Inside this Issue

A1 - Architect Not Entitled to Summary Judgment on Indemnification Obligation Owed to Project Owner
A2 - Contractor Loses Malicious Prosecution Action against Homeowner that had Unsuccessfully Sued the Contractor in Construction Defect Litigation
A3 - Contractor’s Claim against CGL Insurance Company Dismissed Because It Failed to Give Company Timely Notice of Plaintiff’s Claim Related to Defective Work
A4 - Owner Permitted to Sue a Subcontractor in Idaho, and Economic Loss Doctrine Did Not Bar Claim
A5 - Project Owner Not Liable for Injuries to Employee of Independent Contractor

Article 1

Architect Not Entitled to Summary Judgment on Indemnification Obligation Owed to Project Owner

See similar articles: Construction Administration | Indemnification clause | Jobsite Safety | Site Visits

In a wrongful death action brought by the estate of an electrician against a project owner and its architect, the owner made a cross claim for indemnification and contribution against the Architect. That claim was dismissed pursuant to a motion for summary judgment, with the motion’s judge finding that the terms of the contract between the owner and architect precluded indemnification under the circumstances. This was reversed on appeal, with the appellate court holding that there was a genuine issue of actual negligence by the architect such that the architect could owe a duty to indemnify the liability the owner suffered as a result of negligent acts, errors and omissions of the architect. The court focused on the duties of the architect under the contract to visit the site and provide the owner with reports of work progress and competence, including deficiencies or deviations from contractual requirements. Although the architect did not have authority or responsibility for control and command over the contractor and subcontractors; the court found the architect had “abundant duties to the project owner … of observation and notification of the quantity and quality of the work.” The court concluded that “the failure to monitor and to report any deficiency to Hilton constituted a contractual breach and created a field of risk for third parties likely to come into contact with the [electric] switchgear. Therefore, the failure of [the architect] to notify Hilton of [the electrical contractor’s] failure to install the warning signage … creates a genuine issue of casual negligence for a trial.” LeBlanc v. Logan Hilton Joint Venture, 942 N.E. 2d 970 (Mass. 2011).

In this case, a maintenance electrician employed by the Massachusetts Port Authority was electrocuted as he began work on transmission equipment at the Hilton Hotel at Logan International Airport in Boston. Critical diagrams and script necessary to warn workers of potentially lethal flow of electricity through the equipment were lacking. Pursuant to the Owner-Architect Agreement, the architect had a range of construction phase duties. Among the most significant to the court was the requirement that the architect find, and inform, the owner, with supporting documentation, that the general contractor had achieved compliance with the construction contract. An indemnification clause in the contract, according to the court, required the architect to “indemnify Hilton against all financial losses caused by negligent acts, errors, or omissions committed in the course of its contractual professional services or those of its consultants.”

Specifications by the architect addressed the warning signage required for the electrical switchgear. The architect’s subconsultant forwarded a deficiency report to the electrical contractor that included an items stating that signs should be installed. During a subsequent field observation, the subconsultant observed several deficiencies had not been corrected, one of which was that the switchgear still had no signage. He sent a report to the architect itemizing certain deficiencies but made no mention of the absence of switchgear warning signage. The signage was never installed prior to the state employee putting his had into the open switchgear box and being electrocuted. The decedent’s estate sued Hilton, the architect, the subconsultants and others for negligence, gross negligence, and breach of warranty.

On the motions concerning indemnification, the motion’s judge concluded that the architectural parties were immune from liability for contribution to any of their codefendants as a matter of law because they had no direct liability to the electrician. In the absence of the potential for direct liability to the plaintiff there can be no liability to codefendants on a contribution theory. This part of the decision was reversed on appeal – with the court stating that under Massachusetts decisions, a defendant performing contractual duties “is liable to third persons not parties to the contract who are foreseeably exposed to danger and injured as a result of its negligent failure to carry out [a contractual] obligation.”

On the question of whether the architect could be required to indemnify Hilton, the court held summary judgment against indemnification of Hilton had incorrectly granted for the reasons stated at the outset of this case note. On a separate issue of whether the electrical contractor company (Broadway Electrical) that installed the switchgear without the warning signage could seek indemnification from the architect, the court found there could be no indemnification because that company participated in the negligent acts and omissions that are alleged to have caused the injuries. The architect had on two occasions furnished Broadway with instructions to install the warning signage. “No causal negligence by the architectural parties supports any claim of Broadway Electrical for indemnity.”

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 13, No.8 (Aug 2011).

Article 2

Contractor Loses Malicious Prosecution Action against Homeowner that had Unsuccessfully Sued the Contractor in Construction Defect Litigation

See similar articles: Construction Defects | Malicious Prosecution

After a contractor prevailed at trial in a counterclaim against a homeowner that sued for breach of contract and defective workmanship, the contractor filed suit against the homeowner and the attorney that had filed suit on behalf of the homeowner, arguing that the homeowner’s suit constituted malicious prosecution. A motion by the contractor for summary judgment in the underlying case was considered and rejected by the trial court before the case went forward to a trial on the merits. At the trial on the construction defect claim, the verdict awarded nominal damages to the contractor on its counterclaim for breach of contract, and also awarded a small portion of its attorney’s fees. Flush from that victory, the contractor filed this malicious prosecution claim against the homeowner and their attorney, asking for $1 million in damages plus the entirety of the legal fees it claimed in its original suit.

On the malicious prosecution suit, the court granted motions by the homeowner and their attorneys to dismiss the contractor’s case, and awarded them attorneys fees. In doing so, the Motion’s judge stated that he did not think the contractor presented admissible evidence to prove the underlying construction defect case was not at least tenable when the homeowner filed it. He concluded that “there was conflicting evidence … that supported the relief ultimately sought in the underlying case, even though they [homeowner] did ultimately lose.” He also stated: “I don’t think there is evidence that they undertook their conduct knowing that there was no merit to the underlying case.” This was affirmed on appeal, with the court holding that the contractor failed to plead and prove that the homeowner’s suit had been filed without probable cause and with malice. A finding of probable cause by the court ends any question of whether the underlying suit constituted malicious prosecution since there can be no malice so long as probable cause existed for the homeowner to believe it had a legal basis for its suit against the contractor. In this regard, the appellate point to the fact that the homeowner’s summary judgment motion in the underlying case had been denied and the matter had been permitted to go to trail. The court stated: “Ordinarily, this denial of a defendant’s summary judgment motion in the underlying case establishes conclusively that there was probable cause to bring the suit, thus barring a later malicious prosecution action.” Lutge v. McKague & Tong, 2011 WL 1004870 (Cal. App. 1 Dist, 2011).

Article 3

Contractor’s Claim against CGL Insurance Company Dismissed Because It Failed to Give Company Timely Notice of Plaintiff’s Claim Related to Defective Work

See similar articles: CGL | Insurance Coverage Disputes | Notice Requirements

Where plaintiff, homeowner, filed a complaint against the general contractor , the failure of the contractor to provide its Commercial General Liability (CGL) Insurance Company with notice of the claim for almost two years entitled the insurance company to summary judgment on its denial of coverage due to prejudice suffered. The defects alleged involved work of subcontractors. Accordingly, the court explained that such faulty workmanship of a subcontractor may constitute an accident and thus an occurrence under the policy, depending upon the facts of the case. In this case, however, the untimely notice of the claim to the carrier was fatal to coverage. The contractor argued that it was owed coverage despite the late notice, and asserted that the insurance company failed to present any evidence that it was harmed or prejudiced in any way by reason of the contractor’s failure to notify it. In ruling against the contractor, the court held that prejudice to the carrier from late notice of a claim must be presumed, and that the carrier is not required to prove it was harmed. Instead, the court held “once prejudice is presumed, the burden is on the insured to ‘establish some evidence that prejudice did not occur in the particular situation.’” Summary judgment in favor of the insurance company was, therefore, found to be appropriate. Sheehan Construction Company v. Continental Casualty Company, 938 N.E. 2d 685 (Dec. 2010).

Article 4

Owner Permitted to Sue a Subcontractor in Idaho, and Economic Loss Doctrine Did Not Bar Claim

See similar articles: Economic Loss Doctrine | Negligence

A restaurant owner that contracted with a general contractor to remodel a restaurant was permitted by the Supreme Court of Idaho to file a negligence-based law suit directly against an electrical subcontractor that it alleged was responsible for defective installation of a neon sign that caused a fire and resulting property damage causing financial loss. In Brian and Christie, Inc. v. Leishman Electric, Inc., 244 P.3d 166, 150 Idaho 22,244 (2010), the trial court dismissed the restaurant owner’s complaint that alleged negligence, holding that the economic loss doctrine barred the claim. This was reversed on appeal with the court concluding that the doctrine most appropriately applies to products liability cases, defective personal property cases, and defective real property cases, but that it does not apply in instances where the mater at issue is the rendition of services.

Comment: The reasoning of the court in this case fails to address a fundamental issue, that being whether the electrical subcontractor owed any independent duty to the project owner. Without such a duty, there could be no damages awarded against it to the owner for the fire damages. Unfortunately, the court completely skips that important step in a necessary analysis and instead jumps straight to the following conclusion: “In this case, [Restaurant owner] alleges that Subcontractor negligently performed services in connecting the neon signs and transformers to electrical power and that such negligence caused a fire that damaged the restaurant and its contents. Such claim is not barred by the economic loss doctrine.” That is quite a conclusion to reach without first addressing whether, how and why the subcontractor owed any duty to the owner. It had no contractual duty since its only contractual relationship was with the general contractor. It is difficult to understand what common law duty of care the subcontractor could owe the owner since it did not act in a way to directly damage the person or property of the owner, but merely indirectly caused financial loss by way of a fire that started as a result of work the subcontractor negligently performed for the general contractor. One can only hope that a future case on the question of economic loss will make its way to the Idaho Supreme Court so that it can more carefully analyze what independent duty of care excuses parties from the otherwise applicable economic loss doctrine.

Article 5

Project Owner Not Liable for Injuries to Employee of Independent Contractor

See similar articles: Independent Contractor | Jobsite Safety | Retain Control

A project owner, Lafayette College, entered into a construction management agreement with a general contractor to renovate a building, and that firm in turn subcontracted the renovation work to other contractors, one of whom performed the roofing work. An employee of the roofer climbed scaffolding that had been installed by a masonry subcontractor, and fell from that scaffolding suffering serious injury as a result. The employee sued the construction manager/general contractor, as well as the masonry subcontractor and the college – alleging that they all were negligent. The Supreme Court of Pennsylvania held that although the college exercised some authority regarding safety, and the college regulated access to, and use of, certain areas of the premises, this conduct did not constitute the type of control that would subject it to liability since it did not thereby retain control over the actions of the independent contractors. Beil v. Telesis Construction, Inc., 11 A.3d 456 (Pa. Supreme Ct. 2011).

This case is interesting in that the college’s summary judgment motion was denied at the trial level and the case went to trial, with a jury awarding damages in the amount of $6.8 million – 35 percent of which was attributable to the college. The college filed post-trial motions seeking judgment n.o.v. (“not withstanding the verdict”) which was denied. The college appealed to the intermediate level appellate court of Pennsylvania (the Superior Court) which reversed the lower court decision. This was appealed by the roofer’s employee to the Supreme Court of the state which affirmed the decision in favor of the college for the reasons explained herein.

As a general rule in Pennsylvania, a party who hires an independent contractor is generally exempt from liability for injuries sustained by that contractor’s employees. In Pennsylvania, “a property owner has no duty to warn the contractor or its employees of conditions that are at least as obvious to the contractor and its employees as they are to the landowner. Responsibility for protection, and liability for negligence, therefore, is placed on the contractor and its employees.” There is an exception to this general rule, however, where the property owner who hires the independent contractor retains control of the means and methods of the contractor’s work. So the question to be decided in this case was whether certain actions by the college constituted retention of control over the contractor’s means, methods and procedures.

The college retained a right to inspect and approve “all material and equipment purchased” by the masonry contractor. The college’s own project manager maintained a regular presence on the work site and knew the scaffolding did not have fall protection. The masonry contractor consulted with the college on the placement of the scaffolding since the college did not want it to interfere with entrance into its classrooms, but the college did not direct the contractor on how or when to erect the scaffolding. Witnesses for the general contractor testified that the CM/GC was “in complete control of the project and responsible for the safety of its subcontractors, including [the roofer] and its employees.” Additionally, the lower court found the college did not retain control over the means and methods of the operative details of the masonry contractor’s work. Even if the college had directed the masonry contractor on where to place the scaffolding, the court concluded this “did not constitute such a retention of a right of supervision that [the contractor] was not entirely free to do the work on its own.”

With regard to the CM/GC contract, the lower court found that the CM/GC was responsible for the work performed at the site and the subcontractors agreed to all safety requirements set by the CM/GC, and the college did not retain control over either the construction manager’s or the roofer’s operations.

On appeal, the employee argued that, based on the facts, the court should have found the college retained control and was liable for the injuries. One argument by the employee was that because the CM/GC failed to control the masonry contractor, the college must be deemed to have been in control of project site. The Supreme Court was not impressed by that argument, and appeared to focus instead on the right of the CM/GC under its contracts to tell its own contractors and the subcontractors not to use the masonry contractor’s scaffolding. More important to the court’s consideration, however, was the following explanation:

The College also offers the policy argument that the purpose of the right to inspect work, and even impose additional safety requirements, is simply to encourage contractors to work more safely. The College posits that, if liability can be imposed upon a property owner such as the College for encouraging contractors to work safely, the message to the owners will be that they are better off closing their eyes to construction activity and allowing contractors to work with no input or observation from property owners.

The court stated:

The control required to implicate the exception to the general rule against liability can be demonstrated in two ways. First, a plaintiff may point to contractual provisions giving the premises owner control over the manner, method, and operative details of the work. Alternatively, the plaintiff may demonstrate that the land owner exercised actual control over the work. As a general proposition, the question of the quantum of retained control necessary to make the owner of the premises liable is a question for the jury. When, however, the evidence fails to establish the requisite retained control, the determination of liability may be made as a matter of law.

In its holding for the college, the court explained that the employee’s “assertions that safety-related conduct at the work site establishes the requisite control is contrary to consistent pronouncements by our … courts rejecting such arguments as against public policy.” The court further explained:

Drawing on this prior case law, we hold that a property owner retaining a certain degree of authority over safety issues, such as supervising and enforcing safety requirements, and even imposing its own safety requirements at a work site, does not constitute control for purposes of imposing liability. The evidence in the matter sub judice, viewed in the light most favorable to Appellants as verdict winner—including the relevant contractual language regarding the agreement by Telesis and Kunsman to comply with any safety direction or rules issued by the College to prevent injury; the testimony of Roth concerning placement of the scaffolding for safety purposes; Roth's post-accident email acknowledging notice that roofers were working in a potentially unsafe manner and that the College encourages a safe work environment; and Appellants' expert testimony offering his interpretation of the relationship between the College, Telesis, and Kunsman, which included authority over the site regarding safety matters—simply does not establish control of the work for purposes of imposing liability on the College. Therefore, because the College did not control the work of its independent contractors with respect to safety-related conduct, it is not liable for the injuries suffered by Appellants on this basis.

Comment: This case provides a good description of the types of actions and activities a project owner can do that affect project safety without getting itself so involved that it loses the protection afforded under the Restatement (Second) of Torts, Section 409, that establishes the general rule that a landowner who engages an independent contractor is not responsible for physical harm to another caused by the acts or omissions of the independent contractor, its subcontractors, or employees.

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ConstructionRisk.com Report (Dec 2011)