Construction Law Insights

White Oak Power Constructors v. Mitsubishi Hitachi Power Sys. Americas, Inc., No. 3:17-CV-00355- JAG, (E.D. Va. Aug. 8, 2019)

Old Dominion Electric Cooperative (“Old Dominion”) entered into an engineer, procure, and construct (“EPC”) contract with White Oak Power Constructors (“White Oak”) to design and build a natural gas power plant in Maryland. The EPC contract’s choice of law provision identified Virginia law as the governing law. White Oak encountered several delays during its performance of the EPC contract related to property damage caused by fire, freezing water, and windstorms. The EPC contract required White Oak to achieve substantial completion of the project by May 1, 2017. Due at least in part to delays, White Oak did not achieve substantial completion until April 11, 2018. In response, Old Dominion assessed over $50 million in liquidated damages against White Oak.

White Oak and Old Dominion both sought summary judgment based on the EPC contract’s “Risk of Loss” provision. The “Risk of Loss” provision read: “[Old Dominion] shall be accountable and responsible for any loss or damage to any part of the Facility, the Site or Work, including property of any kind including, but not limited to, uninsured Losses and deductibles.” White Oak contended that the provision required Old Dominion to pay for liquidated damages stemming from project delay caused by property damage. The EPC contract contained two distinct definitions of “Work”. The first defined “Work” generally as the responsibilities of White Oak under the EPC contract. The second, which was to apply “where the context so requires,” defined “Work” as “that which is produced, constructed or built pursuant to [the EPC Contract].” White Oak argued that the Risk of Loss provision incorporated the first definition of “Work” and that Old Dominion was therefore liable to White Oak for “Losses” (including liquidated damages) stemming from delays caused by property damage that interfered with its “responsibilities” and therefore to the “Work.” Old Dominion contended that the Risk of Loss provision only covered actual costs for damage to the physical “Work” as defined in the second definition.

Citing Virginia precedent, the Court rejected White Oak's interpretation, as it would render the EPC contract's Force Majeure and Change Order sections superfluous and lead to absurd results such as making Old Dominion liable to itself for liquidated damages. Ultimately, the Court found as a matter of law that Old Dominion provided the only reasonable interpretation of the Risk of Loss provision and, accordingly, the provision did not apply to White Oak’s “delay related losses, damages, and costs.”

*Credit and thanks to the VSB Construction and Public Contracts Law Section Newsletter Committee for the preparation of this digest.

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