Millennium Tower continues to provide “lessons learned”

In previous posts earlier this year and last year, we detailed the ongoing disputes between Millennium Partners, the developer of the Millennium Tower in San Francisco, and the Transbay Joint Powers Authority (Transbay), which built the recently opened Transbay Transit Center next to the tower. Millennium Partners contends that construction of the Transit Center weakened the soil where the tower’s support structures are by de-watering the soil. Transbay contends that the developer’s building methods are the cause of the sinking and tilting.

Prior to construction beginning on the Transit Center, Transbay entered into an easement agreement with Millennium Partners that allowed Transbay to store equipment on part of Millennium’s property. The equipment was used to monitor conditions during construction. The agreement included a broadly worded defense and indemnity agreement that required Transbay to “indemnify, protect, defend and hold harmless” Millennium’s developers from “all claims, expenses…and liabilities of whatever kind or nature” related to the Transit Center’s construction.

This week, a San Francisco Superior Court Judge ruled that based on this agreement (signed 10 years ago), Transbay has to pay the Millennium Partners’ legal bills. It’s estimated that these legal bills will be hundreds of millions of dollars.

The easement agreement was signed years before anyone knew that the Millennium Tower was sinking and tilting. Because that agreement is still binding, the judge ruled that “Transbay has a duty to defend” Millennium against the construction defect claims lodged by the homeowners association. However, he also said that Millennium will have to defend separate claims that it defrauded homeowners by allegedly failing to tell them about the tilting and sinking problem until 2016.

Broad indemnity agreements can result in unforeseen, expensive, and potentially uninsurable obligations. Since the interpretation and enforceability of indemnity provisions depends upon the jurisdiction, statutes, and case law, consultation with knowledgeable legal counsel is essential when reviewing or drafting indemnity provisions.

More information on defense and indemnification obligations can be found in our article, “Defending and Indemnifying Clients” (access limited to current policyholders and brokers).