Save the dates for the DBIA Conferences this year. Once again, the Water/Wastewater and Transportation conferences will be back to back, April 23-27 in Phoenix, AZ. I’ll be talking about the new DBIA Teaming Agreement and Design Subconsultant Agreement at the W/WW conference on April 24 from 11:30 to 12:30. The Federal Sector conference is in Washington DC on August 21-23. Finally, the DBIA National Conference is in New Orleans from November 7-9. I’m chairing the National Conference Committee, and the committee is working on making it a terrific event. We will be issuing the call for presentations for the National Conference soon, so start thinking of your ideas. Go to www.dbia.org for further information.
Thursday, January 19, 2012
The Blog is Back! After a short-ish hiatus, the design-build law blog is back with more cases, updates and news.
A new case out of Arizona reminds us all of the importance of getting everyone, including the insurers, on the same page at the beginning of a project. In Travelers Idem. Co. v. Crown Corr, Inc., WL 6780885 (D. AZ December 27, 1011), a federal District Court held that Travelers insurance was bound by the insurance provisions in the design-build contract between the owner and the design-builder. This case involves damage to the University of Phoenix/Arizona Cardinals Stadium. A rainstorm caused 38 metal panels to fall off the stadium, causing significant damage to the façade, retractable roofs and sound system. Tourism and Sports Authority, the owner of the Stadium, was insured by Travelers, and Travelers brought the cause of action against Crown Corr, Inc., one of the subcontractors on the stadium.
The Stadium was constructed by Hunt Construction under a design-build contract. In the contract, the parties waived their subrogation rights with respect to the property insurance obtained by TSA. When parties waive subrogation rights, they promise not to sue each other if there is a loss that is covered by the insurance. Essentially, the parties recognized a risk, in this case damage to the property. TSA insured the risk through Travelers, and the parties agreed that if the risk occurred, the insurance, rather than any individual party, would cover the risk.
Although Travelers recognized that the parties had waived their subrogation rights against each other, Travelers claimed that because it was not a party to the design-build agreement, it was not bound by the waiver of subrogation. The court rejected this argument for several reasons, but it seemed primarily persuaded by the fact that the design-build agreement, complete with its waiver of subrogation, was entered into prior to the issuance of the insurance policy. The court found that Travelers had notice of the waiver of subrogation when it issued the policy. Further, the policy itself allowed for TSA to waive its subrogation rights. Travelers could not come back after the fact to deny the waiver of subrogation.
The case has a terrific discussion of the complex nature of construction contracts, particularly design-build contracts, and the necessity for the assertion of the economic loss doctrine. The economic loss doctrine disallows recovery outside of the remedies negotiated between the parties in the contract. It recognizes that the parties negotiate these contracts on a project by project basis and assign the risks associated with the projects to both parties and, in cases like this one, to an insurance policy.
“The Contracts were specifically negotiated with the Stadium project in mind and the Parties allocated risks and remedies in their agreements. The Parties did not agree to preserve tort remedies, but instead agreed to waive subrogation against all Parties, subcontractors, and design consultants. Tourism and Sports Authority had plenty of opportunities to assert its right to tort remedies, but instead chose to allow insurance to bear the burden of risk associated with the project. Because of the complex contractual relationships in construction defect cases, Courts have extended the economic loss doctrine to interrelated contracts where, as here, the Parties have had an opportunity to bargain for their rights.”
Given that the economic loss doctrine has taken some hits lately, particularly in my home state of Washington, I appreciate when courts recognize that sophisticated parties can recognize and assign rights and remedies in a contract and then be bound by the allocated risks.