Best of WBA Legal Hotline from 2013

The Wisconsin Builders Association Legal Hotline is a service provided for the Wisconsin Builders Association by the law firm of Axley Brynelson, LLP. Legal Hotline answers should be considered a general statement of applicable legal information. Given this format, it is impossible to fully address all potential legal issues which might apply in any particular situation. A determination of any individual’s legal rights in a transaction can only be obtained after a complete analysis of the law and its applicability to the particular fact situation. 

Please contact Axley Attorney Robert Procter at 608.283.6762 or rprocter@axley.com if additional information is needed.

 

 

Building Permits

Worker’s Compensation Insurance

Certificate of Insurance

Statute of Limitations for Construction Defects

Bathroom Facilities on Construction Sites

Apartments

Liens

Variances from Uniform Dwelling Code


Building Permits

If I am the contractor that pulled a building permit for the owner (prepared the construction plans, signed the certification, etc.), can the owner proceed with the project using the same building permit and another contractor?

The answer is most likely yes, depending on the municipality. Once the permit is issued, then the construction may begin. Once the project is complete, then a certificate of compliance or similar document must be filed stating the project was constructed in compliance with the filed plans. Obviously, you would not sign the certificate at the end of construction if you were not the contractor. However, we do not know of any requirements that the permit be amended if there is a change in the supervising professional.

As the contractor that pulled the building permit, am I liable to the municipality or the owner if another contractor completes the project?

There may be a theory that would allow the municipality to hold you responsible, however, as a practical matter your liability runs to the owner, and the owner is liable to the municipality. In such case, you should expect a dispute between you and the new contractor as to who is to blame for the problem.

How should I proceed if the owner has replaced me with another contractor?

You should make sure that your original agreement with the owner includes a provision that states if the owner uses another contractor to complete the project, the owner agrees that you have no liability for the plans, designs, etc., going forward (the point being the new contractor should review and take responsibility for the plans). Moreover, the owner should agree to amend the permit application to substitute the new contractor. You should then send notice to the governmental entity that you are no longer the contractor for the owner, and you are notifying the governmental entity that you should not be considered the supervising professional.


Worker’s Compensation Insurance

My insurance carrier demands my subcontractors carry  worker’s compensation insurance, even if the subcontractor is an independent contractor or sole proprietor because it is required under Wisconsin law. Is this correct?

This is not legally correct, but as a practical matter it is correct. As a legal, technical matter, a sole proprietor that qualifies as an independent contractor and has no employees does not have to carry worker’s compensation insurance, and an independent contractor that has no employees does not have to carry worker’s compensation insurance. In such a case, the general contractor is not required by law to ensure the sole proprietor or the independent contractor is carrying worker’s compensation insurance.

As a practical matter (and to your insurance agent’s point), it is not that simple of an issue.

One fact that causes confusion is how the term “employee” is used. As a general matter, there are different contexts when someone is legally an employee and when he/she are not. For example, the Department of Revenue uses a multi-factor test to determine whether someone is considered an employee for withholding purposes. The Department of Workforce Development uses a different multi-factor test to determine whether a person is an employee for purposes of worker’s compensation. The test for whether someone is an independent contractor for purposes of tax withholdings is easier to meet for employers than the test to determine whether someone is an independent contractor for worker’s compensation purposes.

Accordingly, someone can be an independent contractor for purposes of withholdings, but an employee for purposes of worker’s compensation. In fact, almost all real estate agents that work for brokers are considered independent contractors for tax purposes and employees for worker’s compensation purposes.

The general contractor is required to have worker’s compensation insurance for all employees. The presumption is anyone that works on the site is an employee of the general contractor. If a subcontractor can meet the multi-factor test, then the subcontractor will be considered an independent contractor, and its employees will not be considered employees of the general contractor for purposes of worker’s compensation.

However, if an employee of a subcontractor is injured and it is determined the subcontractor cannot meet the multi-factor test, then that injured worker will be considered an employee of the general contractor for purposes of worker’s compensation.

It does not matter whether the subcontractor represented to the general contractor that he met the requirements of being an independent contractor. The onus is on the general contractor to either: (1) include all workers at the site under the general contractor’s worker’s compensation policy, (2) ensure the subcontractor has a worker’s compensation policy that covers the subcontractor’s employees, or (3) confirm the subcontractor meets the definition of an independent contractor.

A good faith mistake or even outright fraud by the subcontractor will not excuse the general contractor from liability.

The best practice for general contractors to avoid potential liability is to require their subcontractors to carry worker’s compensation insurance and to require that each subcontractor provide a certificate of insurance establishing that they have worker’s compensation insurance.

Most insurance companies require that their insured general contractors require all subcontractors to carry worker’s compensation insurance. Insurance carriers require it because the insurance companies know as a general matter the general contractor will likely be responsible for any subcontractor that is not insured. In almost all cases, the subcontractor without a worker’s compensation policy will not meet the independent contractor test. More importantly, as a practical matter, if a worker is injured on the general contractor’s work site and the subcontractor doesn’t have a worker’s compensation policy, the worker will file a claim against the general contractor’s policy and the state may hold the general contractor responsible.

In other words, when a “sole proprietor” or “independent contractor” without coverage falls off the roof and is unable to work for a year, the “sole proprietor” or “independent contractor” will likely make a claim against the general contractor’s worker’s compensation policy, and the state will likely look to hold the general contractor liable.


Certificate of Insurance

How does a certificate of insurance work?

Generally, a certificate of insurance is a snapshot of the insurance coverage someone has at the time the certificate is issued. It will tell you the name of the insured, the name of any additional insured and the coverage amounts.

A certificate of insurance does not provide any coverage. If someone wants to be an additional insured (and have rights), then he/she needs an endorsement to the policy. Many builders and some insurance agents make the mistake of requiring that an owner or subcontractor provide a certificate of insurance showing the coverage rather than an endorsement providing the coverage. As insurance carriers say over and over again, read the certificate – it specifically says it doesn’t provide any coverage. It is just a summary of the coverage. Better yet, have your insurance agent review the coverage required by your contract and the certificate provided by the other party evidencing the coverage.


Statute of Limitations for Construction Defects

How long am I responsible to the owner for any alleged construction defects?

The statute of limitations for a construction contract depends on many different variables.

If you had a contract with an owner to build a house, then the standard statute of limitations as to construction defects is six years from the date of the breach; however, there are different factual scenarios that could lengthen or shorten whether a claim can be made by the owner.

The Wisconsin Builders Association’s form contract limits the remedy for any construction defect to the terms and conditions of the warranty, which means the time you would be generally responsible for an alleged defect would be for the length of the warranty you provide.

If the claim is being made by a non-owner for a personal injury, then there is a different set of statutes that apply. Generally, if the person is claiming a personal injury at the site, then the applicable statute of limitations is three years from the date of discovery of the defect.

If the person is making a claim that the contractor violated the Home Improvement Practices Act (Wis. Adm. Code § ATCP 110), then the applicable statute of limitations is six years from the date of discovery of the violation.

Finally, for any claim of a defect that is not otherwise governed by another statute of limitation, there is a 10-year statute of repose that will bar claims that arise out of improvements to real property after 10 years from the date of completion.


Bathroom Facilities on Construction Sites

Do I have to provide toilets on the job site?

The toilet requirement for job sites is an OSHA standard. At a job site of 20 or less, there must be one facility. For 20 or more employees, there must be one toilet seat and one urinal per 40 workers. For a job site of 200 or more, there must be one toilet seat and one urinal per 50 workers.

Would a gas station located nearby comply with the rule?

Probably not. If it is new construction without an available toilet for the workers to use, then there needs to be a portable toilet at the site or access to a toilet that allows for prompt access within 10 minutes. Most gas stations would not comply because they are not open to the public (only for customers).


Apartments

Can I advertise an occupancy limit for my apartment building?

There are two potential federal claims that may result from occupancy limits on an  apartment/duplex. First, there is a possible violation of the restrictions of advertising. Under the law, advertisements may not state an explicit preference, limitation or discrimination based on familial status. Advertisements may not contain limitations on the number or ages of children. Advertised occupancy limits generally violate this law.

Second, a person cannot refuse to rent to someone based on family status. There is often an issue of whether a landlord can limit the number of occupants per room. A landlord may limit the number of occupants based on the size, but there is no rule that fits all cases. For example, for a large one bedroom apartment where two adults will share the bedroom with an infant, a landlord probably cannot limit the number of occupants to two for the bedroom. However, for the same large bedroom apartment, a landlord may be able to prevent three grown adults from sharing the one bedroom.


Liens

What is a conditional lien waiver?

Well-drafted lien waivers are generally “conditional lien waivers.” It is important to understand how lien waivers work. A contractor or subcontractor can waive its lien rights at any time whether it is paid or is not paid. For example, if you give an unconditional lien waiver without receiving payment, then you waive your lien even if the owner does not provide payment or if the check is returned by the bank because there were insufficient funds in the account. Accordingly, a well-drafted lien waiver is conditioned on payment in good funds (i.e. it is void if the check bounces). This condition will allow a contractor to sign the lien waiver prior to receiving and cashing a check because it becomes void if the money is not paid.

Why does the title company object to a conditional lien waiver signed by my subcontractor?

Title companies have their own standards for accepting or rejecting the form of the lien waiver. As a general matter, title companies often refuse to pay the general contractor monies intended for the subcontractors if the subcontractors’ lien waivers are conditioned on payment because the title company is worried the general contractor will not pay the subcontractors. If the general contractor fails to pay the subcontractors, the subcontractors’ lien waivers would be void, and they would retain their lien rights.

In such cases you can either get a full lien waiver or have the subcontractor pick up his or her check directly from the title company and turn in the lien waiver (in this way the subcontractor receives good funds and the condition is met).

Are there different rules for perfecting a lien for materials against Native American Tribal property?

It is complicated trying to perfect and enforce a lien against a Native American Tribe. Native American Tribes have sovereign immunity, which means they cannot be sued in most cases unless the Tribe waived its immunity. You would need to have a contract wherein the Tribe waived its sovereign immunity and agreed to have disputes heard in Wisconsin state or federal court to enforce your lien. As part of your contract, you may also want to require the Tribe to have funds in a non-tribal bank so a federal or state court could enforce the judgment without having to go to a Tribal court.


Variances from Uniform Dwelling Code

Can a municipality grant a variance from the UDC?

A municipality cannot grant a variance from a UDC standard; however, the Wisconsin Department of Safety and Professional Services may grant it. An application for a variance is submitted to the municipality. The variance must not result in lowering the level of health, safety and welfare. The application must include the method of establishing an equivalency. The municipality submits the application to the Department with its recommendation, then the Department will either grant or deny it.

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For more information about Best of WBA Legal Hotline from 2013, contact Attorney Robert C. Procter at rprocter@axley.com or 608.283.6762.

Axley Brynelson is pleased to provide articles, legal alerts, and videos for informational purposes, but we are not giving legal advice or creating an attorney/client relationship by providing this information. The law constantly changes, and our publications may not be currently updated. Before relying on any legal information of a general nature, please consult legal counsel as to your particular situation. While our attorneys welcome your comments and questions, keep in mind that any information you provide us, unless you are now a client, will not be confidential.

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