and gender bias? of the claims alleged harassment on the basis of conduct by management and supervisors, peer their gender.3 Sex is a protected class under Title VII of to peer, and non-employees (including vendors, the Civil Rights Act of 1964, and the EEOC suppliers, clients, customers) when the employer The construction industry is not insulated from defines harassment as a form of employment fails to take reasonable steps to prevent the such harassment or discrimination, with many discrimination that violates Title VII. It is illegal for harassment.

4 www.beneschlaw.com What should employers be doing handbooks and routinely discussed in frequent together, the two are also vastly different, and about sexual harassment and employee training programs mandatory for all it’s important that employers offer protections gender bias? levels of employees. The EEOC recommends to employees for both. According to the U.S. After an 18-month investigation, a employers engage in both anti-harassment Bureau of Labor Statistics, women make comprehensive report of the EEOC task force’s compliance training as well as civility training to up only 10% of the construction industry findings was published. Some of the key promote respect in the workplace. Both the rules workforce, with nearly 87% of women falling findings were: and disciplinary action should be clearly defined into business, technical, management, or office by the organization, and the reporting process roles and only 13% in field or trade positions.9 a) Workplace Harassment Remains a Persistent should be transparent and easily accessible by Though these figures have risen by nearly Problem; all levels of employees. An employer’s response 85% in the past 30 years, women are still far b) Workplace Harassment Too Often Goes to a complaint of discrimination is as equally underrepresented in the construction industry Unreported; important as its policies; all claims must be in comparison with the general labor force and c) There Is a Compelling Business Case for thoroughly investigated, and prompt steps that of other industries.10 Diversity and inclusion Stopping and Preventing Harassment; should be taken to prevent reoccurrence. training are key components in the construction industry that should be incorporated into every d) It Starts at the Top—Leadership and Finally, employers should also give equal employer’s programming, and one’s gender Accountability Are Critical; and attention to both prongs of sex discrimination— (and other protected classifications) should e) Training Must Change.8 the sexual harassment aspect as well as gender never be factored into any employment decision, bias. Although similar and often grouped Employers can suffer great liability for sex- including compensation and promotions. based discrimination experienced within their organization when their policies and practices Takeaways: are found to have been insufficient to protect their workforce. Some states also allow personal Sex-based discrimination and harassment is far more prevalent in the workforce than liability to be asserted against supervisors many believe. Employers can no longer remain complacent, as they face high liability for and high-level officials when certain federal discrimination and/or harassment, which could result in both financial impacts and disruption to statutes are violated or in egregious situations business. With proactive measures and fair practices, such issues can easily be avoided. In our of pervasive discrimination. Financial liability for discussions with employers, all agree that their people represent their most valuable resource. EEOC claims and lawsuits, including the cost All employees should be treated with respect and protected from assault and all other forms of of any judgments or settlements, and defense harassment. costs, account for direct damages that may be incurred; statutory fines and penalties can also SUSAN M. WHITE is an associate in Benesch’s Litigation and Construction Practice Groups and be imposed by state and federal governments. can be reached at [email protected] or (216) 363-4541. Indirect damage is suffered based on loss of productivity of affected employees, increased turnover rates, and decreased workplace 1 Select Task Force on the Study of Harassment in the Workplace, Report of Co-Chairs Chai R. Feldblum & morale, along with negative company publicity Victoria A. Lipnic, June 2016 and reputational harm. 2 Id. 3 Id. Starting from the top down, all organizations 4 #MeToo in Construction: 66% Report Sexual Harassment in ENR Survey, Debra K. Rubin, Janice L. Tuchman, must be proactive to maintain a harassment- Mary B. Powers, Eydie Cubarrubia, and Mark Shaw, Octobr 11, 2018 free workplace policy, with commitment from 5 Id. all levels of management. They should invest 6 Just under one-third of survey respondents identified as male and nearly 70% of respondents fell within the in fostering a culture and environment where age range of 31-60 years old. Id. discrimination is not tolerated and where 7 Id. employees feel welcome enough to discuss 8 Id. their concerns. This starts with comprehensive 9 U.S. Bureau of Labor Statistics, Labor Force Statistics from the 2018 Current Population Survey companywide policies that are practiced and 10 not just preached. The policies, which should Id. include anti-touching and office dating protocols, should be clearly identified in employee

Breaking Ground 5 Women in Construction Spring 2020

Indemnity: A Complex Puzzle That Can Be Solved

The best way to prevent an avoidable claim damages that may be assessed against it. is to enter into a strong contract. While the One main benefit of a properly negotiated reasoning behind some contract provisions, indemnity provision is mitigation of the risk of as well as requested revisions to the same, out-of-pocket liability. When a narrowly tailored may be glaringly apparent, the significance of duty to indemnify is tied only to the extent of some other provisions and the need to revise the subcontractor’s negligence, and is further them are less obvious. Indemnity is one of the limited to claims that result in personal injury, Susan M. White Richard D. Kalson most often overlooked and not fully understood death, or property damage, your insurer should contract provisions. However, these provisions slide in and take over, thereby diminishing your could have the largest implication on your risk of out-of-pocket liability. risk. The indemnification, or hold harmless, The additional insured coverage is another piece provision of any contract is a key provision that It is essential that you of the indemnity puzzle that is often overlooked. subcontractors and suppliers should be carefully are only agreeing to For the reasons stated above, it is important reviewing and zealously negotiating to ensure to make sure that your duty to insure, or your indemnify those entities that a fairly balanced agreement is reached. assumed risk, for any additional individuals or or individuals to whom In recent months there has been a large entities is tied to your contractual indemnity number of judicial decisions that should guide you are contractually obligations. This limits the claims for which subcontractors in their subcontract negotiations. liable to indemnify. you can be held liable. Recently, in Precision Indemnity in construction agreements shifts the Underground Pipe Servs. v. Penn Nat’l Mut. Cas. monetary liability for a loss from one party to & Verizon Pa., LLC, 2019 Pa. Super. Unpub. another. It is imperative that the subcontractor LEXIS 4486, the court found that even though negotiate a contractual reallocation of risk back the subcontractor was not a named defendant to the party actually performing the work who in a lawsuit, the subcontractor insurance policy is in the best position to control or minimize was required to provide coverage for the claim the risk of harm. By agreeing to indemnify the under the additional insured contract provisions general contractor, a subcontractor is agreeing of the parties’ agreement. The court held, to reimburse the general contractor for the despite the fact that the complaint failed to

6 www.beneschlaw.com set forth any overt allegations of negligence or Additionally, be sure that the additional insured not held to be the sole or exclusive remedy wrongdoing on the part of the subcontractor, are clearly and specifically identified. A New for recovery for covered claims. This type of the subcontractor’s insurance company was still York Federal Court in United Specialty Ins. limitation can preclude the indemnified party obligated to defend the general contractor and Co. v. Lux Maint. & Ren. Corp., 2019 U.S. from obtaining a recovery that is over and above owner against the subcontractor’s employee’s Dist. LEXIS 201805 found that a lower-tier applicable insurance limits. Further, it prevents claims under the additional insured provision subcontractor and its insurance company an indemnified party from sidestepping your of the agreement. The owner and general were obligated to indemnify various unnamed negotiated indemnity limitations via a broad contractor both had a duty to protect the injured “owners” of the project. Brend Renovation contractual insurance obligation that allows worker from dangerous or hazardous conditions Corp. (Brend) entered into a contract with a party to seek additional recourse or other on site; however, to the extent the injuries were Sutton (Sutton) wherein Brend was to provide equitable remedies. caused by a breach of that duty, the insurance certain balcony and façade repairs. Sutton was The indemnity provision is not one to be coverage under the subcontractor’s additional identified in the contract as the owner of the overlooked; rather, use it to your advantage in insured obligation was invoked. The takeaway property. Brend then subcontracted certain combination with a proper insurance program from this decision is that a subcontractor can portions of its work to Lux. Pursuant to the and carefully drafted contractual insurance be held liable to defend and/or indemnify terms of the subcontract agreement, Lux was language to provide a fair balance allocation in a higher-tier additional insured, even if the to procure insurance for additional insureds the shift of risk. subcontractor’s own negligence is not a listed only as “Owner” for any claims arising contributing factor to the damage or loss. out of Lux’s work. Lux procured insurance on RICHARD D. KALSON is a partner and this project from plaintiff USIC. Two separate construction attorney at Benesch and can This ties into the recommendation that you injuries occurred during Lux’s performance be reached at [email protected] should limit your obligation to indemnify only of work on the project. The injured parties or (614) 223-9380. SUSAN M. WHITE is to the extent of your actual negligence. If brought suit against various entities that were an associate in Benesch’s Litigation and your indemnification liability is so limited, you the true owners of the real property that was Construction Practice Groups and can be may be able to mitigate your risk exposure by the subject of the project. In fact, Sutton was a reached at [email protected] or proving that the party seeking indemnity was trade name, and it did not own any of the real (216) 363-4541. solely at fault for the injury or damage, or was estate despite being identified as the owner contributorily negligent for the same. This is true on the general contract and subcontract. The as “a party seeking contractual indemnification true owners then sought indemnification from must prove itself free from negligence, because Lux and its insurer as additional insureds under to the extent its negligence contributed to the the subcontract agreement. Lux’s insurance What’s Trending accident, it cannot be indemnified therefore.” carrier brought a declaratory judgment action [Mullen v. Hines 14 Ave. of the Ams. Invs., LLC, seeking a finding that it was only liable to Friend us on Facebook: 2019 N.Y. Misc. LEXIS 5893.] Note that some indemnify Sutton House Associated as the www.facebook.com/Benesch.Law states have enacted anti-indemnity statutes, listed owner of the project, and not the true such as California, Colorado, Kansas, and owners of the property. The Court disagreed Oregon, or otherwise have restricted the ability Follow us on Twitter: and found that USIC was obligated to indemnify of a lower-tier contractor being held liable to www.twitter.com/BeneschLaw and defend all true owners of the real property indemnify a higher tier from damage or injury as additional insureds, as they were the true caused solely by the higher tier. However, others intended and anticipated parties contemplated Subscribe to our states do not have anti-indemnity statutes, and under the terms and conditions of the under the YouTube Channel: they will enforce a contract provision wherein a agreement when Lux agreed to indemnify the www.youtube.com/user/BeneschVideos subcontractor may held liable to fully indemnify “owner.” a contractor and/or owner from an injury that Follow us on LinkedIn: was caused solely or almost entirely by the Finally, always make sure that your insurance http://www.linkedin.com/company/ general contractor’s negligence. Know your policy contains the proper endorsement and benesch-friedlander-coplan-&-aronoff/ jurisdiction. follows your carefully selected additional insured coverage obligations. Additionally, It is essential that you are only agreeing to there is no reason to negotiate your indemnity indemnify those entities or individuals to obligations if the indemnification remedies are whom you are contractually liable to indemnify.

Breaking Ground 7 Women in Construction Spring 2020

No Contract, No Problem

In the absence of a contract, a contractor may still be able to recover its increased costs and delay damages from project designers and architects.

Richard D. Kalson Jonathon Korinko

Often claims for additional money are predicated In Florida, a contractor may pursue a designer While every contractor should know and on the existence of and compliance with a for negligence so long as the designer created follow the provisions in its contract required contract pursuant to which a recovery is sought. a “foreseeable zone of risk.” In other words, a to preserve claims, the Suffolk Constr. opinion If, however, a contractor suffers additional costs designer has to exercise some control over the provides a potential avenue of recovery when and delays due to design errors caused by an contractor or the project by either maintaining increased costs and delay damages may entity with whom the contractor does not have a a supervisory role or preparing designs that otherwise by barred under a contract. Indeed, contract, then there are some instances in which it knows will be relied on by the contractor. by pursuing negligence claims against the contractors can seek recovery from designers Here, the Southern District of Florida found all project’s designers and architects, Suffolk and architects under a negligence theory. the project’s designers and architects exerted and Baker were able to avoid common Indeed, a recent opinion from a federal court some form of control over Suffolk and Baker. contractual defenses such as the existence of in Florida permitted contractors to circumvent The court found that the prime designers a no damages for delay clause or a failure to the absence of a contract and directly pursue exerted control through their supervisory role comply with the contractual notice and claim negligence claims against the project designers on the project, which included determining if procedures. Therefore, if you find yourself in the and architects to recover increased costs and Suffolk and Baker complied with the design unfortunate position of having failed to preserve delays allegedly incurred by design errors. specifications. The court also found that the your claims under the contract, you still may lower-tier designers—who only participated be able to recover those damages from the In Suffolk Constr. Co. v. Rodriguez & Quiroga in preparing the designs but did not have a project’s designers. Architects Chartered, 2018 WL 1335185 (S.D. supervisory role—also exercised control over Fla. Mar. 15, 2018), Suffolk Construction Co., RICHARD D. KALSON and JONATHON Suffolk and Baker. The court reasoned that the Inc. (Suffolk) was engaged to develop a science KORINKO are partners and construction lower-tier designers created a foreseeable zone museum in Miami, Florida. Suffolk’s contract attorneys at Benesch. Rick can be reached of risk because they knew Suffolk and Baker was with the owner only. The owner terminated at [email protected] or at (614) would rely on the information contained in the Suffolk for convenience and contracted directly 223-9380, and Jonathon can be reached at design and structural documents that they with Baker Concrete Construction, Inc. (Baker) to [email protected] or at (216) 363- prepared. Accordingly, Suffolk and Baker were complete concrete-related work on the project. 6267. permitted to prosecute claims against all of the Both contractors brought a negligence action project’s designers and architects for increased against the project’s designers and architects, costs and delay damages despite not having a alleging that the design documents were flawed, contract with any of them. In ruling, the court which caused increased costs and delays to also importantly rejected arguments raised by the project. Neither Suffolk nor Baker had any the project’s designers and architects regarding contractual relationship with the architects and Suffolk’s and Baker’s alleged breach of the designers. notice and claim procedures contained in their respective contracts with the owner.

8 www.beneschlaw.com The Spearin Doctrine: Providing a Recovery Mechanism for Contractors’ Differing Site Condition Claims for 101 Years

Perhaps the single that vary from what is typically encountered in A similar result was reached by a Vermont most important judicial a given geographic area. A Type II claim is far state court in W.M. Schultz Constr. v. Vt. Agency decision that impacts harder to prove than a Type I claim. of Transp., 203 A. 3d 1205 (Vt. 2018). In the contractors every day aforementioned case, a ledge on a bridge Some recent published judicial opinions is the United States construction project was much deeper than illustrate how courts are currently applying the Supreme Court’s anticipated based on the contract documents. Spearin Doctrine. For example, the Federal Court decision that was issued The contractor was consequently required to of Claims recently reaffirmed that “it is well Richard D. Kalson over 100 years ago in construct a different, more time-consuming, established that when the government provides U.S. v. Spearin, 248 U.S. and more expensive cofferdam. Therefore, a a contractor with defective specifications, the 32 (1918). This decision created the judicial Type I differing site condition was found to exist, government is deemed to have breached the rule of law known as the Spearin Doctrine, and the contractor was entitled to additional implied warranty that satisfactory contract which provides that the owner warrants the compensation and an extension of time. performance will result from adherence to the adequacy of the plans and specifications that specifications, and the contractor is entitled to On a less positive note for subcontractors, while it provides. If the contractor builds in strict recover all of the costs proximately flowing from Ohio state courts recognize a contractor’s right accordance with the plans and specifications the breach...The Compensable costs include, to bring a claim under the Spearin Doctrine and a defect in the construction results that among other things, those attributable to any against a public owner for differing site was caused by a deficiency in the plans and period of delay resulting from the defective conditions and other design errors, a federal specifications, the contractor is not responsible specifications.” [Ultimate Concrete, LLC v. court in Ohio recently held that there was not for such construction defects. Furthermore, if United States, 141 Fed. Cl. 463, 481 (2019).] any basis under Ohio law to allow a contractor the contractor incurs additional costs because of Based upon the following premise, a contractor to bring a Spearin Doctrine claim against a a design defect, it is entitled to be compensated was entitled to compensation for performing private owner. [AP Alts, LLC v. Rosendin Elec., for these costs. additional excavation and material replacement Ins., 2019 US Dist. Lexis 139084.] While the In the ensuing 101 years, two primary types of work due to inaccurate survey information. great majority of courts have recognized the claims have arisen under the Spearin Doctrine. Making matters worse, the government project right for contractors to bring a claim under the Type I differing site condition claims allow for a owner knew that the survey information that Spearin Doctrine against private owners, the contractor to receive additional compensation it created and provided to project bidders was Ohio court decision must be taken into account where an unforeseen condition is encountered inaccurate even before the project was let for by contractors in that state. that is not described in the contract documents. bid. The owner then withheld more accurate RICHARD D. KALSON is a partner and A Type I claim is the most typical claim that is survey data from the contractor when the construction attorney at Benesch and can made under the Spearin Doctrine. A Type II claim contractor identified defects in the design be reached at [email protected] or arises when conditions are encountered information provided by the owner after it began (614) 223-9380. to perform its work. Breaking Ground 9 Women in Construction Spring 2020

Do You Know What Your CGL Policy Covers? A Recent Court Decision Might Make You Reexamine the Coverage Provided Under Your CGL Policy

The construction industry has numerous insurance products available to limit or control risk. While many companies take advantage of these policies, either voluntarily or oftentimes as required by contract, few know the extent Eric B. Kjellander Richard D. Kalson Alex Filotti, P.E. or limits of these policies. Recently, the United States Court of Appeals for the Sixth Circuit notified Maxum of the arbitration and sought court did not have the benefit of the additional provided some clarity as to the limits for certain insurance coverage under the CGL policy. information. The appellate court would not insurance coverage. Maxum denied coverage and filed for a consider the new evidence for the first time on declaratory judgment in federal district court, appeal, and Robbins’ appeal was denied. In the broadest sense, a commercial general asserting that it had no duty to defend Robbins liability (CGL) policy provides coverage for Conclusion in the arbitration that exclusively involved an damage as a result of bodily injury and property alleged breach of contract. Maxum Indem. Co. v. Robbins Co. serves as an damage. CGL policies typically include both important reminder to industry participants to a duty to defend an insured and a duty to Analysis discuss the extent and limits of their insurance indemnify for covered claims. The federal court agreed with Maxum and products with their insurance brokers, including Background of the Dispute found no duty to defend Robbins, because the necessary requirements to make a timely JCM’s arbitration claim was based on a breach claim. Most general liability policies do not The Robbins Company is a designer, of contract claim. Robbins appealed the lower include coverage for breach of contract claims. manufacturer, and supplier of tunnel-boring court’s decision to the Sixth Circuit Court of The purpose of insurance is to mitigate and machines. JCM Northlink, LLC contracted with Appeals. While it disagreed with the lower control risk. As a result, it is vital that companies Robbins to lease one of the machines for a court’s reasoning, the Sixth Circuit (the federal be aware of the specifics of their policies, the construction project in Seattle, Washington. appellate court that covers Ohio, Kentucky, price of obtaining additional coverage, and any The contract contained a clause stating that the Tennessee, and Michigan) agreed with the trial limitations of such coverage. Additionally, PDCA machine was to be free from all latent defects court in holding that Maxum had no duty to contractors must be careful not to agree to in materials or workmanship. Two years into defend Robbins in the arbitration. indemnify another party for breaches of contract the agreement, an internal bearing shattered that are not covered by insurance. Instead, a and the machine stopped working, causing the The court relied upon the language found in CGL contractual indemnity clause must be limited to construction project to be delayed. As a result, policy that the “breach of contract” exclusion insured items such as claims for personal injury JCM terminated its contract with Robbins and indisputably covered JCM’s claim. Because and property damage. filed for arbitration based on Robbins’ alleged the arbitration claim fell within the exclusion, breach of contract. In its claim, JCM demanded Maxum had no duty to defend. For the first time ERIC B. KJELLANDER and RICHARD D. costs associated with the delays in excess of on appeal, Robbins attempted to introduce new KALSON are partners and construction $40 million. The arbitration demand was silent evidence of claimed damage separate and apart attorneys at Benesch. Eric can be reached as to any non-contractual damages. from the contractual claims. The court noted that at [email protected] or (614) Robbins was in possession of the information 223-9329. Rick can be reached at rkalson@ Robbins was insured through a CGL policy prior to the lower court issuing its decision and beneschlaw.com or (614) 223-9380. issued by Maxum Indem. Co. Fifteen months failed to timely introduce it. As a result, the trial after the arbitration had been filed, Robbins

Pass this copy of Women in Construction on to a colleague, or email KATIE EGAN at [email protected] to add someone to the mailing list. The content of the Benesch, Friedlander, Coplan & Aronoff LLP Women in Construction Newsletter is for general information purposes only. It does not constitute legal advice or create an attorney-client relationship. Any use of this newsletter is for personal use only. All other uses are prohibited. ©2020 Benesch, Friedlander, Coplan & Aronoff LLP. All rights reserved. To obtain permission to reprint articles contained within this newsletter, contact Katie Egan at (312) 624-6336. 10 www.beneschlaw.com Contractors and Subcontractors Continue to Squander Claims By Not Properly Preserving Physical Evidence

Very sophisticated Additionally, a deputy project manager’s diary may encounter on the project. This can be contractors and that covered the time period in which the accomplished by placing such items in a secure subcontractors disputed events transpired was also lost. facility or even by turning these materials over continue to needlessly to counsel to hold in escrow or to the project As a result of this loss of important evidence compromise or even owner if allowed by contract. that presumably should have been favorable squander claims due to STP and perhaps served as the primary Secondly, all diaries should be transmitted to a failure to properly supporting basis for its case, WSDOT moved to electronically on a daily or weekly basis (and preserve physical Richard D. Kalson dismiss STP $642 million claim. WSDOT argued timely reviewed) in a manner that allows for evidence. A recent that STP was contractually obligated to properly safe storage. While hard copies of diaries were graphic example of this took place on the highly preserve the evidence and that it not only failed once lost somewhat routinely as employees publicized Highway 99 tunnel project in Seattle, to do so, but that it concealed its failure from traveled from job to job, employer to employer, Washington. The Washington Department WSDOT for months. While the court refused truck to truck, and house to house, excuses for of Transportation (WSDOT) contracted with to dismiss STP’s claim, it did enter an adverse the losses of diaries were not acceptable in the Seattle Tunnel Partners (STP) to construct an inference against STP. An adverse inference past and are certainly not acceptable now given underground bored tunnel in Seattle that was is a judicial instruction to the jury that is not modern technology. These losses can further be 1.7 miles in length and 57 feet in diameter. favorable to the party that lost the evidence. avoided if a company issues a litigation hold to During the excavation of the tunnel, STP’s boring In this instance, such instructions will include all employees the moment that a controversy machine allegedly encountered the steel casing charges such as “By its actions and inactions, arises on a project. Such a litigation hold should on an abandoned test well, and STP was unable STP consciously disregarded the importance be issued in strict accordance with a uniform to continue with its progress. WSDOT then of the missing pipe pieces and boulders, in company policy for the retention of electronic sued STP for breach of contract related to the failing to preserve them” and “STP acted in bad data and all other records. work stoppage. STP filed a countersuit against faith by concealing from WSDOT that it lost or WSDOT for failing to disclose the abandoned Just as in sports, it is difficult enough to beat destroyed the pieces of pipe and the boulders.” test well. [Washington Dep’t of Transp. v. Seattle the opposing team in litigation, even without In this case, what should have been the best Tunnel Partners, 2019 Wash. App. Lexis 281.] making avoidable mistakes. Prevailing in a hotly pieces of evidence for the contractor were disputed claim can become nearly impossible, After STP encountered the steel casing, it stored transformed into significant pieces of evidence if not impossible, if a contractor beats itself by this critical evidence outdoors on a pallet instead for the project owner because of the loss of failing to properly preserve critical evidence. of in a secured warehouse facility. Unfortunately, evidence by the contractor. This situation was a nighttime cleanup crew later recycled the steel completely preventable and can be avoided RICHARD D. KALSON is a partner and pipe and also disposed of some boulders that by contractors if proper internal controls are construction attorney at Benesch and can also represented important evidence. instituted and followed. be reached at [email protected] or (614) 223-9380. Initially, each contractor should go to extreme measures to properly photograph and preserve all boulders and artificial obstructions that it Breaking Ground 11 Women in Construction Spring 2020

Legal Tips

Losing the Protection of the Corporate Shield: One of the Greatest Risks Facing Any Contractor, Especially Those Who Utilize Union Labor and Face Potential Withdrawal Liability Exposure In recent months, courts in states such as Texas, The following 14 factors are considered by many courts when determining if the corporate form New York, Pennsylvania, should be discarded, the corporate veil should be pierced, and a shareholder should be liable North Dakota, Kansas, because the shareholder directed and controlled the corporation and used it for an improper and Ohio have issued purpose and a “separate personality” between the dominant shareholder and the corporation published opinions does not exist. regarding whether 1. Common ownership 9. Siphoning away of the corporation’s funds Richard D. Kalson contractors were entitled 2. Pervasive control by its dominant shareholder to corporate protection 3. Confused intermingling of business assets 10. Nonfunctioning of officers and directors after they allegedly failed to properly follow 4. Insufficient capitalization 11. Use of the corporation for transactions of corporate protocols and/or used the corporate the dominant shareholders entity for nefarious purposes. In those instances, 5. Nonobservance of corporate formalities 12. Use of the corporation to justify wrong when the corporate veil is pierced, the potential 6. Absence of corporate records personal liability for corporate shareholders and 7. No payment of dividends 13. Use of the corporation to defeat to defeat public convenience officers is exceptional. Furthermore, corporate 8. Insolvency at the time of the litigated entities that are related to the corporation that transaction 14. Use of the corporation in promoting fraud has had its veil pierced may also be subject to liability. Given the recent spree of acquisitions Roy v. Ne. Pump & Instrument, Inc., 2019 U.S. in its possession a copy of its own articles of and consolidations in many industries, it Dist. Lexis 99431, *9,10 (E.D. Pa.); citing to incorporation or any other corporate documents becomes even more imperative that each Kraft Power Corp. v. Merrill, 981 N.E. 2d 671, because they were allegedly being “held by a corporation act as separate entity that is 681, n. 11 (Mass. 2013); see also Taszarek v. former attorney...who is not available and has following all corporate regulations. Otherwise, a Lakeview Excavating, Inc. 2019 ND 168, *6, 7. been disbarred.” [Roy, at 2,3.] sister company or an individual shareholder may While the existence of one or even a few Furthermore, in a case that should be of be ultimately responsible for the alleged debts of these corporate deficiencies may not exceptional concern to every contractor that has and actual judgments of a related company. automatically prove to be fatal to a contractor’s ever utilized union labor, a labor union brought reliance on the corporate form, they should a lawsuit seeking withdrawal liability damages be enough to cause a corporation to seriously from the Irish corporate owner of a now defunct examine and then correct the way that it is Kansas corporation that entered a collective being operated before its veil is pierced. For bargaining agreement that obligated it to make example, in the Roy case in Pennsylvania, contributions to an employer retirement fund. Northeast Pump & Instrument’s sole owner and The fund also sued the Irish company’s fully shareholder was unable to have a veil piercing owned Irish based subsidiary. [GCIU-Employer claim made against him and his company Retirement Fund v. Coleridge Fine Arts, 2019 dismissed when he was compelled to admit US Dist Lexis 112484, *1,2.] In the GCIU case, that his company did not keep meeting agendas the fund sought $4,454,092.02 in damages or minutes, did not pay him dividends, and for withdrawal liability under ERISA and under perhaps most conspicuously of all, did not have the Multiemployer Pension Plan Amendments

continued on page 14 12 www.beneschlaw.com Managing the Unmanageable—Workplace Safety in a Cannabis Revolution

An issue capturing much attention is the ability of a contractor to regulate, monitor, and address potential marijuana use by its employees, especially in states where medical marijuana use and/or Bob Morgan Ricard D. Kalson recreational marijuana use may now be legal.

There is certainly no disputing the vast (Noffsinger v. SSC Niantic Operating Company, medical cannabis users. Practically, this means uncharted waters for contractors around the LLC, 2018 WL 4224075, at 1, D. Conn. Sept. employers should not hire, fire, or discipline country as they attempt to navigate cannabis 5, 2018, where an employer was found to have applicants or employees solely because laws and regulations that are changing daily. violated the state medical cannabis law when they are medical cannabis patients. If a job Workplace safety, employee drug testing, and refusing to hire a medical cannabis patient who applicant discloses their status as a medical the fluctuating legal status of cannabis are tested positive on a pre-employment drug test). cannabis patient, generally the employer should creating uncertainty on safety-sensitive jobsites. not use this status, or the possession of a Notably, the vast majority of cases have ruled in How can a contractor protect its employees medical cannabis card, as the reason for the favor of employer discretion regarding whether and worksite while adapting to the increasingly employment decision. Whether the employer to discipline or terminate medical cannabis accepted use of cannabis—medical or may discipline or terminate in the event of a users. Even when anti-discrimination provisions recreational? failed drug test is precisely the question raised were implicated, courts have consistently left in Noffsinger, and employers should consult Quickly Evolving Laws open the possibility for an employer to take with legal counsel in their respective state to action against medical cannabis users in safety There are now 33 states that have legalized ensure compliance. medical cannabis, 10 that have legalized sensitive positions (See Barbuto v. Advantage recreational cannabis, and more are soon Sales and Marketing, LLC, SJC - 12226; July Safety-Sensitive Positions and to come. Many of these state’s laws have 17, 2017). Worksites—Protecting Your Business and Your Employees employer protections for safety-sensitive On its face, these decisions make sense. There jobs, and generally allow an employer broad are some industries where workplace drug 1. Reviewing Workplace Policies— discretion to enact and implement zero- testing is increasingly rare—such as in the Thoroughly reviewing your workplace policies tolerance policies. For example, Arizona allows technology sector, where millennial workers is the single most important thing you can employers to discipline an employee for are more in-demand, and others where the do to protect your business with regard to possessing or using marijuana on company employer approaches cannabis as a substance cannabis use and employee testing. Look premises or during work time, even if that scientifically less harmful than alcohol or more for language that employees can easily employee is authorized to use medical cannabis dangerous drugs. Yet, safety-sensitive positions understand and follow, and protocols that (A.R.S. Sec. 36-2814(B)). However, note some such as construction sites, medical facilities, reflect the nature of the business. Consider contradictory case law in states such as Rhode and large warehouses will always require more whether zero tolerance will be applied to both Island (See Callaghan v. Darlington Fabrics, stringent workplace standards. safety-sensitive positions and those that are C.A. No. P.C. 2014-6680, where an employer not, how post-accident testing will occur, and was found to have violated the state medical Zero-Tolerance Policies whether drug testing will be used only upon cannabis law for failing to hire a job applicant and Drug Testing hiring or throughout employment. If possible, that had a medical cannabis card and stated There are no medical or recreational cannabis provide access to support for employees with she could not pass a drug test) and Connecticut states that prohibit employee drug testing. substance abuse problems. Yet, many include anti-discrimination laws for continued on page 14 Breaking Ground 13 Women in Construction Spring 2020

Losing the Protection of the Corporate Shield: One of the For more information about members Greatest Risks Facing Any Contractor, Especially Those and valued contributors to the Who Utilize Union Labor and Face Potential Withdrawal Construction Group, please contact Liability Exposure any of the following: continued from page 9 ALLYSON CADY (216) 363-6214 Act of 1980 (MPPAA). The court did not reach the merits of the claim because it was held that the [email protected] court did not have jurisdiction over the Irish corporation, a defense that will not be available to most TREVOR G. COVEY corporations. This potential exposure alone should motivate each and every contractor member to (216) 363-4597 immediately assess whether each of its associated entities are properly complying with all corporate [email protected] formalities and functioning separately. THOMAS O. CRIST (216) 363-6108 In conclusion, each and every contractor should regularly evaluate, at least on an annual [email protected] basis, whether it is properly complying with its corporate obligations. Tasks such as properly conducting corporate meetings and complying with corporate banking requirements while properly PATRICIA GERAGHTY (216) 363-6271 documenting the same are very easy to accomplish, but far too often neglected. Creating and [email protected] maintaining the excellence of an entity’s compliance with its corporate obligations is actually quite similar to the constant need for a contractor to maintain and improve upon the excellence of its PETER W. HAHN (614) 223-9317 construction work. If either of these obligations are neglected, the contractor is needlessly assuming [email protected] considerable risk. RICHARD D. KALSON RICHARD D. KALSON is a partner and construction attorney at Benesch and can be reached at (614) 223-9380 [email protected] or (614) 223-9380. [email protected] ERIC B. KJELLANDER (614) 223-9329 Managing the Unmanageable—Workplace Safety in a [email protected] Cannabis Revolution JONATHON KORINKO continued from page 9 (216) 363-6267 [email protected] 2. Being consistent—A business should ensure not only consistency in the treatment of JEAN KERR KORMAN suspected substance abuse regardless of the substance, but also consistency in staff training (216) 363-4177 and management enforcement. Inconsistent treatment can quickly become the basis for legal [email protected] action against an employer. DAVID A. LANDMAN 3. Protecting the Workplace and Complying with the Law—Carefully examine the impact of (216) 363-4593 any cannabis impairment at the worksite, and design employee policies that ensure optimal [email protected] safety for the workplace. Before finalizing new policies and procedures, confer with employment BARRY J. MILLER counsel to ensure compliance with state laws and legal decisions. (216) 363-4454 [email protected] Although state and federal workplace laws will continue to evolve, employers should expect that ABBY RIFFEE workplace safety will continue to be the primary focus when considering how to manage cannabis (614) 223-9387 use by employees. Employer discretion to implement drug testing and zero-tolerance policies will [email protected] continue in most states, but consult with counsel to ensure strict compliance in these quickly SUSAN M. WHITE evolving times. (216) 363-4541 BOB MORGAN is a partner and regulatory healthcare attorney at Benesch and can be reached [email protected] at [email protected] or (312) 624-6356. RICHARD D. KALSON is a partner and construction attorney at Benesch and can be reached at [email protected] or (614) 223- 9380.

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