Massachusetts High Court Voids Advance Waiver of Subcontractor Bond Rights

Last month, the Massachusetts Supreme Judicial Court held that a contract provision that required a subcontractor to waive its bond rights for work to be performed on a public project was void and unenforceable.

The court explained its ruling by noting, among other things, that the bond requirement set forth in M.G.L. c. 149 § 29 was designed to benefit subcontractors who work on public construction projects, as these subcontractors lack the right obtain a mechanic's lien. The court noted that Massachusetts already prohibits advance mechanic's lien waivers, and the same policy reasoning should apply to prohibit advance waivers of bond claims.

Contractors and subcontractors should be aware that the court only discussed claims involving bonds supplied pursuant to M.G.L. c. 149 § 29, and this ruling does not necessarily apply to other payment bonds.

A copy of the court's decision in the matter of Costa v. Brait Builders Corporation and Arch Insurance Company (SJC-11011) can be found here. For further information, please contact Ken Rubinstein at 617-226-3868 or William Whitney at 603-410-1571

The Nuts and Bolts of Accountants Liability Insurance

Most wise accountants purchase professional liability insurance to protect them against claims that may arise during the course of their professional duties.  This insurance will generally protect accountants regardless of whether the claims occur in the context of tax, planning, auditing, or other accounting work.  Nonetheless, Accountants Liability Insurance will not necessarily protect against all claims that can arise, and while insurance carriers are usually required to defend their insureds from claims that are even tangentially related to an accountants’ practice, the insurance carrier may not be required to pay any judgment or settlement that results.

Most policies exclude certain types of claims altogether.
Accountant’s professional liability policies cover only certain claims – typically described as claims for damages caused by any act, error, omission or personal injury arising out of the rendering of professional accounting services.  Should such a claim appear, consult your broker.  You may have other policies that could apply.  Your broker will tell you, though, that APL policies contain several specific exclusions from coverage.

Criminal and similar acts are excluded.
Physically or sexually assaulting a client does not constitute “professional services.”  Defrauding a client with a Ponzi scheme or lying to a client about the returns an accountant failed to file will also likely fail the test of coverage.  If the claim includes these allegations, the insurer will probably defend the case but will otherwise reserve its rights.  A final adjudication of such wrongful acts will undo your coverage.

Contractual claims are excluded.
By including allegations of breach of contract, a claimant may benefit from a longer statute of limitations.  While many APL policies exclude “contractual liability,” the caselaw increasingly blurs the distinction between the actions.  Experienced attorneys for claimants take this into account when drawing up complaints.

New Hampshire to Allow Liens for Professional Design Services

The New Hampshire Legislature has passed, and the Governor has signed, a bill amending Chapter 447 of the New Hampshire Statutes which covers Liens for Labor and Materials. The amended statute will allow those who provide "professional design services" to file and perfect mechanic's liens for nonpayment of work related to a construction project. Formerly, the statute only applied to those who performed labor or provided materials for a construction project. The statute defines "professional design services" to include "any services provided by a licensed architect, licensed landscape architect, licensed engineer, permitted septic designer, certified wetlands scientist, certified soil scientist, or licensed land surveyor that is directly related to the improvement of real property." The amendment also extended the right to file and perfect liens to subcontractors who provide professional design services. If you have any questions regarding this development in the law, please contact Kenneth Rubinstein at (603) 410-1568 or William Whitney at (603) 410-1571.

Expert's Testimony that Lawyer Violated Rules When He Loaned Money to Client is Excluded, As Violating the Role of the Jury

Prospective opinions from an expert, that a lawyer violated the Rules of Professional Conduct when he loaned money to a client during certain business transactions, documenting the loans with promissory notes, were excluded from the collection action against the debtor by Judge Richard McNamara, sitting in the Merrimack County (New Hampshire) Superior Court Business Session.  Order, May 16, 2012, Murdock v. Nalbandian, 218-2008-CV-1062.

Murdock was treasurer or sole general partner of entities that loaned money to Nalbandian.  Murdock eventually filed suit to collect.  In response, Nalbandian alleged that Murdock violated the Rules when he entered into the contracts, and they were void as a matter of public policy as a result.  The proffered expert so concluded.

In his ruling, Judge McNamara observed that:

1. expert testimony is admissible when it will aid the jury in understanding the evidence or making a decision on a pertinent issue
2. experts can testify on the ultimate issue in a case; but
3. no witness, expert or otherwise, may testify to conclusions of law, as this would be inconsistent with the role of the judge and jury
4. the Rules have the force and effect of law; and
5. to determine whether a violation has occurred, one need look no further than the Rules themselves.

Finding that the expert’s testimony would “resonate as a lawyer’s closing argument rather than an expert analysis,” the judge ruled the testimony would usurp the role of the jury, and excluded most of the opinions.

For more information on Professional Liability legal issues, such as attorney discipline, contact attorney Bill Saturley at 603.410.1500 or visit Preti Flaherty's Professional Services Practice Group page to learn more.

Are lawyers easily duped? Recent Internet hoaxes suggest they may be

An article in the New Hampshire Bar Journal’s Winter issue (Volume 52, Number 4), originally written for a Texas journal by Attorney Ellen Pitluk, collects some examples of this wave of scams, and suggests ways to avoid being duped. 

At the request of the Journal’s staff, Preti attorney William Saturley revised portions of the article to reflect the particular New Hampshire Ethics rules that are triggered by the fact patterns described in the article, “Client or Con?  Con Artists Excel on the Internet at Making Lawyers Their Mark.”

To learn more about New Hampshire Ethics rules, contact William Saturley at wsaturley@preti.com.

New Hampshire Attorney Liability Case Raises Questions About Doctrine of Quasi-Judicial Immunity: Should Immunity Apply to Guardians Ad Litem?

In an opinion issued April 20, 2012, in Suprenant v. Mulcrone, the New Hampshire Supreme Court upheld the dismissal of claims against a guardian ad litem (“GAL”) under the doctrine of absolute quasi-judicial immunity.  The GAL had been appointed by the Superior Court in a contested marital matter to investigate how parenting time and residential responsibility should be divided between a child’s parents.  The GAL stated in her report to the Court that it was “troubling” that the father had not disclosed to the GAL prior charges and convictions for sexual assault, resisting arrest, criminal trespassing, kidnapping and other crimes.  The father filed suit against the GAL, alleging that the statements in her report were negligently made and breached an implied contract with the Plaintiff to observe reasonable standards of care and fair dealing.  Preti Flaherty’s Professional Services Group represented the GAL and moved to dismiss the father’s claims, on the ground that the GAL’s actions were taken in her capacity as a court-appointed GAL and that she was therefore immune from liability under the doctrine of absolute quasi-judicial immunity.  The trial court granted the motion to dismiss.

The Supreme Court affirmed the dismissal of plaintiff’s claims, reasoning that because the GAL’s actions that were allegedly negligent and in breach of an implied contract were “closely associated with the judicial process,” judicial immunity applicable to the judge extended to the acts of the GAL.  The Court noted that the immunity afforded a GAL acting within the scope of her quasi-judicial duties is “absolute,” so that the immunity applies even if the GAL is alleged to have acted maliciously or corruptly.

The Supreme Court’s decision in Suprenant v. Mulcrone has been criticized by some as an unwarranted extension of judicial authority.

Learn more about Preti Flaherty’s Professional Services Practice Group here or contact attorney Bill Saturley or Mark Puffer for more information.

The Growing Risk of Personal Liability for Senior Executives

Executives face significant risks as they conduct business in an increasingly challenging and litigious environment, and as business leaders struggle to help their business recover from the Great Recession, personal liability for senior executives is fast becoming a growing concern.  Construction executives frequently believe they have no personal risk in operating their businesses.  Unfortunately, they may learn a costly lesson when they incur defense costs or, worse, pay settlements, judgments, or even face criminal liability.  There are countless potential bases for personal liability.  Many stem from the construction work itself, while others are tied more to the management activities.  The following are a few of the growing areas that should concern senior executives:

• Errors and Omissions and Insurance Gaps - It is well known that architects and engineers can be personally liable for any performance that deviates from the standard of care in the industry.  However, most professionals are unaware of the many exclusions and conditions within their policies, and professionals can easily find themselves without coverage if they are not careful.  In addition, as the construction community strives for more collaboration, contractors may find themselves without insurance coverage to the extent that they provide design-assist services, as most commercial general liability and builders risk policies exclude this risk, leaving contractors who perform design services unprotected.

• Foreign Corrupt Practices - As construction firms expand their business overseas, they frequently encounter cultures where bribery is an accepted business practice.  Regardless of the foreign culture, such conduct could expose the executives involved to civil or even criminal penalties at home, as U.S. authorities clamp down on U.S. firms involved in corruption overseas.