Los Angeles Unified School District v. Great American Insurance Co.

The Los Angeles Unified School District (the district) (defendant), a public entity, fired a contractor who was in the middle of building an elementary school. The district then sought bids to fix and finish the project. During the bid process, the district provided potential contractors with a list of what needed to be fixed or finished. Based on this list, Hayward Construction Company (plaintiff) submitted a bid to do the work for $4.5 million, and the parties entered a contract for that amount. However, when Hayward began working, it discovered that the problems were more significant than the list had indicated. Hayward asked for an extra $2.8 million for the additional work. The district agreed to pay Hayward $1 million under a reservation of rights. Then the district sued Hayward to determine those rights and recover the $1 million. Hayward cross-complained that it was entitled to extra compensation because the district had misrepresented and concealed material facts during the bid process about the full nature and extent of the project’s existing defects. For example, Hayward claimed that the district had possessed a consultant’s report that, if disclosed, would have informed Hayward that: (1) there were more serious stucco issues than the list indicated and (2) Hayward’s proposed solution to the stucco problems would not be enough. The district never disclosed this report to Hayward before the contract was formed. However, Hayward did not allege that the district failed to disclose the information on purpose, and it was unsettled whether a public entity’s negligent nondisclosure was actionable (versus an allegation of affirmative misrepresentation or concealment). The California supreme court eventually heard the case.