Best Practices Construction Law : Construction Lawyer & Attorney : Matthew DeVries : Stites & Harbison Law Firm : Green Building & LEED Litigation

Owners, contractors, and subcontractors in Kentucky should carefully review their legal claims given a recent Kentucky Supreme Court decision.  On June 16, 2011, the Court joined the majority of other states and adopted what is commonly know as the economic loss doctrine.  Now, claims against  suppliers for product defects are legally limited to the parties’ contract and warranties. 

In Giddings & Lewis, Inc. v. Industrial Risk Insurers [pdf], the Court held that “a manufacturer in a commercial relationship has no duty under a negligence or strict products liability theory to prevent a product from injuring itself.”  Ending years of speculation regarding the applicability of this doctrine in Kentucky, the Court wrote: "We believe the parties’ allocation of risk by contract should control without disturbance by the courts via product liability theories.” 

In Giddings & Lewis, the manufacturer sold a sophisticated machining center to an industrial company.  After seven years of continuous operation, and after the contract’s express warranty expired, the machining center malfunctioned, throwing huge chunks of steel across the factory floor.  The costs of repair and other business damages were almost $3 million.  After reimbursing the machine’s owner for its losses, a consortium of insurance companies asserted a subrogation claim against the machining center’s manufacturer.   With the warranty expired, the insurance companies sued in negligence, strict liability, negligent misrepresentation, and fraudulent misrepresentation. 

Applying the economic loss doctrine, the Kentucky Supreme Court held that the purchaser could not recover from the manufacturer under any tort theory.  The consortium was limited to contractual remedies, all of which expired years earlier.  The Court side-stepped the claim for fraudulent misrepresentation, leaving it for another day, by holding that the insurance companies’ were actually claiming “fraud by omission,” which they could not prove as a matter of law. 

Caveat emptor is alive and well in Kentucky.  Construction project participants should review contracts carefully and negotiate warranties.  Recovery will be limited to contract terms and statutory remedies.

Hat tip to Cassidy Rosenthal and John Tate for the original write-up.

Image: Scott Beale

• Email This
• Print
• Comments

What do you get when you cross UK with KY?  I am not talking about UKKY (...pronounced "yucky" ...), but that is something my kids would probably find funny.  I am talking about the BBC World Service, World Have Your Say Blog series that features the Green Building in Louisville, Kentucky on September 30 and October 1.

The Green Building opened in the Fall of 2008 in the East Market District.  Renovation of this 110 year old dry goods store began in the Sprin of 2007 when the owners decided to become the first LEED Platinum commercial building in Louisville.  According to the video, the owners are anxiously awaiting the certification results from the USGBC.

What makes an owner pursue sustainability at a premium cost during hard economic times?  In an interview with The Courier Journal, owner Gill Holland says it was a passion of he and his wife:

"And then my wife, Augusta, and I were still falling in love with this neighborhood, and a building a block away, next door to Toast, was for sale. When you come from New York City, everything seems so incredibly undervalued. We'd been living there. So we bought that building, and she's kind of the one who opened my eyes to the whole concept of sustainability. So we thought, "Let's make it the first, hard-core green, self-sustaining, run-the-electrical-meter-backwards building in Louisville."

In the interview, Holland described the details of green building process from demolition and recycling to material selection to construction.  He also explained why a green roof was important: 

It's important because it saves you energy. A black tar roof in the summertime goes up to like 170 degrees Fahrenheit. Obviously, you're air conditioning your building to 76 or whatever it is. You're spending a lot of electricity to get your building down there. A green roof: the dirt, the grass collects all that heat. It doesn't even make it to your interior.

Although it is a fairly long interview, Holland explains the features of The Green Building in simple terms.  He also has some great ideas about the future of green building in terms of public construction, infrastructure and private development.  And the interview was three years ago!

What has happened in the past few years? Sustainable or “green” construction practices have gone from fringe movement to mainstream.  A significant part of these practices, as reflected in the LEED rating system, concern energy conservation and efficiency.  There are literally hundreds of programs across the local, state, and federal level that provide some financial incentive for green energy projects.  The impact of these incentives on a project’s construction-cost bottom line can be significant and it pays (...literally...) for developers and contractors to thoroughly research programs that may apply to a particular project.

• Email This
• Print
• Comments

 Today's guest post is by Angela Stephens, a fellow construction attorney in the Construction Service Group and Green Law Group at Stites & Harbison PLLC. She is a LEED Accredited Professional and is the first attorney in the Commonwealth of Kentucky to achieve Green Advantage® certification.

 Sustainable Design and Construction raises unique legal issues for all parties who touch the project. It affects sureties, insurance companies, banks, owners, design professionals, contractors, subcontractors, material suppliers, vendors, and their respective employees.

Design professionals should work with the owner and contractor to develop sustainable goals that are attainable. Owners and banks want to be sure that they have adequate remedies in case costs exceed what was promised, tax incentives which were being sought by having a sustainable and energy efficient building are lost, or if the design or construction of a project does not result in LEED Certification.

Contractors and subcontractors need to make sure that they understand the unique requirements for “green” projects such as: (1) following the Erosion and Sedimentation Control Plan adopted for the project, (2) avoiding disturbance of more areas than necessary or allowed by LEED on previously undeveloped land, (3) properly installing the right materials (i.e. materials with low VOC limits, high SRI values, which are recycled, reused, regional, or renewable) and equipment, (4) protecting materials and equipment during construction from moisture or construction debris, (5) collecting and submitting the required documentation for those materials, and (6) following the waste management plan for recycling construction waste materials. If a contractor fails to comply with one of these requirements which was tied to a sustainable goal or point needed for certification, then it may be liable for any resulting damages suffered by the owner.

Owners, design professionals, and contractors want to make sure that they have adequate insurance coverage in place to cover any potential risks. However, insurance companies are still evaluating whether special coverage is needed on sustainable design and construction projects; only a few companies are currently offering specialized coverage for “green” projects. In addition to obtaining insurance coverage to help minimize the risks to your company, here are some ways to minimize the potential legal risks of sustainable design and construction.

1. Don’t Promise More Than You Can Deliver.  In addition to environmental stewardship, there are many recognized benefits to sustainable design and construction such as energy and operational cost savings, healthier workspaces, increased worker productivity, increased tax incentives, and financing incentives. However, what happens when your marketing materials promise or guarantee these benefits and they are not realized or there is a dispute over whether these benefits are actually realized? The parties may end up in a dispute alleging breach of an express or implied warranty, fraud, false advertising, or other similar claims. The key is to monitor your marketing activities. Only promise what you can measurably deliver, and include clauses in your contracts which limit all warranties to those expressly provided in the contract.
2. Don’t Guarantee the Level of Certification. Likewise, if you are a contractor, subcontractor or design professional, do not guarantee the level of certification on any project unless required by law. In many cases, the determination of whether a project achieves a certain level of certification is regulated by a third party over which you have no control. For example, under the Leadership in Energy and Environmental Design (LEED) Green Building LEED Rating System, owners who want to design and construct a LEED certified building must first register the construction project with the Green Building Certification Institute (“GBCI”), a third party responsible for project registration and LEED certification. During the design and construction phase of the project, the project team submits documentation to the GBCI, through LEED Online, verifying that certain points have been achieved. Ultimately, the GBCI determines whether various points are achieved in order to reach the various levels of LEED certification. Therefore, instead of guaranteeing a certain level of certification, warrant that the work will be in accordance with the contract, the plans and specifications, and accepted industry standards.
3. Identify the Participants, Their Roles, and Their Responsibilities.  Many disciplines are involved in achieving a project’s sustainable goals (whether obtaining LEED Certification or following the guidelines of the Green Globes rating system). On most sustainable construction projects, no one party is in control of obtaining all of the points or goals. The parties must collaborate and work together in order to obtain the project’s goals. Most importantly, the parties must understand who is responsible for all of the aspects of meeting the project’s goals. For example, if the owner's goal is LEED Silver Certification, the parties should create a version of the LEED 2009 score card which clearly identifies which parties will be responsible (i.e. architect versus the general contractor and subcontractors) for achieving the various points sought within LEED 2009, and make this document an addendum to each of the contracts on the project. Additionally, owners and contractors should select an experienced green building team and consider inserting clauses in their contracts affirming that the contractor and/or subcontractor have read, understands, and will comply with the LEED or green requirements for the project.

To continue reading Angela's post and learn about the seven other tips, please click here.

• Email This
• Print
• Comments (1)

You may have noticed that I recently transitioned to a new law firm this week.  I am happy to announce that I have joined Stites & Harbison PLLC as a partner in the Construction Service Group and the Green Law Practice Group.  The past few weeks have seemed like a tropical storm ... and the only thing to do is ride the waves of change.

What do I mean by riding the waves of change?  As a construction attorney for the past ten years, I have realized that the industry is always in a state of flux.  During strong economic times, I have a lot more contract drafting and project administration work.  During hard economic times, I have a lot more construction litigation and mechanic's liens.  I've learned to adjust to the circumstances to meet the needs of my clients.

Whether you are dealing with a new safety policy on the site,  a difficult personality on the design team, an estimate error that is going to affect the bottom line, or even a potential transition to a new job, here are a few things you can do to ride the waves of change:

• Understand that change is going to happen.  Whether you are talking about your professional career or your personal life, there will be change.  You can count on it.  I can guarantee it.  Most of the time, those people who fail to recognize change have the hardest time adjusting to it.
•  Understand that change and your responses will come in stages.  Consider a fatal workplace accident.  Undoubtedly, your construction company will go through numerous changes in response to this incident, including the initial shock of the accident, feelings of potential guilt, assessment of safety measures, analysis of liability, and the transition of duties and potential change in policies.  Change of any sort comes in stages.
• Understand that communication leads to success.  Communications is always important, but it is especially important when you face change.   Practically speaking, you need as much information about the change as possible, so that you can make an intelligent decision. Talk to your boss, your boss’s boss, and your co-workers to get their understanding of the situation. Be honest in all your discussions and deal with the problems when they arise.
• Understand that flexibility is good.  Change requires flexibility and the ability to adapt.  The better able you are to respond to change, the more likely you will succeed. Make an assessment of the situation, identify potential outcomes, plan and develop a response strategy, and then begin to ride the wave.  Maybe your current job isn't what you expect?  Perhaps the new workplace policy strains the ingenuity of your employees? Try to be flexible with an understanding of the potential outcomes.  Part of the fear of change often involves dealing with the unknown.

In my situation, communication and flexibility on everyone's part has enabled a good transition.  I am sad to leave such a well-respected practice in Nashville.  However, by joining one of the oldest law practices in the nation and among the largest law firms in the Southeast region, I am thrilled at the opportunity to help build one of the strongest construction groups in the Southeast.  I will miss all my former colleagues ... but who knows ... I may see them in court!

 Image: Michael Dawes

• Email This
• Print
• Comments (3)