Construction Law Update – Second Quarter

A bill in front of the Alabama legislature’s last session would have prohibited requiring indemnification for the sole negligence, wantonness, recklessness, and intentional misconduct of the indemnitee.

Current Alabama law enforces indemnity contracts between private parties “if the contract clearly indicates an intention to indemnify against the consequences of the indemnitee’s negligence, and such provision was clearly understood by the indemnitor, and there is not shown to be evidence of a disproportionate bargaining position in favor of the indemnitee.” Industrial Tile, Inc. v. Stewart, 388 So. 2d 171, 175 (Ala. 1980) (citations omitted). “While ‘talismanic language’ is not a necessity, the intention to indemnify for the indemnitee’s own negligence must be clear from the instrument.” Humana Medical Corp. v. Bagby Elevator Co., Inc., 653 So. 2d 972, 973 (Ala. 1995) (citations omitted).

However, if a contract for professional design services requires a design professional “to indemnify or hold harmless a contracting party, an indemnitee, or a third party against liability for damage other than liability for damage to the extent caused by, or in proportion to the extent the design professional participates in resolution of a claim based on, an act of negligence, recklessness, intentional tort, intellectual property infringement … that is committed by the design professional[,]” that provision is void as of July 1, 2021. Ala Code § 41-9A-3 (1975, as amended).

SB 24, introduced by Senator Albritton, appeared to try to provide that a similar protection to contractors on private projects in Alabama. Under the Bill, a construction contract could not require a party to indemnify another party for damages or injuries “that arise out of, result from, or are caused by the sole negligence or by the wantonness, recklessness, or intentional misconduct of the indemnitee[.]” The Bill also limited indemnification provisions for negligence, only, that do not specifically restrict the indemnity obligation to the sole negligence of an indemnitor. The Bill appeared to address situations in which combined acts and/or multiple parties caused the injury. For such provisions to be valid, the indemnification agreement must be part of the construction contact, must contain a monetary limit on the indemnitor’s liability, and the indemnitor must agree to obtain insurance for that amount.

With the end of the legislative session, the Bill was not passed, and any special session called by the Governor is unlikely to address it. Nevertheless, contractors and property owners anticipating construction projects in Alabama should remain aware in the event this Bill is re-introduced.

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In construction defect litigation, including matters where the contractors are covered by owner controlled insurance policies (“OCIP”) or design professionals are not sued by plaintiff, questions often arise as to whether or not the co-defendants should file cross-claims for indemnity or contribution regarding plaintiff’s defect and damage claims. Notwithstanding the permissive status of such potential cross-claims under NRCP 13(g), the prudent course in Nevada construction defect cases — without a “good reason” to justify a second lawsuit — is to file cross-claims or third-party complaints regardless of OCIP potential coverage to avoid claim or non-mutual claim preclusion.

Procedurally, by statute and case law, parties with permissive cross-claims in the past could choose to wait before proceeding against co-defendants. In Nevada, the applicable rule on cross-claims against co-parties is NRCP 13(g). A pleading may state as a cross-claim any claim by one party against a co-party arising out of the transaction or occurrence that is the subject matter either of the original action or of a counterclaim therein or relating to any property that is the subject of the original action. Such cross-claim may include a claim that the party against whom it is asserted is or may be liable to the cross-claimant for all or part of a claim asserted in the action against the cross-claimant.

Parties frequently cited Executive Mgmt. v. Ticor Title Ins. Co., 114 Nev. 823, 963 P.2d 465 (1998) interpreting the permissive cross-claim rule. Noting that NRCP 13 (g) language is “clearly permissive” regarding the option to pursue, the Nevada Supreme Court held that where a party to an action has a permissive cross-claim, that party has the option to pursue that claim in an independent action, and if such a claim is neither asserted nor litigated, the parties cannot be barred from asserting it in a later action by principles of res judicata, waiver or estoppel. 963 P.2d at 474. Moreover, the Supreme Court stated it would “not allow the doctrine of claim preclusion to convert the permissive character of NRCP 13(g) into a compulsory mandate.” Id. at 475.

However, the Nevada Supreme Court’s decision in Weddell v. Sharp 131 Nev. 233, 350 P.3d 80 (May 28, 2015), has limited that procedural option for co-defendants. Even as to parties without contractual privity, the Nevada Supreme Court held that non-mutual claim preclusion applies in Nevada. Noting the purpose of claim preclusion and non-mutual claim preclusion is to obtain finality of litigation by preventing a party from filing another suit based upon the same set of facts present in the initial suit. This included promoting judicial economy in situations where the rules of civil procedure governing noncompulsory joinder, permissive counterclaims, and permissive cross-claims “fall short.” 350 P.3d at 84.

Importantly, in the Weddell case, the Supreme Court decision modified the privity requirement established in Five Star Capital Corp. V. Ruby, 124 Nev.1048, 1054 (2008), with application of “the doctrine of non-mutual claim preclusion, by demonstrating that (1) there has been a valid, final judgment in a previous action; (2) the subsequent action in based on the same claims or any part of them that were or could have been brought in the first action; and (3) privity exists between the new defendant and the previous defendant or the defendant can demonstrate that he or she should have been included as a defendant in the earlier suit and the Plaintiff cannot provide a ‘good reason’ for failing to include the new defendant in the previous action.”

In short, the Nevada Supreme Court Weddell decision makes it clear that the main inquiry focuses on whether appellant has shown a good reason to justify this second lawsuit. Weddell 350 P.3d at 85. Notwithstanding the optional direction for permissive cross-claims or counter claims under NRCP (13), the Nevada Supreme Court found that defendants in a second lawsuit may validly use a claim preclusion defense based upon where (1) there has been a valid final judgment in a previous action; (2) the subsequent action is based on the same claims or any part of them that were or could have been brought in the first action: and (3) privity exists between the new defendant and the previous defendant or the defendant can demonstrate that he or she should have been included as a defendant in the earlier suit and the plaintiff cannot provide a “good reason” for failing to include the new defendant in the previous action. Id.at 85-86.

In one application of the Weddell holding (in an unpublished opinion which may be cited for persuasive value, Nevada Rules of Appellate Procedure 36(c)), the Nevada Supreme Court in Premier One Holdings, Inc. v. Red Rock Financial Services, LLC, 134 Nev. 998, 429 P.3d 649 (2018), subsequently declined to hold later claims barred by non-mutual claim preclusion. First, the Court re-explained that non-mutual claim preclusion can apply without a “good reason” for not having previously asserted the claim, and that claim preclusion should apply when it is clear that the claim is “no more than a last desperate effort” to pursue a thin claim against those less directly involved. In short, the Court ultimately found that “good reason” for un-asserted cross-claims in the prior case: The claims were “contingent” on the success of a counter-claim against a different party (Bank America) that may have been rendered moot, and here were not barred by non-mutual claim preclusion.

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Orange County Co-Managing Partner Christine Barker will present "Understanding the Construction Bidding Process" for Lorman's live construction law webinar on Tuesday, July 11, at 1:00 p.m. Eastern.

In her presentation, Ms. Barker will explore the construction bidding process, including pre-qualification, bid solicitation, submission, and selection, and contract formation. She will also discuss topics, such as bid protests or the False Claims Act, which can present challenges to procurement and performance, and how to qualify for government projects.

Ms. Barker is Co-Managing Partner of the firm's Orange County office and a member of the Construction and Government Contracts practice groups. In addition to her 20 years of construction legal experience, Ms. Barker also brings hands-on experience, having navigated the bidding process for her family’s plastering business. She has counseled owners, general contractors, design professionals, and subcontractors during all phases of contract negotiations, project design, and construction. In addition to construction counseling, Ms. Barker has extensive experience in public procurement law including advising on bid protests, contract drafting/negotiation, contract performance and compliance issues, claims, and dispute resolution.

Lorman is a leading provider of online training and continuing education on regulations, laws, and business changes for professionals and organizations.

To learn more or register, please click here.

Please contact the marketing team for a webinar discount code.

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Partner Kimberly Blake and the GRSM Legal Matrix Attorneys have added a Right to Independent Counsel matrix to the 2023 50 State Legal Matrices. The 50 State Legal Matrices are in chart format to be used as an easy reference source for your matters.

You may view the full package here.

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Partner Lisa Cappelluti presented at the 2023 West Coast Casualty Construction Defect Seminar on May 18-19 in Anaheim, California at the Disneyland Resort Hotel. Ms. Cappelluti presented “Life in the Fast Lane” on Wednesday, May 19. The presentation discussed construction claims and litigation trends and their impact on construction risk management, insurance management, and insurance coverage.

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Partner Virginia Trunkes delivered a presentation entitled "Data, Data, and More Data: The Implications of Big Data on Construction Claims" at the American Bar Association's Forum on Construction Law 2023 Annual Meeting in Vancouver, British Columbia on April 13.

Joined by a claims consultant and forensic engineer, Ms. Trunkes showcased standard construction provisions through the lens of what language outside consultants would have preferred the construction agreement contain to enable them to access relevant construction project data. The presenters explored different types of project data, the impact of missing data, contract-drafting strategies for ensuring that better data is generated and maintained, and types of relevant data corresponding with common contract provisions invoked in a construction dispute.

The American Bar Association's Forum on Construction Law was designed to bring together exceptional speakers to present on the future of construction law, contracting, big data, employment matters, and trends in the construction industry.

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Partner Denise Motta has been named a member of the American Arbitration Association's ("AAA") Construction and Commercial panels.

The AAA is a nonprofit organization that provides administrative services, including assisting in the appointment of mediators and arbitrators, setting hearings, and providing users with information on dispute resolution options, including settlement through mediation. Their goal is to assist with the movement of cases through arbitration or mediation in a fair and impartial manner until completion.

The AAA panels are comprised of arbitrators and mediators with expertise in focused topics of their disciplines, like accomplished attorneys with exceptional subject-matter expertise, former federal and state judges, and business owners who understand the essence of the dispute.

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Partner Angela Richie hosted “Don’t Go Chasing Waterfalls, Please Stick to the Rivers and the Lakes that You’re Used to.” – Key Terms for Downstream Contacts?. This webinar addressed typical disputes that arise with subcontractors for steel fabricators and how fabricators can use contracts, surety bonding, and management tools to mitigate the risks and magnitude of those disputes.. You can view a recording of this webinar here.

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Partners Scott Norman and Angela Richie hosted Heffalumps & Woozles: “Beware! Beware! Be a Very Wary Bear!” OSHA Lessons Learned. This webinar addressed how to be ready for OSHA inspections, as well as what you need to do if an accident occurs. You can view a recording of this webinar here.

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Gordon & Rees' Construction Group consists of more than 200 lawyers in offices nationwide and is currely ranked No. 4 out of the Top 50 Construction Law Firms in the Nation, by Construction Executive.

Gordon & Rees’ construction attorneys focus their practice on the comprehensive range of legal service required by all participants in the construction industry – architects, engineers, design professionals, design joint ventures, owners, developers, property managers, general contractors, subcontractors, material suppliers, product manufacturers, lenders, investors, state agencies, municipalities, and other affiliated consultants and service providers.

We serve clients who design, develop, or build all types of structures, including commercial buildings, single and multifamily residential projects, industrial facilities, universities, hospitals, museums, observatories, amusement parks, hotels, shopping centers, high-rise urban complexes, jails, airports, bridges, dams, and power plants. We also have been involved in projects for tunnels, freeways, light rail, railway stations, marinas, telecom systems, and earth-retention systems. Our experience includes private, public, and P3 construction projects.

If you have questions about this issue of the Construction Law Update or our nationwide construction practice, click here to visit our practice group page or contact partner Daniel Evans.

Daniel E. Evans
Gordon Rees Scully Mansukhani
555 Seventeenth St.
Suite 3400
Denver, CO 80202
(303) 200-6863
deevans@grsm.com

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