November 1998 |
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In This Issue
Contractor Owes Duty to LenderIn a remarkable decision adverse to the entire construction industry, the Court of Appeals for Pike County has ruled that a contractor owes a construction lender a duty to complete construction in a workmanlike manner to avoid impairing the value of the lender's collateral. Ohio Valley Bank v. Copley (1997), 121 Ohio App. 3d 197. The Court defied the recent trend in this state to limit construction claims to parties who have "privity of contract" with each other and held that the lender could sue the builder directly for supposedly constructing a defective foundation that adversely affected the value of the home, and therefore the lender's security. This decision opens up a can of worms for anyone working on a project involving a construction loan because now these contractors, subcontractors and suppliers will be open to claims from dissatisfied lenders that they have had no contact with, let alone a contract. AGC Sues State Over MBE Set-AsidesAGC has sued the State of Ohio in Federal Court to have the Ohio Minority Business Enterprise Act declared unconstitutional and to enjoin the construction of the Toledo Correctional Institution project which featured a set-aside contract worth approximately 20% of the $50 million project. The case has been assigned to Judge Graham who earlier determined the City of Columbus set-aside program to be unconstitutional. The Columbus case is currently on appeal and awaiting a decision by the Sixth Circuit in Cincinnati. There is also a case (Ritchey Produce) pending in the Ohio Supreme Court on this issue. One of these three pending cases may well become the landmark case establishing the law in Ohio on MBE set-aside contracts. Builder Not Liable in Absence of Expert TestimonyBuilders have a common law duty to construct in a workmanlike manner. In a recent case, the Court of Appeals for Montgomery County ruled that while it is not always necessary to present expert testimony to prove a builder's deviation from common standards of workmanship, such expert testimony was required in this case involving capping an oil pipe. The Court's decision relied largely on the fact that the jury would likely not have known whether the act complained of was unworkmanlike from its common knowledge or experience. Floyd v. United Home Improvement Ctr., Inc. (1997), 119 Ohio App. 3d 716. This case means that claimants complaining of unworkmanlike construction should expect to hire an expert witness unless the alleged deviation is well known to average jurors and is not highly technical or scientific in nature. AGC & ASC Endorse AGC 650 SubcontractAGC has recently endorsed its AGC 650 and 655 Subcontracts in their final form. The AGC 650 is a "pay when paid" Subcontract, and has also been endorsed by ASC. The AGC 655 is a "pay if paid" Subcontract and is not endorsed by any subcontractor or trade contractor association. Neither Subcontract is endorsed by ASA, who will continue to endorse the AIA A401 Subcontract as the subcontractor preferred document in the industry. It is expected that AGC will actively promote the AGC 650 and 655 forms and will no longer publish the AGC 640 Subcontract which was first endorsed by all three organizations back in 1994. Improper Use of a Surveyor's SealThe Court of Appeals for Summit County has upheld the suspension of a professional surveyor's registration when he allowed his employees to place his signature and seal on mortgage location surveys that he never reviewed and did not have direct supervisory control over. Clark v. State Bd. of Registration for Professional Engineers & Surveyors (1997), 121 Ohio App. 3d 278. This case points out the risks for architects, engineers and surveyors who allow their seals or stamps to be used without adequate supervision and review. Does Contract Requiring Subcontractor to Name Contractor as Additional Insured Violate Anti-Indemnity Statute?In this case, a general contractor had required his subcontractor to name him as an additional insured, and the subcontractor did so. The Court construed the "additional insured" clause to only cover losses resulting from the negligence of the subcontractor but not the general contractor (the additional insured) in view of the anti-indemnity statute (O.R.C. §2305.31) that makes unenforceable agreements requiring a party to indemnify another for the other's own negligence. Buckeye Union Ins. Co. v. Zavarella Bros. Constr. Co. (1997), 121 Ohio App. 3d 147. This means that general contractors in Ohio will be unable to achieve indirectly, through being named as an additional insured, what they cannot receive directly in indemnity provisions — an agreement for the subcontractor to protect them from their own negligence. Worker's Compensation Awarded to Carpooling EmployeesThe Ohio Supreme Court recently issued a decision which may have a significant impact on subcontractors in Ohio whose work requires that their employees travel significant distances to perform jobs on their customers' premises. In order for an injury to be compensable under the Ohio Workers' Compensation Law, the injury must occur "in the course of" and "arise out of" an employee's employment. The general rule is that if a worker has a fixed site of employment, injuries that occur "coming and going" from that fixed site are not compensable. As the following case shows, however, the "coming and going" rule does not always apply to defeat an application for compensation, even if the court has to stretch to find the employee has a fixed site. In Ruckman v. Cubby Drilling, Inc., the injured workers were members of a drilling crew, whose work called for the drilling to be done at customers' premises throughout a three state area. The employees were injured while carpooling to a work site. They were nowhere near the work site, had arranged the carpool themselves without the cooperation of the employer, and did not carry with them any tools or equipment. Furthermore, the employees received only a small "per diem" allowance for their travel. The Ohio Supreme Court undertook an interesting analysis to find that the employees were entitled to workers' compensation benefits. First, the court found the workers were "fixed site" employees despite the fact that the actual location where they performed drilling duties generally changed every three to ten days. The court held that the fixed site was the customers' premises because the employees had no duties to perform away from the drilling sites to which they were assigned. The court next found the injury occurred "in the course of" the workers' employment. The "in the course of" requirement concerns the time, place and circumstances of the injury. Here, the court found the injuries occurred while the workers were performing a required duty in the employer's service, namely, driving to the customers' premises to perform the drilling. That is, the workers were in the course of their employment because they had to travel to the premises of the employer's customer to satisfy a business obligation. The court then analyzed the "arising out of" requirement to find that a causal connection existed between the injuries and the job. The court examined the totality of the circumstances and noted the accident did not occur anywhere near the work site, the employer had no control over the scene of the accident, and the employer did not receive any benefit from the workers' presence at the scene of the accident. Nonetheless, the court found the injuries "arose out of" the employment because of the Special Hazard to which the nature of the job exposed the workers. The court focused upon the temporary nature and changing location of the fixed work sites and the broad geographical range in which they are located. While noting that most employees can fix the distance of their commute as a matter of personal choice, the workers here had no such option. Consequently, the court found the significantly increased exposure to traffic risks associated with highway travel to be a Special Hazard. Finally, it is interesting to note that the court did not consider the "per diem" allowance to be significant in reaching their determination in this case. Contractor Denied Appeal of Architect's Denial of ClaimIn a remarkable decision that will strike many contractors as grossly unfair, the Franklin County Court of Appeals has ruled that by deleting all references to arbitration in the AIA A201 (1987) General Conditions, it was the intent of the parties that the architect's decision on contractor claims would be final and binding. Standard Electric v. Gahanna-Jefferson Public Schools, Case No. 97APE11-1520 (Aug. 25, 1998). Accordingly, the architect's denial of the contractor's delay claim was upheld as final and not subject to litigation. The Court ignored the contractor's argument that §4.3.2 of the AIA A201 General Conditions provided that the architect's decision on such claims is required as a condition precedent to "arbitration or litigation" of a claim between the contractor and an owner. This decision reinforces the risks associated with the piecemeal revision of trade association contract documents and the interpretation of those documents by those unfamiliar with the construction industry. CreditsKegler, Brown, Hill & Ritter's Construction Law Newsletter is prepared by Donald W. Gregory for the Construction Law practice group. To subscribe to any Kegler Brown publication, please use our Subscribe Form. To unsubscribe from any Kegler Brown publication, please use our Opt-Out Form. This publication, as well as an archive of previous publications, is also available from our Publications Archive. The Construction Law Newsletter is designed to provide general information about the subjects discussed. It is not meant to be all-inclusive or comprehensive. Kegler Brown is not rendering any legal or professional advice by way of this publication. © 1989-2008, Kegler, Brown, Hill & Ritter Co., L.P.A.
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