Wisconsin. One just can\u2019t help but think of cheese, beer, and the Green Bay Packers (well, two out of three isn\u2019t bad). Construction law probably does not immediately spring to mind. As competition within the industry continues to increase, however, larger contractors and other construction professionals often find themselves looking beyond traditional territories for challenging and profitable projects. In order to stay competitive, industry professionals must acquaint themselves with the evolving construction laws in these new markets.<\/p>\n
The construction industry in Wisconsin, similar to nearly all Midwestern states, continues to enjoy the recent boom brought about by low interest rates and general economic stability. More construction usually is accompanied by more construction laws. The following Briefing Paper will address a number of recent developments in Wisconsin construction law as generated by both the Wisconsin Appellate Courts and the State Legislature.<\/p>\n
\nEffective June 17, 1998, Wisconsin\u2019s requirements for bonding on public contracts were revised as part of a state budget bill [1997 Act 237, \u00a7\u00a7 609-27]. In Wisconsin, bonding requirements are determined by: (1) the type of governmental entity contracting the work; and (2) size of the project. Wis. Stat. \u00a7 779.14. The requirements can be summarized as follows:<\/p>\n
State Projects:<\/p>\n
1. Small ($10,000 – $100,000)<\/p>\n
-Direct payments to subs or by joint payee draft to prime and subs (not required for contracts with municipalities relating to transportation facilities, parking lots, bridges)<\/p>\n
– Contracts must comply with written standards of Department of Administration which include criteria to determine need for payment or performance assurances<\/p>\n
2. Medium ($100,000 – $250,000)<\/p>\n
– Direct payments to subs or by joint payee draft to prime and subs (not required for contracts with municipalities relating to transportation facilities, parking lots, bridges)<\/p>\n
– Contracts must comply with written standards of Department of Administration which include criteria to determine need for payment or performance bond or other types of assurances<\/p>\n
\n3. Large (over $250,000)<\/p>\n
– Payment or performance bond required<\/p>\n
\nLocal Projects:<\/p>\n
The same requirements as for State Projects with the exception of reduced dollar contract thresholds (Small $10,000 – $50,000, Medium $50,000 – $100,000, and Large $100,000+). All public contract thresholds are to be indexed through biennial adjustments made by the Wisconsin Department of Workforce Development based on changes in construction costs since June 17, 1998. No adjustment will be made if a change would be less than 5%.<\/p>\n
\nTheft by contractor, as generally defined, is a contractor\u2019s intentional diversion of an owner\u2019s funds to sources unrelated to the project\u2019s labor and material expenses. At least three (3) Wisconsin Statutes address the issue of contractor theft. As one might expect, contractors have been successfully prosecuted under the state criminal theft statute. Wis. Stat. \u00a7 943.20. Chapter 779 (Liens) of Wisconsin Statutes, in separate provisions, discusses the civil liability aspects of contractor theft. Wis. Stat. \u00a7\u00a7 779.02(5) and 779.16. Recently, the Wisconsin Court of Appeals considered whether a general contractor may be held personally liable to a subcontractor under Wis. Stat. \u00a7 779.02(5).<\/p>\n
In Capital City Sheet Metal, Inc. v. Voytovich, the plaintiff-subcontractor contracted with the defendant-general contractor to install a roof on a $148,000 residential home. After installation of the roof, the homeowner canceled her contract with the general contractor. The general contractor had received $125,771 from the owner prior to cancellation, while having disbursed $125,777 to various project subcontractors. Although it had received some payment from the general contractor, the plaintiff-subcontractor sued under Wis. Stat. \u00a7 779.02(5) for the subcontract balance. The subcontractor sought to hold the general contractor\u2019s president personally liable for the outstanding $3,831.86.<\/p>\n
In analyzing the subcontractor\u2019s claim, the Wisconsin Court of Appeals acknowledged that: (1) Wis. Stat. \u00a7 779.02(5) imposes a trust in favor of due (or soon to become due) claims of subcontractors and suppliers on all funds paid by the owner to the general contractor; and (2) imposes personal liability on a general contractor for a breach of that trust. In reversing the \u201cpersonal liability\u201d portion of the trial court\u2019s judgment, the appellate court determined that the general contractor\u2019s president had not violated the statute. Despite acknowledging that the subcontractor had not received full payment, the Capital City court held that Wis. Stat. \u00a7 779.02(5) imposes no such requirement. As all of the homeowner\u2019s funds were disbursed to persons furnishing labor and materials to the project, no impropriety had occurred. Although not a concern in Capital City, the Wisconsin Court of Appeals further noted that the general contractor would not have run afoul of the theft by contractor statute even if some of the homeowner\u2019s funds were used to pay its own project expenses.<\/p>\n
In summary, as long as a contractor performing work in Wisconsin applies payments received for project work toward labor and materials expenses for that project, neither criminal nor civil theft by contractor statutes pose any concern.<\/p>\n
\nAlthough construction disputes involve many types of insurance policies, the cornerstone of a contractor\u2019s insurance portfolio is the Commercial General Liability policy (\u201cCGL policy\u201d). The CGL policy is geared to protect the insured (contractor) from the consequences of third party claims. Despite decades of insurance litigation, in most instances, the determination of whether coverage exists under a contractor\u2019s CGL policy remains clouded. The struggles inherent in the evolution of insurance coverage and interpretation, in the context of construction litigation, are reflected in a January 1999 decision of the Wisconsin Court of Appeals.<\/p>\n
In Jacob v. Russo Builders, the Wisconsin appellate court interpreted a business risk exclusion in a CGL policy issued to a subcontractor who performed defective masonry work on a residence. Insufficient mortar between bricks caused significant flooding throughout the home\u2019s ceiling and walls. The business risk exclusion at issue in Jacob precluded coverage for damage to the subcontractor\u2019s work or product. Accordingly, the affected homeowners and the subcontractor agreed that the $102,470 required to repair or replace the defective work was not covered by the CGL policy. Rather, at issue were other \u201ccategories\u201d of property damaged by the subcontractor\u2019s defective masonry. Specifically, the homeowners sought to recover approximately $85,000 under the subcontractor\u2019s CGL policy for: interior damage, driveway repair, expert fees, relocation expenses, temporary repairs, landscaping, refinancing, and loss of use and enjoyment of the residence. The $85,000 figure had previously been determined by a jury in the homeowners\u2019 liability action against the general contractor and subcontractor.<\/p>\n
On appeal, the subcontractor\u2019s CGL carrier argued that a finding of insurance coverage for the \u201cattendant business risks involved with replacing and repairing the damages associated with the defective product or work\u201d would functionally convert the policy into a performance bond. Conversely, the homeowners asserted that coverage exists under the CGL policy because the $85,000 award reflects collateral damages related to \u201cother\u201d property (tort-based economic losses).<\/p>\n
The Jacob court\u2019s ruling epitomizes the somewhat complex and arbitrary decision-making process often accompanying insurance coverage disputes. First, the Wisconsin Court of Appeals denied coverage for driveway repair and landscaping as such were \u201csimilarly related\u201d to the subcontractor\u2019s defective work. Second, relocation costs, temporary repairs, loss of use and enjoyment of the residence, and interior damage were determined by the court to be something other than a \u201cdirect consequence\u201d of repairing or replacing the defective work. Finally, in remanding the case back to the trial court, the appellate court ruled that the expert fees and refinancing costs issues fell into a \u201cgray area\u201d which required additional testimony and review. In short, the Jacob court answered \u201cno,\u201d \u201cyes,\u201d and \u201cmaybe\u201d in addressing whether the homeowners\u2019 damage claims were covered. In arriving at its decision, however, the Wisconsin Court of Appeals specifically rejected the CGL carrier\u2019s argument that the residence itself was a single \u201cproduct\u201d (as to completely disallow the homeowners\u2019 \u201cother property\u201d tort claims).<\/p>\n
\nThe decision to procure and perform work in new territories brings with it both excitement and challenge. For every professional employed in the construction industry, each jurisdiction offers both familiar and unique hurdles. If considering work in Wisconsin, or in any other unfamiliar jurisdiction, it is in your interest to gain at least a rudimentary understanding of its laws and their application. In Wisconsin, and all other jurisdictions, an ounce of prevention is still worth a pound of cure.<\/p>\n
This discussion is generalized in nature and should not be considered a substitute for professional advice. \u00a9 FWH&T<\/em><\/span><\/p>\n","protected":false},"excerpt":{"rendered":" Wisconsin. One just can\u2019t help but think of cheese, beer, and the Green Bay Packers (well, two out of three isn\u2019t bad). Construction law probably does not immediately spring to mind. As competition\u2026<\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7],"tags":[],"class_list":["post-634","post","type-post","status-publish","format-standard","hentry","category-briefing-papers"],"acf":[],"yoast_head":"\n