Volume 42, Issue 5 - May 2007

Legislation & Legal

Tennessee Court Rules Insurance Does Cover Construction Defects 
The Tennessee Supreme Court ruled that standard insurance policies provide considerable coverage for construction defects. 

The case, Travelers Indemnity Company v. Moore & Associates, arose after windows installed in a new hotel began to leak. The building’s owner began arbitration proceedings against its general contractor, seeking compensation for the damage. The contractor’s insurance carrier balked at the request for compensation. It maintained that the policy provided no coverage for the defective windows, or the resulting damage, and that, as a result, the carrier had no duty to provide the contractor with a defense to the owner’s claim for compensation. 

Tennessee’s lower courts rejected the carrier’s arguments, deciding that the contractor’s policy does provide coverage for construction defects. The Tennessee Supreme Court agreed with the lower court, explaining that the carrier relied on old cases, that the policy expressly covers accidental property damage and that the general contractor could not foresee that its subcontractor would not properly install the windows. The court observed the policy excludes coverage for work that a contractor self-performs but preserves coverage for work performed by a subcontractor on the contractor’s behalf.

California Court Decision Favors Subcontractors
California’s Third Appellate District Court of Appeal recently ruled in favor of a subcontractor that had filed suit against a general contractor over dispute resolution contract clauses. The court’s decision makes contract clauses that would require subcontractors to arbitrate/mediate disputes in another state unenforceable. 

The California subcontractor (Dick Emard Electric Inc.) sued Nevada-based Templeton Development Corp. (the general contractor) for claims related to materials, labor and equipment that was supplied for construction of an apartment complex in Sacramento, Calif.

According to case filings, the general contractor attempted to dismiss the subcontractor’s complaint on the ground of inconvenient forum, arguing that the subcontract agreement required the subcontractor to submit the dispute to mediation or arbitration in Las Vegas before filing suit. The court ruled, however that Code of Civil Procedure section 410.2 rendered the out-of-state mediation provision unenforceable, as state law prevents one party in a contract in California construction from forcing another party to resolve disputes out-of-state. 

Union Representation Bill Before Congress
Congress is weighing legislation that could change how unions and union representation are formed. The Employee Free Choice Act, introduced by Senators Edward Kennedy and Arlen Specter and Representatives George Miller and Peter King, consists of three major points: certification of majority basis sign-up, first-contract mediation and arbitration and stronger penalties for violations against employees while union or first-contracts are being formed.

The certification of majority basis sign-up would require the National Labor Relations Board (NLRB) to investigate any request for an employee union at a company to certify. NLRB would ensure that the request is being made by a majority of employees in the appropriate unit that designated the union as a bargaining representative.

Additionally, the bill provides for either party (employer or union/bargaining representative) to refer first-contract disputes that go unsettled after 90 days to the Federal Mediation and Conciliation Service. If after 30 days the dispute remains unsettled, it would be referred to arbitration and the results of the arbitration would be binding for two years.

Finally, the bill introduces stronger penalties against employers who violate the National Labor Relations Act while employees are attempting to form a union or negotiate a first contract. The penalties would include civil fines up to $20,000 per violation, an increase to three times the amount an employer is required to pay when an employee is discharged or discriminated against during an organizing campaign or first-contract drive. The bill will also require that the NLRB seek a federal court injunction against an employer if there is reasonable cause to believe an employee’s rights have been violated, if there has been a threat of violation of employee’s rights or if conduct has interfered with employee rights during an organizing or first contract drive. 

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