Construction Claims

Limitations & Repose Periods

Statute of Limitations

Construction cases can implicate different statutes of limitations depending on the legal theories being pursued. The statute of limitations for construction contracts is three years. AS 09.10.053. The statute of limitations for negligence is two years. AS 09.10.070.

Statute of Repose

Alaska has a ten year statute of repose that begins to run at the earlier of the following times (1) substantial completion of construction, or (2) the last act alleged to have caused personal injury death, or property damage. AS 09.10.055(a)(1) and (2). The statute of repose does not apply under the following situations: “(1) the personal injury, death or property damage was caused by (A) prolonged exposure to hazardous waste; (B) an intentional act or gross negligence; (C) fraud or misrepresentation; (D) breach of an express warranty or guarantee; (E) a defective product; (F) breach of trust or fiduciary duty; (2) the facts that would give notice of a potential cause of action are intentionally concealed; (3) a shorter period of time for bringing the action is imposed under another provision of law; (4) the provisions of this section are waived by contract; or (5) the facts that would constitute accrual of a cause of action of a minor are not discoverable in the exercise of reasonable care by the minor's parent or guardian.” AS 09.10.055(b).

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

Alaska has a right to repair statute codified at AS 09.45.881 et seq. The statute applies to “defect in the design, construction, or remodeling of a dwelling.” The statute requires a minimum 90 day notice prior to a construction defect suit being filed in order to give the contractor an opportunity to repair.

Indemnity and Contribution

Indemnity

AS 45.45.900 prohibits a subcontractor from indemnifying a general contractor for that general contractor’s sole negligence. The statute specifically does not apply to insurance contracts such as those for additional insured coverage.

Contribution

Alaska recognizes causes of action for implied indemnity and contribution. See e.g. Koehring Mfg. Co. v. Earthmovers of Fairbanks, Inc., 763 P.2d 499 (Alaska 1988); McLaughlin v. Lougee, 137 P.3d 267 (Alaska 2006). These causes of action allow a party who is not at fault, or partially at fault, to recover contribution and indemnity from another at-fault party even in the absence of a contractual agreement.

Certificate of Merit / Experts

In Alaska, there is no requirement for filing a certificate or affidavit of merit for claims against design or construction professionals.

Economic Loss Doctrine

Alaska recognizes the economic loss doctrine. There is an exception to the economic loss doctrine where a defect creates a potentially dangerous threat of damage to persons and property even if the damage is confined to just the defective work or product. See e.g. Northern Power & Eng’g Corp. v. Caterpillar Tractor Co., 623 P.2d 324 (Alaska 1981).

Contractor Licensing Requirements

The licensing requirements for contractors are set forth in AS 08.18 et seq and 12 AAC 21 et seq. A contractor can face civil and criminal penalties for not being bonded and insured. 12 AAC 21.160. Moreover, an unlicensed contractor “may not bring an action in the courts of this state for collection of compensation for the performance of work or for breach of contract for which the registration is required.” AS 08.18.151.

Common Law & Statutory Claims

Breach of Contract

Most construction disputes in Alaska are based on breach of contract claims. There is an implied term in all construction contracts in Alaska that the work will be performed in a workmanlike manner. Lewis v. Anchorage Asphalt Paving Co., 535 P.2d 1188 (Alaska 1975)

Breach of Express or Implied Warranties

Breach of warranty claims in Alaska can involve: (a) breach of express warranties set out in the construction contract; (b) breach of implied warranties for the fitness of the plans and specifications – aka the Spearin Doctrine, see for example, State Dept. of Nat. Res. v. Transamerica Premier Ins. Co., 856 P.2d 766 (Alaska 1993); and (c) the implied warranty of habitability for new residential construction.

Negligent Misrepresentation and Fraud

Alaska recognizes causes of action for negligent misrepresentation and fraud. See e.g. Willard v. Khotol Services Corp., 171 P.3d 108 (Alaska 2007); Arctic Tug & Barge, Inc. v. Raleigh, Schwarz & Powell, 956 P.2d 1199 (Alaska 1998).

Negligent Construction

A negligence claim can be asserted against a contractor if the plaintiff can satisfy the elements of a negligence claim. See Silvers v. Silvers, 999 P.2d 786 (Alaska 2000) (A negligence claim requires that a plaintiff establish a duty owed to the plaintiff, breach of that duty, that the breach caused an injury, and that there are damages).

Consumer Protection Act

Alaska’s Consumer Protection Act generally does not apply to construction claims. See AS 45.50.471.

Construction Damages

Cost of Repair

The cost of repair is typically the measure of damages in a construction defect case. Alaska’s right to repair statute states that the cost of repair is an appropriate measure of damages for construction defect claims involving residential construction. AS 09.45.895.

Diminution in Value

Diminution of value of the property is allowed if the repairs are not able to restore the property to its original value. Willett v. State, 826 P.2d 1142 (Alaska App. 1992).

Punitive Damages

Punitive damages are available if the contractor’s conduct was done with malice or bad motive, or with reckless indifference to the interests of another. AS 09.17.020. Punitive damages are not available in for a mere breach of contract. Reeves v. Alyeska Pipeline Service Co., 56 P.3d 660 (Alaska 2002).

Attorney’s Fees

Alaska is unique among American jurisdictions in that it awards attorney fees (at least in part) to a prevailing party. See AS 09.60.010; Alaska R. Civ. P. 82. There are detailed rules as to what amounts are recoverable to a prevailing party. A practitioner will want to carefully review those rules.

Joint and Several Liability (specific to construction)

Alaska has abolished joint and several liability. AS 09.17.080. Each defendant is only liable for their proportionate share of liability. Id.

Cost Incurred to Access Repair Areas

See “Cost of Repair,” supra.

Consequential Damages

Consequential damages are generally available in breach of contract actions. See e.g. Hancock v. Northcutt, 808 P.2d 251 (Alaska 1991). The parties to a construction contract can also exclude consequential damages. See e.g. Pierce v. Catalina Yachts, Inc., 2 P.3d 618 (Alaska 2000).

Coverage / Trigger of Coverage

Definition of an Occurrence

Unintentional defective work that causes damage to other, nondefective property, generally does constitute “property damage” caused by an “occurrence.” Fejes v. Alaska Ins. Co., Inc., 984 P.2d 519 (Alaska 1999). The legal theories are irrelevant in determining whether there is “property damage” caused by an “occurrence.” Id. It is the factual allegations and not the legal theories that are relevant. Id.

Duty to Defend

Contractual Indemnity

An insured is typically entitled to commercial general liability coverage for contractual indemnity to the extent that the indemnification agreement is an “insured contract,” as defined by the insurance policy.

Anti-Indemnity Statutes

Alaska’s anti-indemnity statute does not apply to insurance contracts such as those for additional insured coverage.

Additional Insureds

1. Coverage for AI’s own negligence vs. vicarious liability for Named Insured

As discussed supra, Alaska’s anti-indemnity statute does not apply to insurance contracts such as those for additional insured coverage. The plain meaning of the policy controls the scope of coverage available to the additional insured.

2. Determining Primary and Non-Contributory vs. Excess Position

There is no case law in Alaska addressing priority of coverage involving a policy with a “primary and non-contributory” clause. Alaska Courts will try to reconcile “other insurance” provisions, but if the policy terms are mutually repugnant as to what policy is primary vs. excess, then the court will set the policy terms aside and craft its own equitable apportionment between the policies. Columbia Mut. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 905 P.2d 474 (Alaska 1995); Horace Mann Ins. Co. v. Colonial Penn Ins. Co., 777 P.2d 1162 (Alaska 1989).

3. AI carrier’s rights to reimbursement for defense expenses from other, co-primary carriers

Alaska recognizes a right to contribution between co-carriers. Columbia Mut. Ins. Co. v. State Farm Mut. Auto. Ins. Co., 905 P.2d 474 (Alaska 1995); Horace Mann Ins. Co. v. Colonial Penn Ins. Co., 777 P.2d 1162 (Alaska 1989). There is no case law as to whether an insurer can seek contribution from another co-primary insurer for pretender defense expenses.

Insureds Right to Independent Counsel and Consequences of Rejecting a Defense

1. Insured’s Right to Independent Counsel

AS 21.89.100 provides insureds a right to independent counsel where there is a conflict of interest between the insured and insurer. AS 21.89.100 provides detailed rules about when a conflict arises, and the standards of conduct of independent counsel and the insurer in such situations. The statute should be consulted as appropriate.

2. Consequences of Rejecting a Defense

A denial of defense can expose an insurer to bad faith liability if the insured can prove bad faith conduct. To prevail on a bad faith claim under Alaska law, a policyholder must establish the absence of a reasonable basis for denying benefits under the policy and the insurer’s knowledge or reckless disregard of the lack of a reasonable basis for denying the claim. Hillman v. Nationwide Mut. Fire Ins. Co., 855 P.2d 1321 (Alaska 1993).

Coverage Issues / Defenses

1. “Ongoing Operations” Exclusions

These are typically found at subparts j(5) and j(6) of the exclusions section to the standard ISO commercial general liability policy form. Exclusion j(5) excludes damage to real property on which the insured is performing operations. Exclusion j(6) excludes damage to that particular part of any property that must be repaired or replaced because the insured’s work was incorrectly performed on it. The Alaskan courts have applied these exclusions to bar coverage for the costs of repairing or replacing any property constituting defective work of the insured or its subcontractors, but not to exclude coverage for repairing or replacing any damaged property which is not itself defective work. Clear LLC v. American and Foreign Ins. Co., 2008 WL 818978 (D.Alaska); Fejes v. Alaska Ins. Co., Inc., 984 P.2d 519 (Alaska 1999).

2. The “Your Work” and “Your Product” Exclusions, and “Rip and Tear” Damages

The “Your Work” and “Your Product” exclusions are standard exclusions in the standard ISO commercial general liability policy form. These exclusions bar coverage for damage arising out of an insured’s work or product. Alaskan courts have narrowly interpreted the “Your Work” and “Your Product” exclusions to apply just to damage to the work or product. The exclusions do not bar coverage for damage to third-party property that is not the insured’s work or product. Clear LLC v. American and Foreign Ins. Co., 2008 WL 818978 (D.Alaska); Fejes v. Alaska Ins. Co., Inc., 984 P.2d 519 (Alaska 1999). A related question is whether damages caused by the repair process are excluded by the “Your Work” and “Your Product” exclusions. These types of damages are usually referred to by the courts as “Rip and Tear” damages. At least one Alaska federal trial court has held that the costs of removing and replacing the insured’s defective work is covered to the extent necessary to repair damage to third-party property. Clear, LLC v. American & Foreign Ins. Co., 2008 WL 818978 (D. Alaska).

Choice of Law (Forum Selection Clauses)

Alaskan courts enforce forum selection and choice of law provisions so long as there is some reasonable basis for the parties’ choice, and the choice of forum or law does not offend a fundamental state policy or interest. See Peterson v. Ek, 93 P.3d 458 (Alaska 2004). If the parties have not selected a forum or law, Alaskan courts will then refer to the Restatement (Second) Conflict of Laws § 188 to determine what law applies to a contract. See Long v. Holland America Line Westours, inc., 26 P.3d 430 (Alaska 2001); Palmer G. Lewis v. ARCO Chemical Co., 904 P.2d 1221 (Alaska 1995). The Restatement directs the court to determine what state has the “most significant relationship” to the policy and the parties. The factors a court will consider in determining what state has the “most significant relationship” include: (a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicile, residence, nationality, place of incorporation, and place of business of the parties. These factors are to be evaluated according to their relative importance with respect to the particular issue.

Targeted Tenders

The Alaska courts have not addressed whether an insured must directly tender to the insurer in order to trigger the insurer’s duties.

Consent Judgments

The Alaska Supreme Court has held that an insured whose insurer has committed a material breach of a duty to defend may enter into a covenant settlement agreement with an injured claimant. Great Divide Ins. Co v. Carpenter, 79 P.3d 599 (Alaska 2003); Heynen v. Allstate Ins. Co., 2013 WL 11310636 (D.Alaska). There is a requirement that the consent settlement is reasonable, and reasonableness is a question of fact for a jury to decide. Id.