VIRGINIA CONSTRUCTION CLAIMS RESOURCES
1 Construction Claims
- 1.1 Limitations & Repose Periods
- 1.2 Right to Repair Laws and/or Pre-Suit Statutory Procedures
- 1.3 Indemnity and Contribution
- 1.4 Certificate of Merit – Experts
- 1.5 Economic Loss Doctrine
- 1.6 Contractor Licensing Requirements
- 1.7 Common Law & Statutory Claims
- 1.8 Punitive Damages
- 1.9 Attorney’s Fees
- 1.10 Joint and Several Liability (specific to construction)
- 1.11 Consequential Damages
Injury to Person
Every action for personal injuries, whether the action is in tort or contract, must be brought within two years after the cause of action accrues. Va. Code Ann. § 8.01-243(A); Dawson v. Fernley & Eger, 196 F.Supp. 816, 820 (E.D.Va. 1961).
Injury to Property
Actions for injury to property, whether in tort or contract, must be brought within five years after the cause of action accrues. Va. Code Ann. § 8.01-243(B).
Breach of Contract
Actions based on a breach of contract must be filed within five years if the contract was written, and three years if the contract was oral. Va. Code Ann. § 8.01-246. If the transaction is primarily for the sale of goods under the U.C.C., the limitations period is four years from the date of breach. This can be reduced by the terms of contract to not less than one year, but cannot be extended by the contract terms. Va. Code Ann. § 8.2-725.
A right of action is “deemed to accrue and the prescribed limitation period begins to run from the date the injury is sustained in the case of injury to the person or damage to property and when the breach of contract occurs in actions ex contractu.” Va. Code Ann. § 8.01-230. Thus, in order for a right of action to accrue, starting the applicable limitation period, there must be: (1) a legal obligation of defendant to plaintiff; (2) violation or breach of that duty or right; and (3) harm or damage to plaintiff caused by the violation or breach. Adams v. Alliant Techsystems, Inc., 201 F.Supp.2d 700, 710-11 (W.D.Va. 2002). Virginia does not recognize the “discovery rule.” Va. Code Ann. §8.01-230; Smith v. Danek Medical, Inc., 47 F.Supp.2d 698, 701 (W.D.Va. 1998).
Virginia’s Statute of Repose states that “no action to recover for any injury to property, real or personal, or for bodily injury or wrongful death, arising out of the defective and unsafe condition of an improvement to real property, nor any action for contribution or indemnity for damages sustained as a result of such injury, shall be brought against any person performing or furnishing the design, planning, surveying, supervision of construction, or construction of such improvement to real property more than five years after the performance or furnishing of such services and construction.” Va. Code Ann. § 8.01-250. While the Statute of Repose specifically states that it does not apply to actions against manufacturers or suppliers of “equipment or machinery or other articles installed in a structure upon real property,” Virginia courts have deemed this exception to refer only to suppliers or manufacturers of “equipment or machinery,” leaving manufacturers or suppliers of “ordinary building materials” within the protection of the statute of repose. Kohl’s Dept. Stores, Inc. v. Target Stores, Inc., 290 F.Supp.2d 674, 680-81 (E.D. Va. 2003).
The Statute of Repose begins on the date of “performance or furnishing” of a service or construction by the one who performs or furnishes the service or construction. Kohl’s Dept. Stores, Inc. v. Target Stores, Inc., 290 F.Supp.2d 674, 685-87. However, this date does not necessarily coincide with the completion of the entire project. Id. For example, the Statute of Repose begins to run as to suppliers of materials at the last date the supplier delivered the material rather than the completion of the entire project. Id.
Parties to construction and other contracts often allocate between themselves responsibility for injury or damage that occurs because of or during performance of the contract. Contract clauses that shift responsibility from one party to another for injury or damage are called indemnity agreements or contracts.
By statute, the indemnitee cannot be indemnified for its own sole negligence or willful misconduct. Va. Code Ann. § 11-4.1. However, with a specific clause in the contract to indemnify, the indemnitor must indemnify the indemnitee even if the indemnitee has been actively or passively negligent, provided a party beside the indemnitee has also been negligent. Under such clauses, the indemnitor may be required to indemnify the indemnitee even if the indemnitor itself has not been negligent. See, e.g., W.R. Hall, Inc. v. Hampton Roads Sanitation Dist., 273 Va. 350, 641 S.E.2d 472 (2007).
A “general” clause is phrased in general terms. It does not specifically mention whether any negligence by the indemnitee will affect the duty to indemnify. Examples include:
• “Indemnitor will hold indemnitee harmless in any suit at law.”
• “Indemnitor will hold indemnitee harmless from all claims or damages to persons.”
• “Indemnitor will hold indemnitee harmless from any cause whatsoever.”
These clauses have been interpreted to require the indemnitor to indemnify the indemnitee when the indemnitee has been passively negligent. However, they have also been interpreted to deny indemnity when the indemnitee has been actively negligent. Case law has evolved trying to distinguish between active and passive negligence. The distinction is generally left to the trier of fact. See Philip Morris v. Emerson, 235 Va. 380, 368 S.E.2d 268 (1988) for discussion of “active” versus “passive” negligence.
Generally speaking, a party is actively negligent if it actively participates in causing the damage or has specifically authorized the act that causes the damage. Some cases have found active negligence in the failure to perform obligations specifically undertaken by agreement.
Passive negligence, on the other hand, is the failure to discover a dangerous condition or the failure to perform a general duty imposed by law.
Economic Loss is defined as “damages for inadequate value, costs of repair and replacement of the defective product, or consequent loss of profits – without any claim of personal injury or damage to other property . . . as well as the diminution in the value of the product because it is inferior in quality and does not work for the general purposes for which it was manufactured and sold. Sensenbrenner v. Rust, Orling & Neale, Architects, Inc., 236 Va. 419, 374 S.E.2d 55 (1988). Under the Economic Loss Doctrine, damages for economic loss are only allowed in an action in contract law, not in tort law. Id.
The Board for Contractors licenses businesses engaged in the construction, removal, repair, or improvement of facilities on property owned by others. Contractor licenses consist of two parts: (1) the class of license (A, B, or C), which determines the monetary value of contracts/projects that may be performed, and (2) the classification/specialty, which determines what type of work is allowed.
Class A contractors perform or manage construction, removal, repair, or improvements when (i) the total value referred to in a single contract or project is $120,000 or more, or (ii) the total value of all such construction, removal, repair, or improvements undertaken by such person within any twelve-month period is $750,000 or more.
Class B contractors perform or manage construction, removal, repair, or improvements when (i) the total value referred to in a single contract or project is $10,000 or more, but less than $120,000, or (ii) the total value of all such construction, removal, repair, or improvements undertaken by such person within any twelve-month period is $150,000 or more, but less than $750,000.
Class C contractors perform or manage construction, removal, repair, or improvements when (i) the total value referred to in a single contract or project is over $1,000 but no more than $10,000, or (ii) the total value of all such construction, removal, repair, or improvements undertaken by such person within any twelve-month period is no more than $150,000.
The classification or specialty (not to be confused with the license class) defines the scope of practice that may be performed by the licensed contractor. A list of all of the different classifications and specialties issued by the Board for Contractors and a definition of the work that is permitted to be performed by each can be found in 18VAC50-22-20 and 18VAC50-22-30 of the Board for Contractors Regulations.
Virginia courts allow and regularly enforce exculpatory agreements. See, e.g., Chesapeake & Ohio R. Co. v. Clifton Forge Waynesboro Tel. Co., 216 Va. 858, 224 S.E.2d 317, 321 (1976); Ripley Heatwole Co. v. John E. Hall Elec. Contr., Inc., 69 Va. Cir. 69, 71, 2005 WL 4827398 (2005) (noting that a “contractual provision specifically limiting a party’s liability” embodies “one of the essential purposes of contract law-the freedom of parties to limit their risks in commercial transactions”). The validity of an exculpatory clause is typically evaluated under a three-part test, under which a defendant seeking to avoid liability must show: (1) that the agreement does not contravene public policy, (2) that it could be readily understood by a reasonable person in the plaintiff’s position, and (3) that it clearly and unequivocally releases the defendant from precisely the type of liability alleged by the plaintiff. Kocinec v. Public Storage, Inc., 489 F.Supp.2d 555, 559 (E.D.Va. 2007) (citing Hiett v. Barcroft Beach, Inc., 18 Va.Cir. 315, 318, 1989 WL 646461 (1989)).
Pay When Paid Clauses
Virginia courts regularly enforce “pay-when-paid” clauses, whether the clause in question controls the timing of payment or controls the obligation to make payment. Galloway Corp. v. S.B. Ballard Const. Co., 250 Va. 493, 464 S.E.2d 349 (1995). However, where the “pay when paid” clause controls the actual obligation to make payment, a general contractor’s contribution to causing the owner’s non-payment causes the “pay when paid” condition to be waived and the contractor becomes liable to the subcontractor for any payments owed. Moore Bros. Co. v. Brown & Root, Inc., 207 F.3d 717 (4th Cir. 2000); Lane Construction Corp. v. Brown & Root, Inc., 29 F.Supp.2d 707 (E.D.Va. 1998).
Limitation of Liability Clauses
Under Virginia law, a contract providing exemption from liability is not against public policy and is therefore valid. Kocinec v. Public Storage, Inc., 489 F.Supp.2d 555, 558 (E.D.Va. 2007). However, such contracts are generally disfavored and therefore strictly construed. Id.; Gill v. Rollins Protective Services Co., 722 F.2d 55 (4th Cir. 1983).
Absent agreement by the parties, a grant of rescission is most often used in cases of fraud in the inducement of the contract, Witter v. Torbett, 604 F.Supp. 298 (1984), and failure to perform so “material and substantial in nature that it affects the very essence of the contract and serves to defeat the object of the parties,” Matzelle v. Pratt, 332 F.Supp. 1010, 1012 (E.D.Va. 1971) (stating that a two day delay in performance was not sufficient to justify rescission where the parties failed to state the time was of the essence).
Generally, to grant rescission, a court must be able to substantially restore the parties to the position they held before entering the contract; however, “where, on account of the adverse party, restitution cannot be had, rescission will not be denied, and the court will, so far as practicable, require the party profiting by the fraud to surrender the benefit he has received in the transaction.” Millboro Lumber Co. v. August Wood Products Corp., 140 Va. 409, 421, 125 S.E. 306, 310 (1924); See also Matzelle, 332 F.Supp at 1012 (“A basic premise of [rescission] is that no one may repudiate his contract and retain the benefit derived from that contract.”).
A party must act promptly upon discovering grounds supporting rescission, and failure to do so, leading the other party to believe that the contract is still in effect, waives the right to rescind. McLeskey v. Ocean Park Investors, Ltd., 242 Va. 51, 55, 405 S.E.2d 846, 848 (1991).
Quantum Meruit/Unjust Enrichment
Quantum meruit recovery is based on an implied contract to pay the reasonable value of services rendered, and only applies where no express contract exists covering the same subject matter. Mongold v. Woods, 677 S.E.2d 288, 292 (2009); Hendrickson v. Meredith, 161 Va. 193, 198, 170 S.E. 602, 604 (1933). Under this theory, plaintiff can receive an award of damages equal to the reasonable value of the work performed, less any compensation actually received for that work. Id.
To establish a claim for quantum meruit under Virginia law, a plaintiff must establish three elements: (1) A benefit conferred on the defendant by the plaintiff; (2) Knowledge on the part of the defendant of the conferring of the benefit; and (3) Acceptance or retention of the benefit by the defendant in circumstances that render it inequitable for the defendant to retain the benefit without paying for its value. Centex Constr. v. Acstar Ins. Co., 448 F.Supp.2d 697, 707 (E.D.Va. 2006).
An express warranty is a factual affirmation or promise, contained within the terms of a contract, which naturally tends to induce reliance by a party upon that promise. Whitehorse Marine, Inc. v. Great Lakes Dredge & Dock Co., 751 F.Supp. 106, 108 (E.D.Va. 1990) (citing McNeir v. Greer-Hale Chinchilla Ranch, 194 Va. 623, 74 S.E.2d 165 (1953)). The language of a contract will not be presumed to infer an express warranty if the language is ambiguous or inconclusive; rather, the contractual language must indicate a clear intention to enter into an express warranty when considered in light of all the facts and circumstances surrounding the transaction. Id. (citing Jacobs v. Warthen, 115 Va. 571, 576, 584, 80 S.E. 113 (1913)).
In building and construction contracts it is implied that the building shall be erected in a reasonably good and workmanlike manner and when completed shall be reasonably fit for the intended purpose. Willner v. Woodward, 201 Va. 104, 109 S.E.2d 132 (1959); Mann v. Closwer, 190 Va. 887, 901, 59 S.E.2d 78, 84 (1950) (citing with approval, 17 C.J.S., Contracts, § 329, p.781).
In Virginia, application of strict liability is limited to those areas in which it was imposed at common law, including cases involving blasting and other ultrahazardous activities, but has not extended it to tort or product liability cases. Sensenbrenner v. Rust, Orling & Neale, Architects, Inc., 236 Va. 419, 374 S.E.2d 55, n.4 (1988); Laughon & Johnson, Inc. v. Burch, 222 Va. 200, 278 S.E.2d 856 (1981); M.W. Worley Const. Co., Inc. v. Hungerford, Inc., 215 Va. 377, 210 S.E.2d 161 (1974).
Implied Warranty of Workmanlike Construction
In building and construction contracts it is implied that the building shall be erected in a reasonably good and workmanlike manner and when completed shall be reasonably fit for the intended purpose. Willner v. Woodward, 201 Va. 104, 109 S.E.2d 132 (1959); Mann v. Closwer, 190 Va. 887, 901, 59 S.E.2d 78, 84 (1950) (citing with approval, 17 C.J.S., Contracts, § 329, p.781). “Workmanlike manner” is interpreted as being in accordance with good usage and accepted practices in the community in which the work is done. Id. A breach of implied warranties in a construction contract constitutes a breach of contract. Clevert v. Jeff W. Soden, Inc., 241 Va. 108, 111, 400 S.E.2d 181, 183 (1991).
A statutory implied warranty acting against a builder-vendor has been codified under Va. Code Ann. § 55-70.1, stating in part:
[I]n every contract for the sale of a new dwelling, the vendor, if he is in the business of building or selling such dwellings, shall be held to warrant to the vendee that, at the time of transfer of record title or the vendee’s taking possession, whichever occurs first, the dwelling together with all its fixtures is sufficiently (i) free from structural defects, so as to pass without objection in the trade, (ii) constructed in a workmanlike manner, so as to pass without objection in the trade, and (iii) fit for habitation. “Structural defects” are defined as “a defect or defects that reduce the stability or safety of the structure below accepted standards or that restrict the normal use thereof.” Va. Code Ann. § 55-70.1.F.
Workers’ Compensation Exclusive Remedy
See exclusive remedy section.
Virginia law recognizes the economic loss doctrine, and therefore does not provide a cause of action for negligent performance of a contract. Sensenbrenner v. Rust, Orling, & Neale, Architects, Inc., 236 Va. 419, 424-25, 374 S.E.2d 55 (1988) (“Tort law is not designed . . . to compensate parties for losses suffered as a result of a breach of duties assumed only by agreement. That type of compensation necessitates an analysis of the damages which were within the contemplation of the parties when framing their agreement. It remains the particular province of the law of contracts.”)
Negligence Per Se for Violation of Code or Statute
Under Virginia law, violation of any statute enacted to protect health, safety, and welfare, including the Building Code, is negligence per se. MacCoy v. Colony House Builders, Inc., 239 Va. 64, 387 S.E.2d 760 (1990); Butler v. Frieden, 208 Va. 352, 154 S.E.2d 121 (1967). However, such negligence is only actionable if the injured person is a member of a class for whose benefit the legislation was enacted. Virginia Elec. and Power Co. v. Savoy Const. Co., Inc., 224 Va. 36, 294 S.E.2d 811 (1982); Farrish v. VanFossen, 212 Va. 815, 188 S.E.2d 201 (1972).
“As a general rule, damages for breach of contracts are limited to the pecuniary loss sustained.” Sunrise Continuing Care, LLC v. Wright, 277 Va. 148, 156, 671 S.E.2d 132, 136 (2009) (citing Kamlar Corp. v. Haley, 224 Va. 699, 705, 299 S.E.2d 514, 517 (1983)). The plaintiff has the “burden of proving with reasonable certainty the amount of damages and the cause from which they resulted; speculation and conjecture cannot form the basis of the recovery,” and a failure to provide sufficient proof of damages warrants dismissal of a claim. Sunrise Continuing Care, LLC v. Wright, 277 Va. 148, 156, 671 S.E.2d 132, 136 (2009); Shepherd v. Davis, 265 Va. 108, 125, 574 S.E.2d 514, 524 (2003); Filak v. George, 267 Va. 612, 619-20, 594 S.E.2d 610, 614-15 (2004).
“Unless specific performance is sought and available, the proper measure of unliquidated damages for breach of a contract ‘is the sum that would put [the plaintiff] in the same position, as far as money can do it, as if the contract had been performed.’” Nichols Const. Corp. v. Virginia Machine Tool Co., LLC, 276 Va. 81, 89, 661 S.E.2d 467, 471 (2008) (citing Estate of Taylor v. Flair Property Assocs., 248 Va. 410, 414, 448 S.E.2d 413, 414 (1994)). In the context of construction cases, two common methods for calculating damages for breach of contract have been recognized by the Virginia Supreme Court: the “cost rule,” calculating damages as “the cost of correcting the defects in the construction and making it conform to the terms of the contract;” and, the “value rule,” calculating damages as the “difference between the value of the structure” completed in accordance with the terms of the contract, and the defective structure as-built. Id. at 89, 661 S.E.2d at 472. The Supreme Court of Virginia has observed that use of the “cost rule” is most often appropriate, except where the cost to repair would involve unreasonable economic waste. Lochaven Co. v. Master Pools by Schertle, Inc., 233 Va. 537, 543, 357 S.E.2d 534, 538 (1987).
Liquidated damages clauses are permissible where “the actual damages contemplated at the time of the agreement are uncertain and difficult to determine with exactness and when the amount fixed is not out of all proportion to the probable loss,” but are construed as an unenforceable penalty when the damage resulting from a breach of contract can be measured or where the stipulated amount would be grossly in excess of actual damages. Boots, Inc. v. Prempal Singh, 274 Va. 513, 517, 649 S.E.2d 695, 697 (2007).
Unless it is illegal or violative of public policy, the contract supplies the “law” that governs the parties’ rights and obligations. McDevitt & Street Co. v. Marriott Corp., 713 F.Supp. 906, 914 (E.D.Va. 1989) aff’d in part, rev’d in part on other grounds, and remanded 911 F.2d 723 (4th Cir. 1990) (unpublished); Charles E. Russell Co. v. Carroll, 194 Va. 699, 703, 74 S.E.2d 685, 687-88 (1953).
When an owner delays a contractor’s performance or a prime contractor delays a subcontractor’s performance, the delayed party is generally entitled to recover its additional costs resulting from that delay, even where the contract provides for an extension of time for owner-caused delays. U.S. ex rel. Virginia Beach Mechanical Services, Inc. v. SAMCO Const. Co., 39 F.Supp. 2d 661 (E.DVa. 1999); Halco Engineering, Inc. v. Com., 27 Va.Cir. 111, 1992 WL 884473 (1992).
Where a contract does not specify liquidated damages for delay, an owner may recover those damages that directly and naturally flow from the delays, plus consequential damages, or those that arise from reasonably foreseeable special circumstances. McDevitt & Street Co. v. Marriott Corp., 713 F.Supp. 906 (E.D.Va. 1989). Such delay damages are calculated as the rental value of the completed structure for the delay period or the reasonable return for that period on the completed structure treated as an investment. Roanoke Hospital Ass’n v. Doyle & Russell, Inc., 215 Va. 796, 214 S.E.2d 155 (1975); Pennsylvania State Shopping Plazas, Inc. v. Olive, 202 Va. 862, 120 S.E.2d 372 (1961).
Virginia enforces liquidated damages clauses except where they would constitute a penalty or create a forfeiture. 301 Dahlgren Ltd. Partnership v. Board of Supervisors, 240 Va. 200, 396 S.E.2d 651 (1990); [[http://scholar.google.com/scholar_case?case=6963847757555194914&q=Taylor+v.+Sanders,+233+Va.+73,+353+S.E.2d+745+(1987).&hl=en&as_sdt=4,47|Taylor v. Sanders, 233 Va. 73, 353 S.E.2d 745 (1987).
The Virginia Supreme Court has recognized the Eichleay Formula as an acceptable method, though not the only possible method, of calculating the portion of a plaintiff’s expenses attributable to delay. Fairfax County Redevelopment and Housing Authority v. Worcester Bros. Co., 257 Va. 382, 389-90, 514 S.E.2d 147, 151 (1999) (“The Eichleay Formula is not a legal standard that must be formally approved or adopted; rather, it is merely a mathematical method of prorating a contractor’s total overhead expenses for a particular contract.”). Because the calculations reached through the Eichleay Formula are “intelligent and probable estimates” of actual damages, they may be used whether or not the parties contemplated their use when reading their original agreement. Id.
Prompt Pay Act
Prompt payment requirements have been adopted into the Virginia Public Procurement Act, Va. Code Ann. § 2.2-4347 et seq. Under § 2.2-4350-52 of this Act, agencies are required to pay for delivered goods and services by the required due date, as established by the terms of the contract. Id. If the contract includes no payment terms, then payment is due 45 days after receipt of a proper invoice, or 45 days after receipt of the goods or services, whichever is later. Id.
Measure of Damages to Real Property
“The measure of damages for permanent injury to property is the diminution in the market value of the property, viz., the difference between the market value of the property before and after the injury.” 7-Eleven, Inc. v. Department of Environmental Quality, 42 Va.App. 65, 100, 590 S.E.2d 84, 101 (2003)(citing Packett v. Herbert, 237 Va. 422, 377 S.E.2d 438 (1989) Douthat v. Chesapeake & Ohio Ry. Co., 182 Va. 811, 30 S.E.2d 578 (1944); Norfolk & Western Ry. Co. v. Richmond Cedar Works, 160 Va. 790, 170 S.E. 5 (1933); Raleigh Court Corp. v. Faucett, 140 Va. 126, 124 S.E. 433 (1924)). “When permanent damages are awarded or temporary damages exceed the value of the property, temporary damages are not appropriate because an award for both would constitute a duplicative recovery.” Averett v. Shircliff, 218 Va. 202, 207-08, 237 S.E.2d 92, 95-96 (1977). “Where evidence of repair and depreciated value after repairs exists, the proper measure of damages is the lower of 1) the difference in the fair market value of the property before and after the accident, or 2) if the property could be restored to its former condition, the cost of repairs, plus applicable depreciation.” Id.
Punitive damages are defined by the Virginia Supreme Court as “damages imposed [ ] upon a wrongdoer who has acted wantonly, oppressively, or recklessly, or with such negligence as evinces a disregard of the right of others, or criminal indifference to civil obligations,” Baker v. Marcus, 201 Va. 905, 908, 114 S.E.2d 617, 620 (1960), for the purposes of protecting the public, punishing the defendant, to warn and deter the defendant and others from committing similar offenses, and to compensate losses sustained by the plaintiff. Diaz Vicente v. Obenauer, 736 F.Supp. 679, 695 (E.D.Va. 1990) (internal quotations omitted); Sperry Rand Corp. v. A-T-O, Inc., 459 F.2d 19, 21 (4th Cir.), cert. denied, 409 U.S. 892 (1972).
Punitive damages will only be awarded if they are specifically requested in the plaintiff’s complaint or motion for judgment. Park v. Shiflett, 250 F.3d 843 (4th Cir. 2001). With some exceptions, Virginia courts require that nominal or compensatory damages must exist for a jury to award punitive damages. Valley Acceptance Corp. v. Glasby, 230 Va. 422, 337 S.E.2d 291 (1985); Poulston v. Rock, 251 Va. 254, 467 S.E.2d 479 (1996) (holding that punitive damages may be awarded in defamation per se cases without compensatory damages). An award of punitive damages must bear a reasonable relation to the award of compensatory damages. Oxenham v. Johnson, 241 Va. 281, 402 S.E.2d 1 (1991).
In Virginia, a prevailing party is not entitled to its attorney’s fees absent a contract or statutory provision allowing such. West Square, L.L.C. v. Communication Technologyies, Inc., 274 Va. 425, 649 S.E.2d 698 (2007). Where attorney’s fees are allowed, the prevailing party has the burden of presenting a prima facie case that the requested fees are reasonable and were necessary. Id.; Chawla v. BurgerBusters, Inc., 255 Va. 616, 623, 499 S.E.2d 829, 833 (1998); Mullins v. Richland National Bank, 241 Va. 447, 403 S.E.2d 335 (1991)(suggesting a consideration of “such circumstances as the time consumed, the effort expended, the nature of the services rendered, and other attending circumstances”). Expert opinion is utilized to prove the reasonableness of requested attorney’s fees. Mullins, 241 Va. at 449, 403 S.E.2d at 335.
Under Virginia law, when two or more tortfeasors cause a single indivisible injury to a third-party and “it is impossible to determine in what proportion each contributed to the injury,” then an individual tortfeasor can be held liable for the entire injury. Gross v. Shearson Lehman Brothers Holdings, Inc., 43 Fed.Appx. 672, 677 (4th Cir. 2002) (citing Dickenson v. Tabb, 208 Va. 184, 156 S.E.2d 795, 801 (1967)). When the injury is divisible, however, liability must be allocated based on the amount of injury each tortfeasor’s actions caused the third-party. Id.
Virginia is a contributory negligence jurisdiction.
To sustain a cause of action for actual fraud, a plaintiff must prove (1) a false misrepresentation, (2) of a material fact, (3) made intentionally and knowingly, (4) with intent to mislead, (5) reliance by the party misled, and (6) resulting damage to the party misled. Cohn v. Knowledge Connections, Inc., 266 Va. 362, 367, 585 S.E.2d 578, 581 (2003). The misrepresentation must regard an existing fact, not merely an opinion. Id. at 368, 585 S.E.2d 578, 582. A cause of action for constructive fraud differs only in that the misrepresentation need not be made with the intent to mislead, but rather innocently or negligently. Id. at 369, 585 S.E.2d at 582. Fraud may also be shown by a defendant’s knowing and deliberate decision not to disclose a material fact. Id. at 367, 585 S.E.2d at 581. A misrepresentation or concealment of fact made subsequent to or after formation of a contract cannot constitute fraudulent inducement to enter into the contract. Ware v. Scott, 220 Va. 317, 320, 257 S.E.2d 855, 857 (1979).
Consequential damages are recoverable only if it is determined as a matter of fact that the special circumstances which caused the consequential damages were not ordinarily predictable but were within the parties’ contemplation at the time the contract was formed. McDevitt & Street Co. v. Marriott Corp., 713 F.Supp. 906 (E.D.Va. 1989). The “parties’ contemplation” is deemed to include results of a breach which are both actually foreseen and reasonably foreseeable under the circumstances known to the parties. Id.; Virginia Polytechnic Inst. & State Univ. v. Interactive Return Serv., Inc., 267 Va. 642, 595 S.E.2d 1 (2004). Special circumstances are deemed reasonably foreseeable where a reasonable person in the same situation could have foreseen the special circumstances. Roanoke Hosp. Ass’n v. Doyle & Russell, Inc., 215 Va. 796, 214 S.E.2d 155 (1975).
Delay and Disruption Damages
Where a contract specifically states that “time is of the essence,” a contractor’s unexcused delay in performing under the contract constitutes a breach of contract. McDevitt & Street Co. v. Marriott Corp., 713 F.Supp. 906 (E.D.Va. 1989). Except where a contract includes a provision allowing excusable delays, delays caused by bad weather, fire, etc. are not excused where there is an express “time is of the essence” provision. Sands & Oliver v. Quigg, 111 Va. 476, 69 S.E. 440, 441 (1910).
Unless a contract fixes the owner’s damages for delay through a liquidated damages clause, the owner is entitled to recover both direct damages and consequential damages. McDevitt & Street Co. v. Marriott Corp., 713 F.Supp. 906 (E.D.Va. 1989). The measure of an owner’s delay damages is either the rental value of the completed structure for the delay period or the reasonable return for that period on the completed structure treated as an investment. Roanoke Hospital Ass’n v. Doyle & Russell, Inc., 215 Va. 796, 214 S.E.2d 155 (1975); Pennsylvania State Shopping Plazas, Inc. v. Olive, 202 Va. 862, 120 S.E.2d 372 (1961). Liquidated damages clauses are enforced unless the amount of liquidated damages would constitute a penalty or would create a forfeiture. 301 Dahlgren Ltd. Partnership v. Board of Supervisors, 240 Va. 200, 202-03, 396 S.E.2d 651, 653 (1990); Estate of Taylor v. Flair Property Associates, 248 Va. 410, 448 S.E.2d 413 (1994); Taylor v. Sanders, 233 Va. 73, 75, 353 S.E.2d 745, 747 (1987).
When the owner delays the contractor’s performance of the work, the contractor is entitled to recover its additional costs resulting from that delay. U.S. ex rel. Virginia Beach Mechanical Services, Inc. v. SAMCO const. Co., 39 F.Supp.2d 661 (E.D. Va. 1999). “Damages are to be measured by the direct cost of all labor and material . . . plus fair and reasonable overhead expenses properly chargeable . . . during the reasonable time required” to complete performance. Fairfax County Redevelopment and Housing Authority v. Worcester Bros. Co., Inc., 257 Va. 382, 514 S.E.2d 147 (1999).
Contractual Limitations on Liability and Damages
Exculpatory Clauses/ Indemnification Clauses
In the context of business negotiations, Virginia courts generally permit contractual provisions between two entities whereby one party is indemnified against losses incurred as a result of personal injury caused by its own future negligence, finding such provisions enforceable and not in violation of public policy. Estes Exp. Lines, Inc. v. Chopper Exp. Inc., 273 Va. 358, 641 S.E.2d 476 (2007); W.R. Hall, Inc. v. Hampton Roads Sanitation Dist., 273 Va. 350, 356, 641 S.E.2d 472, 475 (citing Shuttleworth Ruloff & Giordano, P.C. v. Nutter, 254 Va. 494, 498, 493 S.E.2d 364, 366 (1997) (“The law looks with favor upon the making of contracts between competent parties upon valid consideration and for lawful purposes.”)).
However, under Va. Code Ann. § 11-4.1, indemnification clauses contained within construction contracts in which the contractor purports to indemnify another party to the contract for damage arising from injury to the person or property resulting entirely from the negligence of the other party are deemed against public policy and are void and unenforceable.
Unlike indemnification clauses, exculpatory clauses, such as pre-injury releases, are considered against public policy and are thus void and unenforceable. Estes Exp. Lines, Inc., 273 Va. at 364-66, 641 S.E.2d at 478-79; Hiett v. Lake Barcroft Community Ass'n, 244 Va. 191, 196, 418 S.E.2d 894, 897 (1992) (citing Johnson’s Adm’x v. Richmond & D.R. Co., 86 Va. 975, 11 S.E. 829 (1890) (“To uphold the [exculpatory clause] in question would be to hold that it was competent for one party to put the other parties to the contract at the mercy of its own misconduct, which can never be lawfully done where an enlightened system of jurisprudence prevails. Public policy forbids it, and contracts against public policy are void.”)).
No Damage for Delay Clause
While Virginia cases regarding the enforceability of “no damage for delay clauses” are limited, when faced with such clauses, Virginia courts have generally suggested that such clauses should be recognized and enforced. Blake Construction Co., Inc. v. Upper Occoquan Sewage Authority, 266 Va. 564, 572-73, 587 S.E.2d 711, 716 (2003); Gordonsville Energy, L.P. v. Virginia Electric & Power Co., 257 Va. 344, 512 S.E.2d 811 (1999). But see McDevitt & Street Co. v. Marriott Corp., 713 F.Supp. 906 (E.D.Va. 1989) (suggesting that unreasonable, intentional or fraudulent delay may preclude the enforcement of a “no damages for delay” clause); Algernon Blair, Inc. v. Norfolk Redevelopment & Housing Authority, 200 Va. 815, 108 S.E.2d 259 (1959). However, with regards to public construction contracts, Section 2.2-4335(A) of the Virginia Public Procurement Act provides that, “any provision contained in any public construction contract that purports to waive, release, or extinguish the rights of a contractor to recover costs or damages for unreasonable delay in performing such contract . . . if and to the extent the delay is caused by acts or omissions of the public body . . . shall be void and unenforceable as against public policy.” Va. Code Ann. § 2.2-4335(A); Martin Bros. Contractors, Inc. v. Virginia Military Institute, 277 Va. 586, 675 S.E.2d 183 (2009).
Limitation on Consequential Damages Clause
Virginia generally recognizes a privilege to contractually limit liability for consequential damages. Envirotech Corp v. Halco Engineering, Inc., 234 Va. 583, 364 S.E.2d 215 (1988). In the context of contracts for the sale of goods, this privilege is narrowed to exclude limitations or exclusions which are unconscionable. Va. Code Ann. § 8.2-719. The limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not prima facie unconscionable. Id.
Intervening and Superseding Causes
A proximate cause occurring subsequent to the defendant’s negligent act may relieve the defendant of liability for his negligence if “the negligence intervening between the defendant’s negligent act and the injury [ ] so entirely supersedes the operation of the defendant’s negligence that it alone, without any contributing negligence by the defendant in the slightest degree, causes the injury.” Williams v. Le, 276 Va. 161, 167, 662 S.E.2d 73, 77 (2008) (citing Atkinson v. Scheer, 256 Va. 448, 454, 508 S.E.2d 68, 71 (1998)). An intervening act will never be considered a superseding cause if the intervening act was set in motion by the initial tortfeasor’s negligence. Williams v. Joynes, S.E.2d, 2009 WL 1566833 (Va. 2009) (citing Philip Morris Inc. v. Emerson, 235 Va. 380, 397, 368 S.E.2d 268, 277 (1988)).
Failure to Mitigate
In Virginia, the plaintiff has the duty of using all ordinary care and making all reasonable exertions to mitigate its damages. Hannah v. Dusch, 154 Va. 356, 153 S.E.2d 824 (1930). The burden rests with the party asserting the duty to mitigate damages to establish the existence of the duty and the failure to meet such duty. Fox-Sadler v. Norris Roofing Co., 229 Va. 106 (1985). The plaintiff has no duty to mitigate damages where it has no reason to know that the breach of contract will cause injury. Id.
Economic Loss Doctrine
Virginia strictly adheres to the economic loss doctrine, mandating that any remedy for disappointed economic expectations assumed only by agreement be provided under the law of contracts and not the law of torts. Filak v. George, 267 Va. 612, 618, 594 S.E.2d 610, 613 (Va. 2004). Thus, damages for purely economic losses – as opposed to damages for injury to property or persons – cannot be recovered in a negligence based tort claim. Blake Construction Co. v. Alley, et al., 233 Va. 31, 353 S.E.2d 724 (1987). The economic loss doctrine extends to actions regarding real property, home sales, and home construction, and precludes all liability for economic loss damages caused by negligent performance of a contract in the absence of privity. Gerald M. Moore & Son, Inc. v. Drewry, 251Va. 277, 280, 467 S.E.2d 811,813 (1996); Sensenbrenner v. Rust, Orling & Neale, Architects, Inc., 374 S.E.2d 55 (Va. 1988); Blake Construction Co., 233 Va. 31, 252 S.E.2d 724.
While Virginia courts have followed the Spearin Doctrine for many years, See, e.g., T.S. Southgate v. Sanford and Brooks Co., 147 Va. 554, 562, 137 S.E. 485, 487 (1927) (“[A] building contractor cannot be held responsible [for a design defect], for it is his duty to follow the plans and specifications furnished as his guide by the architect as the agent of the owner.”), recent decisions have recognized and enforced contractual provisions which shift design liability to contractors. D.C. McClain v. Arlington County, 249 Va. 131, 452 S.E.2d 659 (1995); Modern Continental South v. Fairfax County Water Authority, 72 Va. Cir. 268, 2006 WL 3775938, 4 (Va.Cir.Ct. 2006) (interpreting the Virginia Supreme Court’s statement in Greater Richmond Civic Recreation, Inc. v. A.H. Ewing’s Sons, Inc., 200 Va. 593, 596, 106 S.E.2d 595, 597 (1959), that the Spearin Doctrine applies “in the absence of negligence on the contractor’s part, or any express guarantee or warranty by him as to their being sufficient or free from defects,”, to imply that the Spearin Doctrine does not apply where a construction contract required the contractor to verify details in the “drawings” and to give notice of all “errors, omissions, conflicts and discrepancies”).
Under Virginia Code § 65.2-307, “an employee subject to the provisions of the Worker’s Compensation Act cannot file an independent tort action against his employer or any fellow employee for injuries received in the course of employment.” Hudson v. Jarrett, 269 Va. 24, 29, 606 S.E.2d 827, 829 (2005). In such cases, the Virginia Workers’ Compensation Act is the employee’s exclusive remedy against personal injuries caused by his employer or fellow employees.
An employer, acting as a general contractor, qualifies for immunity as to the employees of a subcontractor where it “contracts with another to perform all or part of the employer’s trade, business or occupation.” Hudson, 269 Va. at 29, 606 S.E.2d at 830. In such a situation, the employer is deemed the “statutory employer of the employees of such other subcontractor.” Id. at 29-30, 606 S.E.2d at 830. Additionally, “employees of different subcontractors who are working on the same project and are also engaged in the general contractor’s trade, business, or occupation are considered statutory fellow employees and are entitled protection from an independent tort action for injuries.” Id. (citing Pfeifer v. Krauss Constr. Co., 262 Va. 262, 266-67, 546 S.E.2d 717, 719 (2001)).
Pre-Suit Notice of Claim for Duty to Cure
Virginia law imposes no duty to provide pre-suit notice of claim for duty to cure.
Whether interest should be awarded, and from what date interest should run, are matters within the sound discretion of the trial court. Code § 8.01-382; Skretvedt v. Kouri, 248 Va. 26, 36, 445 S.E.2d 481, 487 (1994). The decision to award pre-judgment interest is discretionary with the trier of fact, while the application of post-judgment interest for all money judgments is mandatory. Upper Occoquan Sewage Authority v. Blake Const. Co., Incorporated/Poole & Kent, 275 Va. 41, 63, 655 S.E.2d 10, 23 (2008).
“Work Product” Exclusion
Under the terms of a CGL policy, when the completed operation of the insured causes injury to a person or damage to property, the policy applies unless the injury is to the completed operation itself. Nationwide Mut. Ins. Co. v. Wenger, 222 Va. 263, 269, 278 S.E.2d 874, 877 (1981)
“Your Work” Exclusion
Virginia Courts have ruled that CGL policies stating that “‘[p]roperty damage’” excluded from coverage . . . includes property damage to ‘that particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it,’” are not ambiguous and apply to exclude property damage to the insured’s own work. Pulte Home Corp. v. Fidelity and Guar. Ins. Co., 2004 WL 516216, 4 (citing Nationwide Mut. Ins. Co. v. Wenger, 222 Va. 263, 278 S.E.2d 874 (1981)). The Supreme Court of Virginia has further held that “since [a] contractor can control the quality of his own work, it is fair to hold him liable when the work is faulty ... the risk that the contractor may incur liability under warranty is a normal part of doing business.” Nationwide Mut. Ins. Co. v. Wenger, 222 Va. 263, 267, 278 S.E.2d 874, 876 (1981).
The Supreme Court of Virginia has defined an “occurrence” as an accident, Norman v. Ins. Co. of N. Am., 218 Va. 718, 239 S.E.2d 902 (1978), or “event that takes place without one’s foresight or expectation, an un-designed, sudden, and unexpected event.” Harris v. Bankers Life and Cas. Co., 222 Va. 45, 46, 278 S.E.2d 809, 810 (1981) (quoting Ocean Accident, etc. Corp. v. Glover, 165 Va. 283, 285, 182 S.E. 221, 222 (1935)). Thus, defective workmanship does not constitute an “occurrence” under a CGL contract, “as faulty workmanship by the insured is almost always foreseeable.” Pulte Homes Corp. v. Fidelity and Guar. Ins. Co., 2004 WL 516216, 5 (1981).
Errors and Omissions
Errors and omissions policies, also known as professional liability policies, generally cover acts or omissions arising out of the provision of, or the failure to provide, professional services by the insured. Town Crier, Inc. v. Hume, 721 F.2d 421 (4th Cir. 1984). Courts generally refer to the nature of the omission or activity in question in determining whether conduct falls within the coverage grant of an Errors and Omissions policy. It is well settled in Virginia that a “negligent act, error, or omission” requirement in a professional liability insurance policy precludes an insurer’s duties to defend and indemnify when the insured is sued for intentional torts. Transcontinental Ins. Co. v. Caliber One Indem. Co., 367 F.Supp.2d 994, 1002 (E.D.Va. 2005).
Insurer’s Duty to Defend
“[T]he obligation to defend is broader than the obligation to pay, and arises whenever the complaint alleges facts and circumstances, some of which would, if proved, fall within the risk covered by the policy.” Virginia Elec. and Power Co. v. Northbrook Property and Cas. Ins. Co., 252 Va. 265, 269, 475 S.E.2d 264, 265-66 (1996); See also Granite State Ins. Co. v. Bottoms, 243 Va. 228, 233, 415 S.E.2d 131, 134 (1992) (“[W]hen an insurer owes coverage, ipso facto it has a duty to defend.”) (citing Brenner v. Lawyers Title Ins. Corp., 240 Va. 185, 189, 297 S.E.2d 100, 102 (1990)). “However, if it appears clearly that the insurer would not be liable under its contract for any judgment based upon the allegations, it has no duty to defend.” Brenner, 240 Va. at 189, 297 S.E.2d at 102. Where coverage is doubtful, the refusal of the insurer to defend is made at his own risk, and if it is later shown that the claim is covered by the policy, the insurer is necessarily liable for breach of its covenant to defend. Virginia Elec. and Power Co., 252 Va. at 269, 475 S.E.2d at 265-66 (citing London Guar. Co. v. White & Bros., Inc., 188 Va. 195, 199-200, 29 S.E.2d 254, 256 (1940)). An insurance company that breaches a covenant to defend is liable for the amount of judgment up to the policy limits and any reasonable amount expended by the insured for attorney’s fees. See Brenner v. Lawyers Title Ins. Corp., 240 Va. 185, 189, 397 S.E.2d 100, 102 (1990) (an insurance company refusing to defend a covered claim “necessarily is liable for breach of its covenant to defend”); Combs v. Hunt, 140 Va. 627, 641, 125 S.E.661, 666 (1924) (“[A] refusal on the part of the [insurer] to defend a suit against the assured constitutes a breach of its contract and makes it liable to the assured for the damages he may suffer.”). An insurer thus breaching its duty has waived its right to challenge the reasonableness of the amount of judgment absent proof of fraud or collusion, Liberty Mut. Ins. Co. v. Eades, 248 Va. 285, 289, 448 S.E.2d 631, 633 (1994), but has not waived its right to challenge the reasonableness of defense attorney fees, Jefferson-Pilot Fire & Cas. Co. v. Boothe, Prichard & Dudley, 638 F.2d 670, 675-76 (4th Cir. 1980).
An insurer’s duty to defend extends to the entirety of any suit against the insured, regardless of whether the defense costs may be reasonably apportioned between covered and non-covered damages. Morrow Corp. v. Harleysville Mut. Ins. Co. 110 F.Supp.2d 441 (E.D.Va. 2000) (“[B]ecause of the insurer’s absolute duty to protect the insured’s interests, the insurer must provide a defense for the entire claim against the insured.”
Additional Insured Endorsements
Under the terms of a standard CGL policy, a “your work” exclusion applies to an Additional Insured where the contract includes a “Contractors Extension Endorsement” expressly excluding coverage to an Additional Insured for property damage stemming from the Named Insured’s defective workmanship performed for the Additional Insured. Pulte Home Corp. v. Fidelity and Guar. Ins. Co., 2004 WL 516216, 5 (Va.Cir.Ct. 2004).
In State Farm Fire and Cas. Co. v. Walton, 224 Va. 498, 423 S.E.2d 188 (1992), the Virginia Supreme Court found that where a “Duties After Loss” clause requires that the “insured” provide written notice of an occurrence as soon as possible after the occurrence transpires, that duty also applies to an Additional Insured. Id. at 503, 423 S.E.2d at 191. Where such a requirement is violated by the Additional Insured, the Additional Insured is not entitled to coverage. Id. at 505, 423 S.E.2d at 192.
Trigger of Coverage
The Virginia Supreme Court has not adopted any of the four general “trigger theories” adopted by most other states, rather considering the issue on a case-by-case basis.
Where two insurers attempt to limit their liability to excess coverage where other insurance exist, the clauses are irreconcilable and both must be disregarded, with the result that neither policy provides primary coverage for the loss in question and pro rata distribution between the policies is appropriate. State Capital Ins. Co. v. Mutual Assur. Soc. Against Fire on Bldgs., 218 Va. 815, 241 S.E.2d 759 (1978). This policy has been deemed “especially applicable” where multiple policies, in anticipation of possible conflicts in “other insurance” clauses, expressly provide for pro rata coverage. Aetna Cas. & Sur. Co. v. National Union Fire Ins. Co., 233 Va. 49, 353 S.E.2d 894 (1987).
Act of God
Virginia law defines an “act of God” as “such an unusual and extraordinary manifestation of the forces of nature that it could not under normal conditions have been anticipated or expected.” Ellerson Floral Co. v. Chesapeake and O. Ry. Co., 149 Va. 809, 141 S.E. 834 (1928). However, the act of God must be the “sole proximate cause of the injury,” and where any human actions are considered to have contributed to the “cause of mischief,” such an event cannot be considered an act of God. Cooper v. Horn, 248 Va. 417, 425, 448 S.E.2d 403, 407-08 (1994).
Parties may contractually avoid the release of liability stemming from an act of God; however, absent such a contractual commitment, a party cannot be held liable for damages flowing from delays caused by an act of God. Doyle & Russell, Inc. v. Welch Pile Driving Corp., 213 Va. 698, 700, 194 S.E.2d 719, 721 (1973) (“Absent a contractual commitment to the contrary, a general contractor cannot be held liable to its subcontractor for damages flowing from delays incurred by the subcontractor unless the delays were caused by the general contractor or some agency or circumstance under his direction or control.”).
Mechanic’s or Materialmen’s Liens are governed by Virginia Code §43.
After a foreclosure sale, priority determines which lien gets paid first, and which lien survives the sale of property or bankruptcy. In Virginia, a mechanic’s or materialmen’s lien may have the highest priority of any in the United States.
A party claiming a materialmen’s lien will have priority over a construction loan bank, and will survive a foreclosure or any other sale of the property. Bankruptcy will not defeat lien rights. McCoy v. Chrysler Condo Developers Ltd. Partnership, 239 Va. 321, 380 S.E.2d 905 (1990).
The mechanic’s or materialmen’s lien statute is strictly construed by Virginia courts. A claimant must take care to follow every legal requirement or the lien will be invalid.
Virginia has a “defense of payment” rule, which means an owner is only required to pay for a project once. The owner can keep making legitimate payments until receipt of notice of a materialmen’s lien from a subcontractor. If an owner has already paid for the project, any materialmen’s liens will fail. Maddux v. Buchanan, 121 Va. 102, 92 S.E. 830 (1917).
It is incumbent upon the owner to prove that he has paid for the project in full before any materialmen’s liens will fail. Va. Code. Anno. §43-7(A).
Generally, the timing of various liens will determine their priority.
All contractors on residential property must give the Mechanic’s Lien Agent notice by certified mail within thirty days of beginning supply of labor or materials.
Generally, all contractors must file mechanics liens in land records within ninety (90) days of the final supply of labor and/or materials.
Finally, all contractors must enforce a lien by filing a lawsuit within six months after the lien is filed.
Mechanic’s Lien (Materialmen’s Lien)
The purpose of the mechanic’s lien is to provide a contractor who has furnished labor or materials adding to a property’s value a remedy for the collection of his debt. The security for the debt owed the contractor is the property to which the lien attaches.
In Virginia, liens created by the mechanic’s lien statute must be perfected in the manner and within the time limitations specified in the statutes. United Masonry Inc. of Virginia v. Riggs Nat’l Bank of Washington, D.C., 233 Va. 476, 357 S.E.2d 509 (1987).
Where there are questions concerning the existence and perfection of a mechanic’s lien, the mechanic’s lien statutes will be strictly construed. Roundtree, L.L.C. v. RAM Development Corp., 45 Va. Cir. 458, 459 (1998).
The Virginia Supreme Court has justified strict interpretation of the mechanic’s lien statutes on public policy grounds, noting that the aim of the statutory scheme is to aid the contractor while protecting the property owner from abuse. Thus, each step of the statutory process must be carefully followed since omitting any step will prove fatal to the lien. Woodington Electric v. Lincoln Savings, 238 Va. 623, 385 S.E.2d 872 (1989).
Even if a lien claimant acquires a mechanic’s lien on property, and properly enforces the lien, he may not receive compensation where there are multiple claimants. Recovery is subject to priority status.
Code of Virginia §43-23 provides that there is no priority among lienors of equal status. Therefore, where three subcontractors file mechanic’s liens on the same piece of property, the mechanic’s lienor filing first has no priority to payment over the other two mechanic’s lienors.
However, §43-23 does provide that the lien of a subcontractor is preferred to that of his general contractor; the lien of a sub-subcontractor is preferred to a subcontractor; and liens filed by persons performing manual labor will have priority over materialmen to the extent of the labor performed during the thirty days immediately preceding the date of the last labor performance.
A mechanic’s lien has priority over a prior deed of trust on the property as to any improvements on the property.
Public Property Exception
A mechanic’s lien cannot be filed against public property. This affects structures built on public property pursuant to a contract with the United States or the Commonwealth of Virginia or any of its political subdivisions or agencies such as cities, counties, water and sewer authorities, schools, parks, etc. Phillips v. The Rector and Visitors of the University of Virginia, 97 Va. 472, 34 S.E. 66 (1899).
Enforcement of the Mechanic’s Lien
Under Code of Virginia §43-22, the only method for enforcing a mechanic’s lien is a lawsuit. The lienor must file with the complaint an itemized statement of his account, showing the amount and nature of work performed and/or materials furnished, the prices charged for them, any payments made, the balance due, and the time from which interest is claimed. The accuracy of this account must be verified by an affidavit of the lienor himself or his agent.
Failure to furnish an itemized bill is ineffective and does not constitute proper filing of suit so as to toll the statute of limitations.
In addition to alleging all facts necessary to enforce the mechanic’s lien previously filed on the property, the complaint may also state other causes of action against the same defendant, such as breach of contract. Once the matter is submitted to the court, the court has jurisdiction to hear all such claims.
Section 43-22 prescribes that suit be filed in the circuit court in the county or city where the building structure or some part thereof is situated, or where any owner of the property resides.
Section 43-17 provides that any suit to enforce a mechanic’s lien must be brought within six months from the date the memorandum of lien was recorded or within sixty days from the time the building was completed, or the work otherwise terminated, whichever occurs latest. The statute further provides that “nothing herein shall extend the time within which such lien may be perfected.” Therefore, since failing to file suit to enforce the lien within the proper time is a bar to enforcement, it is vital that the mechanic’s lienor comply with this time requirement. Further, it is essential that all necessary parties are named in the suit before the statute of limitations has run because if a necessary party is added after the statute of limitations has run, the mechanic’s lien suit is subject to dismissal as being time-barred. Mendenhall v. Douglas L. Cooper, Inc., 239 Va. 71, 387 S.E.2d 468 (1990).
“Necessary parties” to a suit to enforce a mechanic’s lien include (i) the owner, (ii) the general contractor, (iii) other mechanic’s lienors, (iv) all judgment or lien creditors, and (v) trustees under all deeds of trust or other security agreements.
Code §43-71 provides that sureties on any bond filed to secure the release of a mechanic’s lien are necessary parties which must be made parties to such suit.
The general contractor must send notice of its memorandum of mechanic’s lien to the owner of the property. Specifically, Code §43-4 states, “A lien claimant who is a general contractor also shall file along with the memorandum of lien, a certification of mailing of a copy of the memorandum of lien on the owner of the property at the owner’s last known address.”
The subcontractor, in addition to filing the memorandum, must give notice in writing to the owner, or his agent, of the property of the amount and character of the claim. Notice should be served within the filing period, and may be effected by any sheriff, constable, or by certified or registered mail with a return receipt. See Va. Code Ann. §43-14.1.
The sub-subcontractor files his lien under Code §43-9 in a manner very similar to that of the subcontractor. The sub-subcontractor must also send notice to the owner of the property, or his agent, and to the general contractor, or his agent, of the amount and character of his claim.
Code §43-4.01 provides for special notice requirements for residential dwelling units. The additional procedures provided for by §43-4.01 require that a lien claimant give notice to the mechanics’ lien agent within thirty (30) days of first performing labor or providing materials to the project.
At the applicant’s request, a building permit for any one- or two-family residential dwelling unit shall designate a mechanic’s lien agent. When the permit designates an agent, the permit must contain the name, mailing address and telephone number of the agent. An applicant for a one- or two-family residential dwelling unit, however, is not required to designate an agent. The permit would then provide that no agent has been designated.
The building permit for any one- or two-family residential dwelling unit must be posted on the property for which the permit is issued until all work is completed. The permit must be up before work begins, and before any materials are furnished on the property for which the permit is issued. Va. Code Ann. §43-4.01(A).
All persons claiming a mechanic’s lien with respect to a one- or two-family residential dwelling unit must notify the agent designated on the permit. The notice must be furnished within thirty (30) days of the first date that the mechanic performs labor or furnishes material to or for the building, or within thirty (30) days from the date the permit is issued, if such labor or materials are first performed or furnished prior to the issuance of the permit. Va. Code Ann. §43-4.01(C).
The notice must be furnished by registered or certified mail, or by physical delivery, and must contain the following information: (a) the name, mailing address, and telephone number of the person giving the notice; (b) the building permit number designated on the building permit; (c) a description of the property; and (d) a statement that the person filing the notice seeks payment for labor performed or materials furnished.
No person is required to notify the agent where either: (a) a memorandum of mechanic’s lien is recorded prior to the issuance of the building permit; (b) the building permit does not designate a mechanic’s lien agent; or (c) a mechanic’s lien claimant is claiming a lien under Code §4303(b). Va. Code. Ann. §43-4.01(C).
Performance Bonds/Payment Bonds
With a payment bond, the surety provides security that all persons supplying labor and material to the project will be paid. Subcontractors and suppliers are the “beneficiaries” of a payment bond. They do not require the bond. They are not parties to the bond, but are third-party beneficiaries. However, the payment bond ensures that subcontractors and suppliers will be paid so that the obligee will not be held responsible for payments due if the principal fails to pay. If the principal defaults, beneficiary subcontractors and suppliers usually have the right to sue the surety directly for payment.
With a performance bond, the surety provides security that the principal will perform all of its contract obligations in a timely and workmanlike manner.
Usually, a performance bond is only for the benefit of the obligee/owner of the construction project. If the principal defaults, the obligee/owner can require the surety to complete the project or to pay for the costs of completion. Subcontractors do not have the right to seek payment from the performance bond surety if the principal defaults. A general contractor can require a subcontractor to obtain a performance bond as security that the subcontract will be completed in a timely and workmanlike manner. In this case, only the obligee/general contractor can require the surety to complete the subcontract work or to pay for the costs of completing the subcontract work.
Mechanic’s Lien Bond
A mechanic’s lien bond is usually provided in connection with a court proceeding by a real estate owner or a general contractor to “bond off” a mechanic’s lien. A real estate owner or a general contractor can remove a mechanic’s lien from the land records by “bonding it off.” The surety promises to pay the mechanic’s lien claimant if the mechanic’s lien is later proven to be valid. The mechanic’s lien claimant is thus provided alternative security for the claim. The claimant no longer has the right to seek payment from the real estate, but can now seek payment from the bond instead.
A surety will claim a contract balance from a property owner on the theory of “subrogation.” If a surety is required to pay a claimant under a payment or performance bond, the surety acquires the rights of the claimant that the surety paid. This is an equitable concept, not dependent on any contractual provision.
If a surety pays a subcontractor in full, the surety can then seek reimbursement by enforcing any rights the subcontractor had, including enforcing an equitable lien against a contract balance held by an owner. However, a subcontractor has no right to enforce this equitable lien against a government owner, because of sovereign immunity.
The surety is also subrogated to the rights of the general contractor. The general contractor is in direct privity of contract with the government and does have the right to sue the government. On this theory, federal courts have allowed a surety to enforce equitable lien rights of the subcontractors, even though the subcontractors would be barred from enforcing these rights themselves because of sovereign immunity.
A surety has better rights than a subcontractor with the ability to avoid sovereign immunity problems. Otherwise, however, the surety’s rights cannot be stronger than the subcontractor’s rights. The equitable rights of unpaid subcontractors in retained funds are superior to the equitable rights of a surety that paid other subcontractors.
Enforcement of Contract Clause
Under the Virginia Uniform Arbitration Agreement “a written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable, and irrevocable, except upon such grounds as exist at law or in equity for the revocation of any contract.” Va. Code § 8.01-581.01. Under Va. Code § 8.01-581.02(B), Virginia courts are authorized to decide questions of arbitrability. Waterfront Marine Const., Inc. v. North End 49ers Sandbridge Bulkhead Groups A, B and C, 251 Va. 417, 468 S.E.2d 894, 897-98 (1996). However, parties may also contractually agree that issues of arbitrability be decided by an arbitrator, and such an agreement will be upheld by Virginia courts. Id. As Virginia public policy favors arbitration and the validity of arbitration agreements, ambiguous arbitration clauses are read in favor of arbitration. TM Delmarva Power, L.L.C. v. NCP of Virginia, L.L.C., 263 Va. 116, 557 S.E.2d 199 (2002).
Under Va. Code Ann. § 8.01-262.1(B), arbitration disputes arising from construction contracts which are to be performed in Virginia are to be resolved in Virginia. Va. Code Ann. § 8.01-252.1(B). Any contract requiring such arbitration to occur outside Virginia is deemed unenforceable and the parties are required to conduct arbitration proceedings in the county or city where the work is to be performed, or another location within the Commonwealth as agreed to by the parties. Va. Code Ann. § 8.01-262.1(B). However, where an arbitration agreement affects interstate commerce, Va. Code Ann § 8.01-262.1(B) is trumped by the Federal Arbitration Act, and the contractually agreed upon location for arbitration applies whether it is in the Commonwealth or not. M.C. Const. Corp. v. Gray Co., 17 F.Supp. 2d 541 (W.D.Va. 1998).
Arbitrators are to be selected and appointed according to the parties’ agreement to arbitrate. Va. Code § 8.01-581.03. Where no method is provided, or the stated method fails, a circuit court shall, upon application of a party, appoint one or more arbitrators. Id. The arbitrators have the power to set the time and place for the hearing, and to issue subpoenas for the production of documents and attendance of witnesses. Va. Code Ann. § 8.01-581.04; Va. Code Ann. § 8.01-581.06. At a hearing the parties are entitled to be heard, to present material evidence, and to cross-examine the other party’s witnesses. Id.
When an arbitration award has been granted, a judgment or decree shall be entered in conformity therewith and be docketed as any other decree in the circuit court in which the arbitration will be or has been conducted. Va. Code Ann. § 8.01-581.09; Va. Code Ann. § 8.01-581.015.