Print Friendly, PDF & Email

Inside This Issue:

  • Liability of Construction Managers/Design Professionals to Injured Employees of Contractors:  Pennsylvania Supreme Court Takes Another Look;
  • Performance Specifications:  Who has what Duty Concerning Design and Successful Performance of Completed Work?   (Plus Insurance Coverage for Defective Work);
  • Subcontract Indemnification Clause did not Require Sub to Indemnify Prime for Damages Caused by Prime’s Own Negligence

__________

Article 1

__________

Liability of Construction Managers/Design Professionals to Injured Employees of Contractors:  Pennsylvania Supreme Court Takes Another Look

By: Paul Mannix, Esq.
Wayman, Irvin & McAuley

Introduction

In Farabaugh v. Pennsylvania Turnpike Comm., 911 A.2d 1264 ( Pa. 2006), the Pennsylvania Supreme Court addressed the scope of a construction manager’s duties of safety owed to a contractor’s employee.  The Court ultimately concluded that, under the construction management contract at issue, the construction manager had safety supervision responsibilities and could be held liable to the deceased employee of the contractor.  In addition to its specific ruling, the Court demonstrated the dire consequences that can result to the unsuspecting construction manager or design professional who fails to carefully draft its contract so as to limit safety responsibilities.

Factual Background

In December 1999, James Farabaugh sustained fatal injuries while driving a dump truck during the course of a construction project on a site owned by the Pennsylvania Turnpike Commission (“PTC”).  At the time of the accident, Mr. Farabaugh was acting in the scope of his employment with New Enterprise Stone and Lime (“NESL”), the general contractor on the project.  Following the accident, Mr. Farabaugh’s estate filed a lawsuit against PTC and Trumbull Corporation (“Trumbull”), which acted as the construction manager on the project.

The trial court granted summary judgment to both PTC and Trumbull prior to trial.  In an unpublished decision, the Commonwealth Court reversed summary judgment in favor of Trumbull , concluding that Trumbull owed a duty of care to the decedent.  Thereafter, the Supreme Court granted an allowance of appeal and addressed two issues, including whether Trumbull owed a duty of care to protect Mr. Farabaugh from dangerous conditions.

In its ruling, the Supreme Court refused to establish a standard rule as to safety responsibilities of a  construction manager.  Rather, the Court turned to the contractual language, which defined the construction manager’s duties on this specific project, and made its decision based on those terms.

Terms of the Construction Management Agreement

The Court first considered the terms of the contract between PTC and Trumbull.  The Court noted that under the contract, Trumbull was to “[d]evelop, implement, maintain and monitor a comprehensive project safety/insurance program in accordance with the ‘wrap-up’ insurance guidelines.  Monitor each contractor and subcontractor for compliance with the contractors’ insurance provisions in the contract documents.  Quarterly safety/insurance review meetings will be required.”

The Court also reviewed the Technical Proposal submitted by Trumbull to the PTC.  This document stated:

Safety is of paramount importance to [ Trumbull ] in every activity we perform.  On the basis that PTC will purchase and maintain a “wrap-up” insurance program for this project, we will provide a Safety/Insurance Monitor to oversee the program. . . We will review and approve contractor emergency procedures and site safety plans, interview applicants for contractors’ Safety Representatives, and make recommendations, monitor the Safety Representatives’ performance, and monitor the contractors’ compliance with OSHA.  Monitoring will be frequent and on a regular schedule.  We will organize monthly walk-through safety tours with PTC, Insurance carrier, and contractor representatives, and arrange and conduct other safety/insurance meetings as required. . . . We will continually monitor the performance of all contractor’s workers and recommend removal from work any employee deemed unsuitable for reasons of safety and loss control.

In addition, Trumbull had distributed a safety videotape which stated that Trumbull was “looking after your interests as well as the owner’s [interests].”

As for the General Contract between NESL and PTC, it stated that PTC, its Engineer or other authorized Safety Representatives “have the authority to suspend work in progress when necessary to enforce mandatory safety requirements until the condition is corrected.”  Under the General Contract, NESL further agreed that “the acceptance of NESL’s Safety Program shall not relieve or decrease the liability of [NESL] for safety” and that “no provision of these contract documents shall act to make [PTC], the Engineer or any party other than [NESL] solely responsible for safety.”

Supreme Court Analysis

In arguing that it owed no duty, Trumbull sought application of Pennsylvania case law which found no duty owed by general contractors out of possession of property.  See Leonard v. Commonwealth Dept. of Transp., 771 A.2d 1238 ( Pa. 2001).  However, the Court found these cases inapplicable, explaining that, while the Leonard line of cases involved the delegation of oversight obligations by the general contractor, this matter involved the assumption of safety supervision duties by the defendant construction manager.  The Court further reasoned that the role of construction managers are more aligned to that of an engineer or architect, as opposed to a general contractor.

With that in mind, the Court referred to the case of Marshall v. Port Auth. of Allegheny County, 568 A.2d 931 ( Pa. 1990) and compared the contractual undertakings by the engineer in Marshall to those of Trumbull .  In Marshall , an engineering firm was found to owe no duty to an injured employee of the general contractor on a Port Authority construction project.  The Farabaugh Court noted that, in Marshall , while the engineer had construction management duties, the engineer’s on-site safety role involved passive duties, such as the collection of written safety programs and reports.  According to the Supreme Court, this was in contrast to the active role assumed by Trumbull in assuring safety through the development of a safety plan and monitoring the contractor’s compliance with the safety regulations on a frequent and regular schedule.  The Court concluded that these contractual responsibilities assumed by Trumbull could form the basis for Trumbull owing a duty to protect the plaintiff-decedent from unsafe conditions at the site.  The case was therefore remanded to the trial court.

Comparison to Marshall

This decision reinforced the holding in Marshall that determining whether a duty is owed

to third parties by an engineer or construction manager is governed primarily by the contractual responsibilities assumed in the agreements.  At the same time, the ruling highlighted how thin the line is between a construction manager successfully insulating itself from third party claims and a construction manager exposing itself to substantial claims by injured workers.

The Court in Farabaugh provided a cursory overview of the relevant language in the engineering contract in Marshall and distinguished the language in the Trumbull / PTC Agreement.  However, closer inspection of the language in Marshall and Farabaugh reveals that there were significant similarities between the contract language.

Both Trumbull and the Marshall engineer had the ability to stop the work when unsafe conditions were detected.  Likewise, in both cases, the general contract stated that safety was the sole responsibility of the general contractor.  Interestingly, the Court in Marshall placed great weight on this fact, stating that “imposing a duty on Baker to be actively involved in procedures for safety compliance would be inconsistent with the provision in the PAT-Mosites contract stating that Mosites shall supervise and direct the work and be solely responsible for all construction means.”  On the other hand, the Farabaugh Court , while recognizing the contractor’s assumption of sole responsibility in its factual summary, appeared to discount this fact in arriving at its conclusion.

In the agreement between the defendant and the owner, both Trumbull and the engineer in Marshall had obligations related to safety programs.  The prime distinction was that Trumbull was required to develop a safety program and monitor it, while the Marshall defendant only agreed to assure that the contractors submitted their own safety programs.  Granted, the duties for safety assumed by Trumbull in Farabaugh were greater than the safety obligation contractually undertaken by the engineer in Marshall .  However, a complete comparison of the facts demonstrates that both defendants had safety obligations and the difference in these safety responsibilities were not drastically different.

Lessons Learned

From the standpoint of a construction manager or design professional, this ruling could prove extremely important.  Undertaking responsibilities for project safety should not be done lightly.  The Pennsylvania Workers’ compensation law generally immunizes the contractor from tort claims of its employees.  Therefore, if a contractor’s employee is injured at a project, the construction manager or design professional could be the primary target in a personal injury lawsuit.  Careful attention to the terms used in defining the responsibilities towards safety could mean the difference between liability immunity and high exposure.

According to the recent ruling in Farabaugh, the Court will determine the duties owed by the professional by focusing on the contractual provisions, as opposed to whether  the company adopts the role of construction manager, engineer, architect, clerk-of-the-works or some other title. Furthermore, the decision indicated that the controlling provisions will be found in the agreement with the owner, rather than the specifications or other contract documents. When drafting the agreement, the construction manager or design professional might be best served if responsibilities towards safety are wholly avoided.  However, to the extent clients require that some duties of safety are accepted, the construction manager or design professional should adhere to the more limited scope of work outlined in the Marshall case, and not the safety tasks accepted by the construction manager in Farabaugh.  Agreeing simply to assure submission of safety plans by contractors, while avoiding responsibilities for developing safety programs and performing site inspections, should help to greatly limit liability.

About the Author: Paul Mannix, Esquire
Wayman, Irvin & McAuley
1624 Frick Building
Pittsburgh, PA 15219
(412) 566-2970

Wayman, Irvin & McAuley, LLC has represented architects and engineers for over 35 years. We have built a reputation with design professionals and construction managers as risk managers, problem solvers, facilitators and litigators. From the construction of Three Rivers Stadium in the 70’s, the Light Rail Transit System in the 80’s, Pittsburgh International Airport in the 90’s and PNC Park in the new millennium, Wayman, Irvin & McAuley, LLC has offered advice, assistance and representation.

__________

Article 2

__________

Performance Specifications:  Who has what Duty Concerning Design and Successful Performance of Completed Work?   (Plus Insurance Coverage for Defective Work)

By:  J. Kent Holland, Jr.
ConstructionRisk, LLC

General contractor, when constructing an addition to a school building, complied with the architect’s plans that included installation of an epoxy terrazzo floor.  The floor installation was subcontracted to a firm that specialized in floor installation—including terrazzo floors.  That firm obtained the epoxy resin needed for the floor from a supplier of such resin.   After the floor was installed, an oily substance began oozing to the surface through tiny pores in the terrazzo.  When the problem could not be remedied the flooring was replaced with a cement-based terrazzo floor.  The school sued the general contractor and floor subcontractor.  The subcontractor in turn brought a third-party action against the resin supplier.

In the matter of Calcasieu Parish School Board v. Lewing Construction Co, Inc., 931 So. 2d 492 (La.App.3 Cir. 5/31/06), the appellate court affirmed a trial court decision assessing liability for a defective floor with the exception that the appellate court found that the prime contractor had no liability for the floor because he was entitled to rely upon the architect and on his subcontractor that actually installed the floor.

The trial court found liability against the architect, contractor, subcontractor, and resin supplier.  The oily substance came to the surface of the floor as a result of water vapor intrusion from below the concrete slab.  The fault the court found with the architect was that it was the first time he had ever specified the use of terrazzo flooring and that in specifying only that terrazzo be installed in conformity with national standards, he failed to investigate what those standards were or whether they were obtainable in Louisiana where the project was being built.

With regard to the general contractor, the court found that he took particular care with the job since it understood there could be water vapor transmission problems if the flooring was not properly installed.  Nevertheless, the court found fault with the contractor for not learning the standards of terrazzo flooring and not investigating what standards would be appropriate for installing floors on this project.  The general contractor relied upon its subcontractor to ascertain the standards and apply the appropriate standards and install the flooring in a manner to eliminate water vapor transmission.

According to the trial judge, the subcontractor knew or should have known the applicable industry standards, but it relied upon its resin supplier to select the method for testing the water vapor transmission through the concrete slab, and that supplier used a method that was not trustworthy.

In assigning percentage responsibility for the damages, the trial court concluded that between the general contractor and flooring subcontractor, the subcontractor had greater responsibility and knowledge to inform and advise the contractor about what the requirements were for the proper installation of the floor.  The court assigned 80% responsibility to the subcontractor (to be shared equally with the resin manufacturer) and 20% to the contractor and architect to be shared equally.

On appeal, the appellate court found that the trail court errer in finding the general contractor at fault in connection with the failure of the floor since no evidence had been presented at trail to suggest that the work performed by the contractor did not meet the architect’s plans and specifications.  The architect himself testified that the concrete slab had been poured in conformity with his plans and specifications.  An expert witness on high performance flooring testified that he knew of nothing the contractor could have done prior to installing the floor to prevent its failure.

With regard to the subcontractor (floor installer) liability, the appellate court affirmed the trial court decision that he had not exercised the standard of care because it failed to perform a manufacturer’s recommended calcium chloride test to determine the vapor transmission rate.  The court was persuaded by testify that the “terrazzo installer should have known more about the specifications than anyone else on the job, that the installer should have been aware of the tests, and that the installer should have done more tests and made further inquiries.”

After eliminating the contractor’s liability the appellate court reapportioned the liability between the architect, subcontractor and resin manufacturer – assigning 20% fault to the architect for failure to using performance specifications without further investigating the requirements of an epoxy terrazzo floor before writing the specifications. The balance of liability was correctly assigned equally between the subcontractor and resin manufacturer.

Insurance Coverage Available for the Subcontractor’s Liability

An interesting aspect of this case involves the question of whether a general liability insurance policy covered the subcontractor’s liability for the defective installation of the flooring.  The carrier argued that the policy excluded coverage for claims arising out of the quality of the work.  This is commonly known as the exclusion for property damage to “your work.”

The court concluded that the exclusion did not apply and that there was indeed coverage for the subcontractor’s loss because “the failure of the floor was covered under the “Products-Completed Operations” coverage.  The court stated that the policy purported to provide coverage for “products-completed operations hazard” but at the same time purported in other language to exclude coverage for that.  In addition to finding coverage, the court held that the carrier was required to pay the subcontractor’s attorneys fees for having failed to defend the subcontractor.

Comment: Several aspects of this decision are particularly noteworthy for how the court assessed liability.  Since the architect wrote a performance specification that did not set forth any design details, the normal assumption would be that the contractor takes on all responsibility for determining the appropriate design details to satisfy the performance standard.  This is one benefit that an architect typically gets by writing performance benefits.  Performance specifications are often encouraged as a way to obtain wider competition by allowing different manufacturers, suppliers and contractors who may have alternative designs (and even patented designs) to compete equally so long as they commit to meeting the specified performance requirements via the design they submit.  Since the architect should be entitled to rely upon the legal obligation of the contractor to meet the performance specifications, I find the reasoning of this court imposing liability on the architect in this case somewhat strained.

As second curious aspect of this case is the very brief analysis of insurance coverage.  In this case, there is no evidence that any property was damaged as a result in the defective installation of the flooring, and the parties to the litigation did not argue otherwise.  Nevertheless, the court found that insufficiency of the type of terrazzo used was itself the “property damage” and that the cost to tear it out and replace it would be covered under “Products-Completed Operations” coverage.  What this analysis fails to appreciate is that the flooring was not installed as a “product” but was instead installed as the essential services of the contractor’s “work.”    If more courts go in the direction of this one by interpreting the “product’s completed operations hazard” as was done here, it may be necessary for insurance carriers to revise their policy language to avoid this reading and interpretation of the policy.

About the author: Kent Holland is a construction lawyer located in Tysons Corner , Virginia , with a national practice representing design professionals, contractors and project owners.  He is principal of ConstructionRisk, LLC, providing insurance risk management services and construction risk management services, including but not limited to, advice to insurance underwriters; guidance to those procuring insurance; change order and claim preparation, analysis and defense; contract preparation; contract review and contract negotiation.  Mr. Holland 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. 9, No. 5.

__________

Article 3

__________

Subcontract Indemnification Clause did not Require Sub to Indemnify Prime for Damages Caused by Prime’s Own Negligence

By:  J. Kent Holland, Jr.
ConstructionRisk, LLC

Indemnification clauses in a construction subcontract for steel work on a Home Depot store, were wrongly determined by a trial court to require the subcontractor to indemnify the prime contractor for damages caused by the prime contractor’s own negligence.  The primary clause in question required the subcontractor to indemnify the prime for damages to the extent caused in whole or in part by any negligent act or omission of the subcontractor regardless of whether the damages were also caused in part by the prime contractor or project owner.

The language of the contract was deemed by the appellate court to be ambiguous and did not clearly and unequivocally state an intent that the prime contractor’s own negligence would be indemnified. By making the indemnification conditioned by “to the extent” caused by the subcontractor, there were two possible readings of the meaning of the clause.

As explained by the court, “To the extent” can be read to mean “if”; that is, [subcontractor] is required to indemnify [prime] only “if” subcontractor is also found negligent.  Under that reading, “to the extent” is not inconsistent with complete indemnification of prime contractor, even for its own negligence, as long as subcontractor is also negligent “to some extent.”  But the phrases also can be read to require subcontractor to indemnify prime contractor only “to the extent” of subcontractor’s (or its sub-contractors’) share of fault.

Neither the “regardless of” phrase nor the “to the extent” phrase answers the question whether such indemnification would include prime contractor’s own share of fault. For these reasons, as further explained in the balance of this case note, the appellate court reversed the trial court decision which had the subcontractor to fully indemnify the prime contractor for damages caused by the prime contractor’s own negligence.

In Englert v. The Home Depot and Raimondo & Sons Construction, 389 N.J. Super 44, 911 A. 2d 72, there were two indemnification clauses in the subcontract that the court considered.  In addition to the clause discussed above, the contract contained a Rider that provided a combination insurance/indemnification clause.  This clause of the Rider differed significantly from the language in the base contract in that it required the subcontractor to indemnify the prime contractor for any damages “caused in whole or in part by the acts or omission of subcontractor …”  Unlike the base contract language, there was no condition about “to the extent caused” nor was there a provision stating that the indemnification applied “regardless of whether” damages were caused by an indemnified party.  Finally, it is worth noting that this indemnification was apparently intended to be broader in that it applied without regard to whether the acts or omissions were “negligent.”

How the indemnification of this contract was interpreted and applied had serious economic consequences for all concerned.  The damages at issue were for bodily injuries sustained when an employee (steel worker) of a steel erecting sub-subcontractor fell thirty feet while welding structural steel and moving from one beam to another while wearing no safety harness and not otherwise protected by a net or other equipment.   During the trial of the injured worker and the prime contractor, the prime agreed to settle the plaintiff’s claims for $2.35 million.  On a motion for summary judgment, the trial court ordered the subcontractor to indemnify the prime for the full amount of the settlement, plus the prime contractor’s attorneys fees.

In analyzing whether the trail court correctly applied the contract provisions, the appellate court considered first the law in New Jersey with respect to contractual indemnification for an indemnitee’s own negligence.  So long as the contract is unambiguous in its intent that the indemnitee be indemnified for its own negligence the New Jersey court honor the contractual intent.  However, there must be no doubt about the intent and the agreement must specifically reference the negligence or fault of the indemnitee.    In this case, the contract was drafted by the prime contractor and the ambiguity must be interpreted against the drafter to not allow indemnification for its own negligence.

Comment: Several issues concerning the indemnification clauses in the contract at issue in this case commonly occur in contracts that I review for clients.  As an initial matter, it is surprising how often a contract contains an appendix or attachment that amends the contract with an “insurance” provision that also contains indemnification provisions that are different from those contained in the base contract.  In many cases the language appears to be intended to supplement rather than delete and replace the similar clause in the form contract.  In supplementing the contract language, however, the addenda may (as here) contain conflicting language that causes ambiguity.  Such ambiguity may prevent a court from granting a summary judgment to enforce the contractual indemnification provisions.  Because ambiguous provisions will be interpreted against the drafter, it is critical that the drafter pay attention to the details and get the contract right.  For this reason, when reviewing the risk allocation clauses of contracts, I request a copy of the terms and conditions of the entire contract rather than permit the client to send me just the few clauses they think need to be reviewed.

When the trial court granted summary judgment in favor of full indemnification, the judge explained that he did not believe the “to the extent” language was intended to modify the language intended to require indemnification.  According to the judge, “To the extent” simply requires that there be at least some liability on the part of the sub-contractor, or anyone directly employed by him, regardless of whether that liability may also be caused in part by an indemnified party.”  The judge also quoted from previous decisions holding that there is no inherent public policy against allowing one to be indemnified for their own negligence, and that in fact, “Parties to a construction contract are free to allocate risk and responsibility for injuries related to the construction.”     My advice to professionals that are reviewing contracts that require indemnification for damages caused “in whole or in part” by your client, includes:

(1)  Read the entire contract – don’t get surprised by inconsistent language found in other sections of the contract or in an addendum the client didn’t provide you.  Also read the prime contract if it is incorporated by reference in the subcontract since it too may contain conflicting and superseding language;

(2)  Assume the intent is that if your client is even just a little bit responsible for the damages, he will be required to indemnify for ALL of the damages.  Many courts will interpret the provisions as done by the trial court in this case to find that the “in whole or in part” language is not a comparative fault provision;

(3)  Even if language such as “to the extent” is added to the “in whole or in part” language, it is wise to expect a court will not use that language to limit the amount of indemnification.

(4)  Ask to have the “in whole or in part” language deleted from the indemnification clause on the basis that it is too confusing and misunderstood.  Replace it with language that more plainly states that your client will indemnify others only for damages “to the extent caused by your client’s negligent act, error or omission.”  Note that it is important that the “negligence” trigger be included if the Indemnitor is a design professional.  I believe contractors should also ask to limit their indemnification in the same manner.

About the Author:   If you have questions on issues concerning indemnification or in contract reviews in general, please don’t hesitate to contact me at kent@kentholland.com or call me at 703-623-1932.  I review contracts for project owners, design professionals, contractors and others, and also assist in drafting contracts and advising on risk allocation and insurance.

Mr. Holland is a construction lawyer located in Tysons Corner , Virginia , with a national practice representing design professionals, contractors and project owners.  He is principal of ConstructionRisk, LLC, providing insurance risk management services and construction risk management services, including but not limited to, advice to insurance underwriters; guidance to those procuring insurance; change order and claim preparation, analysis and defense; contract preparation; contract review and contract negotiation.   This article is published in ConstructionRisk.com Report, Vol. 9, No. 5.

_______________________

RED VECTOR.COM — ON-LINE COURSES
Do you need year end continuing education courses?  Currently available on-line risk management courses written by Kent Holland for RedVector, (http://www.redvector.com/instructors/view_related_courses.asp?id=195) include: ABCs of Time, Goals and Purpose – The Big Picture.  Also available are: Contract Guide for the Design Professional, Design Build Professional Liability Risk Management and Insurance; Site Safety Risk and Liability; Risk Management for the Design Professional; Managing Communication, Documentation and Reports; Insurance for Design-Build and Complex Projects; Construction Contract Law; Contract Claims against Design Professionals; Insurance Coverage Disputes; and Environmental Claims.

______________________

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 that ConstructionRisk.com, LLC, and the editor and writers, are not hereby engaged in rendering legal services or the practice of law.  Further, the content and comments in this newsletter are provided for educational purposes and for general distribution only, and cannot apply to any single set of specific circumstances. If you have a legal issue to which you believe this newsletter relates, we urge you to consult your own legal counsel. ConstructionRisk.com, LLC, and its writers and editors, expressly disclaim any responsibility for damages arising from the use, application, or reliance upon the information contained herein.

Copyright 2007, ConstructionRisk.com, LLC

Publisher & Editor:
J. Kent Holland, Jr., Esq.

8596 Coral Gables Lane

Vienna , VA 22182

703-623-1932

Kent@ConstructionRisk.com