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When a house sustained hail damage to its roof, the homeowner reported a claim under their homeowner’s policy, and their insurer agreed to pay for the repairs and referred the homeowner to a contractor from the insurance company’s approved list of contractors. Repair work by the roofing contractor was allegedly defective, causing water and mold damage to the interior of the house. The homeowner filed suit to recover its damages from the carrier on the theory that the carrier was vicariously liable for the defective workmanship of the contractor they recommended either as the result of a joint venture relationship between the carrier and contractor, or because the carrier had the right to control the work of the contractor, making it an employer-employee relationship with vicarious liability. The trial court and appellate court rejected the homeowner’s arguments and dismissed the case. Rubin v. American Insurance Co., 193 So3d 408 (Louisiana 2016).

The homeowner’s alleged that the carrier selected the contractor who performed the repairs and that after the contractor removed the roof, it failed to immediately install a new roof before it began raining for several days, causing extensive water damage as well as mold contamination. The homeowner’s repair claim was handled by the carrier under what was called a “Direct Contractor Repair Program” wherein a company named Project Time & Cost, Inc. (PTC) would pre-screen contractors within its network and assign them to claims submitted to PTC by the carrier.

The agreement between the carrier and PTC provided, “No agency, partnership, joint venture or other similar relationship is intended by this engagement….”

The carrier’s moved for a directed verdict, arguing that the homeowner failed to present any evidence showing that the carrier controlled the work of the contractors it referred to the homeowner. Without such control, the carrier argued it could be found to have been the employer of the contractor for purposes of vicarious liability. It also argued that the homeowner failed to present any evidence of a business venture carried out for a joint profit among the parties, and thus no joint venture existed.   In sustaining the summary judgment for the carrier, the appellate court sated that the state’s Supreme Court has held that the single most important factor to consider in determining whether the employer-employee relationship exists for the purposes of vicarious liability is the right of the employer to control the work of the employee.

The contract of the carrier with PTC clearly stated there was no joint venture or other relationship between them. The homeowner also cited a Power Point presentation titled “Direct Repair Contractor Program,” in support of its argument that the carrier had the right to control the contractor’s works. However, the court found that the homeowner failed to show that the Power Point slides (or even an internal manual by the carrier) are binding upon the contractor for purposes of establishing the right of the carrier to control the contractor’s work.

The court also found that the homeowner failed to offer any evidence at trial that could have permitted a jury to find that the carrier was vicariously liable for the actions of the independent contractor. For these, reasons, the court held that the directed verdict was properly granted for the carrier.

Comment: Due to the circumstances described in the decision, the court could find there was no employer-employee relationship between the carrier and contractor, and no joint venture relationship or other relationship that could create vicarious liability. The contract language quoted by the court, which expressly stated, “No agency, partnership, joint venture or other similar relationship is intended by this engagement” was not emphasized as a basis for the decision. But it was certainly prudent for the carrier to include that language in its agreement with PTC, and the fact that it was quoted, I think, demonstrates why the typical contract between a project owner and contractor states that the contractor is “independent” and not under the control of the owner, etc. So for a number of reasons, a good contract risk management tip is to include these independent contractor clauses in contracts.

 

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 Construction Risk 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.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. 19, No. 2 (February 2017).

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