Inside this Issue

A1 - Shifting Liability from Contractor to Owner: Texas Finally Joins the Rest of the Nation on Defective Plans & Specs
A2 - Indemnification: Contractor’s Employee not an “Agent” entitled to Indemnification
A3 - Summary Judgment where Insufficient Expert Testimony to Prove Negligence

Article 1

Shifting Liability from Contractor to Owner: Texas Finally Joins the Rest of the Nation on Defective Plans & Specs

See similar articles: Lonergan doctrine | Spearin doctrine | Texas

By Stanley Santire, Santire Law Firm, PLLC

A unique feature of Texas construction law has been how the State allocates risk for defective plans and specs. This will change dramatically on September 1, 2021. Unlike all but one State, for over a century Texas common law held that if an owner provided defective plans and specs to a contractor, the contractor, and not the owner, bears the risk. This is the Lonergan doctrine born in a 1907 Texas Supreme Court decision, Lonergan v. San Antonio Loan & Trust Co. 101 Tex. 63 (Tex. 1907). The reasoning of the Court was that:

“The owner does not warrant, and therefore is not responsible for the sufficiency of plans adopted by it, and which the contractor must follow, but the contractor must satisfy himself of their practicability before he enters into his contract.” Thomas Lonergan et al. v. San Antonio Trust Co., 101 Tex. 63, 65 (Tex. 1907)”

Eleven years after Lonergan the United States Supreme Court came to the opposite conclusion in a case establishing what is known as the Spearin doctrine:

“. . . if the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications.” United States v. Spearin, 248 U.S. 132, 136 (1918)

While Texas courts for over a century clung to the Lonergan doctrine, all but one other state followed the US Supreme Court guidance in Spearin. Overriding the century old Texas common law approach, this year the Legislature added a new chapter to the Texas Business & Commerce Code. It is Chapter 59 titled RESPONSIBILITY FOR DEFECTS IN PLANS AND SPECIFICATION: In Subchapter B titled CONTRACTOR RESPONSIBILITY we find the following:

Sec. 59.0052 LIMITATION ON CONTRACTOR’S LIABILITY AND RESPONSIBILITY FOR CERTAIN DEFECTS. (A) a contractor is not responsible for the consequences of design defects in and may not warranty the accuracy, adequacy, sufficiency, or suitability of plans, specifications, or other design documents provided to the contractor by a person other than the contractor’s agents, contractors, fabricators, or suppliers, or its consultants, of any tier.

So Lonergan doctrine dies on September 1 2021. Texas joins the majority of States in the allocation of risk between owners and contractors. Furthermore, this shift of risk is further enhanced by the following provision in this Legislation.

Sec. 59.0054. WAIVER PROHIBITED. This subchapter may not be waived by a contractor, subcontractor, or owner.

While only time will tell what this waiver prohibition language means, for now we can assume an owner cannot use a contract provision to escape liability for defective plans and specs.

About the Author: Stanley Santire, Esq. is founder and managing member of the Santire Law Firm, PLLC based in Houston, Texas. For more than three decades he has counseled and represented clients in labor and employment matters, civil rights, construction, and business transactions. He is experienced in mediation, arbitration, trial and appellate work. Following service as a naval officer, he graduated from the University of Texas School of Law followed by postdoctoral work at Columbia Law School in New York and The Hague Academy of International Law in The Netherlands. A former Chief Legal Counsel for Lockheed Aircraft International, A.G. and International Counsel for Lockheed Corporation.

7500 San Felipe St #900,
Houston, TX 77063
(713) 787-0405

Article 2

Indemnification: Contractor’s Employee not an “Agent” entitled to Indemnification

See similar articles: Agent | duty to defend | Indemnification clause | representative

In an indemnification clause between a contractor and project owner, the words “agents and representatives” did not require the contractor to indemnify a particular employee of consulting firm as an “agent” of the Owner. The project agreements did not contain any language suggesting the individual employee was an “agent” of the Owner. The court stated that the individual was not covered because the term “agent” was ambiguous and the individual’s specific role on the project as perhaps a foreman, construction manager, or member of the construction team, was not identified in the clause as being indemnified. Firemen’s Insurance Company v. Thomas J. Story, 2021 WL 2155037 (Fed.Appx., New York, 2021).

The project owner, Wegmans Food Markets, Inc., entered into a “Staffing Agreement” with a consulting firm (Aerotek, Inc.) to provide “staffing services.” That agreement specified that “the relationship between both [consultant] and each of its Vendor Assigned Employees, respectively, vis-à-vis Wegmans hereunder is that of an independent contractor, and nothing set forth herein shall be deemed to render the parties as … employer and employee.” The Agreement further stated that, “Assigned Employees of [consultant] are employees of [consultant] and not of Wegmans.” Pursuant to this Agreement the consultant assigned an employee (Mr. Story) as a foreman on a construction site where Wegmans was building a new store.

During construction work, a laborer employed by a separate masonry contractor was injured. That laborer then filed suit against Wegmans, Mr. Story, and others. Wegmans and Mr. Story tendered the claims to the masonry contractor pursuant to the masonry contract indemnity agreement. That indemnity agreement required the contractor to defend and indemnify Wegman’s “agents, employees, and representatives.”

Mr. Story was not an employee of Wegmans and, therefore, couldn’t be indemnified as an employee. So the question was whether he was an “agent” or a “representative” of Wegmans. The court noted that the construction contract didn’t define the term “representative” but it did in separate articles designate a “project Manager to act as [Wegman’s] representative in administering the Contract.” It further named members of the “Project Management Team” but didn’t designate Mr. Story as one of the members. Thus, there was no basis for the court to find Mr. Story to be an indemnified “representative.”

Finally, the court concluded that neither the Staffing Agreement with Aerotek nor the Construction Contract with MP Masonry, Inc. contained any language suggesting that Mr. Story was an “agent” of Wegmans. For these reasons, Mr. Story was not entitled to be indemnified against the claim.

Risk Management Comment. This case was decided under New York law. New York law provides that “when a party is under no legal duty to indemnity, a contract assuming that obligation must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed.” The court here explained that “Courts require an ‘unmistakable intention to indemnify before … enforcing such an obligation.’” The term “agents and representatives” was here deemed by the New York court to be too ambiguous to find a duty to defend Mr. Story. Courts in other states may, however, have concluded differently under their state law. When reviewing indemnification articles we believe it is important to delete the ambiguous term “agents and representatives,” and if the other party resists that deletion then they should expressly identify the specific companies or individuals they want to be identified.

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 ConstructionRisk 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 Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 23, No. 5 (August 2021).

Article 3

Summary Judgment where Insufficient Expert Testimony to Prove Negligence

See similar articles: Expert Witness | Negligence | Summary Judgment

Construction contractor entitled to summary judgment where project owner failed to present adequate expert witness testimony to demonstrate the applicable standard of care and that contractor negligence caused damages. Owner argued that Contractor can be held liable for negligence for failing to measure up to its contractual promise to ensure that all work is performed in a “thoroughly first-class and workmanlike manner.” Under Arizona law, the courts identify the standard of care in a negligence action against a professional as "the duty to act as a reasonable professional would under the circumstances.” A plaintiff must establish by expert testimony the standard of care and in this case the single expert presented by the Plaintiff didn’t offer standard of care testimony because he was not qualified to do so. Macy’s, Inc. v. H&M Construction Company, Inc., 843 Fed. Appx. 841 (California 2021).

In this case, Macy’s, Inc. appealed the federal district court’s summary judgment order in favor of the Contractor on Macy’s negligence claims regarding a fire protection system sprinkler leak. Seven years before the suit was filed, the contractor oversaw the construction by its subcontractor, which Macy’s asserts was defective and caused a leak to occur. The trial court judge concluded that case could not go to the jury because Macy’s failed to present sufficient expert evidence.

To establish a claim for negligence, the court explained that a plaintiff must prove these four distinct elements: “(1) a duty requiring the defendant to conform to a certain standard of care; (2) a breach by the defendant of that standard; (3) a causal connection between the defendant's conduct and the resulting injury; and (4) actual damages.”

Although a contractor may be liable in both contract and tort (negligence) for its negligent actions, the claims are fundamentally different, says the court. “In the context of property damage, contract law focuses on standards of quality as defined by the contracting parties; tort law on the objective reasonableness of certain conduct and the actual harm it causes.” This objective reasonableness of conduct can only be presented through expert testimony because “the average juror lacks experience in construction and thus does not have general knowledge of the standard of care for a general contractor installing, constructing, or inspecting fire protection systems or supervising subcontractors performing the same.”

The court noted that the facility’s sprinkler failure occurred seven years after installation and that Macy’s own expert had difficulty diagnosing the leak’s cause and had changed his opinion as to how corrosion had impacted the head [of the sprinkler]. It is thus not grossly apparent that [subcontractor] negligently installed the sprinkler system,” as alleged by Macy’s. Macy’s expert testified that “insufficient tightening of the sprinkler head caused corrosion and the leak, and that industry standards and the manufacturer’s instructions require wrench tightening to a specific torque level.” This testimony was not adequate concluded the court, because even “assuming the accuracy of that opinion, it still leaves open the question of whether a general contractor or a fire installation subcontractor, operating with due care, is expected to prevent this from happening and, if so, how.”

For these reasons, the appellate court sustained the lower court’s granting of the summary judgment.

Risk Management Comment: Expert witnesses are essential to proving negligence in construction disputes. In litigation, courts will grant summary judgment motions like this one where a party fails to present adequate expert testimony. In contrast, matters that are resolved through arbitration may be more difficult to obtain a summary judgment in similar circumstances. As an example, a few years ago, I was defending an engineer serving as subcontractor to a design-build contractor. The contractor made a claim in arbitration to recover money it claimed it lost due to relying upon inadequate designs during the bid-phase of the project and thereby underpricing its Guaranteed Maximum Price (GMP) contract to the project owner.

To prove those allegations, any court would have required detailed expert evidence establishing the standard of care and showing how the engineer had violated that standard and thereby caused the alleged damages. But this was arbitration not litigation. Because is was expensive complex construction, there was a three person arbitration panel under the Rules of the American Arbitration Association (AAA). The anticipated fees to be paid to the arbitrators for a multi-week arbitration was in excess of $200,000. When I filed a motion to dismiss the contractor’s case for failure to present sufficient expert evidence, the arbitration panel dismissed my motion one week later without even requiring the contractor’s counsel to file an opposition. That is just plain wrong!

I won’t theorize here on why this could happen, but since that horrible event, my office always recommends striking the arbitration clauses from design and construction contracts, and choosing litigation instead. Litigation is also the preferred position in the form contracts issued by the American Institute of Architects. And I believe I can safely say that most major insurance carriers prefer that their design and construction insureds litigate rather than arbitrate.

Search

Get the Newsletter

Contract Guide for Design Professionals

Recent Newsletters

All Newsletters

Risk Management Workshops

Life Skills Workshop Slides

Contract Clauses – Papers and Articles

Construction Risk Management

ConstructionRisk Report (Aug 2021)