Inside this Issue

A1 - Gross Negligence Claim for Punitive Damages Rejected by Court
A2 - Worker That Fell from Scissor Lift May Sue Manufacturer for Product Defect
A3 - Incorporation by Reference Clause Did Not Flow Down Prime Contract Insurance Provisions to the Subcontractor

Article 1

Gross Negligence Claim for Punitive Damages Rejected by Court

See similar articles: Gross Negligence | Punitive Damages | sheet piling | vibratory compaction

Where a building owner sued its contractor for negligence in driving sheet piling that resulting in building damages, the court rejected the owner’s motion to amend its complaint to add a claim for punitive damages based on alleged gross negligence. Florida has a statute creating a legal right not to be subject to a punitive damages claim until the trial court makes a determination that there is a reasonable basis for recovery of punitive damages. In this case, the geotech engineer warned contractor not to use vibratory compaction. The contractor honored that advice and instead used pile driving and sheet piling. Unfortunately, the building still suffered damages. The Owner asserted that the use of the sheet piling was equivalent to vibratory compaction and this constituted gross negligence by the contractor. The court reviewed the expert witness reports and concluded that the Owner didn’t come close to making the required showing of gross negligence. The basis of the Owner’s gross negligence claim was the contractor used vibratory compaction equipment in disregard of the geotech’s recommendation. No evidence was presented, however, to show there was any use of vibratory compaction. And the warning not to use vibratory compaction didn’t put the contractor on notice that installing sheet piling would create a clear of present danger. Indeed sheet piling was not even a compaction activity. For these reasons, the Owner failed to demonstrate that it was entitled to assert a claim for punitive damages. Palafox, LLC v. Scuba Shack, Inc., 367 So. 3d 624 (2023).

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. 26, No. 1 (January 2024).

Article 2

Worker That Fell from Scissor Lift May Sue Manufacturer for Product Defect

See similar articles: Product Liability | Safety | scissor lift

A worker fell from a scissor lift while installing glass panels. He failed to latch a chain that was designed to guard the lift entrance. The suit alleged product defect and also alleged that a warning label on the equipment was too far from the edge of the equipment to draw attention to it and failed to explicitly warn the worker of the need to latch the chain. In holding that the case must go to a jury for decision instead of being dismissed on motion, the court found a jury could reasonably infer the design of the lift with the chain and no toe board was a substantial factor in causing the worker’s fall. The jury could also infer that if the warning label had been placed near the entrance of the equipment and explicitly warned of the need to latch the chain then the worker may have heeded the warning and not fallen. The court noted that manufacturer also made an alternative model of the lift with a spring-loaded self-closing gate at the entrance, and a toe board that extended across the entrance when the gate was shut. An expert witness testified that this system eliminated the chance for human error (i.e., failure to lock the chain) from allowing a worker to fall. Camacho v. JLK Industries, Inc., 93 Cal, App. 5^th 809 (2023)..

The biometrics expert opined that if the lift had been equipped with the self-closing gate with a toe board at the entrance, the worker would not have fallen out. A separate, safety engineering expert testified that “a chain with no toe board that relies on somebody to remember every single time to put across is clearly inferior from a safety point of view than a design with a swinging gate.”

“JLG also argues: “Because Camacho and Figueroa did not use the chain when the accident occurred [citation], a defect in the chain design could not have caused Camacho's injury.” We disagree.

JLG appears to fundamentally misapprehend Camacho's products liability design defect claim, at least in its appellate briefs. Camacho's theory of liability was not that the chain—itself—was somehow defective or defectively designed. Indeed, as JLG's counsel recognized at the beginning of the jury trial: “So to begin it might help if I start by telling you why we're not here today. We are not here today because the scissor lift that was being used broke or malfunctioned in any way.”

Rather, Camacho's claim is the scissor lift was “built in accordance with its intended specifications, but the design itself is inherently defective.” (See Chavez v. Glock, Inc., supra, 207 Cal.App.4th at p. 1303, 144 Cal.Rptr.3d 326, italics added.) In other words, Camacho's products liability claim was that the scissor lift as designed with the chain was inherently defective because it was highly foreseeable he would not latch the chain, and that dangerous design defect is what caused his injuries. Camacho also claimed JLG could have easily avoided the need for him to manually latch the chain by marketing only its alternative passive design with the self-closing gate that would have added about $154 to the cost. (See Trejo, supra, 13 Cal.App.5th at p. 142, 220 Cal.Rptr.3d 127 [“ ‘ “A product ... is defective in design when the foreseeable risks of harm posed by the product could have been reduced or avoided by the adoption of a reasonable alternative design” ’ ”].)

***

JLG also argues: “There is no duty ... to warn about a risk that is objectively obvious or known to the plaintiff. Here, the risk of serious injury from falling through an unguarded entrance on the subject lift was obvious to anyone using the lift.” We disagree because this is a disputed issue of fact.

While Camacho's human factors expert acknowledged, “the hazard of falling is open and obvious”; the expert clarified: “What's not open and obvious is ... what the chain does and doesn't do, and how to safely protect yourself from that fall hazard.” The expert further testified the top-level guardrail of the scissor lift provides a false sense of security to users. Moreover, the safety engineering expert testified, “it's very foreseeable” workers will neglect to latch the chain: “I see it a lot. In fact, when I confront people, sometimes they laugh at me and say that chain's not doing anything.”

The risks of failing to latch the chain, and whether the danger was open and obvious—such that the lift should (or should not) have included a specific warning to latch the chain—was plainly a disputed factual issue. Given the standard for a directed verdict, we find it was an error for the trial court to have taken that disputed factual issue away from the jury.

Article 3

Incorporation by Reference Clause Did Not Flow Down Prime Contract Insurance Provisions to the Subcontractor

See similar articles: Incorporation by Reference | Insurance Dispute

Where Owner argued that it was covered as an Additional Insured under a Subcontractor’s CGL policy, the court held that the subcontract required only that the Prime Contractor be named as an additional insured, and because no one is an additional insured unless a contract mandates that they be named as one, the Owners were not covered. The project Owners argued that the contract wording between the Owner and the Prime Contractor required the Prime to name the Owner as an additional insured, and other wording in the contract required that the Prime contract must be incorporated by reference into all subcontracts. The court reviewed the dispute under both Virginia law and New York law and concluded that the courts in both state that incorporation by reference clauses “bind a subcontractor only as to prime contract provisions relating to the scope, quality, character and manner of the work to be performed by the subcontractor.” Clauses like indemnity clauses and insurance clauses do not get incorporated by reference. Amerisure Insurance Company v. Selective Insurance Group, Inc., 2023 WL 3311879, (US, 2^nd Cir. 2023).

In this case an employee of the subcontractor was injured on the job a forklift and filed suit against the prime contractor and the owner. The subcontractor’s insurance carrier defended the prime contractor as an additional insured. It refused, however, to defend the project owner because they were not named as additional insureds under the policy and the subcontract did not require that the owner be made an additional insured.

The court explained that in order for the Owners to qualify as additional insured under the policy, the subcontractor must have agreed in writing, in the subcontract or otherwise, to name the owners as additional insureds. Although the subcontract failed to require the owner be named as and additional insured, the Owners argued that “the Subcontract incorporated all of [the Prime’s] obligations under the General Contract – including the clause that required the Prime to provide additional insured coverage to the Owners.”

“In support of its incorporation argument, Amerisure notes that, in Section 5.3 of the General Contract, EDC promised the Owners that it would require subcontractors “to assume toward [EDC] all the obligations and responsibilities ... which [EDC], by the Documents, assumes toward the Owner[s],” id. at 1495, and that Section 1.9 of the Subcontract states that “[t]he Subcontractor shall be bound by the terms of the Specifications, General Conditions and Supplemental Conditions and Addenda in the Contract between the Contractor and the Owner, shall confirm to and comply with the Drawings and Specifications and Addenda, and shall assume toward the Contractor all the obligations and responsibilities that the Contractor assumes toward the Owner,” id. at 1792.”

In rejecting that argument, the court stated:

“Under Virginia law, Amerisure's incorporation argument is unavailing. The incorporation clause in the Subcontract does not require the subcontractor to assume all obligations of the general contractor, but only those relating to the nature or scope of the work undertaken by the subcontractor.”

***

The Supreme Court of Virginia held that, notwithstanding this broadly worded incorporation clause, a subcontractor was not bound by the general contract's waiver of liens provision because that provision did not pertain to the nature of the work to be performed under the subcontract. See id. at 370 (explaining that “the subcontractor was put on notice of the general contract between the [o]wners and [general contractor], and of the plans and specifications for the projects, but he accepted them only as to the nature of the work and materials required of him,” and the incorporation of documents was thus “restricted to that purpose only”).”

Risk Management Comment:

New York and Virginia courts may be more restrictive in what they deem to flow down via the incorporation by reference clause than some other states are. When our risk management consulting firm provides review and redlining of subcontracts we like to add the following wording immediately after the incorporation by reference language typically found in the subcontract:

“… provided however that the Standard of Care and the Indemnification provisions set forth in this Subcontract Agreement take precedence over the Contract between Prime and its Client and any other documents.”

We add this because we are concerned about the subcontractor being held to an uninsurable standard of care or an uninsurable indemnity clause that might potentially flow down.

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