Author: Gregory J. Spaun

The doctrine of Nullum Tempus is a legal doctrine whereby ordinary statutes of limitation do not apply to the government unless they are specifically made applicable. When the State had enacted its most recent statutes of limitation, it was presumed that the statutory language was broad enough to evidence the State’s intent to be bound by those time limitations.

Last November, in the case of State v Lombardo Brothers Mason Contractors, Inc. et. al., the Connecticut Supreme Court handed down a ruling which, it claimed, merely reaffirmed the common law doctrine of Nullum Tempus. However, as will be discussed below, by holding that nothing has changed, the Connecticut ¹ Supreme Court has completely changed the way contractors, design and insurance professionals will have to approach public works projects.

The facts of the Lombardo Brothers case are relatively straightforward. The University of Connecticut system is a state-run university. The defendants were the various contractors who had worked on the design and construction of the library at the UConn Law School. Once the project was completed, the State found numerous defects with the construction which led to water infiltration. The state commenced its lawsuit in 2008 seeking reimbursement of the repair costs. It was not disputed that the case was brought well after the statutes of limitation expired. All parties moved to dismiss, and the State claimed that they were exempt under the Nullum Tempus doctrine. The Connecticut Supreme Court, relying on the “great public policy of preserving public rights, revenues, and property from injury and loss, by the negligence of public officers”, affirmed that Nullum Tempus has always existed in Connecticut common law, and that in the absence of specific statutory language making statutes of limitation applicable to the State (which was not present), they could not serve as a bar to these otherwise untimely claims.

In essence, the Connecticut Supreme Court held Nullum Tempus has always been a part of Connecticut law. However, the reemergence of this doctrine long presumed dead has led to concerns throughout the public works construction industry. For instance, as a result of the Court’s November 2012 decision, the design professional defendants here are defending a lawsuit relating to a building they designed between 18 and 20 years ago, and the contractor defendants are defending a lawsuit relating to a building they built between 16 and 18 years ago. The obvious issue which arises relates to records retention. In the digital age, this means not only retention of traditional paper records (which gets increasingly expensive when, as a practical matter, you cannot discard older records), but also the retention of obsolete software and computer systems capable of reading and showing plans, schematics and other documents which would be necessary to defend against these future claims.

Other practical considerations involve the sale and purchase of design firms. For instance, when you are purchasing a design firm, you are now purchasing (and effectively warranting) all of the past public work project designs the purchased firm undertook. Will the purchasing party’s insurance policy cover all of these projects? Does the subject of the purchase have any insurance that will cover these projects? Further, to the extent that a licensed individual sealed any of these plans, would liability follow the individual through death and the probate of his estate? If so, this would have to be addressed when the individual set forth his estate plans.

Contractors will have to deal with similar issues relating to insurance and bonding. As a practical matter, insurance agents and sureties, in calculating the amount of premiums to charge for a particular policy or bond, previously presumed that there would be some period after which they could be assured that they would no longer be exposed to liability. Now, with potentially perpetual liability, the premiums for these products is sure to be adjusted accordingly. Further, and similar to the issue faced by design professionals, potential perpetual liability will affect the sale or transfer of the contractor. The purchasing contractor will be assuming the liabilities of the purchased contractor and will have to effectively warrant the purchased contractor’s previous public work.

The above issues have been posed as open questions because the industry is only now coping with the effects of this decision. Clearly, each of the above issues, from document retention to effectively warranting the work of your predecessor to having to obtain insurance sufficient to cover claims made decades later, will impose a significant cost on design and construction firms undertaking state work. Accordingly, while the state may be trumpeting the Lombardo Brothers decision as a great victory, such a view may be shortsighted in light of the added costs which will necessarily find their way into competitive bids. As to the contractor or design professional looking to undertake such a project, they would be cautioned to discuss these perpetual liability issues with all those who they would normally involve in such a project (insurance and surety professionals, subcontractors and suppliers, amongst others) so as to ascertain the true cost of taking on the project so that these increased costs can be reflected in the bid.

¹ New York and New Jersey courts have recognized the abolition of the Nullum Tempus doctrine in those states, while the doctrine is alive and well in Pennsylvania and Massachusetts.

If you have any questions about the information set forth in this Legal Alert, call us at 914-428-2100.

Exterior Insulation and Finish Systems, or “EIFS”, is a multi-layer wall system attached to the exterior of a residential or commercial structure. EIFS generally consists of a substrate, an adhesive to adhere the system to the building, an insulating layer (generally stiff EPS foamboard), a reinforcing mesh and the exterior finish. Users of EIFS are attracted by the variety of exterior finishes which are available, many of which resemble stucco, at a relatively low cost. Also, because of the insulation component of the system, energy savings are touted. Further adding to EIFS’ popularity is its durability and need for only minimal maintenance.

Problems arise, nevertheless, where the EIFS system is not sealed properly. In such situations, water can infiltrate and reach the structure of the building. Perversely, because the EIFS system is a sealed system, the infiltrating water has no place to go and, instead of manifesting itself as a small leak, it remains in the structure-hidden-where it can cause rotting of the underlying structure. By the time the first rotting is discovered, the problem is actually widespread and the damage extensive.

Liability insurers came to the realization that the failure of an EIFS system was certain to lead to significant exposures. Accordingly, insurers issuing CGL policies began to draft exclusions of coverage related to EIFS systems, and many contractors ceased to install EIFS or any work which interfaced with an EIFS system. However, the recent case of First Mercury Insurance Company v. Miller Roofing Enterprises highlights just how a broad EIFS exclusion can be enforced.

The facts of Miller Roofing were not disputed. Miller Roofing was retained by the owner to replace three roofs in 1998. The structures on which the roofs were installed were clad in EIFS, although the roof did not interface with the EIFS system, and Miller Roofing performed no EIFS-related work. In 2006, one of the roofs began to leak, causing water infiltration into the owner’s showroom. Miller Roofing attempted some repairs but, after some heavy rain and snowstorms in 2007, significant amounts of water damaged the ceiling, walls, and product which was on the showroom floor.

The owner sued Miller Roofing for breach of contract and for negligence to recover for both the cost to remediate the roof, as well as the cost of the non-roof related items damaged in the flood. First Mercury accepted Miller Roofing’s defense under a reservation of rights, but then commenced a declaratory judgment action seeking to disclaim coverage. The policy at issue contained the following EIFS exclusion:

This insurance does not apply to … “property damage” included in the “products-completed operations hazard” and arising out of “your work” described as … [a]ny work or operation with respect to any exterior component, fixture or feature of any structure if any “exterior insulation and finish system” is used on any part of that structure.

First Mercury moved for summary judgment on its complaint, contending that inasmuch as the building admittedly contained an EIFS system, the exclusion applied. Miller Roofing opposed, contending that the exclusion did not apply because the defective workmanship was to the roof, not the EIFS system and, in any event, Miller Roofing did no work involving the EIFS system. While the court credited Miller Roofing’s explanation that its work did not involve the EIFS-system, it held that such was irrelevant in light of the policy language triggering the exclusion if “any exterior insulation and finish system is used on any part of the structure” (emphasis supplied). As to Miller Roofing’s contention that First Mercury would be allowed to escape liability for any otherwise covered act at the building simply because EIFS cladding was placed on the exterior walls, the Court held that this was precisely the policy Miller Roofing paid for and signed, and the Court was constrained to apply the exclusion.

Clearly, a roofer is going to be performing work on the exterior of a structure. While insureds should always read the terms of their policies, a broker would be well advised that the best way to service such a client would be to see to it that exclusions such as the one the Court relied upon in Miller Roofing are removed or tailored as narrowly as possible so that the insured’s foreseeable work is not caught up in the breadth of the exclusion.

In the case of Kamco Supply Corp. v JMT Bros. Realty, LLC, the Appellate Division, First Department re-emphasized the harsh effect that a failure to abide by New York City’s home improvement contractor licensing statute can have. In Kamco, which was argued on appeal by this author, the homeowner retained a general contractor who turned out not to have the home improvement license required by Sections 20-386 and 20-387 of the New York City Administrative Code. The plaintiff was a suppler who entered into a contract with the unlicensed general contractor to furnish windows to the project. There was no contractual or other relationship between the supplier and the homeowners. The homeowners eventually terminated the general contractor and asserted various backcharges against the contract.

Subsequent to the termination, the plaintiff asserted a mechanic’s lien against the homeowners’ property and started a lawsuit to foreclose that lien. Early in the lawsuit, the homeowners moved for summary judgment dismissing the lien foreclosure action. In doing so, the homeowners argued that inasmuch as the supplier’s lien rights were derivative of the general contractor’s (and even assuming that the backcharges did not subsume the amount otherwise left owing to the general contractor), the general contractor could not recover as a matter of statute and, therefore, there could be no lien fund from which subcontractors and suppliers could recover. The trial court dismissed the supplier’s lawsuit and the Appellate Division affirmed. Citing New York City’s home improvement contractor licensing requirements, the appellate court held that where a contract has been rendered unenforceable, there can be no funds due or owing from the homeowner to the unlicensed general contractor which would support a subcontractor’s (or supplier’s) mechanic’s lien. Accordingly, in the absence of a direct contractual relationship between the homeowners and the supplier, the supplier could not recover from the homeowners.

As affirmed by the Appellate Division’s holding in Kamco, the homeowners could not be compelled to remit payment to the unlicensed general contractor. As a subcontractor’s or supplier’s lien rights are derivative of the general contractor’s right to receive payment, where the general contractor has no right to receive payment as a matter of statute, there can be no lien fund from which subcontractors and suppliers may recover-even if those subcontractors and suppliers have their own licensing in order. Accordingly, a subcontractor or supplier would be well advised to research the licensing status of those entities with whom they contract because their lien rights may be adversely impacted.

If you would like more information on this issue or any other construction related issue, please contact Welby, Brady & Greenblatt, LLP at (914) 428-2100.

Alternative Dispute Resolution (“ADR”), including mediation and arbitration, is an 
efficient way of resolving disputes at an early stage, without the need for an expensive and costly 
litigation. This is particularly true in the construction industry, where the disputes are often 
technical and require the involvement of persons with specialized knowledge or training. Aside 
from its cost and time benefits, ADR offers the participants the opportunity to place their dispute 
before a neutral who has experience in the construction industry, rather than 6 random people 
from the community whose excuses for getting out of jury duty weren’t acceptable to the judge 
that day. 
 
 In electing to go the ADR route, it must be noted that parties are giving up their 
Constitutional rights to bring their dispute to the Courts, and to have the substantive and 
procedural laws of the state (or nation) applied. Accordingly, it has long been settled that any 
agreement to arbitrate must be clear, explicit and unequivocal. This is normally not an issue 
where parties to an existing dispute agree to go to arbitration. However, many cases which are 
ultimately resolved by ADR were designated to be sent to that forum long before any dispute 
arose; they were sent to ADR pursuant to agreements which were made months, or perhaps years 
ago. 
 
 In the subcontracting context, many contractors see the expediency in signing a short 
agreement between the subcontractor and the general contractor (which contains specific clauses 
relevant only to those parties, such as the value of the subcontract), and incorporating the general 
contractor’s prime contract for the remaining provisions. Well, what happens when that prime 
contract contains an ADR provision? The Appellate Division, Second Department, in Navillus 
Tile, Inc. v Bovis Lend Lease LMB, Inc. (74 AD3d 1299, 1302, 904 NYS2d 207, 211 [2010]), 
reminds us that: 
 
“Under New York law, incorporation clauses in a construction subcontract, 
incorporating prime contract clauses by reference into a subcontract, bind a 
subcontractor only as to prime contract provisions relating to the scope, quality, 
character and manner of the work to be performed by the subcontractor.” 
 
 Because an ADR provision in a contract does not relate to the “the scope, quality, 
character and manner of the work to be performed by the subcontractor”, and, more importantly, 
because an ADR provision involves the waiver of significant, Constitutional rights (to proceed 
before a Court of Law), a subcontract incorporating a prime contract with an ADR provision 
must be clear that the parties are specifically intending to incorporate that ADR provision, and 
that they specifically intend to arbitrate or mediate their disputes. 
 
 Examples of other clauses of prime contracts which do not relate to the “the scope, 
quality, character and manner of the work to be performed by the subcontractor”, and, 
accordingly, are not incorporated by reference absent a specific indication of the intent to be 
bound by such provisions are: specific record keeping requirements (see Navillus Tile, supra); 
indemnification requirements (see Waitkus v Metro. Housing Partners, 50 AD3d 260 [1st Dept 2008]); obligations to procure insurance (see Bussanich v 310 East 55th Street Tenants, 282 
AD2d 243 [1st Dept 2001]); clauses setting forth a specific forum in which to bring a lawsuit (see 
George Hyman Construction Co. v Precision Walls, Inc. of Raleigh, 132 AD2d 523 [2d Dept 
1987]); and provisions relating to the termination of the contract (see Gulf Ins. Co. v Fidelity & 
Deposit Co. of Maryland, 16 Misc3d 1116[A][Sup Ct, NY Co. 2007]). 
 
 In closing, contractors and subcontractors should be reminded that not every provision of 
a prime contract will make the jump over to the subcontract, despite a clause in the subcontract 
purporting to do exactly that. 

On December 28, 2009, New York City Mayor Michael Bloomberg signed comprehensive legislation dubbed the "Greener, Greater Buildings Plan." The purpose of this legislation is to reduce New York City's carbon footprint by five percent. In the first of this three part series, we will discuss several important provisions of the new New York City Energy Conservation Code (the NYCECC), and what it means to property owners and builders.  

The enactment of the NYCECC is intended to close what was perceived to be a loophole in the Energy Conservation Construction Code of New York State (the State Code), adopted in 2007. The State Code applies only to new construction and renovation work where more than half of a building's system of subsystems were replaced. Thus, everything from simple remodeling work to extensive renovations and additions (provided that the new work used more than half of the building's existing systems) were exempted from compliance with the State Code. As a result of the enactment of the NYCECC, now any construction which requires a building permit including residential construction must be analyzed for energy efficiency to the standards set forth under the State Code.  

In order to comply with the NYCECC, an applicant for a building permit must have the lead design professional submit three items along with the permit application: 1) a statement that to the best of [the design professional's] knowledge, belief and professional judgment; [the plans and specifications submitted] are in compliance with the NYCECC, or that the project is exempt from its requirements; 2) the results of an energy analysis (which must include the building's envelope, its service water heating, lighting and power systems, and its mechanical systems) comparing the proposed project to the requirements of the NYCECC and setting forth how the project meets the NYCECC requirments; and 3) construction drawings which demonstrate conformance with the NYCECC. It is important to note that this submission is an ongoing process. The analysis and construction documents must be updated to account for any substitutions and changes made during the course of construction.  

This Legal Alert is supplied for informational purposes only and is not intended to constitute legal advice. You should consult competent legal counsel depending on the specific issues of your matter.  

1 Consult Real Property Tax Law § 1802(1) (Class One) for a full definition of exempt property.  

2 “Energy” is defined as electricity, natural gas, fuel oil, and steam.  

3 With some exceptions, a “city building” is a building that is more than 10,000 square feet that is owned by the city or for which the city regularly pays all or part of the annual energy bills.   

4 Ratings generated by the benchmarking tool for a covered building that contains a data center, television studio, and/or trading floor that together exceed ten percent of the gross square footage of any such building shall not be disclosed until the office of long-term planning and sustainability determines that the benchmarking tool can make adequate adjustments for such facilities.  

5 Not applicable to separately-metered dwelling units.   

Past Due Wages: As of November 24, 2009, the Commissioner of Labor will be empowered to prosecute claims to collect underpaid or unpaid wages before administrative judges within the Department of Labor. This process is similar to that which is used to determine contested unemployment eligibility claims. The legislation also permits the judge to impose an additional assessment against the employer (“liquidated damages”), unless the employer can demonstrate that it had a good faith basis to believe that its underpayment of wages was legal. Previously, the Commissioner of Labor was required to prosecute such claims by starting a civil lawsuit, and the burden required to recoup liquidated damages was the employee’s (by demonstrating that the employer’s underpayment was willful).  

Employer Retaliation: In connection with the past due wage legislation, there has been an increase in the penalties which can be imposed upon an employer who is determined to have retaliated against an employee for complaining of a wage or other Labor Law violation (by, for example, firing the employee or reducing the employee’s work hours or benefits, or by reassigning the employee to a less favorable task or position). These penalties, which previously had a range of $200 to $1,000, now range from $2,000 to $10,000. The penalty provision has also been expanded to include officers and agents of limited liability companies and partnerships.  

New Hire Notice: Commencing October 26, 2009, employers will be required to notify all newly hired employees, in writing, of: 1) their base rate of pay; 2) their overtime rate of pay; and 3) the employer’s regular paydays. The employer must also obtain from the new employee a written acknowledgment of the receipt of this notice.  

If you have any questions about the information set forth in this Legal Alert, call us at 
914-428-2100.  Please understand that this alert provides general information only.  It is not intended to provide legal advice. We encourage you to contact an attorney should you desire to discuss specific situations for which you may need legal advice.