Los Angeles Unified School District v. Great American Insurance Company

234 P.3d 490 (2010)

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Nature of the Case

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Facts

P entered into a contract with Lewis Jorge Construction Management, Inc. (Lewis Jorge), to construct an elementary school for approximately $10.1 million according to plans and specifications developed by the District. P terminated the contract, declaring Lewis Jorge to be in material breach and default. P sought proposals from other contractors, including Hayward Construction Company (D), to correct defects in Lewis Jorge's work and complete the project. P provided prospective bidders with copies of the original plans and specifications and also with 108 pages of what the parties characterize as a “current correction list” or sometimes as “pre-punch lists,” cataloging work by the previous contractor that P's inspectors and subinspectors found to be defective, incomplete or missing. The pre-punch lists include language indicating that P also intended to make the contractor awarded the job responsible for unlisted defects in existing work. D got it all including the plans, specifications and pre-punch lists. D conducted a site inspection. D submitted a proposal to do the work on a time and materials basis, stating a “guaranteed maximum price” of $4.5 million. P and D entered into a contract to complete the project. The written agreement recites that Hayward agreed to “correct deficiencies in the work performed by the former contractor, without limitation, as noted on the current correction list issued by the District.” It recites that the maximum amount payable would not exceed $ 4.5 million. Great American Insurance Company (D1) issued a performance bond for $4.5 million, guaranteeing D's performance of the contract. Almost immediately, D informed P it had significantly underestimated the cost of the remedial work, explaining that the existing work had nonconformities and deficiencies that had not been noted on the pre-punch lists and could not have been detected by simple observation. D sought extra compensation in the amount of $2,847,592 for latent defects. P paid D an extra $ 1 million under an express reservation of rights to take action to recover the additional compensation. P sued Ds and D cross-complained, asserting it was entitled to the additional compensation because it had been required to perform work that had not been specified in the contract and the pre-punch lists, that the P had breached the contract by misrepresenting and concealing material facts and conditions, and that P had breached an express or implied warranty that the plans and specifications it provided were complete and accurately depicted the work required to complete the project. D alleged that P had failed to disclose the full nature and extent of the defects in the existing construction, and had failed to disclose information that would have put D on notice that some of its assumptions about the scope of the work required were faulty. P failed to disclose a consultant's report that would have alerted D to the defects in the stucco work and further asserted that P was aware D's intended method for curing stucco discoloration would not be effective. The trial court ruled for P on the issue of contract interpretation and then gave P summary judgment on D's claims because it could not conclude that P either actively concealed or intentionally omitted material information. The court entered judgment for P for $1,133,696.38. The Court of Appeal reversed both the grant of summary judgment on D's counterclaim. P appealed.