Upcoming Webinar: Differing Site Conditions on Washington State Construction Projects and Ways to Allocate Economic Risk Associated With These Conditions

Unexpected site conditions can be the most frustrating, difficult and expensive problems to overcome on a construction project. Oftentimes, existing utilities are marked in the wrong location on plans, underground boulders are larger than the geotechnical report indicated and soils are more saturated than tests had revealed. Because differing site conditions can result in enormous expense and delays, it is important for any party to a construction contract to fully understand their economic risks associated with such conditions.

Join us for the next webinar in our ongoing series focusing on pertinent construction topics and updates. This webinar, presented by Foster Pepper attorney Colm Nelson, will discuss the common law doctrines and specific contract mechanisms for shifting risk associated with differing site conditions in Washington state, and common reasons why differing site conditions claims fail.

CLE (attorney) credits pending.
Certificate of completion available for other organizations. 

Thursday, February 18, 2016
2:00 – 2:45 p.m.

Colm Nelson, Foster Pepper PLLC

Please RSVP to events@foster.com by Friday, February 12, 2016. If you have a question you would like addressed during the presentation, please email Price Herriage-Wilson at herrp@foster.com.

No Time Bars on PW Projects But No Insurance Either?

Does the Responsible Developer/General Contractor and its subcontractors run the risk of not being insured in construction defect claims on public projects?

Yes, according to a new Washington Supreme Court case.  How can that happen?  

In can happen because, while no time may run against the King (public owner), time will absolutely run against the contractors when their insurance policies expire.

The new decision "WA State Major League Baseball Stadium Public Facilities District v. Huber, Hunt & Nichols-Kiewit", was actually part of an earlier decision from 2009.  The earlier decision was that the statutes of limitation and repose did not bar the (public) owner's suit against the general contractor.  The new decision is that the general contractor, provided it had well drafted contracts with pass through provisions, has no time bars between it and the implicated subcontractors. 

So if a public owner sues a general contractor beyond the applicable statutes of limitation and repose, the general can in turn join subcontractors.  That seems to be fair.  Most claims made this far out will be completed operations claims for allegedly defective construction and resultant property damage.  The general contractor and its subcontractors will all have incurred tens or hundreds of thousands of dollars in premiums to purchase commercial general liability insurance for the loss at issue.  This insurance asset was purchased so the collective contractors would not have to pay these types of claims out of their own coffers.

This new decision is problematic in several ways.  First, the owner's claim was more than 10 years from substantial completion.  So if this was a private project the owner's claim would have likely been time barred.  But the court ruled that based on ancient European laws involving doctrines like sovereign immunity, where "no time runs against the King" (along with "the King can do no wrong").  For public policy considerations, this "no time runs against the King" doctrine may be in the best interest of the tax payers.  One also hopes that contractors who work on these public projects will now incorporate the cost of that future risk into their bids, knowing they could be sued more than 10 years after completion.

The second problem is that if the public owner does make a claim 10 years later, the general has to expect that many of its subcontractors would be defunct (bankrupt, victims of the recession, etc.).  Tendering claims to defunct subcontractors may not get the general contractor any benefit, like money or services such as repairs of the defective construction.  Well, if nothing else, the general contractor can at least rely on the benefits of their own insurance and their subcontractors' insurance, right? 

Maybe not, and this is the third problem.  Even if the public owner's contractor is viable, and or the key subcontractors are also viable, there is another cold hard fact: after 10 years there may be no insurance money available for anyone because those policies EXPIRED!  If the claim is large and there is no insurance, even a general contractor may become insolvent, and that does not help tax payers. 

Many insurance policies contain expiration dates.  Here's they key language from one CCIP (commercial contractors insurance policy) that insures a national commercial general contractor doing public works projects here in Seattle:

Products-Completed Operations Hazard includes all bodily Injury and Property Damage occurring or discovered away from premises you own or rent within 10 years or the time period required by the contract, whichever is less.

Another popular OCIP insurer's policy contains this language:

The expiration of this policy period for the "products-completed operation hazard" is determined by applicable law or statute to a maximum extended policy period of ten (10) years.

So imagine you are the responsible contractor, you spend money on the best insurance you can buy, insure all of your subs, and a public owner sues you 11 years after substantial completion.  You tender to your insurer, but your insurer does not have to pay a dime, because your policy expired!

For future public projects in Washington, the responsible general contractor would want to purchase policies without expiration dates.  If the insurance market does not sell such a product, perhaps public contractors should take this issue up with the Legislature and the Office of the Insurance Commissioner.  It seems wholly inequitable for the courts to rule that are no statutory time bars to public owners' claims against their contractors, but then allow the insurance industry to sell policies with time bars for any claims made after 10 years.  Especially so when these contractors purchased those policies as the primary asset to protect them from the risks of those future claims. 


Insurance Claims In An Improving Housing Market

Does the Responsible Developer faced with an insured claim use counsel to maximize insurance proceeds?

Absolutely. Construction has changed so have the insurance policy exclusions. If the Developer wants the full benefit of the premiums paid, she will likely need counsel. But why is this insurance issue timely?

Here’s why.

The elections are over and recent real estate reports are great, showing improving markets for homes, apartments and even condos.

The National Association of Home Builders has reported that the number of U.S. housing markets showing consistent improvement rose from 22, by November 2012, to a total of 125, marking a third consecutive monthly gain. This new high point provides the latest evidence that housing has turned a corner due to rising demand from consumers who are increasingly confident about the direction of local home values.

The Puget Sound Business Journal reports that apartment buildings are trading hands for sky-high prices in Seattle. The cost of developable land also is way up. A key driver behind the prices are record high rents, but what will happen when those thousands of units now under construction open? With most of those units being downtown there may be an apartment glut.

Some savvy developers are hedging their bets by permitting their multifamily projects as apartments or condos, depending on the highest projected value. The cost of liability insurance for an apartment project is a fraction of the cost for a condo project and developers are having to pay the higher insurance premiums, just in case the best decision is to sell the units as condos.

Insurance is a common denominator to all these projects, and is an asset you buy, hoping to never use. Why? Because many insurance companies are loathe to pay and will file lawsuits to deny or limit payment. This adversarial relationship between insurer and insured goes back to the Republic of Genoa in the 15th Century. Insurers were easily found when it was time to accept policy premiums but scarce when it was time to pay for losses.

That relationship has not changed, but construction has.

Due to radical improvements in design, construction methods and materials, fewer projects experience the catastrophic rot and collapse type property damage of the prior decades. But that creates a huge dilemma, if there are defects in the work but only limited property damage; the insurer may have little or no obligation to pay, leaving the policyholder to fund an expensive repair at its own cost. Fortunately there are law firms that specialize in policy holder insurance coverage and know how to trigger insurance for property damage and other insured claims.

Foster Pepper is one of those firms that has thrived in recession by successfully employing pre-litigation claim strategies and when needed, litigation, trials and appeals, to force insurers to pay. We have recovered hundreds of millions of dollars for our public and private real estate, owner and construction clients in construction and design defect, collapse and other property damage claims. Our Insurance and Construction Practice Groups work in tandem with expert appraisers, engineers, architects and cost estimators, to investigate property damage due to construction or design defects and analyze your claim in order to maximize the coverage in your insurance policies.

If your insurer denies your claim, or the sum you are offered is a fraction of the actual repair cost, please give us a call.  We recently represented a regional real estate developer for property damage to a local large multifamily project.  Our client was able to collect policy limits of $10,000,000.00.    

What Makes It GREEN? 2012 Winners Announced

Six Projects Receive AIA Seattle What Makes It GREEN? Award

On April 18, 2012, AIA Seattle announced the recipients of the 2012 What Makes it GREEN? Awards. The winning projects include:

  • Bertschi School Living Science Building, designed by KMD Architects;
  • Bremerton office and studio, designed by Rice Fergus Miller;
  • LOTT Clean Water Alliance – Regional Services Center, designed by The Miller Hull Partnership;
  • Machais Elementary School, designed by NAC|Architecture;
  • Bullitt Center for Sustainable Design and Construction (unbuilt), designed by the Miller Hull Partnership; and
  • Greenfire Campus (unbuilt), designed by Johnston Architects.

Honorable mentions went to:

  • The Bill & Melinda Gates Foundation Campus, designed by NBBJ;
  • Biodiversity Green Wall (unbuilt), designed by the University of Washington Green Futures Lab;
  • SIERR Building at McKinstry Station, designed by McKinstry and CTA Design Builders;
  • Swift Building Lofts, designed by High Plains Architects;
  • Walking Mountains Science Center, designed by Mithun; and
  • U.S. General Services Administration Federal Center South Redevelopment (unbuilt), designed by ZGF Architects LLP.

AIA Seattle’s Committee on the Environment established the What Makes it GREEN? program over a decade ago to promote the importance of sustainable building practices, as well as to recognize and learn from the best in sustainable design.

The 2012 What Makes It GREEN? jury was moderated by Brian Geller, Founder & Executive Director of Seattle 2030 District. The four member jury included:

  • Ash Awad P.E., Vice President – Energy & Facility Service, McKinstry;
  • Amanda Sturgeon AIA, Certification Director, International Living Future Institute;
  • Jason Twill, Senior Project Manager, Sustainability, Vulcan, Inc.; and
  • Daniel Williams FAIA, Founder, DWA Design.

For photos and a list of award winning and honorable mention projects, click here. For a list of all projects entered, click here.

2012 Continuing Construction Education

Does The Responsible Developer take advantage of construction industry opportunities for continuing education?  Absolutely!

Here are some great local and national seminars to attend that provide the most current news and information on public and private development and construction:

1.   For the developer or contractor interested in public schools, here is a great opportunity, on two dates in two cities:

The Washington Association of School Business Officials
Capital Project & Facilities Workshop
March 14, 2012 in Yakima and March 20, 2012 in Renton:

  • Bidder Responsibility Criteria and GC/CM & Design Bid Build
  • Legal Tools for Effective School Construction Contracting
  • Construction Budgeting & Accounting and State Match 

Foster Pepper's own Greg Guedel will be speaking on the first topic. 

2.   For the developer or contractor involved in bidding government projects, there is the Seminar Group's Construction Bidding on March 15, 2012 in Seattle: 

  • The Bidding Process
  • Alternative Public Project Procurement Process
  • Insurance Considerations in the Bidding Process
  • Contractor and Municipality Perspectives on Bidding Construction Projects
  • Strategies for Bidding Claims

 Foster Pepper's own Tom Ahearne will be speaking on the third topic. 

3.   For the developer or contractor looking for a comprehensive national construction seminar on both public and private projects, this annual event is not to be missed:

The ABA Forum on the Construction Industry Midwinter Meeting on February 2-3, 2012 in Houston:

  • Design Control and Delegation
  • Current Issues Facing Complex Project Funding
  • Open Book Accounting in Cost Reimbursable Contracts
  • A Study of Issues Posed by Schedules on Complex Cases
  • A Review of Good and Bad Assurance/Quality Contract Case Studies
  • Practical Tips in Navigating Project Labor Disputes
  • Others 

This Editor looks forward to seeing you there. 


Project Insurance Risks


Does the Responsible Developer maintain adequate liability insurance on each project?

Yes, absolutely!  A major underinsured or uninsured loss can devastate your project. 

The last decade saw construction project insurance premiums for commercial general liability skyrocket to the point where many developers joked that the insurance premiums were only slightly less than the actual policy limits!  

This meteoric rise in premiums was due to extensive litigation where policy limits were routinely paid out during the 1990s and early 2000s for defect and water intrusion damage claims.  You remember, many insurers either left the WA market or would only insure lower risk builders.  As the 2007 recession deepened some developers, depending on the type of project,  opted to reduce coverage or worse, to go bare on the completed operations side.

In the last decade some other insurers have entered the WA market and the premiums for many types of liability insurance have decreased.  But are you still at risk of being underinsured? 


Because in some egregious cases the reason the premiums are less, is that if you held that policy up to the sun, it would not block the light due to all the "holes" in it.  Those holes represent policy exclusions that drastically limit or eliminate some of the most critical coverages.  Here's an example.  One insurer from Oregon now sells reasonably priced liability policies to developers and contractors.  The policy limits appear to be the typical $1 million per occurrence and $2 million aggregate.  So the insured feels adequately insured.  There is, however, an exclusion buried deep in the policy for water intrusion damage (a very common occurrence in the PNW) and the policy caps that coverage at only $15,000. 00.  No that is not a misprint, a $1,000,000 policy with a maximum coverage limitation of only $15,000 for water damage.  Imagine that exclusion in the event of an extensive roof leak or other water related damage.

Another example is a well known insurer from Nebraska that decided to place certain requirements on policy holders in order to obtain the benefit of coverage (yes more than just paying the premium).  The policy requirements demand that if you are the developer or general contractor, that you will only get the benefit of your policy coverage and limits if you have all of your subcontractors and suppliers name you as additional insureds and must have them sign indemnity agreements.  While that is always a good practice, if  you have 20 trades on a job or turnover during the work, it can be tough to be named by all the trades and have all of them sign indemnity agreements.  If, however, you fail to obtain all the required additional insured endorsements and agreements, you may find you have limited coverage or none at all.

So what is the Responsible Developer supposed to do?  A great start is to work with a reliable insurance broker and get sample policies with the current exclusions and actually read them all. 

Even better is to work with a lawyer that knows insurance coverage and related litigation and have them advise you before place the policy.  Between the two, you should be able to discern whether you are really adequately insured or if you are unnecessarily exposing yourself and your project to significant underinsured or uninsured risks.

Lastly, even if you are the consummate do-it-yourselfer, please, read the policy....before you buy it and put it in the file drawer. 


Foster Pepper's Kelly Angell Earns LEED Green Associate Designation

Kelly Angell, an associate in Foster Pepper’s Real Estate practice group, has earned the LEED Green Associate credential from the Green Building Certification Institute (GBCI). The LEED Green Associate credential is for professionals who support green building design, construction, and operations, and have demonstrated knowledge of green building principles and practices and LEED.

GBCI provides independent oversight of professional credentialing and project certification programs related to green building. GBCI is committed to ensuring precision in the design, development, and implementation of measurement processes for green building performance (through project certification) and green building practice (through professional credentials and certificates).

Established in 2008 to administer certifications and professional designations within the framework of the U.S. Green Building Council’s LEED® Green Building Rating Systems™, GBCI continues to develop new programs and offer the marketplace validation that building certifications and professional designations have met specific, rigorous criteria.

At Foster Pepper Kelly's practice is concentrated in real estate law with experience representing clients in acquisitions, dispositions, development, leasing, and financing of commercial, mixed use, retail, and multifamily projects. She is a regular contributor to Foster Pepper’s Better Building: The Responsible Developer’s blog at http://www.responsibledeveloper.com.


How Responsible Developers Manage Risks

Does the responsible developer need to manage risks by limiting liabilities? Of course, no developer can hope to survive (especially in this real estate market) without being a good risk manager. 

So what is that state of the law regarding limitations of liability (“LOL”s)? Well it depends on whether the LOL is used to manage a business-to-business risk or a seller-to-consumer risk. Why? Because the law affords a greater level of protection for consumers. This dynamic is best explained by some recent Washington court cases.

In a Washington appellate decision last month, Mattingly v. Palmer Ridge Homes, (a seller-to-consumer claim) the court examined the developer-general contractor's contract and warranty LOL disclaimers. The test the court based its ruling on was whether or not the developer’s disclaimers were enforceable due to being clearly worded, or unconscionable and unenforceable due to the developer’s greater sophistication, bargaining power and poorly drafted contracts. The court found that due to providing incomplete information, and the use of confusing contract language, that some of developer’s disclaimers were ineffective. However, the disclaimers that were clearly worded “as is” (as in the stereotypical used car context) and were specifically related to certain claims were found to be effective.

Compare this result to a Washington Supreme Court case from last year in the same context, a residential real estate contract, which at first blush appears to be another seller-to-consumer case. The case was Torgerson v. One Lincoln Tower. Here the court examined the same type of LOL disclaimers to determine whether they were enforceable. The court found that the developer’s disclaimers were effective and enforceable for at least two big reasons: the disclaimers were clearly labeled in bold as such; and the court took notice that these purchasers were far more than average consumers, they were licensed real estate agents and thus appeared to be held to a higher (business-to-business) standard.

The take away here is that the responsible real estate developer should endeavor to ensure (especially when dealing with consumers) that his or her contracts, warranties and purchase sale agreements pass the test for enforceability. After all, responsible risk management is good business. 

Responsible Developer's Blog Launches on Earth Day

In celebration of Earth Day 2010, Foster Pepper has launched its third legal blog, Better Building: The Responsible Developer's Blog, devoted to legal issues and information related to responsible building practices in the construction and real estate industries.

Sustainability and climate change are reshaping the land use, real estate, and construction environments, and extend to municipal, business, energy/utility, and litigation practices. Foster Pepper has used its extensive reach and experience in these areas to craft sustainable solutions for its clients. ResponsibleDeveloper.com will serve as an extension of these activities and be a resource for clients and other interested parties providing legislative updates, industry news, and other relevant information.

According to Greg Clark, Foster Pepper construction litigator and lead blogger,

“As the green/sustainability industry evolves and more and more legislation is introduced, we wanted to ensure our clients have the information they need as they plan and develop their projects.” He continued, “We intend to broadly cover news and trends and provide legal information related to both public works and private projects, and become a valuable resource for those striving to be responsible builders.”

With offices in Seattle and Spokane, Foster Pepper PLLC provides a full range of legal services to businesses, municipalities and individuals. In 2005, the firm entered its second century of service to clients and communities across the country and internationally.