The 2015 Mississippi Legislature has made a number of changes to the statutes governing the Mississippi State Board of Contractors, Miss. Code Ann. §§ 31-3-1, et seq. and Miss. Code Ann. §§ 73-59-1, et seq. The enumerated changes are found in Senate Bill 2508 [click here for SB 2508], which have been sent to the Governor for his signature. Listed below are some of the changes:

     

  • Demolition is added to the list of activities covered by the statute for which a certificate of responsibility will be required.

     

  • The thirty (30) day waiting period for an application for a Certificate of Responsibility has been removed.

     

  • The number of entities for which a qualifying party may appear is limited to three (3) unless special permission is granted.

     

  • Grants the Board of Contractors to issue citations to any commercial or residential contractor preforming work with a Certificate of Responsibility and may order the work to be stopped.

     

  • The definition of "resident contractor" has been clarified to include a nonresident person, firm or corporation that has been qualified to do business in this state and has maintained a permanent full-time office in the State of Mississippi for two (2) years prior to submission of the bid.

 

     

  • Board of Contractors now has the authority to issue public reprimands for violations of the statutes and/or regulations.

     

  • The appeal process for commercial and residential contractors from a decision of State Board of Contractors has been clarified and defines content of administrative record which is to be considered on appeal.

     

  • The Board of Contractors has that authority to require residential builders and remodelers issued licenses after July 1, 2015, to have two (2) hours of continuing education per year.

Commercial and residential contractors and subcontractors should read these amended statutes and check the website for the Mississippi State Board of Contractors at http://www.msboc.us/ for any changes to its Rules and Regulations resulting from these legislative changes.

Contractors frequently require subcontractors to specifically name the contractor as an additional insured in the subcontractors’ commercial general liability (CGL) policies. The "proof" of compliance frequently provided to the contractor is the Certificate of Insurance. Contractors can generally rely upon benefits of being an additional insured when there is a problem with the subcontractor’s work that causes property damage. It may also provide the contractor with the cost of a defense where it has been sued by the owner for the subcontractor’s defective work and property damages. However, timing is critical. Both the Mississippi Supreme Court and the Firth Circuit Court of Appeals have opined that "ongoing operations" coverage may not give the contractor coverage as an additional insured for damage that arises after the subcontractor has completed its work.

In Noble v. Wellington Assoc., Inc, [Link to Decision] the contractor hired a subcontractor to perform site work for a home. After the home was completed the owners experienced settlement and substantial cracks in the home. The contractor claimed the insurance carrier had a duty to defend it against claims for defective construction under the subcontractor’s CGL policy as an additional insured. The insurer argued that the defects did not develop until after the subcontractor had completed its site work and there was no duty to defend or coverage. The contractor argued it was the subcontractor’s "ongoing operations" during construction that ultimately resulted in the damage to the home. The Mississippi Supreme Court concluded "in order for ‘ongoing operations’ to have any meaning, it cannot encompass liability arising after the subcontractor’s work was completed".

The same conclusion was reached by the Fifth Circuit Court of Appeals in Carl E. Woodward, L.L.C v Acceptance Indemnity Insurance Company. [Link to Decision] Here, the allegation was that the subcontractor’s failure to comply with the plans and specifications caused the construction defect which manifested after a condominium complex was completed. The subcontractor’s additional insured endorsement limited coverage to "ongoing operations". The Fifth Circuit found, much like the Court in Noble, that "liability for construction defects, while created during ongoing operations, legally arises from completed operations." The contractor was therefore left to pay the defense cost when it believed it would be protected by the subcontractor’s additional insured endorsement.

The lesson to be learned from these decisions is that contractors must obtain a copy of the insurance policy and additional insured endorsement to ensure that there is coverage not only for "ongoing operations" but also "completed operations". Relying upon a certificate of insurance alone as evidence of coverage may lead to an unhappy finding that there is no coverage at the very time you need it. Further, absent an additional insured endorsement that includes "completed operations" coverage, the contractor may be left without the insurance coverage for defective construction by its subcontractor.

Do you want an attorney that defends personal injury claims or a construction lawyer representing you where there has been an allegation of defective construction associated with the work of a subcontractor?  Obviously, you want an attorney whose practice is concentrated in the area of construction law.

As a preliminary matter, claims asserted by an owner against its general contractor for alleged defective construction are typically complex and costly.  Even "simple" payment disputes between an owner and general contractor can and frequently do evolve into allegations of defective construction by the owner against the general contractor to justify withholding payment.

If an allegation of defective construction is made against the general contractor due to work performed by its subcontractors, the general contractor should consider submitting such a claim under its Commercial General Liability ("CGL") Policy and notify the subcontractor whose work has been called into question and its insurance carrier.  As a general contractor, you should already have a copy of your subcontractor’s certificate of insurance identifying you as an additional insured under the policy before allowing the subcontractor to commence work.

If your insurer denies coverage for the alleged defective construction but agrees to provide you with a defense under reservation of right, you have the right to select a "construction attorney" to defend you against the defective construction claim and your insurance carrier must pay for that defense.  Do not let your insurance adjuster "assign" you to an attorney This is a construction defect case and not personal injury or a car wreck case.  There will likely be issues concerning the interpretation of plans and specifications, scheduling and coordination of the work, the standard of care required to be exercised by various parties involved in the dispute, construction industry standards and construction and design experts.  Make the right choice; retain a lawyer with construction litigation experience to defend you against allegations of defective construction not a personal injury defense attorney.

Less than one week after placing readers on alert about the pending decision of Architex Association, Inc. v. Scottsdale Insurance Company, the Mississippi Supreme Court has issued its decision in that case addressing the following narrow issue with regard to a Commercial General Liability ("CGL") policy:

Whether the intentional act of hiring subcontractors by an insured general contractor precludes the possibility of coverage?

The Court found "that under Scottsdale’s CGL policy, the term ‘occurrence’ cannot be construed in such a manner as to preclude coverage for unexpected or unintended ‘property damage’ resulting from negligent acts or conduct of a subcontractor unless, otherwise excluded or the insured breaches its duties after loss." Slip Op. at page 27. Thus, "[f]aulty workmanship, defective work, et al., may be accidental, intentional, or neither." Slip Op. at page 23.

The United States Court of Appeals for the Fifth Circuit in ACS Construction Company v. CGU, 332 F.3d 885 (5th Cir. 2003) had previously concluded that since hiring a subcontractor is a deliberate and intentional decision by a general contractor, any subsequent act by the subcontractor must be intentional and not covered under the definition of an "occurrence". The insurance industry has used ACS to deny coverage for defective work by subcontractors, even though many general contractors purchased policies and paid premiums with the understanding that their CGL policy would provide coverage.

The Mississippi Supreme Court’s decision in Architex brings clarity to the issue stating that "[w]hile the alleged ‘property damage’ may have been ‘set in motion’ by Architex’s [the general contractor] hiring of the subcontractor, the ‘chain of events’ may not have ‘followed a course consciously devised and controlled by [Architex], without the unexpected intervention of any third person or extrinsic force.’" In other words, hiring a subcontractor will not preclude coverage under a CGL policy.

Even if the insurer does not unequivocally agree that there is coverage under the CGL policy, the insurer may agree to defend the general contractor under reservation of rights. This means the insurer will pay the general contractor for the cost associated with defending the claim of defective workmanship. This does not mean the insurer gets to select the attorney to defend the claim, it means the insurer must pay for the attorney the general contractor selects to defend the claim. Therefore, it would be wise for the general contractor to select a construction lawyer to defend the claim rather than the insurer’s preferred attorney who is likely to have experience in defending slip and fall cases and car wrecks and not complex construction defect cases.

The Architex decision is good news for general contractors. However, the decision also admonishes general contractors that there are other reasons for denial of coverage such as failure to give timely notice of a potential claim. Slip Op. at page 12, fn. 11. This means that general contractors should place their insurance carrier/agent on written notice of any potential claim for which the CGL policy might arguably provide coverage. Otherwise, coverage may ultimately be denied.

The Mississippi Supreme Court has decided to retain the case styled Architex Association, Inc. v. Scottsdale Insurance Company; Case No. 2008-CA-01353. The construction industry is hopeful that the Mississippi Supreme Court will provide some clarity in the area of insurance coverage for defective construction under CGL policies. Several years ago, the United States Court of Appeals for the Fifth Circuit in ACS Construction Company v. CGU, 332 F.3d 885 (5th Cir. 2003) muddied the waters when it held:

Under Mississippi law, Moulton [Allstate Ins. Co. v. Moulton, 464 So.2d 507 (Miss. 1985)] and Omnibank [United States Fidelity & Guaranty Co. v. Omnibank, 812 So.2d 196 (Miss. 1996)]make clear that in a CGL insurance policy which defines an "occurrence" as an "accident," coverage is triggered if the underlying act was intentional and deliberate. These cases also make clear that an "occurrence" defined as an "accident" in a CGL insurance policy does not refer to the unintended consequences of the act. Thus, the district court did not err when it applied Moulton and Ominbank and concluded that ACS’s intent to subcontract with Chamberlin/Southern and its intent to install the waterproofing membrane to the bunker roofs did not constitute an "occurrence" under its CGL insurance policy with CGU to trigger coverage. For the foregoing reasons we AFFIRM the judgment of the district court.

After ACS, the insurance industry became strident in its position that there was no coverage under the CGL policy for defective work by a subcontractor because such defective work did not constitute an "occurrence" thereby triggering coverage under the CGL policy. There are a number of jurisdictions that have confronted the issue with differing outcomes. However, there is currently no definitive Mississippi decision which specifically addresses this issue.

The issues which the Mississippi Supreme Court have been asked to address by the construction industry in Architex are as follows:

Whether unexpected, unforeseen and unintended defects in a subcontractor’s work, resulting in unexpected, unforeseen and unintended property damage, is an "occurrence" as defined in a CGL policy?

Whether a CGL policy written on the 1986 standard form that includes an exception from exclusion for property damage arising out of the work of a subcontractor provides completed operations coverage if that subcontractor’s work proves to be defective and causes property damage?

Amicus briefs have been filed by the Associated General Contractors of America; the Associated General Contractors of Mississippi, Inc.; Associated Builders and Contractors, Inc. Mississippi Associated Builders and Contractors, Inc.; the Mississippi Asphalt Pavement Association, Inc. and the American Subcontractors Association, Inc. and the American Subcontractors Association of Mississippi, Inc. Pursuant to Miss. Code Ann. §9-4-3, the Mississippi Supreme Court is required to render decisions on appeal within 270 calendar days after final briefs are filed, which was June 17, 2009. Accordingly, a decision from the Court should be issued sometime in April 2010. Stay tuned.