Understanding Construction Claims: Insights on Risk Transfer and Insurance in the Industry
Delve into the complexities of construction claims through real-life examples and expert guidance. Explore topics such as risk transfer, contractual obligations, and insurance coverage in the context of construction defect cases. Learn from case studies like The Ocean Tower Condominium to understand the importance of due diligence and proper risk management in construction projects.
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Weve Got You Covered! Anatomy of a Construction Claim: The Long and the Short of It Speakers: Ben Westcott, Co-Managing Shareholder with Andrews Myers & Lee Shidlofsky, founding member of Shidlofsky Law Firm
Topics War Stories: The Ocean Tower Condo & Minute Maid Park How to Avoid Claims How to Navigate Claims How to Make Sure the Insurers Do the Right thing
Contractual Risk Transfer Insurance Indemnification Surety Bonds / Default Insurance
Typical Construction Defect Case Insurance Occupant Owner/Developer Insurance Insurance Contractor Design Consultants Insurance Building Product Manufacturers Subcontractors Material Suppliers 1 Insurance Insurance Insurance
The Ocean Tower Condominium The Leaning Tower of South Padre Island 134-unit skyscraper built on South Padre Island 31-stories of unprecedented views over the ocean 151 condos, 4 highspeed elevators, a spa, fitness center, and fully-manned beachfront facilities Highest structure in the Rio Grande Valley Amenities included Italian marble floors, granite counter tops, stainless steel appliances, custom cabinets, etc.
The Ocean Tower Condominium The Leaning Tower of South Padre Island Ocean Tower hired Raba Kistner. Represented that it was the pre-eminent soil engineering firm in Texas and an expert on the soils of Padre Island. Represented it would work tightly with foundation subcontractor and structural engineer Prepared soil tests, gave instructions to foundation subcontractor, field-tested pile samples, and signed off on foundation as poured.
The Ocean Tower Condominium The Leaning Tower of South Padre Island Ocean Tower hired Datum Engineers. Represented itself as fully qualified structural engineer Represented itself as being able to engineer the structure itself Accepted the foundation signed off on by Raba Kistner allowed for no settling of structure
The Ocean Tower Condominium The Leaning Tower of South Padre Island Ocean Tower hired Zachry Construction. Represented having extensive concrete poured building experience, engineers on staff to double check all measurements and dimensions, and that it would deliver quality product. Ocean Tower allowed Zachry to prepare contract with subsidiary Coastal Constructors, which Zachry guaranteed.
The Ocean Tower Condominium The Leaning Tower of South Padre Island May 2008 Developers noticed cracks in the columns supporting the parking garage. Parking garage + tower mistakenly built connected, forcing weight down on garage instead of more solid expansion joints. Tower s core sunk 14 to 16 inches
The Ocean Tower Condominium The Leaning Tower of South Padre Island July 2008 Ocean Tower reassured investors that while the project would be delayed, the skyscraper would reemerge stronger and safer than ever.
The Ocean Tower Condominium The Leaning Tower of South Padre Island November 2008 News of Suspension Broke We are deeply disappointed to report that the construction of Ocean Tower, which was suspended in May, has been terminated with no immediate prospects for completion. More than 100 of 151 condos sold Building abandoned for almost a year
The Ocean Tower Condominium The Leaning Tower of South Padre Island December 13, 2009 376-foot unfinished skyscraper brought down with a controlled implosion 55,000 tons LARGEST implosion of a reinforced concrete structure in the world 98% of above-grade materials used in construction scheduled for recycling/reuse in effort to recuperate losses
The Ocean Tower Condominium What went wrong? AREA SETTLEMENT Settlement of the Structure Beneath Tower Core 14 to 16 inches Beneath Tower Exterior 8 to 14 inches Beneath West Parking Garage 4 to 8 inches Beneath East Parking Garage 1 to 2 inches
Insurance First-Party Insurance Builders Risk Insurance Soft Cost Coverage Third-Party Insurance CGL Professional Liability Pollution Wrap Insurance Policies Project-Specific Policies
The Parties HC-HSA (Owner) HOK Brown & Root (Constructor) (Designer) M-E Engineers (MEP Designer) Way (M&P Constructor) PCI (M&P Insulator)
Topic Outline 1. Value engineering issues 2. Design liability-deviations in submittals 3. Indemnity claims / Insurance Issues 4. Inconsistency in dispute resolution
Chilled Water Insulation Original schematic design specified fiberglass insulation.
Chilled Water Insulation Design then changed from fiberglass to phenolic foam.
Chilled Water Insulation Sub priced the change from fiberglass to phenolic foam at the cost of $300,000.00.
Chilled Water Insulation HCHSA approved the installation of fiberglass in its contract with Brown & Root after being told of the differences by the foam glass manufacturer.
Checklist for VEs Document the VE Process. (Review and Approve) Limit liability in contract to exclude design liability. Suggestions should be based on prior experience (what some other Architect approved), not present evaluation Make sure VE matches actual scope to be performed Make the Architect/Owner accept or reject the suggestion in writing. Make the Architect update the plans and specs to reflect the change.
Chilled Water Insulation M-E and Brown & Root approved the Way.PCI submittal for the insulation in April of 1999.
Problems with Submittals What happens when the contractor changes the design through the submittal process? The Architect claims that it should be viewed as a substitution and therefore the contractor is responsible for the performance of the substituted item
Design Responsibility "Contractor shall not be liable to the Owner or the Architect for damage inconsistencies or omissions in the Contract Documents unless the Contractor recognized such error, inconsistency or omission and knowingly failed to report it to the Architect" Texas courts have consistently held that this specific provision means that as between the Contractor and the Owner, the Owner is responsible for design errors. See Alamo Community College District v. Browning Construction Company, 131 S.W.3d 146, 155 (Tex.App.--San Antonio 2004, pet. denied). resulting from errors,
Problems with Submittals What should the Engineer do: Require the Contractor s to clearly identify any changes made during the submittal process Require that any material changes be documented in the form of a change order and not through the submittal process only Require that the architect sign off/approve any change before proceeding with the changed work
Indemnity/Insurance Claims Discuss flow down Discuss inconsistency between O-A and A-E contracts Discuss prohibition against indemnity of architects/engineers Wrap Policy Joint Defense Competing Interests Limits
Dispute Resolution Conflicts The O-GC contract contains a predetermined private disputes board The O-A contract contains court with waiver of jury trial. The GC-Sub contains AAA arbitration. The Sub-Sub/Sub contract contain neither What happens? 4 different claims/some in court/some not
Dispute Resolution Conflicts Need standardized dispute resolution procedure for all project participants. Requires the Architect to take the lead and point out the potential problem to the owner. Requires agreement between all parties. When all else fails, agree to go to the court house together if you have to. Cheaper, quicker to do it all at once.
Conditions Notice Provide notice as soon as practicable Immediately forward suit papers Watch out for claims-made coverage Failure to provide notice can result in forfeiture pre-tender defense costs complete forfeiture depending on prejudice
Conditions Settlement Without Consent No voluntary assumption of liability Probably must show prejudice The mere fact that the insurer owes money that it does not wish to pay does not constitute prejudice as a matter of law. Prejudice may be established as a matter of law, however, when the insurer is not consulted about the settlement, the settlement is not tendered to it and the insurer has no opportunity to participate in or consent to the ultimate settlement decision. Duty to Cooperate
Three More Things to Remember Always check to see if you are an additional insured or otherwise qualify as an insured on another policy Don t rely on certificates of insurance Don t just accept it as true when the broker/insurer says its not covered
DISCUSSION Questions? Andrews Myers, PC 3900 Essex Lane, Suite 800, Houston, TX 77027 98 San Jacinto Boulevard, Suite 300, Austin, TX 78701 www.andrewsmyers.com Shidlofsky Law Firm PLLC 7200 North Mopac Expressway, Suite 430 Austin, Texas 78731 (512) 685-1400 www.shidlofskylaw.com We ve Got You Covered!
