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ConstructionRisk.com Report
http://www.ConstructionRisk.com
Vol. 8, No.5
August/September
2006
Inside This Issue:
• Construction
Manager not Responsible for Contractor’s Injury
• Third-Party
Claim for Indemnification Survives SJ Motion
• Mold
Excluded in Homeowner’s Policy is not Covered as an Ensuing Loss of
Leaking Water
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Article
1
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Construction
Manager not Responsible for Contractor’s Injury
On a project where an employee of a construction
contractor suffered any eye injury when concrete exploded out of a
flexible tube he was trying to unclog, the construction manager was not
liable for his injuries since the construction manger was under contract
with the project owner and not the contractor, had no supervisory
control or authority over the work being performed by the plaintiff, did
not create the dangerous condition, and did not have actual or
constructive knowledge of the condition.
In the case of Shawn
Adair v. BBL Construction Services,
25 A.D.3d 971; 809 N.Y.S 2d 592 (2006), the appellate court
sustained summary judgment in favor of the construction manager (CM),
holding that there was no basis to find liability against the CM for
injuries that the plaintiff, an employee of a separate construction
contractor sustained while working on the project.
The plaintiff had been attempting to unclog a
pipeline that was being used to pour concrete, when concrete exploded in
his face. The plaintiff
testified that he himself loosened a clamp that resulted in the
explosion of the concrete. The
court found that it didn’t make any difference to its decision what
individual loosened the clamp, however, since the CM had nothing to do
with the decision of how to operate the equipment and perform the work.
In support of its case against the CM, the
plaintiff argued that the CM had authority to supervise, direct and
control the concrete pour. As
evidence of that authority, the plaintiff asserted that the CM’s
on-site field manager insisted that the concrete pour take place on the
day of the accident despite a mix-up in the order from the original
concrete supplier. This was
not persuasive to the court because “this directive, however, was
entirely consistent with BBL’s administrative role in coordinating the
scheduling aspects of the entire job and in no way demonstrates that its
field manager had the authority to supervise or control the
injury-producing work itself.” The
court noted that the plaintiff had acknowledged that no employee of the
CM ever told him how to do his job.
In reviewing the facts of the case, the court
stated that the witnesses who testified established that the CM did not
provide labor or material to the contractor, and that the CM did not
direct the employees of the contractor in how to perform their jobs.
In its short analysis of the law, the court
explained that the CM had no contractual relationship with the
contractor but instead had a contract directly with the project owner
whereby it had responsibility “for ensuring that all contractors
performed in accordance with the plans and specifications, for
coordinating the safety programs of the contractors and for ensuring
that the project proceeded as scheduled.”
Significantly, the court pointed out that the “contract
specifically withheld from [CM] any authority to control either the
contractors’ work methods or safety programs.”
Since the contract terms and the witness testimony
are consistent in establishing that the CM had no supervisory control or
authority over the work (and exercised no control or authority), there
could be no statutory agency to make the CM liable under the New York
Labor Law. The court also
found that the CM could have no liability at common law for negligence
since it did not create the dangerous condition or have actual or
constructive notice of that condition.
For these reasons, the court sustained the award of summary
judgment to the CM.
Comment:
This short decision concisely explains several points that are
important in understanding the limits of site safety responsibility to
be imposed on construction managers and other consultants or design
professionals. The
court focused on the contractual relationships between the parties and
noted that because the CM was under separate contract to the project
owner and had no contract with the construction contractor, and because
the CM did not go beyond the scope of its service to exercise authority
and control over the contractor’s work, there was no basis under the
state statute to impose liability on the CM.
The court also considered the question of whether the CM might be
separately subject to liability at common law on a negligence theory.
But in this regard, the court considered the evidence that had
been presented and concluded that the CM had no responsibility for
condition of the pipe and had no actual or constructive knowledge of its
condition which might have created a potential responsibility.
It should be noted that there are a number of cases
in courts around the country that hold that if a CM has actual knowledge
of dangerous conditions it must take action to avoid injury to workers
even if their contract states they have no site safety responsibility.
There are also a number of cases that have found liability on the
part of a CM when the CM has actively exercised authority and control
over the work of the contractor, despite contract language disavowing
responsibility. Consistent
with decisions such as Herczeg v.
Hampton Township and Bankson Engineers, it is significant that the
court here has explained that even though the CM’s contract had a
reference to coordinating safety programs of the various contractors,
the CM’s real responsibility under its contract with the project owner
was to assist the owner in getting the job performed on schedule and per
the plans and specifications. This
is the point that needs to be consistently made, and the fact that the
contract in this case clearly stated that the CM had no site safety
responsibility was a critical element in making that point.
This should be carefully considered when drafting CM contracts.
About the author:
Kent Holland is a
construction lawyer in Tysons
Corner, Virginia, and is a risk management consultant for environmental and design professional liability
insurance and contracts. He is
also publisher of ConstructionRisk.com Report.
He may be reached at Kent@ConstructionRisk.com.
This article is published in ConstructionRisk.com
Report, Vol. 8, No. 5.
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Article
2
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Third-Party
Claim for Indemnification Survives SJ Motion
When a design-build engineering firm filed suit in
federal court against its construction subcontractor for breach of
contract, the subcontractor filed a Third-Party Complaint against one of
its suppliers for contribution and indemnity.
The supplier filed a motion to dismiss the third party complaint
– asserting that the court had no jurisdiction over it and that the
indemnity claim failed to state a claim under the federal rules of civil
procedure. The court found the third party complaint was proper because
to the extent that defective performance by the supplier subjected the
construction contractor to liability to its client, this type of issue
is related to the plaintiff’s primary claim and therefore fits nicely
within the subject matter of the case.
On the question of whether the contribution or indemnity claim
was viable, the court found that the applicable state law recognizes
common-law or equitable indemnity and in addition gives effect to
parties’ contractual indemnification provisions such as those
applicable in this case.
In the case of Maxfour
Engineers and Architects, v. ARB, Inc. (233 F.R.D. 602 (D.C.
Colorado, 2006), the plaintiff had a prime contract for construction
work for the U.S. Bureau of Land Management (BLM).
It subcontracted construction to ARB, Inc. which in turn
subcontracted with Western Homes Corporation who was to supply
manufactured buildings. Plaintiff
claimed ARB breached its contract by failing to pay its suppliers and
employees and by failing to adequately supervise its subcontractors
(including Western) and perform its work.
In response to the complaint, ARB filed a
Third-Party Complaint against its subcontractor, Western alleging that
(1) Western breached its subcontract by supplying ARB with buildings
that allegedly deviated from the subcontracts’ specifications, and (2)
Western owed contractual contribution and/or indemnity for any damages
suffered by ARB in this law suit.
Although the project was constructed in
Colorado
, and the litigation was filed in
Colorado
, the court applied
California
law to the contract.
California
recognizes common-law or “equitable” indemnity in a form that
resembles contribution among jointly liable parties based on their
comparative fault. Where
parties expressly contract with respect to the scope and boundaries of
the duty to indemnity, equitable indemnity is not available.
Instead,
California
law gives effect to the parties’ contractual indemnification
provisions.
ARB’s contribution/indemnity claim against its
subcontractor is derived from and dependent upon the Plaintiff’s
successful prosecution of its breach of contract claims against ARB.
ARB’s third party claim asserts that if it is found liable to
the plaintiff then all or part of that liability is attributable to its
subcontractor, who should therefore contribute.
The court stated that it cannot seriously be argued that
Western’s conduct was unrelated to the Plaintiff’s primary claim,
and therefore to the extent that defective performance by Western
exposes ARB to liability to the plaintiff, ARB’s third party claim
against Western must be permitted to stand, as it is appropriate under
federal rule of civil procedure, Rule 14(a).
The contract between ARB and Western included the
following indemnity clause:
“Western shall, to the maximum extent permitted
by law, defend, indemnity, and save harmless [ARB] from and against any
loss, damage, liability, cost, and expense … arising out of any injury
(including death) to any person or damage to any property resulting from
or in any way connected with the performance caused by [Western’s]
breach of this Purchase Order or the goods, materials or services
furnished hereunder… To the extent that conditions, acts, activities,
or conduct involve the contributory negligence or misconduct of [ARB],
liability will be apportioned between the parties, according to
comparative fault.”
Western essentially argued that the above clause
did not require it to indemnify ARB because the plaintiff’s claim
against ARB was not for “injury…to any person or damage to any
property.” The court
rejected this argument and concluded that the indemnification was not
limited to bodily injury and property damage claims.
According to the court, the term “injury” is ambiguous in the
contract and might refer to only physical injuries or “it might refer
to the broad classes of economic injuries persons might sustain as a
result of Western’s breaches of the contract.”
The court did not make an ultimate decision on how
“injury” is to be interpreted but instead held that it is too early
in the litigation to decide what it means and that ARB has therefore
sufficiently stated a claim for contribution or indemnification under
the terms of the contract.
The court concludes moreover, that “ARB has alleged that
Western failed to perform as required by the contract, and that as a
result, ARB sustained economic injuries, in the form of liability to the
Plaintiff. This is
sufficient to state a claim for contractual contribution or indemnity
under
California
law.”
Comment:
A close reading of the indemnification clause would seem to
suggest that the parties based the clause to a great extent on language
found in one of the standard form contracts used in the construction
industry, and that language in fact is generally interpreted to require
indemnification only for bodily injury and property damage rather than
for pure economic losses and consequential damages.
It is important when negotiating indemnification clauses to make
them as clear and unambiguous as possible.
There is much case law interpreting indemnification clauses in
standard form contracts such as those of the American Institute of
Architects (AIA). Understanding
the history of how such language has been interpreted and applied by the
courts is a must for anyone litigating a case such as the one discussed
here.
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Article
3
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Mold
Excluded in Homeowner’s Policy is not Covered as an Ensuing Loss of
Leaking Water
Summary judgment was correctly awarded against a
homeowner that claimed it was entitled to coverage under its homeowner
policy for damages arising out of mold growth that occurred as a result
of construction defects that caused serious water leakage through the
roof and moisture seepage through the foundation.
An exclusion in the policy expressly stated that there was no
coverage for rust, rot, mold or other fungi.
An exception to the exclusions allowing coverage for ensuing loss
caused by water damage was held not to apply in this case.
The ensuing loss exception is intended, says the court, to allow
coverage for an otherwise covered type loss (water damage) that follows
from an excluded loss (mold) but will not create coverage for an
excluded category of loss (mold) that follows from a covered loss (water
damage).
In the case of Lundstrom v.
United Services Automobile Association (2006
Tex.
App. LEXIS 605), a homeowner was denied coverage under its homeowner’s
policy for mold damages to their home.
After moving into their new home, the Lundstroms found water in a
stairwell following a rainstorm. They
complained to the builder about leakage and he came to the house on
repeated occasions in an attempt to correct the problem.
On two occasions the builder cut a hole in the roof in an effort
to try to determine the source of the problem.
On both occasions the builder left the hole open and unprotected
from the elements and, on both occasions, severe rainstorms caused large
amounts of water to pour into the house.
(See my comment below about this clever contractor).
As a result of the various sources of water ,mold
developed. The homeowner
made a claim to its carrier for coverage for the water and property
damage, and for the mold. The
carrier granted limited property damage coverage pursuant to a binding
appraisal that was provided pursuant to the policy to resolve disputes
concerning the value of a loss. The
carrier denied coverage for mold, however, based upon exclusion (f. 1
& 2) of the policy which states: “We do not cover loss caused by
… (1) wear and tear, deterioration or loss caused by any quality in
property that causes it to damage or destroy itself [and] (2) rust, rot,
mold or other fungi.”
The policy further provided at the conclusion of
section (f), however that “We do cover ensuing loss caused by collapse
of building or any part of the building, water damage or breakage of
glass which is part of the building if the loss would otherwise be
covered under this policy.”
In their argument against summary judgment, the
homeowner acknowledged the applicability of the exclusions but asserted
that the “ensuing loss” provision was to “cover ensuing loss
caused by … water damage.” The
question for the court, therefore, was whether the alleged mold damage
would be covered under the ensuing loss exception to the mold exclusion.
In analyzing the policy language and the intent of
the ensuing loss exception, the court relied upon precedent established
by the case of Lambros v. Standard
Fire Insurance, 530 S.W.2d 138.
That decision, quoting from Webster’s Dictionary,
explained that “To ‘ensue’ means ‘to follow as a
consequence or in choronolgoical succession; to result, as an ensuing
conclusion or effect.’ An
‘ensuing loss,’ then is a loss which follows as a consequence of
some preceding event or circumstance.”
The Lambros decision
considered facts quite similar to those in the present case, including
the same exclusions and the same ensuring loss provisions.
The way that decision interpreted the ensuing loss exception was
that the language of the exception “compels the conclusion that the
water damage must be a consequence, i.e., follow from or be the result
of the types of damage enumerated in exception k.”
Thus says, that court, “Ensuing loss caused by water damage
refers to water damage which is the result, rather than the cause, of
“settling, cracking, bulging, shrinkage, or expansion of foundations,
walls, floors, ceilings…” Since
in Lambros the water damage
was the cause rather than the consequence of settling, the exclusion
applied, and the ensuing loss exception to the exclusion was of no help
to the homeowner.
In the current case,
the court explains that what Lambros
means is that the ensuing loss is to be understood as a loss that
results or follows from the listed excluded risks (wear and tear,
deterioration, inherent vice, rust, rot, mold, etc.)
“Consistent with Lambros,
for the ensuing loss exception to override the exclusion for mold in the
present case, the mold must have caused or preceded the water damage,
not vice versa.” Since
that is not the case here, the court found that the mold damages are
excluded from coverage under the policy.
Comment:
The court in this decision stated:
“Regardless of whether we agree with Lambros,
it is on point, and as an intermediate court of appeals, this court is
bound to follow established precedent from the Texas Supreme Court.”
This suggests that the court did not in fact agree with the logic
of Lambros. The court quoted
several other unreported and unpublished decisions of
Texas
courts that interpret the ensuing loss exception quite differently—and
in a manner that would have found coverage.
The point of the decision is that in Texas, the way
that the ensuring loss exception is interpreted is that the exception
does not mean that the policy will not cover an excluded loss that
results from an otherwise covered loss.
Instead, it means the policy will permit coverage for an
otherwise covered loss that results from a loss that is excluded under
the policy. Thus, mold being
plainly stated to be excluded does not become covered just because it
results from water damage which is covered.
Another way to look at this is to consider what
coverage there might be under a builder’s general liability policy for
property damage to automobiles that are destroyed when a partially
constructed wall being built by the builder falls down.
The policy would not cover the damage to the builder’s own work
on the wall since that is excluded under the “your work” exclusion,
but there could be coverage for the property of others that is damaged
as a result of the defective work. Thus,
the cause is excluded from coverage but the resulting property damage is
covered. This parallels the
reasoning of the Lambros court
as applied to a homeowners policy. From
the discussion in the current case, it does not appear that such
comparisons to other policies were made or considered.
Secondary
Comment: It was only
discovered much later that the source of the water problem was a soda
can caught inside the scupper and downspout blocking the drainage and
causing water to pool on the flat roof. It seems surprising that a
contractor would try to find out why water was getting inside the house
by cutting a hole in the roof instead of first checking to see if water
was exiting the drain pipe, either by looking at the drain where it
entered the ground or looking at it on the roof top during a rainstorm
or even after using a garden hose to cover the roof with water.
A little common sense could have saved a lot of trouble.
About the author:
Kent Holland is a
construction lawyer in Tysons
Corner, Virginia, and is a risk management consultant for
environmental and design professional liability insurance and contracts.
He is
also publisher of ConstructionRisk.com Report.
He may be reached at Kent@ConstructionRisk.com.
This article is published in ConstructionRisk.com
Report, Vol. 8, No. 5.
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ABOUT THIS NEWSLETTER & A DISCLAIMER
This newsletter Report is published and edited by J. Kent Holland,
Jr., J.D. The Report is independent of any insurance company,
law firm, or other entity, and is distributed with the understanding
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hereby engaged in rendering legal services or the practice of law.
Further, the content and comments in this newsletter are provided for
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editors, expressly disclaim any responsibility for damages arising from
the use, application, or reliance upon the information contained herein.
Copyright 2006, ConstructionRisk.com, LLC
Publisher & Editor: J. Kent Holland,
Jr., Esq.
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