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WCCConnection
CALIFORNIA'S INFRASTRUCTURE EXPANSION
By Ron Stein, Principle Technical Services
WCCC Program Chairman
Over the next 20 years, California's population is projected to grow
from 33 million to 45 million people. California is already the world's
sixth largest economy.
In anticipation of that population growth, the Business, Transportation
& Housing Agency recently prepared this report for Governor Davis.
The report, "Strategic Planning for California's Future Prosperity
& Quality of Life" examines California's infrastructure needs
over the next 20 years.
The report looks at eight "infrastructures", education, energy,
housing, land use, public facilities, technology, transportation and
water. The report concludes that significant changes, upgrades and expansions
need to be implemented in all eight infrastructures to meet the demands
of population growth.
In the next decade alone, it is projected that $100 billion will be spent
for these infrastructures.
The WCCC programs will continue to bring those infrastructure opportunities
to the forefront, as it will be the responsibilities and challenges of
our member companies to perform engineering, procurement and construction
of these infrastructures to meet the demands of the growing California
population.
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WAKE UP AND SMELL THE STACHYBOTRYS
By Ted Bumgardner, Gafcon
An attorney friend of mine recently told me a disturbing story about
an elderly couple who had been forced out of their home. No, this was
not a story about their lost fortunes in Enron. Rather, it was a story
about their nightmare involving a toxic black mold known as stachybotrys.
The couple had purchased this home and had put a substantial chunk of
their retirement savings into it. Built in the mid 1980s, the home had
several defects that were litigated in the mid 1990s. The Homeowner's
Association (HOA) repaired many of the defects using small contractors
and their own handyman, including repairs to the home's siding to stop
some water leakage into a wall cavity. However, a serious mold infestation
in the wall cavity went undetected and has flourished over the last few
years.
The husband, stricken with cancer, currently is undergoing chemotherapy
and is extremely susceptible to infection. His doctor has told him that
returning to the house and exposing himself to the stachybotrys spores
could kill him. The couple is staying with relatives, the HOA is not taking
action and the couple's attorney is contemplating a lawsuit against the
HOA.
Crisis
This couple's story serves as another testament to the current mold crisis
plaguing the building industry. Yet, even as tragic mold stories continue
to multiply, many industry members still insist that there is no real
crisis.
Are we merely overreacting to a forever-existing fungus? We've always
had mold, it's true. We even eat certain types of it. Much of my youth
was spent in the deep woods of east Texas, where often the humidity and
temperature hovered around 100. This sweltering environment served as
a breeding ground for mold. It would grow on the furniture! Mold was no
big deal.
In the last 10 years, however, mold has grown into a big deal. Texas,
as a matter of fact, now takes its mold very seriously. In a recent high-profile
case, a Texas investment banker developed brain damage from toxic mold
and was awarded $32 million in a suit against Farmer's Insurance.
Across the U.S., the mold litigation industry has bloomed like a thriving
colony of aspergillus (another toxic mold). Last year, a federal jury
in California awarded $18.5 million to a homeowner against an insurer
that had denied coverage for mold. Last May, the Delaware Supreme Court
upheld a $1.4 million award to two women whose landlord failed to repair
leaks that resulted in mold growth. In October, a group of homeowners
in Ohio settled for $1.3 million in a mold claim against builders and
contractors. Today, one California law firm claims to have more than 1000
mold-related cases in process.
INSURANCE
The insurance industry is feeling the burn of the mold crisis as well,
perhaps even more so than the building industry. The Independent Insurance
Agents of America (IIAA) recently conducted research on the insurance
implications of toxic mold claims. According to the IIAA's subsequent
report, the issue of toxic mold is "approaching one of hysteria."
Insurers have begun categorizing mold as a toxic substance, forcing contractors
to purchase special coverage for damage and injury caused by mold. Contractors
that don't already have a mold exclusion on their general liability insurance
likely will be required to have it when they renew their policies.
According to a report by Jeff Cavignac, president of leading San Diego
insurance brokerage firm Cavignac & Associates, some insurance companies
in California are refusing to write policies on homes and commercial buildings
if prior water damage claims have been made, or if inspections turn up
the potential for mold problems. Further, insurance companies are starting
to non-renew policies with prior water damage activity.
Already, Farmers Insurance Exchange in Texas is expected to loose $300
million this year on water and mold damage claims. In fact, the top three
carriers, who together write more than two-thirds of homeowner policies
in Texas, have halted sales of new homeowner's policies due to the rising
number of mold and water damage claims.
GUIDELINES?
Despite the growing crisis, I find it astounding that there are NO federal
or state guidelines currently in place that tell contractors and building
owners what should be considered safe or "allowable" levels
of mold. No guidelines whatsoever.
Yet, California, in its usual trend-setting way, has proposed a landmark
bill that would regulate toxic mold. The Toxic Mold Protection Act, recently
passed by the state Senate, would require the California Department of
Health Services to establish permissible mold exposure limits and set
standards on how to handle serious mold infestations.
The pending legislation is receiving mixed reviews from the building
and insurance industries. While many see the advantages of setting guidelines,
they fear those guidelines may be unrealistic and could lead to a massive
wave of new litigation.
EDUCATION
Education is the best weapon to combat the mold crisis. The EPA website,
www.epa.gov, is a good place to start. It features educational articles
that focus on water intrusion symptoms, detection and treatment.
Who needs the education? Some argue that contractors need to be educated
in order to "build it right the first time." I argue that this
logic is somewhat banal and unfair. While construction defects are an
inevitable reality, most contractors' primary goal (achieved more often
than not) is to construct high-quality, leak-free buildings. Putting all
the responsibility on them entirely only holds so much water, so to speak.
Accountability, therefore, must be extended to building owners. Owners
must be held accountable for maintaining the health of their buildings.
An ongoing building inspection and maintenance program is essential. Would
you drive your car without ever having an oil-change or tune-up?
Education undoubtedly will help to dissolve the ubiquitous "it only
leaks when it rains" building owner mentality. Water intrusion is
more than just a leaky roof. It is a health and litigation risk that will
only snowball if not addressed immediately. The mold crisis demands that
we wake up and smell the stachybotrys. Chances are, it's lurking right
under our noses.
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COLLABORATION OVER COMPETITION PARTNERING FOR THE
"PERFECT PROJECT"
By Amy Jackson, Gilbane
For the new Dr. Martin Luther King, Jr. Library under construction in
San Jose, clear communication between all project team members has been
a high priority from day one of the project. Given all the factors involved
in building this high-profile, complex facility, communication is a necessary
concern.
This $107 million project is the largest joint venture in the United
States between a university and municipality. Designed to play an important
role in the San Jose Redevelopment Agency program's revitalization of
downtown San Jose, it is also the largest project ever undertaken by San
Jose State University.
The 480,000 SF, 8-story library is being constructed on the university
campus on a 28-month schedule, adjacent to other occupied university buildings
with high-volume vehicular and pedestrian traffic.
Before construction could begin, the old library and two administration
buildings had to be abated of hazardous material, primarily asbestos and
lead, then demolished. This necessitated extensive site utilization planning
and coordination with city traffic, parking and public utilities.
Primarily architectural precast concrete with curtainwall installations,
the project includes two main entrances, a glass atrium, library stacks and furniture with built-in technology and communications.
Taking all these factors into consideration, the many stakeholders involved
in building this facility decided that employing the partnering process
was the best way to ensure a successful project.
Everyone who plays a role in this project, including Gilbane Building
Company, Carrier Johnson, Hensel Phelps, San Jose State University, the
San Jose Redevelopment Agency and key subcontractors, felt it was important
to emphasize collaboration over competition in the construction of this
facility. This concern resulted in the development of a customized and
flexible partnering system.
The following goals were established at the initial partnering session:
- Become better acquainted both at the individual and organizational
level, discussing stakeholder goals and types of relationships desired.
- Define and agree on the criteria that the team would ultimately use
for judging the success of the project at its conclusion: what is the
"Perfect Project?"
- Identify potential roadblocks, both historic barriers (things learned
from previous projects) and project specific challenges.
- Form cross-organization break-out focus groups to develop action plans
to address the identified potential roadblocks.
- Develop and implement an effective issue resolution process.
Facilitated by Gilbane's Project Manager, Jim Klingensmith, follow-up
sessions have been held every four months. The team assesses their performance
against the criteria for the "Perfect Project" and evaluates
how previously identified project challenges were addressed.
The cycle is then renewed by identifying new potential challenges and
creating action plans to deal with them. Everyone is encouraged to be
forthright and honest with their concerns, so that all stakeholders are
vested in the process.
The team also takes advantage of the sessions to socialize beforehand,
engaging in activities such as cart-racing and pool tournaments. Solid,
collaborative relationships have become established between team members and the project has run smoothly as a result.
The partnering process proved its usefulness right from the start, during
the design phase. Two independent estimates were completed at different
stages of design, one by Carrier Johnson and one by Gilbane. The estimates
were then reconciled, allowing all parties to agree on the estimated cost
and have confidence in the budget.
This joint effort provided checks and balances, facilitating a thorough
understanding of project scope and cost for each component of the work.
Constructability reviews were performed while the documents were being
developed. The ease or difficulty of constructing the proposed budget
was assessed, focusing on those areas representing increased costs or
schedule impact.
Where possible, the use of alternative materials or systems was suggested.
In addition, the entire team reviewed the documents for inconsistencies
and adherence to code to ensure a complete and well-coordinated set of
documents.
An example of follow-through in partnering goals is the area of Good
Community Relations, one of the "Perfect Project" criteria developed
by the project team.
Communication with the university, residential and business communities
has been of paramount importance on this project. Project team members
regularly meet with local resident associations and business owners adjacent
to the library construction site to keep them apprised of upcoming activities
and their possible effect on the community, with specific sensitivity
to concerns such as demolition of existing structures, traffic impact and noise abatement.
Through this process, the team is able to let the community know what
special steps have been implemented to minimize disruption and thus develop
better community relations and "buy-in."
In addition, at San Jose State University Gilbane has led classroom discussions
on project management techniques used in construction to a multi-disciplinary
class. This group of students learns from professional applications in
construction, new techniques that are equally applicable to other business
industries.
Jim Klingensmith additionally leads discussions on partnering/card trick
methodologies used by Gilbane and how these techniques help bring critical
issues to the surface, preventing problems and developing a "model"
for future collaborative problem solving, all while promoting teamwork.
This involvement has enabled Gilbane to work more closely with San Jose
State University staff, as well as educating students on the work going
on the campus for the San Jose Library project.
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LEADING THE WAY; THE "GREENING" OF
260 TOWNSEND
By Kevin Brooks, Swinerton Green Building Advocate
The new Home Office of the Swinerton Family of Companies at 260 Townsend
Street in San Francisco was recently accepted by the U.S. Green Building
Council (USGBC) to participate in its LEED-EBT (Leadership in Energy and
Environmental Design for Existing Buildings) pilot program (www.usgbc.org).
With over 4.5 million existing buildings in the United States and over
250,000 improvement projects to existing buildings annually, the LEED-EBT
pilot program, launched in January 2002, attempts to apply the current
LEEDT program (for new construction projects) in evaluating the actual
operation and maintenance of existing facilities.
Swinerton, through our participation in the LEED-EBT pilot program, is
leading the way in the development of our Green Building and Sustainable
Construction Practices.
So how do you make a fast-tracked premier project with a demanding client
and a tight schedule "green"? With a lot of teamwork, as well
as a collaborative and supportive environment! Working together with the
Architect and the various Swinerton groups, the Swinerton Builders Northern
California Green Team has been assisting in the "greening" of
260 Townsend. Some of the criteria we will be applying include:
- Encouraging the use of alternate transportation:
The garage will include dedicated spaces for car and vanpools, as well
as hybrid vehicles and there will be charging stations for electric
vehicles.
- Implementing water conservation measures:
The old five-gallon-per-flush toilets are being changed out to 1.5-gallon-per-flush
fixtures. In addition, we are hoping to use waterless urinals, which
can save as much as 40,000 gallons of water per year for each fixture.
- Measuring the building's energy consumption:
A sophisticated building management system was purchased for the facility,
which will allow real-time continuous monitoring (via the Internet)
of lighting and non-lighting electrical loads, measurement of the cooling
load and chiller efficiency, evaluation of the mechanical system's economizer
modes and the metering of water consumption, including water for irrigation.
This information will, among other things, allow us to optimize the
building systems' energy performance.
- Selecting materials with high a recycled content (post-industrial
and/or post-consumer):
We specified drywall with 100% recycled paper-face and a minimum 10%
recycled gypsum core. Metal studs will have a minimum of 65% recycled
content. In addition, we are using ceramic tile in the bathrooms that
contain recycled glass and recycled content carpet padding.
- Selecting materials that are non-toxic and don't compromise the facility's
indoor air quality:
Wall coverings containing vinyl composites were changed out to other
more natural products and vinyl base was changed to rubber base. In
addition, we will be using paints that contain no VOC's and low-VOC
based sealers and adhesives.
- Selecting materials that are "rapidly renewable" (to reduce
the depletion of natural resources:
All vinyl composition tile (VCT) was changed to linoleum. In addition,
we hope to use bamboo flooring in limited applications.
- Selecting wood products certified by the Forest Stewardship Council
(FSC):
The wood doors will have FSC certified cores and all the millwork will
have FSC certified substrates. In addition, non-endangered wood veneers
will be used on paneling and doors.
- Reducing the generation of C&D debris:
Landscaping debris was segregated from other demolition debris, which
was taken to a C&D debris sorting facility. During construction,
we will have on-site source segregation of construction wastes. The
existing garage lights that are being taken out of the building are
being salvaged for eventual re-use on the secondary materials market.
- Maintaining a quality indoor built environment:
In addition to using low-emitting materials and adhesives, the building
management system will be able to monitor not only the indoor temperature
and humidity levels, but also CO2 levels to ensure an adequate supply
of fresh air. The interior spaces will also incorporate day-lighting
applications so that the majority of occupants will have direct views
to the outside.
The "greening" of 260 Townsend is providing a real world laboratory
for learning about and implementing practical green design concepts and
sustainable construction practices. It has provided invaluable experience
on leading green technologies, products and materials, which Swinerton
will be able to apply on future projects. Not only will we be able to
tell our prospective clients that we have experience with applying sustainable
construction practices, we will also be able to showcase our corporate
headquarters as a LEEDT certified project. With roughly 400 projects,
encompassing some 55 million square feet of space, currently participating
in the LEEDT certification process, this experience gives us a leading
competitive advantage in Green Building and Sustainable Construction.
[top]
THE TOP FIVE REASONS TO USE WEB CAMS
By Olga Han
Scattered amidst the vast stretches of our country's open land are clusters
of residential and commercial construction sites. Vacant lots within cities
hardly remain unoccupied as builders scramble for new opportunities. Construction
is everywhere. It's big business; and with big business comes the potential
for big money-and big losses.
Though construction sites may vary in location and purpose, what remains
the same for all companies involved is the value of the equipment and
supplies on site. Machinery, tools and building supplies can cost companies
hundreds of thousands of dollars.
Many construction sites, especially new home sites, are in up and coming
neighborhoods with relatively limited populations. Others are in business
districts whose population dramatically diminishes after 6 p.m.
Given these two scenarios, it must not be very difficult to steal from
a job site after construction crews have gone for the day. What kind of
security measures can construction companies take to insure that their
premises aren't the victims of theft? Large companies may have multiple
job sites. Can they guarantee the quality of their workers and their production?
According to the National Insurance Crime Bureau, last year alone the
construction industry suffered a $1 billion loss nationwide. Theft, vandalism
and malicious mischief make up for one third of all losses to contractors'
equipment. Law enforcement agencies across the country recover less than
twenty percent of stolen equipment.
It's just too easy to steal from job sites. Large, mobile equipment can
simply be driven off the grounds. Smaller tools, such as welders, pumps
and generators, are easily transportable. Considering one electrical breaker
can cost $10,000, construction site theft can be extremely damaging to
a company's business. Not only does the company lose equipment, but it
also suffers downtime while workers wait for replacements. And, of course,
there's the increase in insurance premiums.
Traditionally, job sites have employed onsite security guards, but these
days, the video camera has made its presence known in the industry. Companies
now offer surveillance cameras at job sites.
Often these cameras are attached to twenty-foot poles cemented into concrete
blocks. Floodlights allow for recording after dark. Although not attractive
with their concrete chunks and disarray of wires, a company at least has
any problems captured on tape.
One step beyond the video camera is the Web cam, which offers the ability
to view a camera's images live, through the Internet. A site supervisor,
for example, can view his site, 24 hours a day, seven days a week, from
anywhere with Internet access.
ecamsecure.com is one company that offers Web cam security. Like others,
the ecam system consists of a four-camera set-up that shows any activity
on job sites. With ecam cameras, managers can pan, tilt and zoom in on
specific areas, which can be viewed or recorded via the Internet. But
what makes the ecam system better than other security providers is that
its creators have gone a few steps further.
While other providers semi-permanently mount their cameras onto sites,
ecam is completely portable. Its system is packaged in a weather-tight
trailer complete with battery backup power. The trailer is delivered to
the job site and operational within minutes, quickly connecting the site
to ecam's command headquarters.
One of the few security companies that utilizes advanced wireless technology
to connect to the Internet, ecam eliminates the wait for cable or phone
connection at the site. Site supervisors are immediately able to view
their sites anytime, from anywhere with Internet access, whether it be
at their offices, home or on their PDAs.
The sooner a company begins utilizing a Web cam, the sooner its business
can be protected. Many law enforcement agencies, including the FBI, have
reported that the presence of cameras does in fact repel criminals. No
one wants to be caught on camera while perpetrating a crime.
In the event someone does decide to risk it, Web cams can still be very
useful. Ron Bogen, director of ecamsecure.com, explains the ecam system:
"At ecam, our live monitoring staff has full-screen views of the
site using the newest flat panel plasma screens. Other companies may have
their premises recorded, but a videotape of a burglar doesn't do much
good the day after a site is burglarized. We can immediately alert clients,
our own security patrols or the authorities at the moment of intrusion.
ecam cameras have motion detectors. At the slightest movement, an alarm
is triggered at our interactive command center. This is by far one of
the best features available."
Securing a business against theft and vandalism is not the only job that
a Web cam can fill. Other benefits of using a Web cam are geared not for
external issues but more for internal concerns.
Theft can just as easily come from within a company, not only of tangible
items, such as hand-held tools, but also theft of time. Tangible theft
is also experienced by construction crew workers who bring their own tools
to work only to have them stolen by other crew members.
Workers who come in a few minutes late and leave a few minutes early
skim costly time and money from a company's payroll. An extra twenty minutes
a day that a worker may take adds up to ten working days a year that s/he
is compensated for. Along with increased rates of theft, accident claims
can increase a company's insurance premiums. Site supervisors can monitor
their sites to ensure proper safety procedures are being followed. Utilizing
systems such as the ecam, which satisfies most insurance company requirements,
can lower those premiums.
Another advantage of having a Web cam is increased communication between
site supervisors and their sites. ecam is one of the few companies that
can provide a feature called bi-directional audio communication.
This two-way communication lets supervisors "be" at many places
at the same time while still accurately assessing the needs of each site.
This not only saves time but also provides instant feedback from supervisors
to workers. Workers who feel that their employers are in touch with their
needs are more motivated and productive. Increased productivity yields
greater profits for everyone involved.
In today's world, where time is money, every minute counts. Increasing
rates of construction site theft and the resulting downtime suffered,
as well as concerns over worker productivity and quality control, should
be enough reasons for construction companies to consider risk management
tools. The potentials for loss are too great to ignore.
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OUTLOOK 2002 - FOCUSING ON THE FUTURE OF THE CONSTRUCTION
INDUSTRY
By Jennifer Gentusa
2002 proved to be another successful year for the Outlook Construction
Conference and Exposition. With close to 300 attendees and over 40 exhibitors
the Irvine Marriott really was the place "where the leaders in the
industry come together".
The two day event again offered attendees certificates in project management
and construction law as well as numerous seminars on emerging issues that
are currently, or will inevitably, affect the construction industry.
The event kicked off with John Mitchell's, Western Regional Economist,
U.S.Bancorp, poetic overview of the construction industry's 2001 economic
cycle and his bold predictions for the upcoming year.
Janice Tuchman, Editor-In-Chief, Engineering News Record, discussed the
impact of the September 11th attacks as well as increasing infrastructure
safety concerns' affect on the industry at large.
Daryl Mills, Nonresidential Programs Supervisor, California Energy Commission,
answered questions on tighter energy building codes and Weston Benshoof
Rochefort Rubalcava & MacCuish LLP provided a highly informative construction
law update.
However, this year's conference showed less of a focus on the past than
it did a definite concentration on the future. More specifically on technology's
place in the industry. Attendees had the opportunity to learn about a
variety of new advancements and the benefits that these tools bring to
their projects.
Randy Walsh, Division Information Systems Manager, California State University,
Long Beach, Tom Mendel, Manager of Project & Contract Services, Amgen
and Joseph Mudd, Director of Project Management & Professional Services,
Skire presented overviews of state-of-the-art technologies for design,
project and facility management. The seminars including invaluable tips
for successfully integrating hardware, software, the internet and wireless
technology to keep personnel provided with accurate and timely information.
Brian O'Toole, Senior Partner, Itspatial, LLC, exhibited the next generation
of interactive real-time 3D visualization applications for the A/E/C industry,
used to aid in generating proposals, identifying design conflicts and
reducing project development costs.
Thelen Reid & Priest LLP provided multiple workshops on the effects
of new technologies on construction law. Topics included the use of new
technology in presentations made in mediation and arbitration, the impact
of e-technologies on construction project management and dispute resolution and the use of e-mail in construction litigation.
John Voeller, Senior Vice President, Black & Veatch, concluded the
conference with a list of top new technologies to watch.
Whether it be exploring successful project management tools, learning
about Value Based Contracting, discussing differing team project structures
or exchanging tips for avoiding litigation the conference proved to be
a fantastic experience for all involved.
The conference wasn't all work however. The exhibit hall provided not
only an amazing wealth of information and networking opportunities, but
a source of fun and entertainment. Virtual reality tools, business card
drawings, raffle events, food, drinks and rows and rows of free goodies
awaited all of the attendees.
When Leo Sumner, Senior Vice President, Consolidated CM and on-the-spot
raffle emcee boomed out across the hall "People, people, people!"
you could feel the excitement mount.. Big winners went home with baskets
full of BBQ goodies, personal stereo systems, DVD players and a slew of
new business contacts.
And of course what Outlook Conference would be complete without the annual
Distinguished Project Awards? The gala event recognized outstanding performers
in engineering, design and construction. .
The dinner featured wonderful video highlights of winning projects, beautiful
photo displays of honorable mentions and best of all "no mystery
chicken", as one guest put it.
All in all the conference proved to be a fantastic event. And though
unlike John Mitchell, we cannot predict the future, we can at least guarantee
that Outlook 2003 will be even better.
[top]
RECENT COURT DECISIONS AFFECTING CONSTRUCTION LAW
By Tim Pierce - Construction Practice, Thelen Reid & Priest LLP
Amelco Electric v. City of Thousand Oaks (2002) 27 Cal.4th 228
The City of Thousand Oaks accepted Amelco Electric's bid of $6,158,378
to perform electrical work in connection with the construction of a civic
arts plaza. During the two-year construction process the City furnished
1,018 sketches to clarify or change the original drawings, of which 248
affected the electrical costs. Amelco requested 221 change orders and
the City and Amelco agreed upon 32 change orders. The 32 change orders
alone increased the contract price by over $1 million dollars. Amelco
sued the City for more than $2 million dollars, claiming that the City
had breached and abandoned the contract by making excessive changes.
The Court recognized the rule that "a construction contract is abandoned
`when an owner imposes upon the contractor an excessive number of changes
such that it can be fairly said that the scope of work under the original
contract has been altered.'" C. Norman Peterson Co. v. Container
Corp. of America (1985) 172 Cal.App.3d 628, 640. However, the Court refused
to extend this rule to contracts involving public entities. The Court
reasoned that to apply the abandonment theory to a contract with a public
agency would be fundamentally inconsistent with the purpose of competitive
bidding statutes. The City had no authority to contract with Amelco free
of the restraints of its contract. The Court noted, "It is clear
that neither the doctrine of estoppel nor any other equitable principle
may be invoked against a governmental body where it would operate to defeat
the effective operation of a policy adopted to protect the public."
Two justices dissented, citing Civil Code section 1635 for the proposition
that "[a]ll contracts, whether public or private, are to be interpreted
by the same rules .."
The majority also held that the jury's award to Amelco under the total
cost theory was improper. The total cost method measures damages as the
cost of work over the contract price, without accounting for each specific
item. The Court noted that the total cost method of determining damages
is generally disfavored. To recover on a total cost theory, Amelco should
have been required to establish (1)the impracticability of proving actual
losses directly, (2)that Amelco's bid was reasonable, (3)Amelco's actual
costs were reasonable and (4)Amelco was not responsible for the added
costs. Because Amelco failed to demonstrate that it was impossible to
correlate damages to a particular breach and that all damages were the
fault of the City, a retrial was necessary on the issue of damages.
Because the City did not argue that the total cost measure of damages
is not appropriate against a public entity, the Court noted that it did
not determine whether the total cost method was ever available against
a public entity. The Court merely held that Amelco did not meet its burden
under the existing test.
Hooker v. Department of Transportation (2002) 27 Cal.4th 198
A crane operator on a freeway construction project was killed when his
crane tipped over. The operator had retracted the crane's outriggers to
allow traffic to pass by. He then allowed the boom to swing with the outriggers
still retracted. The operator's widow sued the DOT on the theory that
Caltrans had negligently hired the operator's employer as an independent
contractor. Section 414 of the Restatement Second of Torts provides: "One
who entrusts work to an independent contractor, but who retains the control
of any part of the
work, is subject to liability for physical harm to others for whose safety
the employer owes a duty to exercise reasonable care, which is caused
by his failure to exercise his control with reasonable care." Following
a line of cases concerning the peculiar risk doctrine (Privette v. Superior
Court (1993) 5 Cal.4th 689; Toland v. Sunland Housing Group, Inc. (1998)
18 Cal.4th 253) the court held that a hirer of an independent contractor
is not liable to an employee of the contractor merely because the hirer
retained control over safety conditions at a work site. The court held
that a hirer is liable to an employee of a contractor only insofar as
the hirer's exercise of retained control affirmatively contributed to
the employee's injuries. The Court held that the trial court properly
granted summary judgment in favor of the defendant because Caltrans did
not affirmatively contribute to the operator's death merely by permitting
traffic to use the overpass on which he was working.
McKown v. Wal-Mart Stores, Inc. (2002) 27 Cal.4th 219
In a companion case to Hooker v. Department of Transportation, the Court
held that Wal-Mart affirmatively contributed to the injury of an employee
of an independent contractor hired by Wal-Mart; therefore, the plaintiff
was entitled to recover under the peculiar risk doctrine. Wal-Mart had
provided forklifts with platforms that were not attached by a chain. When
the platform disengaged from the forklift extension the worker fell to
the floor and was injured. The Court held that the jury properly found
that Wal-Mart was negligent in providing unsafe equipment to the contractor.
United States v. Pearson (9th Cir. 2001) 274 F.3d 1225
A supervisor for a demolition and asbestos abatement subcontractor was
charged with two counts of knowingly causing the removal of asbestos-containing
materials without complying with applicable work practice standards in
violation of 42 U.S.C. sections 7412(f)(4), 7412(h) and 7413(c)(1). Work
practice rules required that asbestos be wetted before removal. 40 C.F.R.
section 61.141. The asbestos was too dry and bags of asbestos were found
outside of the containment area with asbestos material on their exterior
surfaces. Although the supervisor claimed he was not involved, he was
convicted and sentenced to 10 months incarceration. The Court affirmed
the conviction, holding that an owner, operator, or supervisor of a demolition
or renovation activity may be criminally liable for failure to employ
proper work practice standards. The jury was properly instructed that
a supervisor must have significant and substantial control over the actual
asbestos abatement work. It is not necessary for the defendant to possess
ultimate control.
Kajima Engineering v. City of Los Angeles (2002) 95 Cal.App.4th
921
A construction company sued the City of Los Angeles, claiming it was
owed payment for work on a reconstruction project. The City cross-complained,
adding 19 new causes of action against the contractor. The trial court
initially granted the contractor's motion to strike the amended cross-complaint
as a SLAPP (strategic lawsuits against public participation) suit in violation
of Code of Civil Procedure section 425.16. On reconsideration, however,
the trial court reinstated each but the twelfth cause of action. The appellate
court affirmed, holding that the defendant of a SLAPP suit has the burden
of showing that the plaintiff has attacked acts taken in furtherance of
the defendant's constitutional right to petition or to exercise free speech
in connection with a public issue. The trial court properly struck the
twelfth cause of action, which mentioned the contractor's specific act
in filing the underlying complaint, under the SLAPP statute. However,
the appellate court held that the submission of contractual claims for
payment in the regular course of business is not an act in furtherance
of the right of petition or free speech within the meaning of the anti-SLAPP
statute. The court suggested that the contractor's proper remedy would
be sanctions under Code of Civil Procedure section 128.7. The construction
company's petition for review is currently pending before the California
Supreme Court.
[top]
MINIMIZING YOUR SELF-INSURED OBLIGATIONS - A PRIMER
By Stanly H. Shure, Zevnik Horton LLP
The premiums paid for insurance coverage are often a very large line
item in a company's budget. Accordingly, many businesses find it more
cost effective to "self-insure" up to a given specified level
and obtain excess insurance for larger losses that exceed the self-insured
level. Self-insured retentions ("SIRs"), especially for larger
companies, can often reach as high as $5,000,000 per year. This article
will attempt to highlight some pertinent issues policyholders should be
sensitive to regarding satisfying (sometimes referred to as "exhausting")
SIRs - and thereby triggering excess insurance coverage -- in the most
cost-effective manner.
What is Self-Insurance?
The California Supreme Court some years ago was presented with the question
of defining what constituted self-insurance. Its common sense answer was
a simple one; it is not insurance:
In a strict sense, "self-insurance" is a misnomer."
[Citations omitted.] "Insurance is a contract whereby one undertakes
to indemnify another against loss, damage or liability arising from
a contingent or unknown event." (Ins. Code § 22.) "[S]elf-insurance
. . . is equivalent to no insurance . . . ." [Citations omitted.]
. . . . If insurance requires an undertaking by one to indemnify another,
it cannot be satisfied by a self-contradictory undertaking by one to
indemnify oneself
Aerojet-General Corp. v. Transport Indemnity, 17 Cal. 4th 38, 70,
n. 20 (1997) (emphasis added).
Accordingly, "self-insurance" exists if the policyholder is
ultimately indemnifying itself. When talking about "self-insurance,"
one usually refers to an SIR. (Self-insurance may also come in the form
of a "deductible" which, in some circumstances not relevant
here, differs from a SIR. See General Star Indemnity Ins. Corp. v. World
Oil Company, 973 F. Supp. 943, 948-949 (1997) (explaining difference between
a deductible and a SIR.))
A so-called "fronting policy" is another form of self-insurance.
A "fronting policy" exists when an insurer issues a policy of
insurance but the policy also contains a deductible in the amount of the
policy limits. This effectively results in the insured agreeing to indemnify
the insurer, just the opposite of real insurance:
A "fronting" policy has been described as one "which
does not indemnify" or, apparently, defend the insured but which
is issued to satisfy financial responsibility laws of various jurisdictions
"by guaranteeing to third persons who are injured that their claims
against the insured "will be paid."
Aerojet, supra, 17 Cal.4th at 49, n.3.
However labeled -- "SIR", "retention", "deductible"
or "fronting policy" -- self-insurance constitutes a threshold
amount that must be exhausted before an insurer's obligation to pay is
triggered.
There are three major issues involving exhaustion of SIRs that a policyholder
should be aware of. First, how is the SIR satisfied: on a "per claim,"
"per occurrence," or "aggregate" basis? Depending
upon the language used under the same set of facts, the amounts one pays
to exhaust an SIR can vary greatly.
The second issue concerns the insured's ability to use monies paid out
by "other insurance" to exhaust its SIR, for instance when the
insured is listed as an additional insured on another entity's policy.
Whether this is permissible depends upon the policy language of the excess
insurance.
The third major issue involves how many SIRs an insured must exhaust
to reach its excess insurance when a single continuous occurrence extends
out over more than one policy year. For example, suppose an occurrence
causing bodily injury claims continues for five years and the policyholder
has a $500,000 self-insured retention for each year. Whether the insured
must pay a single $500,000 self-insured retention or five retentions totaling
$2,500,000 before it triggers its excess coverage can make a big difference
to the bottom line.
Satisfying the Retention -- "Per Claim,""Per Occurrence,"
or "In the Aggregate"
The amount of money that satisfies a SIR for a given loss or series of
losses varies greatly depending upon the policy language used. Some SIRs
are on a "per claim" basis. Others are on an "per occurrence"
basis. Still others "aggregate" claims or occurrences for purposes
of satisfying the deductible. What does this all mean?
The word "claim" when used in an insurance contract generally
refers to a demand for money due. See Foster-Gardner, Inc. v. National
Union Fire Ins. Co. of Pittsburgh, Pa. 18 Cal. 4th 857, 879 (1998). In
contrast, the term "occurrence" is usually defined in a policy
as an accident, including continuous or repeated exposure to the same
general harmful conditions. See Montrose Chemical Corp v. Admiral Ins.
Co., 10 Cal. 4th 645, 671 (1995).
Many "occurrence" policies also contain a so-called "funnel"
clause stating that all claims arising from the same accident or exposure
to the same conditions constitute a single occurrence. Even without such
a "funnel" clause, a California court has found that 653 separate
incidences of theft, none of which individually exceeded a policy's $150,000
per occurrence deductible but all resulting from the same cause, constituted
a single occurrence. Accordingly, the policy's $150,000 per occurrence
deductible was satisfied and the insurer was liable for the balance of
the insured's $1,500,000 loss. See EOTT Energy Corp. v. Storebrand International
Insurance Co., 45 Cal. App. 4th 565, 574-577 (1996).
The different meanings of "claim" and "occurrence"
as applied to SIRs can result in large differences to an insured -- from
a monetary standpoint -- in determining when and to what extent underlying
self-insurance is exhausted and excess insurance triggered. For example,
suppose an insured has a policy with a $2,000,000 per occurrence limit
excess of a $100,000 SIR. A significant accident occurs during the policy
period that injures twenty (20) different people. All 20 individuals file
separate claims against the insured. The insured is then found liable
in the amount of $100,000 to each of the twenty claimants, with a total
resulting liability of $2,000,000. If exhaustion of the $100,000 SIR is
on a "per claim" basis, the insured must pay the entire $2,000,000
in liability itself. This is because none of the individual claims ever
exceeds the
$100,000 "per claim" SIR. Accordingly, the excess policy is
never triggered.
In contrast, if the $100,000 self-insured retention is exhausted on a
"per occurrence" basis, the insured pays only $100,000, with
the $1,900,000 balance paid by the excess insurer. This is because the
20 individual claims all resulted from a single accident i.e., a single
occurrence and the $100,000 per occurrence SIR is exhausted once the
insured's liability exceeds that amount. Concomitantly, the $2,000,000
excess policy is triggered and must pay any liability -- here $1,900,000
-- which exceeds the $100,000 retention.
SIRs can also be exhausted by "aggregating" claims or occurrences
together. Including an "aggregate" provision in the SIR policy
language may provide an insured with a significant benefit. As described
in case law:
Without an aggregation feature, the SIR amount applies anew to each
claim. The insured must exhaust that amount separately, over and over
again as many times as there are claims. Before the insurer has any
obligation on any single claim, the SIR must be exhausted for that claim.
If, by contrast, there is an aggregation provision, payments made by
the insured may be aggregated until the aggregate limit is exhausted.
Thereafter, the insured will cover any additional claims from dollar
one.
* * *
An aggregation feature obviously provides added protection to an insured and can therefore be expected to cost an additional premium amount.
An aggregation feature is not essential to a self-insured retention,
which can be fully operable without an aggregation feature.
General Star Indemnity Company v. Superior Court, 47 Cal.App.4th
1586, 1594 (1996).
Using the prior hypothetical with and without aggregates, one can see
the effect an aggregate can have. Suppose the $100,000 SIR from the prior
hypothetical was both per "claim" and in the "aggregate."
A single $100,000 claim therefore exhausts the $100,000 per claim/aggregate
SIR, with the remaining $1,900,000 in liability covered by the excess
policy. In comparison, without the aggregate, all $2,000,000 in liability
is the insured's responsibility because no single claim ever exceeded
the $100,000 SIR. The effect of adding an aggregate provision into a SIR
can have a significant effect on when the SIR is exhausted.
Which SIR policy language -- "per claim," "per occurrence,"
in the "aggregate" -- is available and at what price, is an
issue beyond the scope of this article. At a minimum, policyholders need
to understand that the amount needed to exhaust the SIR can vary greatly
depending upon which policy language is used and the nature and extent
of a policyholder's losses.
This presents a very important question. We know the SIR must be exhausted
before an excess insurer becomes obligated to pay. Does it matter, however,
where the funds used to exhaust the SIR come from? Put another way, can
the payments made to exhaust the SIR come from a source other than the
policyholder itself, such as another insurer? Careful consideration of
SIR policy language often leads to the conclusion that it can.
Can One Exhaust a SIR Through Payments Made by Another Insurer?
The benefit to a policyholder of having someone other than itself pay
its deductible is self-evident. Courts applying California law, on at
least two occasions, have found that monies paid by primary insurers can
be used to exhaust an insured's SIR and trigger its excess coverage.
In General Star National Ins. Group v. World Oil Company, 973 F. Supp.
943 (C.D. Cal. 1997) the insured, World Oil, had purchased insurance from
General Star excess of a $250,000 SIR1. World Oil then purchased a primary
policy from Hartford Insurance for purposes of covering the $250,000 SIR.
Subsequently, an accident occurred which resulted in a $775,000 settlement
of which Hartford paid its $250,000 and General Star the remaining $525,000.
General Star then sued World Oil seeking reimbursement for the amount
of the SIR, asserting that, under the terms of its policy, World Oil was
prohibited from obtaining insurance for the amount of the deductible.
The District Court, in rejecting General Star's position, held:
The General Star policy nowhere states that the insured cannot purchase
coverage for the amount of the deductible. If General Star intended
the language and the requirements to which it points to prohibit the
insured from obtaining separate coverage for the deductible, General
Star failed to state this intention in unambiguous terms.
World Oil, supra, 973 F.Supp. at 948. 2
In The Vons Companies, Inc. v. U.S. Fire Insurance Company, 78 Cal.App.
4th 52 (2000), a California Court of Appeal, relying in large part on
World Oil, found that Vons' $1,000,000 SIR was exhausted by a $1,000,000
payment made by National Union on behalf of its named insured, Longs Drugs and its additional insured, Vons,3 as part of a $1,540,000 settlement.
The Court of Appeal in explaining its reasoning stated:
Nowhere does the SIR expressly state that Vons itself, not other insurers,
must pay the SIR amount. Because the SIR was subject to the other insurance
provisions, which also made the Vons policy excess if there were another
policy covering the accident, Vons as a reasonable insured could read
the policy as permitting the use of other insurance proceeds to cover
the SIR amount.
Vons, supra, at 63-64 (emphasis added).
Because Vons was jointly and severally liable with Longs for the underlying
liability, the $1,000,000 payment toward the settlement paid by National
Union, Longs' insurer on behalf of both Longs and Vons, exhausted Vons'
SIR, which was based upon Von's legal obligation to pay damages. Accordingly,
under the terms of its policy, USF was obligated to pay the $540,000 balance
of the settlement. Vons, supra, at 64-65.
The Vons court also referenced policy language it saw in the Longs policy
(which contained a SIR that was previously satisfied) and hinted it would
have required the insured, not some other insurer, to pay the SIR.
Although our decision does not apply to the Longs policy, which is
not at issue here, that policy also appears to have tackled the issue
of other insurance, stating: "In the event there is any other insurance,
whether or not collectible, applicable to an 'occurrence', claim or
suit within the Retention Amount, you will continue to be responsible
for the full Retention Amount before the Limits of Insurance under this
policy apply." (Italics added.) Regardless, if USF wanted to make
it clear that Vons was required to pay the SIR amount, it should have
said so.
Vons, supra, 78 Cal.App. 4th at 63, n.4.
Taken together, World Oil and Vons stand for the proposition that an
insured can use "other insurance" that applies to a given loss
to exhaust its SIR(s) unless the policy contains language that expressly
states it cannot.
In a construction setting, the rule of law emanating from World Oil and
Vons raises some interesting potential applications. Specifically, many
major construction projects contractually require that the general contractor
and subcontractors obtain liability insurance up to certain specified
limits and name the owner as an additional insured on the policies. There
is nothing preventing an owner from structuring these contractual insurance
requirements so that they
correspond with and can be used to satisfy the owner's SIR. Accordingly,
an owner can use polici | 