Category Archives: construction contracts

State Farm Tries to Deny Coverage: Claims GC’s Work was a “Professional Service”

The United States District Court had occasion to hear yet another attempt by an insurance company to deny coverage to its insured: this time a general contractor. In State Farm and Casualty Co. v. Lorrick Pacific, LLC, 2012 U.S. Dist. LEXIS 57922 (D. Ore. Apr. 24, 2012), the Court was asked by State Farm to deny coverage under the general liability policy it issued to its general contractor.  The reason: the insurance carrier argued that the general contractor’s coordination and management of subcontractors constituted a professional service, which was excluded in the general liability policy.

The complaint filed against the general contractor alleged that it failed to properly supervise and coordinate the construction of the subcontractors and suppliers for the project. Because the general liability policy issued by State Farm included an exclusion for “bodily injury, property damage or personal injury due to rendering or failure to render any professional services or treatments…[including] supervisory or inspection services…”, State Farm asked the court to rule that there was no “duty to indemnify” its insured.

The court held that a professional services exclusion did not apply to the term “supervisory” in the general contractor sense. Instead, the court found that “supervisory services” is something over and above overseeing the work of subcontractors, stating that:

“Here, the Professional Services Exclusion provides explicit examples of the types of services qualifying as “professional services.” Such examples include legal, accounting, engineering, architectural, “supervisory or inspection,” medical, and veterinary services. It is noteworthy that although the Policy states that “supervisory” services fall under the term “professional services,” it makes no mention of coordinating services, including coordinating the work of subcontractors.”

Because of the failure to specifically reference work performed by general contractors, the court found that State Farm’s argument could not withstand judicial scrutiny.

Spring Is Here: Get Your Construction Contracts and Legal Requirements in Order

Spring is here, and so is the rush of construction projects that need warmer temperatures to start (or restart as it were). With the economy giving signs that it is on the upswing, here is hoping that 2012 construction will start off with a bang.

If you are a contractor, it is time to start taking a fresh look at your contracts. Subcontractors and suppliers should do the same. Remember, in some states, no contract means no mechanics lien or construction lien. In Oregon, residential construction companies need a written contract for every project or risk waiving the contractor mechanics lien rights. The Oregon Construction Contractors Board also requires that residential contractors provide customers with certain, mandatory notices before work begins. The Oregon CCB website provides sample residential construction forms. Other states have also enacted provisions that may affect Oregon mechanics lien rights unless your contractual provisions meet certain requirements (see our blog on Texas Lien Waivers).

I am always suprised at how fast, and how often, the Federal and State legislatures pass new laws, change old ones, and feel the need to interfere in private contractual relationships. While you may think you are too small to really be affected by these laws and regulations, think again. As we reported earlier in the week, Texas has gone so far as to mandate what kind of lien waivers must be used at different milestones during a construction project – big government in a small government state, I dare say. So keep in mind that statutes abound regarding how and when you pay your subcontractors and suppliers, what your workers must receive in compensation and benefits, project safety issues, sexual harrasment policies, how and when you can file a construction lien for the work you performed, notices you must give prior to doing, well, just about anything…and the list goes on and on.

But enough complaining, keep your contracts in line and you can avoid any unfortunate consequences and hold on to your conractors license. According to an article by Katie Jeremiah in the Journal of Daily Commerce entitled Spring Cleaning, Dust off Construction Contract Forms, “The good news is that unlike 2003, when major public contracting reforms occurred, and 2007, when private contracting reforms took place, 2012 will not require a major overhaul of most construction contracts. But there are a few provisions that may need scrubbing. And contractors who have not updated their contracts for the past several years may want to take on a deep clean.”