CONSTRUCTION CLAIMS

Limitations and Repose

Statute of Limitations

The statute of limitations on claims for damages for injury to person or property that are founded on negligence/tortious conduct is two years. 42 Pa. C.S. § 5523.

The statute of limitations for contracts is 4 years. 42 Pa.C.S. § 5525.

Statute of Repose

42 Pa.C.S. § 5536: A civil action or proceeding brought against any person lawfully performing or furnishing the design, planning, supervision or observation of construction, or construction of any improvement to real property must be commenced within 12 years after completion of construction of such improvement to recover damages for:

(1) Any deficiency in the design, planning, supervision or observation of construction or construction of the improvement.

(2) Injury to property, real or personal, arising out of any such deficiency.

(3) Injury to the person or for wrongful death arising out of any such deficiency.

(4) Contribution or indemnity for damages sustained on account of any injury mentioned in paragraph (2) or (3).

The Pennsylvania Supreme Court has held that for a party to establish any immunity provided by the Statute of Repose, that party must establish that:

(1) what is supplied is an improvement to real estate;

(2) more than twelve years have elapsed between the completion of the improvements to the real estate and the injury; and

(3) the activity of the moving party must be within the class which is protected by the Statute.

McConnaughey v. Building Components, Inc., 637 A.2d 1331 (Pa. 1994).

Right to Repair Laws and/or Pre-Suit Statutory Procedures

This will often be controlled by the contractual terms. Naturally, Plaintiff has a duty to mitigate any damages as early as possible. The Pennsylvania Contractor and Subcontractor Payment Act states that owners or contractors seeking to withhold payment must do so in writing and with a written explanation of its good faith reason for non-payment within 14 days of receiving an invoice that it intends not to pay in whole or in part. Failure to provide written notice explaining non-payment within 14 days shall constitute a waiver of the basis and necessitate payment in full for the invoice.

Indemnity and Contribution

Pennsylvania law only authorizes contribution among joint tortfeasors. Kemper Nat’l P&C Cos. v. Smith, 615 A.2d 372, 376-77 (Pa. Super. Ct. 1992)

Contribution is governed by Pa.C.S. §8324, which sets forth the following: (a) The right of contribution exists among joint tortfeasors. (b) A joint tortfeasor is not entitled to a money judgment for contribution until he has by payment discharged the common liability or paid more than his pro rata share. (c) A joint tortfeasor who enters into a settlement with the injured person is not entitled to recover contribution from another joint tortfeasor whose liability to the injured person is not extinguished by settlement.

“The fact that a person paid money to settle a claim of an injured party is not a sufficient basis for recovery; the joint tortfeasor relationship must also be established.” Slaughter v. Pennsylvania X-Ray Corp., 638 f.2d 639, 642 (3d Cir. 1981). A party must establish the actual liability and a settling defendant does not have a right to claim contribution against non-settling defendants if it turns out that the settling party paid more than his equitable share. See Charles v. Giant Eagle Markets, 522 A.2d 1 (Pa. 1987) A defendant who has had a judgment rendered against him can raise a contribution claim against a third party who was not a party to the original suit. See Knepp v. Harnischhfeger Corp., 1986 U.S. Dist. LEXIS 16627 at *5.

As it pertains to indemnity, a contract that entitles the party to indemnification for its own negligence is permissible but the terms must be unmistakeable. For example, words such as “any and all liability” do not rise to the level of specificity required for a broader indemnification regarding a party’s own negligence. DiPietro v. City of Philadelphia, 496 A.2d 407 (Pa.Super. 1985). The same applies for “pass through” agreements” in a subcontract indemnifying one party for the negligence of another.

Common law indemnity is derived from a special relationship between the parties (employer/employee; property owner from contractor). Pennsylvania recognizes third party beneficiary indemnity.       

Certificate of Merit/Experts

A certificate of merit is required in the construction field for claims against architects, engineers and land surveyors. Pa.R.C.P. 1042.1

Economic Loss Doctrine

The economic loss doctrine precludes recovery of economic losses in tort actions absent physical injury or property damage. David Pflumm Paving & Excavating Inc. v. Foundation Services Co., 816 A.2d 1164 (Pa. Super. 2003). Where a building owner seeks damages in a defective construction case for loss of personal property, cleaning costs, rent and lost profits, in additional to damage to the building itself, the tort claims will not be barred by the economic loss doctrine. Clouser's Auto Body, Inc. v. Jewell Bldg. Systems, Inc., 41 Pa. D. & C.4th 271 (Pa. Com. Pl. 1998).

The economic loss doctrine does not apply to claims of negligent misrepresentation that come under Restatement (Second) of Torts §552. Bilt-Rite Contractors v. Architectural Studio, 866 A.2d 270 (Pa. 2005), infra. This arguably may only apply where the individual whose misrepresentation was relied upon is a professional in the business of designing or building. See Rock v. Voshell, 2005 U.S. Dist. LEXIS 36942, 2005 WL 3557841 (E.D. Pa. 2005).

Contractor Licensing Requirements

http://www.dli.pa.gov/ucc/Pages/Contractor-Licensing.aspx

The Commonwealth of Pennsylvania currently has no licensure or certification requirements for most construction contractors (or their employees).

Common Law and Statutory Claims

Breach of contract

If a breach constitutes a material failure of performance, then the non-breaching party is discharged from all liability under the contract. In considering whether a failure of performance is material, the following factors are considered:

a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;

b) the extent to which the injured party can be adequately compensated for that part of that benefit of which he will be deprived;

c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;

d) the likelihood that the party failing to perform or offer to perform will cure his failure, taking into account all the circumstances including any reasonable assurances;

e) the extent to which the behavior of the party failing to perform or offer to perform comports with standards of good faith and fair dealing.

An anticipatory breach occurs when there is a definite and unconditional repudiation of a contract by one party communicated to another; for example, a statement by one party he will not perform in accordance with the agreement creates an anticipatory breach. Integrated Waste Solutions, Inc. v. Goverdhanam, CIV. A. 10-2155, 2012 WL 2885947 (E.D. Pa., July 13, 2012).

Negligence/Negligent misrepresentation

Bilt-Rite Contractors, Inc. v. The Architectural Studio extended to contractors the ability to sue design professionals on whose plans they worked under a theory of negligent misrepresentation. The Supreme Court of Pennsylvania in Bilt-Rite created an exception to the economic loss doctrine and held that an architect who had provided drawings and specifications upon which a contractor relied upon in preparing a bid for work could be liable to the contractor under a theory of negligent misrepresentation, even though the contractor did not have a contract with the architect. The Bilt-Rite court held that a design professional who could be liable under a negligent misrepresentation claim was one who, in the course of his business or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions.

Breach of express and implied warranty

Strict Liability

Strict liability claims against builders in Pennsylvania construction cases do not meet 402A of the Restatement (Second) of Torts as the caselaw would support that buildings are not “products.”

Constructive Fraud

Constructive fraud cannot arise unless the owner of the site made positive representations regarding the site conditions. Black Top Paving Co., v. Comm. Of Pa., Dept. of Transp. 466 A.2d 774 (Pa. Commw. 1983).

The Pennsylvania Supreme Court listed five factors decision that a contractor must prove in order to recover on a common law theory of constructive fraud. These five factors are: 1) whether the owner or its agent (an architect or engineer) made a positive representation of specifications or conditions regarding the contract work; 2) whether the representation relates to material specification in the contract; 3) whether the contractor, due to time or cost constraints, is unable to make an independent investigation of the site conditions or the owner’s representations; 4) whether the owner’s representations are false and/or misleading due either to actual misrepresentation or a misrepresentation caused by gross mistake or arbitrary action; and 5) whether the contractor suffered financial harm due to reliance on the misrepresentation. Acchione & Canuso, Inc. v. Comm. Of Pa., Dept. of Tansp., 461 A.2d 765 (Pa. Commw. 1983).

CONSTRUCTION DAMAGES

Cost of Repair

The type of damages recoverable by a party may be controlled by contract documents. In situations in which the harm is reparable, damages are assessed according to the lesser of the cost of repair or the market value of the affected property. See Lobozzo v. Adam Eidemiller, Inc., 437 Pa. 360, 369, 263 A.2d 432, 437 (1970) & n.6.

Diminution in Value

Diminution of value may be an appropriate element of damages if the damage to the property is permanent. Rabe v. Shoenberger, 62 A. 854 (Pa. 1906). See also Duquesne Light Co. v. Woodland Hills School District, 700 A.2d 1038 (Pa. Commw. 1997)

Punitive Damages

The Pennsylvania Supreme Court has adopted Restatement (Second) of Torts §908(2) with respect to punitive damages. Feld v. Merriam, 485 A.2d 742 (Pa. 1984). Punitive damages may be awarded for conduct that is outrageous, because of the defendant's evil motive or his reckless indifference to the rights of others. Where the defendant has acted in a merely negligent manner, or even a grossly negligent manner, there is insufficient culpability to warrant punishment or effectively to deter similar future behavior in the form of punitive damages. Phillips v. Cricket Lighters, 883 A.2d 439, 445 (Pa. 2005).

Pennsylvania law requires that the "actor knows, or has reason to know . . . of facts which create a high degree of risk of physical harm to another, and deliberately proceeds to act, or fail to act, in conscious disregard of, or indifference to, that risk." Smith v. Celotex, 564 A.2d 209, 211 (Pa. Super. 1989); see also SHV Coal, Inc. v. Continental Grain Co., 587 A.2d 702, 704-05 (Pa. 1991). The act or failure to act must be intentional, reckless, or malicious. Smith, 564 A.2d at 211. Therefore, in determining whether punitive damages should be awarded, "the act, or the failure to act, must be intentional, reckless or malicious." Phillips, 883 A.2d at 445.

Attorneys’ Fees

Attorneys’ fees are not recoverable as damages in the absence of a contractual or statutory provision to the contrary, or some other established exception. See, e.g., Putt v. Yates-American Mach. Co., 722 A.2d 217, 226 (Pa. Super. 1998), 737 A.2d 743; Mosaica Acad. Charter Sch. v. Comm. of Pa., Dept. of Ed., 813 A.2d 813, 822 (Pa. 2002).

Joint and Several Liability

Pennsylvania’s Fair Share Act

(Pa.C.S.A §7102): In most cases, a defendant will only be responsible to pay a portion of any judgment equal to the percentage of liability found against that defendant. There are a number of important exceptions carved into the Act. However, the most noteworthy exception to the Fair Share Act is that a tortfeasor found 60 percent or more liable remains jointly and severally liable and exposed to pay the allocated portion of a co-tortfeasor with insufficient capacity to pay its share.

Cost Incurred to Access Repair Areas

Not addressed in statute but are arguably part of general damages detailed below.

Consequential Damages

Pennsylvania law draws a distinction between general damages -those ordinary damages that flow directly from the breach; and special or consequential damages - those collateral losses, such as expenses incurred or gains prevented, which result from the breach. Ebasco Services, Inc. v. Pennsylvania Power & Light Co., 460 F. Supp. 163, 213 n.62 (E.D. Pa. 1978).

COVERAGE TRIGGER OF COVERAGE

Definition of Occurrence:

An occurrence has been defined by the Pennsylvania Supreme Court as an "accident.” An accident is "something that occurs unexpectedly or unintentionally. The key term is that the event be unexpected. Kvaerner Metals Div. of Kvaerner U.S. Inc. v Commercial Ins. Co., 908 A.2d 888, 900 (Pa. 2006). Of course, the policy language will control in most cases.

Duty to Defend

An insurer has a duty to defend its insured if the factual allegations of the underlying complaint “encompass an injury that is actually or potentially within the scope of the policy.” American & Foreign Ins. Co. v. Jerry’s Sport Ctr., Inc., 606 Pa. 584, 609, 2 A.3d 526, 541 (2010) (citations omitted). This is determined by “comparing the four corners of the insurance contract to the four corners of the complaint.” Id. (citation omitted). Therefore, “an insurer may not justifiably refuse to defend a claim against its insured unless it is clear from an examination of the allegations in the complaint and the language of the policy that the claim does not potentially come within the coverage of the policy.” Id. (citations omitted). “[W]here the insurer believes that coverage does not exist, the insurer should deny coverage to allow the insured to control its own defense without breaching its contractual obligation to be defended by the insurer.’ We further encourage insurers to seek declaratory relief to eliminate the uncertainty regarding its responsibility for continued defense and ultimately for indemnity coverage.” Babcock &Wilcox Co. v. Am. Nuclear Insurers, 2015 Pa. Lexis 1551, at *30 (Pa. July 21, 2015). Pennsylvania courts have considered facts and extrinsic evidence outside of the allegations of the underlying complaint, such as deposition transcripts and contracts at issue, in determining a person’s status as an “insured” before applying the “four corners” rule to determine whether a duty to defend exists. See Meridian Mut. Ins. Co. v.Cont’l Bus. Ctr., No. 04-1639, 2005 U.S. Dist. Lexis 6406, at *17 (E.D. Pa. Apr. 14, 2005)

Coverage Defenses

The Insurer has burden of showing prejudice from noncompliance with notice provisions in occurrence policies but not claims made policies. Brakeman v. Potomac Ins. Co., 472 Pa. 66, 371 A.2d 193 (1977). ACE 196Am. Ins. Co. v. Underwriters of Lloyds & Co., 2007 PA Super 392, 939 A.2d 935 (2007). Other defense may include failure to provide sufficient notice; failure to provide proof of loss; failure to cooperate with the insurer; and lack of standing under the policy.

Choice of Law/Forum Selection Clauses

The Pennsylvania Supreme Court has long recognized the validity of forum selection clauses, holding that, “while private parties may not by contract prevent a court from asserting its jurisdiction or change the rules of venue, nevertheless, a court in which venue is proper and which has jurisdiction should decline to proceed with the cause when the parties have freely agreed that litigation shall be conducted in another forum and where such agreement is not unreasonable at the time of litigation.” Central Contracting Co. v. C. E. Youngdahl & Co., 418 Pa. 122, 133, 209 A.2d 810, 816 (Pa. 1965). If an agreed upon forum is available to a party and said forum can do substantial justice to the cause of action then that party should be bound by the agreement. Id. at 133-34, 209 A.2d at 816. In other words, if both jurisdiction and venue are proper in the chosen forum then the forum selection clause should govern.