Inside this Issue

A1 - Court Has No Jurisdiction Over a Contractor Claim that Was Based on an Issue Raised to the Contracting Officer for Final Determination but Not Sufficiently Detailed and Explained; Notice Provisions Enforced Against Contractor, and Liquidated Damages Held to be Enforceable
A2 - Owner and General Contractor Liability Under the Exceptions to the Independent Contractor Rule
A3 - A/E Failure to Meet Standard of Care Entitles Project Owner to Recover on Negligence Claim but not for Breach of Contract
A4 - Construction Defect Inspector Protected Against Contractor Defamation Suit

Article 1

Court Has No Jurisdiction Over a Contractor Claim that Was Based on an Issue Raised to the Contracting Officer for Final Determination but Not Sufficiently Detailed and Explained; Notice Provisions Enforced Against Contractor, and Liquidated Damages Held to be Enforceable

By: Gail S. Kelley, P.E., J.D.
ConstructionRisk, LLC

Where a contractor amended its complaint in an action against the United States to include a claim for remission of liquidated damages on the basis that it was entitled to a time extension, but the contractor did not explain why it was entitled to a time extension in its original letter to the contracting officer, the court had no jurisdiction over the claim. The contractor's original letter did not contain sufficient details to establish a claim for an extension of time; the contractor could not cure this defect by sending a second letter to the contracting officer after litigation had begun. K-Con Bldg. Systems, Inc. v. U.S., 778 F.3d 1000 (2015).

BACKGROUND

This dispute arose from a contract with the Coast Guard to construct a support team building in Port Huron, Michigan. The contract, which was for $582,64, included liquidated damages of $589 for each day of delay in completion. The Coast Guard accepted the building as substantially complete on May 23, 2005, but withheld $109,554 as liquidated damages for 186 days of delay. The contractor, K–Con, subsequently sent a letter to the contracting officer requesting remission of the liquidated damages, asserting that the “liquidated damages constituted an impermissible penalty” and the Coast Guard “failed to issue extensions to the completion date as a result of changes to the contract.” However, K-Con provided no details regarding its request for time extensions.

When the contracting officer denied K–Con’s request for remission, K–Con sued in the Court of Federal Claims under the Contract Disputes Act (CDA). K–Con sought remission of the $109,554 in liquidated damages plus interest; it also requested additional compensation based on work performed in response to government requests that it alleged amounted to contract changes.

After litigation had begun, K–Con submitted a second letter to the contracting officer. This second letter detailed the contract changes allegedly made by the Coast Guard and asked for a new remedy—$196,126.38 for additional work necessitated by the changes—and an extension of the completion date of the contract. When the contracting officer denied K–Con’s requests, K–Con amended its complaint in the Court of Federal Claims to add these allegations and to seek, in addition to the liquidated-damages relief, a judgment of $196,126.38 and a 186–day extension.

The Court of Federal Claims held that the liquidated-damages clause was enforceable and that K–Con did not comply with the written-notice precondition for invoking the contract clause governing changes. It also dismissed K–Con’s claim for an extension on the completion date for lack of jurisdiction. K–Con appealed and the Court of Appeals for the Federal Circuit affirmed all three rulings.

No Jurisdiction over Claim of Failure to Grant Time Extension

Before addressing the merits of the claims, the Appeals Court examined whether the Court of Federal Claims had jurisdiction over each of K-Con's claims:

"Identifying what constitutes a separate claim is important. We have long held that the jurisdictional standard must be applied to each claim, not an entire case; jurisdiction exists over those claims which satisfy the requirements of an adequate statement of the amount sought and an adequate statement of the basis for the request."

The Appeals Court found that the Court of Federal Claims did not have jurisdiction over K-Con's second claim, which challenged the Coast Guard’s failure to grant an 186-day time extension, stating:

At bottom, the time-extension claim is a request for remission of liquidated damages on the ground that the Coast Guard failed to issue time extensions for additional work added to the contract. K–Con squarely placed that claim in litigation through its original complaint, which means that K–Con had to present that claim adequately in its first letter, not in the post-suit second letter. But the first letter plainly fails to allege enough detail to provide adequate notice of the basis for any time extension.

In its discussion of jurisdiction, the Appeals Court noted:

Claim identification is important also for application of the rule that, once a claim is in litigation, the contracting officer may not rule on it—even if the claim is not properly in litigation because it was not properly submitted to and denied by the contracting officer before it was placed in litigation..... Once a claim is in litigation, the Department of Justice gains exclusive authority to act in the pending litigation ... divesting the contracting officer of his authority to issue a final decision on the claim.

Failure to Provide Required Notice of Alleged Changes to the Contract

The Appeals Court found that the Court of Federal Claim did have jurisdiction over the claim K–Con added in its amended complaint seeking compensation for additional work it performed because of the Coast Guard's alleged constructive changes to the contract. While the original complaint mentioned contract changes and included some factual assertions shared by the contract-changes claim presented in the second letter, the remedy requested in the two documents was different: the original complaint asked for remission of liquidated damages, whereas the second letter asked for compensation for extra work. That was enough to make the requests different claims.

However, the contract required the contractor to give notice within 20 days of receiving an order it considered to be a change order. Throughout the period that the Coast Guard was allegedly making changes, K–Con never objected to the Coast Guard’s actions or suggested that it was entitled to an adjustment of contract terms. Rather, K–Con expressed its intent to incorporate the Coast Guard’s requests as though they were consistent with the terms of the contract. Only in its second letter to the contracting officer—more than two years later— did K–Con provide the required written notice of the “date, circumstances, and source" of the orders it objected to and indicate that it regarded the orders as change orders.

The court noted that:

[T]he notice provision serves an important purpose in a contract in which some government requests are plainly contemplated under the contract. Timely written notice differentiates requests the contractor views as outside the contract from those it deems contemplated by the contract. ... And it gives the government timely notice of what amounts it might be on the hook for, so that it will not be surprised by money claims later, as well as an opportunity to address demands for more money when it might yet avoid them.

Although K-Con argued that it did not have to comply with the notice provision of the changes clause because compliance would have been futile, the court found this argument unpersuasive.

"Even if a futility exception exists ...K–Con’s argument fails because it has not shown that compliance would have been futile. The Coast Guard never stated or implied in advance that it would reject allegations of contract changes. .... it is unknown what would have happened had K–Con broached the issue of changes around the time the Coast Guard made the work requests at issue. The submission of the second letter prompted the Coast Guard to make a choice between giving in to K–Con’s demands or subjecting itself to further litigation; timely objections would have presented a very different choice between at least four options—refraining from making requests regarding K–Con’s work, altering the nature of the requests, keeping the requests the same but making equitable adjustments to the contract, or rejecting the allegations of changes altogether and thereby risking litigation or a halt to the project."

Liquidated Damages Clause is Enforceable

The Appeals Court agreed with the Court of Federal Claims that the liquidated-damages clause was enforceable, noting:

“When damages are uncertain or difficult to measure, a liquidated damages clause will be enforced as long as the amount stipulated for is not so extravagant, or disproportionate to the amount of property loss, as to show that compensation was not the object aimed at or as to imply fraud, mistake, circumvention or oppression. ...regardless of how the liquidated damage figure was arrived at, the liquidated damages clause will be enforced if the amount stipulated is reasonable for the particular agreement at the time it is made."

The Appeals Court dismissed K–Con's allegation that the Coast Guard made errors in arriving at the figure of $589 as immaterial:

"Even if the alleged errors were made, the ultimate rate of $589 per day is reasonable. At the time of contracting, it was foreseeable that delay would create a number of costs for the Coast Guard, including costs for travel, inspection, and other work by government personnel—all continuing beyond the date by which such activities for this contract should have ended."

Likewise, the Appeals Court found K–Con's argument that Coast Guard personnel did not work any more hours or get paid any more due to the delay was meritless:

"It is reasonable to expect that delay, if it occurs, will require personnel to devote more time and resources to the project than they would have if the project had been completed on time. Moreover, even if the same personnel might work the same number of hours regardless of delay, it is reasonable to expect that delay would force them to reallocate their hours and impair their ability to give planned attention to other projects, to the detriment of those other projects."

Comment

Under the CDA, requests for different remedies, whether monetary or non-monetary, or requests that assert grounds that are materially different from each other are considered separate claims. Thus presenting a materially different factual or legal theory creates a different claim, but merely adding factual details or legal argumentation does not.

The Appeals Court recognized that K-Con’s claim for an extension of time was simply another way of requesting a remission of the liquidated damages that had been withheld. The issues underlying the claim had thus been presented to the CO before the start of litigation and were included in the original complaint. In order to add the claim to the complaint, K-Con would need to get a final decision on the claim from the contracting officer. However, once issues have gone to litigation, the contracting officer can no longer issue a decision on them. The Court of Federal Claims therefore found it had no jurisdiction over the claim for an extension of time that was raised in the amended complaint because there was no final decision from the contracting officer.

This case also stresses the importance of notice requirements of the contract. It is vital that contractors pay attention to notice requirements and adhere to them in order to preserve their right to an equitable adjustment.

About the Author: As a professional engineer, Gail Kelley has performed structural design and analysis of post-tensioned structures, has performedconstructability reviews, due diligence inspections, and condition assessments, and has provided litigation support for construction defect and delay claims in both state and federal court. She received her B.S. in Civil Engineering from Cornell University, and Master of Science in Structure and Materials from Massachusetts Institute of Technology (MIT), and she received her Juris Doctorate from American University, Washington College of Law. She provides risk management services for ConstructionRisk, LLC. This article is published in ConstructionRisk.com Report, Vol. 17, No. 4 (June/July 2015).

Article 2

Owner and General Contractor Liability Under the Exceptions to the Independent Contractor Rule

Gail S. Kelley, P.E., J.D.
ConstructionRisk, LLC

Where the employee of a roofing subcontractor died after falling from the roof of a Walmart being constructed in Nebraska, Walmart was not liable for the worker's death under any of the exceptions to the independent contractor rule. However there were genuine issues of material fact with respect to the general contractor's liability. Consequently, the Nebraska Supreme Court found that the district court had erred in granting the general contractor's motion for summary judgment. Gaytan v. Wal-Mart, 289 Neb. 49, 853 N.W.2d 181 (2014).

Graham, the general contractor building a Walmart store in Nebraska, hired D & BR Building Systems, Inc. to install steel decking on the roof. Dominguez, a D & BR employee, died after falling from the roof when the decking gave way. Dominquez was not wearing his personal protective equipment (PPE) at the time he fell. A subsequent investigation showed that the decking had originally been secured with temporary screws, but that the screws had been removed or cut off.

As a subcontractor hired by Graham, D & BR was an independent contractor of both Walmart and Graham. An employer of an independent contractor generally is not liable for any physical harm caused by the contractor. However, many states, including Nebraska, allow four exceptions to this general rule. An employer of an independent contractor can be liable for physical harm to another if:

(1) the employer retained control over the contractor’s work; (2) the employer was in possession and control of premises; (3) a statute or rule imposes a specific duty on the employer; or (4) the contractor’s work involved special risks or dangers.

Gaytan, the administrator of Dominguez's estate, sued both Walmart and Graham under these exceptions. The district court granted the defendants' motions for summary judgment and Gaytan appealed. After carefully analyzing the facts and relevant contracts, the Nebraksa Supreme Court found that while none of the exceptions applied to Walmart, there were genuine issues of fact as to whether Graham could be held liable under the "control over work" exception.

(a) The Control Over Work Exception

When either a general contractor or an owner retains control over an independent contractor’s work, it has a duty to use reasonable care to prevent injuries to the workers. In order to impose liability for injury to a subcontractor’s employee, however, the control must include the ability to dictate how the work is performed; it cannot be just a general right to stop work, inspect progress, or make suggestions. In particular, the general contractor or owner must have (1) supervised the work that caused the injury, (2) had actual or constructive knowledge of the danger that caused the injury, and (3) had the opportunity to prevent the injury.

Gaytan pointed to certain provisions in the Walmart/Graham contract as evidence of Walmart's control over D & BR’s work. She cited the contract’s reference to an “Owner Construction Manager” who was to be Walmart’s representative on the jobsite. She also noted that all work was required to comply with the contract and Walmart retained the right to enforce the terms and conditions of the contract. The Supreme Court dismissed these contentions, stating:

"Even assuming Wal–Mart had an authorized representative on the jobsite, ... there is no reasonable inference that such representative controlled the roofing work performed by D & BR. And the contractual provisions relied upon by Gaytan demonstrate no more than a general power to stop and start work. "

In analyzing Graham's potential liability, the court looked at two relevant factual elements: (1) the use of safety equipment by workers on the roof and (2) the manner in which the decking was secured to the roof. Nothing in D & BR's subcontract gave Graham the authority to dictate how D & BR installed the decking, and the record showed that Graham employees did not do so. However, the Supreme Court found that since there were genuine issues of material fact with respect to the claim that Graham retained control over the safety practices on the jobsite, and specifically the use of PPE by D & BR workers, the district court erred in concluding that Graham could not be held liable to Dominguez under the control of the work exception.

i. Supervision of Use of Safety Equipment

Graham's contract with D& BR gave Graham the general right to supervise D & BR’s work and D & BR was required to comply with all applicable safety regulations, including Graham’s own safety rules. Graham had supervisory personnel on the jobsite and had monitored whether D & BR employees were wearing PPE. In addition, Graham had developed a fall protection plan for D & BR and had provided Dominguez with instruction about safe work practices. After the accident, the Occupational Safety and Health Administration (OSHA) cited Graham because the work area had been improperly designated with cones rather than a guardrail. OSHA noted that even though Graham employees were not exposed to the roofing hazard, Graham was “the controlling employer for the site, and had explicit control over the overall safety and health of the site.”

Based on this evidence, the Nebraska Supreme Court found that the contract authorized Graham to control the use of safety equipment by D & BR workers and that it actually did so. Because there could be a reasonable inference that Graham’s control over the use of safety equipment was directly related to Dominguez' injury, there was a genuine issue of material fact on this sub issue.

ii. Knowledge of PPE Usage

With respect to knowledge of the PPE usage, the court noted that:

"Even if Graham controlled the work which caused Dominguez’ injury, it can be liable only if it had actual or constructive knowledge of the danger which ultimately caused the injury ... there is no evidence that Graham had actual knowledge prior to the accident that Dominguez or any other D & BR worker was working without his PPE. Thus, the question is whether there is any evidence to support an inference that Graham had constructive knowledge that D & BR workers were not using PPE. Constructive knowledge is generally defined as knowledge that one using reasonable care or diligence should have."

Because the evidence suggested that failure to use PPE was so widespread that Graham should have known of it, the Supreme Court found that there was a genuine issue of material fact as to whether Graham had constructive knowledge that D & BR employees were not using PPE.

iii. Opportunity to Prevent Injury

With respect to Graham's opportunity to prevent injury, the court noted:

"Graham had the contractual authority to require D & BR to comply with safety requirements, which reasonably includes the proper use of PPE. Thus, Graham had the ability to require D & BR employees to wear PPE while on the roof and the opportunity to prevent the injury to Dominguez to the extent it was caused by his failure to use his PPE."

(b) Control of Premises/Safe Place to Work

Noting that the "safe place to work" exception relates to the physical condition of the premises and is separate and distinct from the "control of the work" exception, the court explained that if the owner retains control over the premises:

"The fact that the owner does not retain sufficient control of the work so as to become liable for injuries to employees of an independent contractor does not mean that the owner is relieved of its nondelegable duty to provide a safe place to work for employees of independent contractors."

Walmart was not in possession or control of the premises during the construction, so, as a matter of law, it had no duty to maintain the premises in a safe condition for Dominguez. Gaytan argued that some entity must be in control of the premises and that if Walmart was not, then Graham was and had a duty to provide a safe place to work. The Supreme Court agreed that Graham had such a duty, but Dominguez was not injured because of any breach of Graham’s duty. Instead, he was injured because he failed to follow proper safety procedures.

(c) Duty Imposed by Statute or Rule

Graham was cited by OSHA for violating 29 C.F.R. § 1926.760, which requires that employees working in steel erection more than 15 feet above ground be protected from fall hazards. However, the Supreme Court noted that nothing in any part of § 1926 provides that responsibility for worker safety and use of safety equipment always rests with the general contractor and cannot be delegated.

(d) Peculiar Risks

The court in a previous Nebraska case, Parrish v. Omaha Public Power Dist., 242 Neb. 783, 496 N.W.2d 902 (1993), had found that because the risk involved in steel construction is not encountered by an average person on a day-to-day basis, it was a ‘peculiar risk’. Gaytan thus argued that Walmart and Graham had a nondelegable duty arising from the “peculiar risk” associated with steel construction.

After examining the claim in light of the rulings of other states and public policy, the Nebraska Supreme Court held that that liability under the peculiar risk exception does not apply to personal injury claims by employees of subcontractors against general contractors or owners. Central to the court's holding was the fact that a subcontractor’s employees are generally covered by workers’ compensation. The policy concern underlying this exception, which is to provide a remedy to those injured as a result of a peculiar risk at a construction site, is already addressed in the case of a subcontractor’s employee covered by workers’ compensation. Furthermore, the employer of the subcontractor has indirectly funded this remedy because workers’ compensation premiums are included in the contract price.

Under the exclusive-remedy provisions of workers’ compensation, an injured worker cannot bring a negligence claim against its employer. Summarizing the rulings from other states, the court noted:

Some courts reason that under agency principles, the subcontractor’s release from tort liability to an injured employee by operation of workers’ compensation laws operates to release the party which employed the subcontractor. And as the California Supreme Court noted in overruling its prior cases .. “to impose vicarious liability for tort damages on a person who hires an independent contractor for specialized work would penalize those individuals who hire experts to perform dangerous work rather than assigning such activity to their own inexperienced employees.”

Comment:

This case highlights the importance of understanding potential liability for job site safety. It also highlights the fact that when analyzing potential liability for an accident, the actual conduct of the parties will be considered relevant.

About the Author: As a professional engineer, Gail Kelley has performed structural design and analysis of post-tensioned structures, has performed constructability reviews, due diligence inspections, and condition assessments, and has provided litigation support for construction defect and delay claims in both state and federal court. She received her B.S. in Civil Engineering from Cornell University, and Master of Science in Structure and Materials from Massachusetts Institute of Technology (MIT), and she received her Juris Doctorate from American University, Washington College of Law. She provides risk management services for ConstructionRisk, LLC.

Article 3

A/E Failure to Meet Standard of Care Entitles Project Owner to Recover on Negligence Claim but not for Breach of Contract

Kent Holland
ConstructionRisk, LLC

In a decision that this author finds confusing, an appellate court in New York held that where there was expert testimony demonstrating that an A/E failed to meet the professional standard of care in designing sheer walls for the seismic retrofit of a hospital, relief would be awarded to the hospital based on a professional malpractice claim, but would not be based on a breach of contract count of the complaint. In another interesting twist, the court held that because the contract did not specifically state that the A/E was to comply with the 2000 International Building Code, the code would not be relevant to judging the efficacy of the A/E’s design. Mary Imogene Bassett Hospital v. Cannon Design, Inc., 127 A.D.3d 1377 (2015).

The trial court agreed with the hospital’s contention that the A/E breached the contract by failing to meet the code requirements. But the appellate court states: “While defendant and several of its witnesses conceded that everyone involved considered the 2000 IBC to be the agreed-upon design criteria, the IBC is not mentioned in the contract itself and the contract prohibits any oral modifications…. Thus we cannot read compliance with the 2000 IBC into the contract, and defendant did not breach the unambiguous contract by failing to comply with the standards in that code.”

Failed to Meet Standard of Care for Structural Engineering

Instead, the court affirmative judgment against the A/E was based on the generally described standard of care in the contract which stated, “services shall be performed as expeditiously as is consistent with the professional skill and care and the orderly progress of the work [and] shall be provided in a manner consistent with the standards of care and skill exhibited in its professional for projects of this nature, type and degree of difficulty.” As explained by the court, “These provisions simply incorporated into the contract the common-law standard of care for a professional. Making such ordinary obligations express terms of an agreement does not remove the issue [of a violation thereof] from the realm of negligence…, nor can it convert a malpractice car action into a breach of contract action…. Inasmuch as a breach of contract cause of action based on the violation of these particular contract provisions would be duplicative of a professional malpractice cause of action, the trial court should have dismissed plaintiff’s breach of contract cause of action.”

Ultimately, the court determined that the plaintiff submitted sufficient expert evidence to establish that the A/E failed to meet the proper standard of practice for structural engineering.

Comment

This rather short decision leaves me wondering why the 2000 IBC that everyone seemed to agree was applicable was found to be irrelevant by the court because it was not expressly referenced in the contract. More perplexing, however, is the notion that only a negligence action could be brought against the A/E by its client, and not a breach of contract action. I typically argue exactly the opposite. The client can only sue the A/E for breach of contract and not negligence. It may be true that the contract was breached due to failure to meet the requisite standard of care. But that does not mean that the cause of action becomes one for tort (negligence) instead of breach of contract. In fact, we often argue that the “economic loss” doctrine bars claims for negligence where only economic losses such as those here are being claimed and there was not bodily injury or property damage. This decision just seems strange to me. Perhaps one of my New York colleagues might like to explain this decision in a future issue of this newsletter.

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. 17, No. 5 (August 2015).

Article 4

Construction Defect Inspector Protected Against Contractor Defamation Suit

Kent Holland
ConstructionRisk, LLC

Where homeowners retained an inspection firm to investigate the cause of their leaky roof, the inspector issued a report stating that the roof had been installed years earlier over fiberboard roof insulation that was soaking wet, thereby causing the later leakage. When the homeowners then sued the contractor for construction defects, the contractor brought a third party defamation action against the inspector, asserting that the statement about the roof being installed over wet insulation was false and defamatory. Summary judgment was granted for the inspector by the trial judge, and this was appealed by the contractor. On appeal, the court found that the statement by the inspector could indeed be actionable as defamation, but that a conditional privilege existed to publish the statement to the homeowner to serve the purposes of the contract between the homeowner and inspector. There are several lessons to be learned from this decision as explained herein. Downey v. Chutehall Construction, 86 Mass.App.Ct. 660, 19 N.E. 3d 470 (2014).

Contractor Defamation Suit

The trial court judge found that the inspector’s report constituted a statement of “opinion” and “not fact,” it was not negligently made, and it was in any event protected by a conditional privilege. The appellate court did not agree that the statement was an opinion rather than made as a statement of fact, but it concluded that the statement was protected by privilege that was not abused and that summary judgment in favor of the inspector was properly granted.

In order to recover on a defamation claim, the contractor would have had to establish that (1) a defamatory statement was “published”, (2) the statement was a false statement of fact as opposed to opinion, (3) the inspector was at fault for making the statement and abused any privilege that may have otherwise attached, and (4) the contractor suffered damages as a result.

Here, the inspector stated that the homeowner’s roof had been installed over wet insulation. “This appears to be an assertion of fact that, at least in theory, could be verified as true or false.” The court concluded this was stated as more than merely an opinion and as such summary judgment could not be based on the argument that the inspector had merely voiced an “opinion.” The court that published statement was not introduced merely as an expression of opinion. For example, the court pointed out that the statement was not “cautiously prefaced as representing ‘the opinion of ….” “Nor was the statement expressly qualified or limited as being based on the results of particular observations.”

In addition, the intended audience for the statement (i.e., the homeowner) “could, we conclude, reasonably be expected to understand [inspector]s] statement as one of determined fact and not just a qualified opinion., despite their understanding that [inspector] did not personally observe the installation.” “We conclude that the unqualified assertion here, which might have been proven true or false, could reasonably be construed as a defamatory statement of fact. Summary judgment should not have been granted on the ground that it was an unambiguous opinion. We therefore turned to the questions of fault and privilege.”

The court next looked at the question of whether there was a conditional privilege and if so whether it had been abused. “Under Massachusetts law, a publication will be deemed conditionally privileged if the publisher of the statement and the recipient have a common interest in the subject and the statement is ‘reasonably calculated to further protect that interest.’”

Here, the court found that the inspector’s statement involved a common business interest between the inspector and the homeowner. Specifically, it involved the evaluation of the likely source of the roof leak so that repairs could be made. The statement furthered this common business interest as it affected the homeowners’ decision on how they would proceed in addressing the roof leakage. Additionally, the statement was made in the inspector’s professional capacity and only after the homeowners specifically requested the inspector to explain the source of the leak. “The exchange between [Inspector] and the homeowner is assuredly of the type contemplated by the privilege, and to claim otherwise would rob the privilege of its intended purpose.” For these reasons, the summary judgment for the inspector was affirmed.

Risk Management Comment

The analysis by the court in this case shows the importance of being careful when expressing an opinion to make it clear that it is a professional opinion and not a statement of fact. As court stated, professionals can be expected to be cautious in explaining to their client that what is being offered is a professional opinion and carefully explaining the basis for that opinion. For insurance purposes, a professional opinion that turns out to be erroneous due to negligence of the professional may be an insured loss. On the other hand, defamatory factual statements could subject the professional to an uninsured loss.

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