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By James Rhodes & Kent Holland

A federal district court in Pennsylvania ruled that the insurer of a hotel’s second owner could advance a negligence action against the general contractor for alleged code violations that may have contributed to a fire.  Ultimately, the court found that the factors weighed “somewhat tenuously” towards finding a duty owed from the builders to the subsequent purchasers and its insurer.  The court noted that “[t]hough there is no direct relationship between the parties, a contractor is certainly aware that a commercial building is likely to have multiple owners and negligent building practices will affect subsequent purchasers.”  The court went on to state, “the public interest lies in imposing a duty on those who are negligent in following required building codes.”  In finding that a duty of care was owed, the court allowed further fact-finding to proceed to determine if the codes were violated and the degree to which these violations contributed to the fire.  Amco Ins. Co. v. Emery & Assocs., 926 F. Supp. 2d 634 (W.D. Pa. 2013).

A group of developers had hired Emery, a general contractor, to build a Comfort Inn in East Franklin Township, Pennsylvania that was completed in 1996.  The developers sold the hotel in 2001 to a second owner, Star Hotels, Inc.  The hotel sustained significant damage in a fire in 2008, which resulted in a payment of over 4 million dollars to the second owner by its insurance company, AMCO.  The insurance company then attempted to bring a lawsuit against the general contractor to recoup its payments, claiming that a failure to build the hotel in compliance with state and local codes contributed to the fire.  Applying Pennsylvania law, a federal judge found that the negligence action could continue because the court found a “common law” duty of the builders to the second owner and its insurer for the foreseeable consequences of negligent construction.

The insurance company bringing the lawsuit argued that the builders failed to follow various building codes, such as for the use of fire retardant wood for the structure, placement of automatic sprinklers in the attic, and minimum spacing for draft stops.  They argued that these code violations allowed the fire to spread, contributing to the substantial property damage.  The builders sought dismissal of the lawsuit on two bases.  First, they argued that they owed no legal duty to the second owners of the hotel and its insurer, neither of whom they had a contractual relationship with.  Second, the builders challenged the code violations and questioned whether the alleged violations actually contributed to the fire.

The court focused on the first issue, assessing whether any legal duty was owed from the builders to the second owners and its insurer.  Under the fundamentals of a common-law negligence action, a plaintiff must first show that the defendant owed the plaintiff a “duty of care,” which the court described as “some relationship” between the parties that “gives rise to the obligation of certain conduct.”  While a surgeon clearly owes a duty of care to a patient, instances where the plaintiff and defendant have had little to no interaction presents a more difficult situation.  The court discussed various factors that courts have historically used to determine if a duty of care exists, noting that it is a malleable legal concept made up of competing public policy concerns.

This article is published in ConstructionRisk.com Report, Vol. 16, No. 1 (Jan 2014).

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