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Ignorance can be a dangerous thing.

Ignorance is not a good thing.  However, add a little bit of misrepresentation (either intentional or just a bit of omission) to the ignorance and you get a recipe for disaster.

A brief summary: a developer sued its construction manager because the construction manager stated that it had full subcontractor default insurance (SDI) to protect against default by the concrete subcontractor.  Alas, it was not true.  There was no SDI.

So, the developer sued the construction manager.  And lost.  Big time.  The court dismissed the complaint (that is, it was not even close to trial) saying: 1) the developer is not an insured under the policy; 2) the failure of the construction manager to perform a specific part of the contract should not be turned into a tort (that is, it’s a breach of contract claim not a fraud claim); 3) there wasn’t a fiduciary duty (again, it’s a breach of contract claim); and 4) there was a lack of evidence by the developer showing that it relied on the misrepresentation (basically, they didn’t ask for a copy of the subcontractor’s insurance policy – the court dinged them for being lazy).

The ignorance part is this: the developer should have asked for the subcontractor default insurance.  Then, they should review it and ask for a dual-obligee rider.

See a better legal analysis by Richard Dyer, an attorney for Duane Morris, here: http://www.lexology.com/library/detail.aspx?g=0a1f36ba-acfa-44ba-8e26-400d85f4d691.

Gary Swiftbonds | Our short bio