Inside this Issue

A1 - Indemnification Clause Requires Subcontractor to Indemnify Prime Contractor Regardless of Finding that Sub was not Negligent, and the Additional Insured Endorsement Requires Insurer to Cover the Prime for Damages not Caused by Sub’s Negligence
A2 - Framing Subcontractor Is Not Liable Under Multi-Employer Worksite Doctrine for HVAC Subcontractor Employee’s Injuries Where Contractor Caused the Condition But Did Not Control It At Time Employee Intentionally Assumed Risk by Its Actions
A3 - Negligent Misrepresentation Claim Cannot be made against Engineer Whose Design and Construction of Sludge Processing Equipment Failed to Generate as Much Electricity as Engineer Represented Would be Created
A4 - General Contractor on Highway Project Has No Duty to Prospective Motorists to Rectify Unsafe Condition or Warn of Unsafe Condition Where It Followed the Design Specifications and Work was Approved by Engineer and owner
A5 - Action Not Barred by Statute of Limitations Where Contract Required Engineer to Perform Certain Services such as Issuing Certificate of Substantial Completion, after Construction Work was Completed
A6 - Statute of Limitations in Action against Engineer was Barred Due to 3 Year Negligence Statute Rather than the Longer 6 Year Statute for Breach of Contract

Article 1

Indemnification Clause Requires Subcontractor to Indemnify Prime Contractor Regardless of Finding that Sub was not Negligent, and the Additional Insured Endorsement Requires Insurer to Cover the Prime for Damages not Caused by Sub’s Negligence

See similar articles: Additional Insured | Indemnification clause | Insurance Coverage Disputes

Where a pipeline was damaged when it was struck by sheeting being installed by a sub-subcontractor while installing lift stations along a pipeline previously installed by the prime contractor, the sub-subcontractor was found to be liable to its client (ECI Corporation) under its indemnification clause for the costs that firm incurred in repairing the damaged pipe. ECI also submitted a claim for its damages to Travelers Insurance on whose policy it was an additional insured. The court held that under Minnesota law, although indemnification clauses in construction contracts are unenforceable unless damages are attributable to the indemnitor’s negligence, there is an exception to the rule when the contract also requires the indemnitor to provide insurance for the benefit of others. Thus, where the subcontractor agrees both to indemnify for another’s negligence and to provide insurance for that risk, the provisions are enforceable.

Details of Indemnification Clause

The indemnification clause in question required the sub-subcontractor to indemnity ECI from and against “all claims, causes of action, liabilities, obligations, demands, costs, and expenses arising out of … damages to property caused or alleged to have been caused by any act or omission of [sub-subcontractor]….” As stated by the court, “In other words, Bolduc agreed to indemnify ECI without regard to fault…. “Because the contract required Bolduc to insure and indemnify ECI without regard to fault, the district court erred by concluding that the jury’s finding that Bolduc was not negligent extinguished its obligation under the contract.” With regard to the coverage as an additional insured, the additional insured endorsement provided coverage where “the injury or damage is caused by acts or omissions of you or your subcontractor in the performance of your work to which the written contract requiring insurance applies.” This language, said the court, does not condition coverage on a finding of negligence. Just because a jury found there was no negligence in damaging the pipeline, “this finding does not equate to a finding that Bolduc did not cause the damage to the pipeline.” For these reasons, the court found that both the duty of the sub-subcontractor to indemnify it client, and the duty of the sub-subcontractor’s insurance carrier to cover the damages sustained by that client, were triggered as soon as they were “alleged to have been caused” by the sub-subcontractor, and it was not relevant that there were no allegations of negligence or findings of negligence. Engineering & Construction Innovations, Inc. v. L. H. Bolduc Co., 803 N.W. 2d 916 (MN 2011).

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. 14, No.3 (Mar 2012).

Article 2

Framing Subcontractor Is Not Liable Under Multi-Employer Worksite Doctrine for HVAC Subcontractor Employee’s Injuries Where Contractor Caused the Condition But Did Not Control It At Time Employee Intentionally Assumed Risk by Its Actions

See similar articles: assumption of risk | Jobsite Safety | OSHA | Wrongful death

An employee of an HVAC subcontractor, while working on a house, fell to his death from the third floor to the basement through an open stairwell. The framing of the house had been completed three weeks earlier by the framing contractor who left an unprotected hole in each floor for the stairwell to be installed later. On the day of the accident, the HVAC subcontractor let himself into the house and placed ladders into the openings so he could move between the three floors. The framing subcontractor was not at the site on the day of the accident and did not control the conditions of the site or how the HVAC work was performed. The HVAC worker fell when he apparently became impatient waiting for his coworker to bring him a ladder to complete some work he was doing, and instead decided to take matters into his own hands by removing a nail that held a wooden makeshift ladder to the side of the stairwell and pulling the ladder up to his floor where he apparently leaned it against a metal stud that collapsed under his weight when he began to climb the ladder. In holding that the framing contractor did not control the jobsite conditions and work at the time of the accident and owed no duty pursuant to the multi-employer worksite doctrine of OSHA, the court ruled that expert testimony concerning the applicable of the OSHA and state regulations was inadmissible. The court also found that the laborer intentionally assumed the risk and was contributorily negligent when it knowingly performed under the conditions and that this barred recovery under Maryland law.

In analyzing the facts of the case, the court said the laborer was not an employee of the Framer and the duties of OSHA and MOSHA (the state Maryland state regulations) requiring a general duty of an employer to maintain a safe workplace for its employees were, therefore, inapplicable. The question then was whether “specific duty” clauses of the regulations applicable to multi-employer worksites were applicable to the situation. This duty has been found by OSHA and numerous courts to mean that “creating employers” owe a duty to non-employees where there is evidence of responsibility or duty to maintain the worksite, and it is feasible that the employer would be in a position to remedy the hazard. A key to imposing liability, however, is that the contractor must be found to have created the hazard and then maintained the areas in which the hazard was located. If the contractor has control over the areas in which the hazards are located and the duty to maintain those areas, liability can be imposed.

In this current case, the Framer argued it was not a “creating employer.” It acknowledges that it created the holes in the floor. But it testified that when it left the jobsite several weeks prior to the accident, it had removed makeshift ladders from the stairwell holes and thrown them in the trash before boarding up the door and window openings of the house so no one could enter. Either the HVAC contractor or someone else removed the boarding and took the wooden ladders from the trash bins and put them back into the stairwell holes to have access to the three floors. Despite these intervening acts by others, the first level of the appellate court (Court of Special Appeals) found that the Framer was a “creating employer” under OSHA. In reversing that decision, the highest court of appeals (Court of Appeals of Maryland) explained its reasoning as follows:

[C]reating employers” are held to owe a duty to non-employees where there is evidence of continued presence, responsibility, maintenance, etc. at the worksite. C & M does not fit into this scheme. The unguarded openings (alleged violations of MOSHA and/or OSHA regulations) in the floors on the second and third stories were undisputably created by C & M, pursuant to their contract, three weeks prior to the arrival of Nocar and the Comfort Masters workcrew. C & M, however, retained no control or oversight at the worksite, and indeed, at the time of the accident, had completely finished its responsibilities under its contract with [Project Developer] and relinquished control of the premises back to [Project Developer].

***

Leisenring was proffered as an expert witness to testify that C & M “violated the OSHA regulations and ANSI safety standards—general safety standards.” Even if C & M “created” a hazard that was in violation of a regulation, it did not exercise continuing control, or even a presence, at the worksite at the time of Nocar's fatal accident. Thus, the facts of this case do not warrant this Court's adoption or application of the “multi-employer worksite doctrine” or its “creating employer” citation policy. Accordingly, the trial court was legally correct in not permitting Respondent's expert to testify that C & M owed a statutory duty to Nocar, as a “creating employer,” to comply with MOSHA or OSHA regulations or that C & M's violation of the regulations caused Nocar's death.

***

Essentially, Petitioner's position is that, even if the jury believed that C & M was negligent in causing Nocar's fatality, as a matter of law, that negligence could not establish C & M's liability because Nocar assumed the risk of his injuries. C & M contends that Nocar knew, appreciated and voluntarily encountered the risk of falling through the 26 foot deep unguarded hole. Petitioner notes prior Maryland cases where falling through an unguarded hole was recognized as a risk that “anyone of adult age must be taken to appreciate”

***

In our view, assumption of risk was established as a matter of law by the evidence presented during the trial, thus, no determination of liability was required by the factfinder and Petitioner's motion for judgment, at the close of all the evidence, should have been granted. We have often “stated in earlier cases involving the assumption of the risk defense, where the facts are not in dispute and the plaintiff intentionally and voluntarily exposed [himself or] herself to a known danger, we will sustain the granting of a summary judgment or the direction of a verdict.’ ”

***

Assumption of the risk “negates the issue of a defendant's negligence by virtue of a plaintiff's previous abandonment of his or her right to maintain an action if an accident occurs.” (citations omitted). Thus, when a plaintiff can be shown, through words or conduct, to have expressly or impliedly consented to “voluntarily proceed to encounter [a known risk] ... as where ... he proceeds to walk over debris on the sidewalk carelessly strewn and left there by a construction contractor. If these are voluntary choices, the plaintiff may be found to have accepted the situation, and consented to relieve the defendant of his duty.” Prosser and Keeton on Torts, § 68 at 481 (5th ed. 1984). Therefore, questions about the defendant's duty are irrelevant to an assumption of risk analysis because “any duty the defendant owed the plaintiff to act reasonably for the plaintiff's safety is superseded by the plaintiff's willingness to take a chance.” (citation omitted).

***

In Maryland there are three requirements that the defendant must prove to establish the defense of assumption of the risk: (1) the plaintiff had knowledge of the risk of danger; (2) the plaintiff appreciated that risk; and (3) the plaintiff voluntarily confronted the risk of danger. (citation omitted).

***

The court concluded that the worker “was voluntarily working on the third floor” and “objectively appreciated the ‘nature and magnitude of the potential injury’ posed by falling through the unguarded openings in the floor because he undisputably poked his head through the third floor opening to communicate with [his coworker], and cannot be said to have remained unaware that just below him were two similarly sized holes with no guardrails or coverings in place.”

***

Finally, Nocar knowingly encountered the risk ... because the holes were an open and obvious hazard and the danger of falling through one or three of them would be foreseeable to a person of normal intelligence. In this case, Nocar ‘knew and appreciated the risk of danger, and voluntarily confronted that risk,’ because a person of normal intelligence in Nocar's position as a member of an HVAC installation work crew would have understood the danger of working around unguarded holes in the floors of a row house that was in the process of being rehabilitated. ‘In the usual case, [plaintiff's] knowledge and appreciation of the danger will be a question for the jury; but where it is clear that any person in his position must have understood the danger, the issue may be decided by the court.’

In its final conclusion, the court stated: “[T]he facts of this case reveal that ‘any person of normal intelligence in [Nocar's] position must have understood the danger’ of performing work in the vicinity of large holes in the floors of an unfinished house. (citation omitted) In our view, reasonable persons could not differ as to the conclusion to be reached, which is that Nocar's conduct released any duty that C & M might have owed under the circumstances. Thus, the issue could have been and should have been decided in C & M's favor by the court on Petitioner's motion.”

C&M Builders, LLC v. Strub, 420 Md. 268, 22 A.3d 867 (2011).

Article 3

Negligent Misrepresentation Claim Cannot be made against Engineer Whose Design and Construction of Sludge Processing Equipment Failed to Generate as Much Electricity as Engineer Represented Would be Created

See similar articles: Misrepresentation | Negligent Misrepresentation

An engineer who was retained by its client to design and construct anaerobic digesters to process cattle manure and paper sludge was sued by its client when the system failed to process the amount of sludge and produce the amount of electricity per day that engineer represented would be produced, and on which the client based its decision to award the contract to the engineer. In a “design and engineering document”, the engineer made multiple representations regarding the design and operation of the digester, including that the digester was capable of processing “250 tons of paper sludge substrate … on a daily basis,” that it would “generate 2,600 kWh of electricity on a continuous basis,” and that the engineer had “extensive experience in the design, installation, and operation of digester systems.” In the law suit, the client alleged negligent misrepresentation, breach of contract, and breach of the professional standard of care (i.e., negligence). They say they relied on the engineer’s representations in their decision to go forward with the project and that this entitles them to pursue the negligent misrepresentation claim. In arguing that the negligent misrepresentation claim must be dismissed by motion to dismiss, the engineer argued that it owed no duty to the plaintiffs outside of its contractual duty. The court agreed.

The court said, “In distinguishing between persons engaged in the business of supplying information to others in a non-adversarial capacity and commercial transactions where the parties deal at arms length, it is important to consider whether the information was part of the product provided by the defendant, or whether it was merely incidental to the underlying transaction.” The court went on to explain that there is no duty imposed on parties who deal at arm’s length. Negligent misrepresentation, says the court, “predominantly applies to situations where the information supplied harmed the plaintiff in its relations with third parties”, and this means that the negligent misrepresentation cause of action does not apply when “a defendant directly provides information to a plaintiff in the course of a transaction between the two parties, which information harms the plaintiff in the transaction with the defendant.” In this case, since the engineer directly provided the representations in the course of the transaction between the parties, the information harmed only the client in the transaction and could not be the basis of a negligent misrepresentation action. Amana Society v. GHD, Inc. and Excel Engineering, 2011 WL 3515475 (U.S. Dist Ct., North Dakota 2011).

Comment: Negligent misrepresentation claims against designers and contractors seem to be increasing in the number. Instead of suing for basic breach of contract or negligence, plaintiff’s seem to be increasingly adding Counts to the complaint for causes of action based on allegations of negligent misrepresentation or even fraud. It can sometimes be difficult to get these counts dismissed early in a case and, as a consequence, a lot of time and money is wasted in interrogatories and depositions trying to get to the bottom of these allegations to prepare an appropriate defense. The reasoning of the court in this case provides an excellent and clear argument for defendants to make to judges on motions to dismiss or on motions for summary judgment – to ask the court to distinguish between the representation the designer and contractor made to the client in the context of the proposals or the contract that was part of the commercial arms-length transaction to design and construct something, as opposed to a representation that arises when providing informational services to be relied upon by others.

Article 4

General Contractor on Highway Project Has No Duty to Prospective Motorists to Rectify Unsafe Condition or Warn of Unsafe Condition Where It Followed the Design Specifications and Work was Approved by Engineer and owner

See similar articles: Duty to Warn | Jobsite Safety | Specifications

In a wrongful death lawsuit against a general contractor for the death of an individual whose car slid into a river from a highway on which the contractor had completed work seven months earlier, the plaintiff argued a premises defect theory of liability against the contractor based on a fifteen-foot gap between the end of a guardrail and a bridge embankment. Even assuming for purposes of the argument on summary judgment that the contractor’s work created an unreasonably dangerous condition at the site, the court held there was no duty owed by the contractor to rectify that condition since the contractor was contractually required to adhere strictly to the project specifications, and it did as it was required, with approval of the engineer and acceptance by the project owner. No duty to warn the public was owed by the contractor since the contractor did not own the property or highway right-of-way, and was not in a position to erect permanent signs or other devices to warn the public of the gap. Moreover, the court explained, the contractor’s “contract with the County required absolute compliance with the contract specifications, and there is summary judgment evidence that any deviation from the specifications could have jeopardized federal funding for the project. Further, it is undisputed that [the engineer] certified [the contractor’s] compliance with the contract specifications and the County accepted and paid [the contractor] for the work.”

The court focused largely on the terms of the construction contract which it said were relevant to the court’s analysis. Of particular importance to the court were the following:

The contract required Keller to adhere to the engineering specifications produced by O'Malley and provided that Keller's “obligation to perform and complete the Work in accordance with the Contract Documents [was] absolute.” The contract further provided that any changes to the contract would be made by the County and O'Malley, not Keller. It also specified that representatives of both the County and O'Malley would periodically visit the work site to assess Keller's progress and its adherence to the design, and there is evidence that the County's representative visited the site nearly every day. It is undisputed that when O'Malley had a representative on the job site, it was acting on behalf of the County as its agent. Finally, the contract provided that upon completion of the project, a representative of O'Malley would inspect the site and certify that Keller had completed the work according to specifications.

Although the court stated that the presence of an unreasonably dangerous condition weighs in favor of recognizing a duty on the part of the contractor, “The consequences of placing a duty on Keller to rectify the condition in these circumstances, however, lead us to conclude that Keller owed no such duty. Keller's contract with the County required absolute compliance with the contract specifications, and there is summary judgment evidence that any deviation from the specifications could have jeopardized federal funding for the project. Further, it is undisputed that O'Malley certified Keller's compliance with the contract specifications and the County accepted and paid Keller for the work.”

The Associated General Contractors of Texas, Inc. filed an amicus curiae brief arguing that “imposing liability upon contractors in Keller's position for what is ultimately a faulty design would substantially increase the costs of construction.” The AGC further argued that “contractors currently rely on the expertise of engineers who design and prepare construction plans and specifications to ensure that the completed work will be safe… and the imposition of a duty when a contract requires absolute compliance with plans and specifications would require contractors to hire their own professionals to ensure that a completed project will not be unduly dangerous.” The court stated: “The AGC's concerns further illustrate the difficulties inherent in imposing the type of duty on a contractor that has been advanced by the [plaintiffs]. Given the consequences of recognizing a duty under the circumstances this case presents, we hold that Keller had no duty to rectify the gap contemplated by the designs and specifications.”

For the reasons explained herein, the court held that the contractor owed no duty to rectify the site conditions or to warn of them. Allen Keller Co. v. Foreman, 343 S.W.3d 420, 54 Tex. Sup. Ct. J. 850 (2011)

Article 5

Action Not Barred by Statute of Limitations Where Contract Required Engineer to Perform Certain Services such as Issuing Certificate of Substantial Completion, after Construction Work was Completed

See similar articles: Statute of Limitations

Although the 3 year statute of limitations for professional malpractice typically begins to run from the date of completion of the professional services rather than the subsequent date of construction completion, the New York Supreme court found the time for filing suit was extended where integral portions of the contract required the engineer to supply as-built drawings following the construction and to issue a certificate of completion for the contractor after conducting a final inspection and reviewing submitted documents. The court noted the importance of the fact that the parties “deleted from the contract a clause that would have made accrual dates for causes of action contingent on substantial completion of renovation, thus implying that they intended total completion as the measure of the accrual date.” With regard to the significance of the post-substantial completion services by the engineer, the court rejected the engineer’s arguments that those services were merely “ministerial.” Instead, the court was impressed by the fact that the contract required the engineer, prior to signing off on the completion of the project “to inspect the work, review numerous documents and certify that the work was properly completed and documented.” For these reasons, the court found that the time for filing suit had not lapsed, and therefore denied the engineer’s summary judgment motion.

Another interesting aspect of the decision was the court’s rejection of the engineer’s motion for summary judgment based upon its assertion that it had satisfied the standard of care. In support of its motion, the defendant engineering firm submitted an affidavit of an expert who opined that the defendant's work on the project complied with the State Building Code. The court stated: “The expert did not state, however, that compliance with the Code is equivalent to *1527 performing according to the accepted standard of care in the industry. Relevant professional standards could be equal to, or much higher than, the minimum required under the Code.” But, moreover, said the court:

Even if defendant complied with industry standards, thus rendering it free from professional malpractice, defendant could still be held liable for a breach of contract. Parties are free to enter into a contract requiring performance at a level above that of the industry standard. Plaintiff contends that defendant breached their contract by failing to design the renovations in compliance with the 2000 International Business Code (hereinafter IBC). While defendant argues that such compliance was not required, it listed the IBC under codes and standards in its structural design criteria furnished to plaintiff. Defendant's technical drawings also referred to the IBC standards for seismic design loads. Defendant therefore failed to establish as a matter of law that it performed in accordance with the accepted standard of care in the industry, that the IBC standards were not part of the contract and, if those standards were contractually applicable, that it adhered to the IBC standards.

Even had defendant met its initial burden, plaintiff raised factual questions through submission of an expert affidavit specifically asserting how defendant's designs did not comply with the IBC standards or accepted industry standards.

For that reason, the court concluded a question of fact exists such that the case must go to trial to allow the fact finder to make a decision on whether the standard of care was met.

Mary Imogene Bassett Hospital v. Cannon Design, Inc., 923 NYS 2d 751 (2011).

Article 6

Statute of Limitations in Action against Engineer was Barred Due to 3 Year Negligence Statute Rather than the Longer 6 Year Statute for Breach of Contract

See similar articles: Statute of Limitations

In a case where an engineering firm provided design services for the rehabilitation of a bridge, the professional services were completed when the plans were delivered to the City in 2005. The bridge reconstruction was completed in 2007, and the City discovered cracks in December of that year and reported them to the engineer in March 2008. The engineer engaged another engineering firm to review its design and that firm identified certain errors and recommended repairs which the defendant engineer performed at the request of the City. Subsequently, the City found more cracks and asked the defendant engineer to perform and pay for those repairs. Because the engineer declined to do so, the City filed suit in April 2009 alleging breach of contract and negligence. A motion of summary judgment was granted for the engineer (and affirmed on appeal) based on the applicability of the 3 year statute of limitations for professional malpractice actions, which the court found accrued no later than November 2005.

The court concluded that the 3 year negligence statute applied “regardless of whether the theory is based in tort or in a breach of contract.” And the court rejected the City’s argument that the cause of action did not accrue (and the statute did not begin to run) until construction of the bridge was complete, and stated instead that “Ordinarily, ‘a negligence claim for professional malpractice against an engineer or architect accrues upon the completion of performance under the contract and the consequent termination of the parties’ professional relationship.’” As support for extending the time period, the City argued that a contract provision required the engineer to “provide design response to unanticipated or changed field conditions, analyze and participate in proposed design changes, and interpret design plans” if certain conditions occurred during construction. The point of this argument by the City was to fit this situation into a previous holding by the court in the case of Town of Wawarsing, 855 NYS 2d 691 (2008), where the court found the statute of limitations was extended for a 12 month period after substantial completion, during which the parties’ contract obligated an engineer to provide certain review and corrective services. This current situation is different, concluded the court, because the repair design services performed by the engineer did not follow continuously from the date of its services but rather occurred two years later and thus constituted what the court called a “resumption, rather than a continuation, of their previous professional relationship.” Finally, the court rejected the City’s argument that the engineer was equitably estopped from relying on the statute of limitations. The court stated that the doctrine only applies where a party is prevented from filing an action in time due to reasonable reliance on deception, fraud or misrepresentations by the other party. That was not the case here, concluded the court. City of Binghamton v. Hawk Engineering, P.C., 925 NYS 2d 705 (2011).

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