Inside this Issue

A1 - Professional Liability Exclusion in CGL Policy Barred Coverage for $25 Million Damages Claim from Ruptured Pipe Line
A2 - Building Code Requirements Imposed Non-Delegable Duty on General Contractor for Safety Guardrails
A3 - Construction Manager not Responsible for Injuries to a Contractor’s Employee where it had no Ability to Control the Contractor’s Activity
A4 - CM/General Contractor, as a Statutory Employer, is Entitled to Workers’ Compensation Act Immunity from Suit by Subcontractor’s Injured Employee

Article 1

Professional Liability Exclusion in CGL Policy Barred Coverage for $25 Million Damages Claim from Ruptured Pipe Line

Professional Liability Exclusion Case

Where a construction excavator struck an unmarked petroleum pipeline causing a massive explosion and rupture, the commercial general liability (CGL) excess insurance carrier of the pipeline owner, Kinder Morgan, settled claims against the owner and then make an equitable subrogation claim demanding recovery of defense costs and settlement amounts from the CGL carrier of a staffing agency company that provided personnel to work on the pipeline.

The court agreed that the staffing agency’s CGL carrier could refuse that demand on the basis that the personnel in question were hired as construction inspectors and provided a professional service in “marking” or failing to mark the pipeline, and the claim against them was a “professional liability” claim subject to the professional liability exclusion of the CGL policy. Energy Insurance Mutual Limited v. ACE American Insurance Company, 221 Cal. Rptr. 711 (2017).

The job description of the personnel was to “to ensure compliance with engineering specifications, safety standards, and industry codes.” They were also required “to have knowledge of the practices, principles, procedures, regulations and techniques as they related to terminal pipeline construction, and to “have the ability to understand and interpret construction drawings, maps, and blueprints.”

The exclusion in the policy in question provided, “This insurance does not apply to any liability arising out of the providing, or failing to provide, any services of a professional nature.”

Analysis

In analyzing the case, the court explained that “CGL policies are limited to providing coverage for accidental occurrences, and do not provide coverage for professional negligence claims.” The issue in this case was whether the services and work provided by the staffing personnel constituted professional services and professional liability within the meaning of the exclusion.

The court found that the “tasks assigned to the inspectors and line riders reflect the professional nature of the services they were expected to render.” The underlying personal injury and wrongful death claims alleged that they “arose from the failure to properly locate and mark the underground pipelines.” This, said the court, “unquestionably involves more than the mere presence of the inspectors on the site.”

The excess carrier argued, however, that the professional services exclusion didn't apply because the underlying lawsuits alleged ‘”ordinary, common law negligence’ and “other actionable conduct,” such as trespass and nuisance. The court found this argument to be of no avail because the potentially covered claims were “inseparably intertwined” with the non-covered conduct.

“Ultimately, it is the nature of the conduct, not the source of law, that governs whether an exclusion applies. Thus, although the underlying cases also alleged ordinary negligent acts and other causes of action, the gravamen of the actions is that [staffing agency] and Kinder Morgan failed to mark the pipeline, the very thing they were required to perform at the site. It is [their] failure to render professional services that comprises the basis of the underlying lawsuits. Accordingly, the basic occurrence that caused the injuries (failure to mark, the pipeline) was excluded from coverage by the CGL umbrellas policy.”

The court concluded its analysis of this issue by stating, “The professional services exclusion simply reconfirms that the policy was not intended to cover the insured's mistakes in how it provided promised services to others…. In this instance, this is even more clear as Kinder Morgan [like the staffing agency] could have purchased errors and omissions coverage but declined to do so.”

Comment on Professional Liability Exclusion Case

This decision once again addresses the distinction between claims for general liability and professional liability, and demonstrates the importance of project owners and contractors that have professional liability exposure purchasing appropriate professional liability policies to cover their potential professional acts, errors and omissions. Owners may obtain such coverage through policies such as the Owner’s Protective Professional Indemnity (OPPI) liability policies that are readily available from multiple carriers. Contractors can likewise readily avail themselves of similar coverage through polices such as Contractors Protective Professional Indemnity (CPPI) insurance. The effective rates for owners and contractors to purchase such insurance are generally less than what design professionals must pay for their own coverage.

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. 20, No. 1 (Jan 2018). Copyright 2018, ConstructionRisk, LLC

Article 2

Building Code Requirements Imposed Non-Delegable Duty on General Contractor for Safety Guardrails

A general contractor for home construction hired a subcontractor to perform trim work on a house, including installation of a guardrail in front of a sliding glass door that would have access to a potential future deck. The subcontractor used finish nails to attach the guardrail. When a subsequent homeowner leaned against the rail, the finish nails pulled out of the trim wood it was nailed into, and the homeowner took a bad fall and suffered serious injury. In response to the homeowner’s lawsuit, the general contractor argued that it owed no duty to the homeowner because it had delegated the guardrail construction to its subcontractor who was solely responsible.

Although Maryland follows the general rule that the employer of an independent contractor is not liable for physical harm caused to another by an act or omission of that contractor, there are exceptions to that general rule, including (1) negligence in selecting, instructing or supervising the contractor and (2) non-delegable duties of the employer. The court held found the duty imposed by the building code was binding on the prime contractor and couldn't be delegated down to the subcontractor. The jury found the contractor liable for negligent supervision and the court rejected the contractor’s argument that it must have actually controlled the subcontractor’s work in order to be held liable for negligent supervision. The “right to control” the subcontractor was sufficient to find liability. Marrick Homes LLC v. Rutkowski, 232 Md.App. 689 (2017).

The courts reasoning was as follows:

“[General contractor] urges us to conclude that a duty imposed by a building code is only nondelegable by the owner or developer, not by a general contractor. In our view, this is an unreasonably narrow reading of Gardenvillage, Whiting-Turner, and the Restatement. To be sure, as the general contractor, Marrick was required to comply with the building code, and it is unassailable that the code provisions alleged to have been violated in this case were intended as safety measures. Pursuant to § 424 of the Restatement (Second) of Torts, “[o]ne who by statute or by administrative regulation is under a duty to provide specified safeguards or precautions for the safety of others is subject to liability to the others for whose protection the duty is imposed for harm caused by the failure of a contractor employed by him to provide such safeguards or precautions.”

In this case, Marrick, the general contractor responsible for the construction of the appellees’ home, bore the statutory duty to provide specified safeguards or precautions. Marrick, therefore, is subject to liability to the appellees for harm caused by the failure of its employee Creative Trim to provide such safeguards.

We observe … considerations “favor[ ] the imposition of at least initial liability upon the person who sits at the top of the pyramid of those who create the improvement.” [citation omitted].considerations, therefore, support a finding of potential liability on the general contractor. Nevertheless, we need not rely on policy considerations because of the express exception outlined in the Restatement applies to the facts of this case.

Accordingly, we hereby adopt § 424 of the Restatement, apply the § 424 exception to general contractors, and hold that Marrick, as general contractor, can be held liable for harm caused by its employee subcontractor when evidence was presented to demonstrate that the subcontractor violated the building code and the provisions of the building code alleged to have been violated were intended as safety measures.”

Lawsuit was not Time Barred – It was Filed within the Statute of Repose Period

The contractor asked the court to dismiss the case because the plaintiff who had purchased the home in question from the original owner waited over 70 days after purchase to make the claim, and brought the suit almost seven years after construction was completed. In rejecting this argument, the court relied upon the ten (10) year statute of repose in Maryland and held that the suit was brought within the period permitted by statute.

Md. Code (2006, 2013 Repl. Vol.), § 5–108(b) of the Courts and Judicial Proceedings Article provides:

“Except as provided by this section, a cause of action for damages does not accrue and a person may not seek contribution or indemnity from any architect, professional engineer, or contractor for damages incurred when wrongful death, personal injury, or injury to real or personal property, resulting from the defective and unsafe condition of an improvement to real property, occurs more than 10 years after the date the entire improvement first became available for its intended use.”

Because the suit was brought within the time permitted by the statute of repose the court found the case was timely.

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. 20, No. 1 (Jan 2018). Copyright 2018, ConstructionRisk, LLC

Article 3

Construction Manager not Responsible for Injuries to a Contractor’s Employee where it had no Ability to Control the Contractor’s Activity

See similar articles: Authority to Control | Construction Manager | Site Safety

Construction management services agreement between the Construction Manager (CM) and the Metropolitan Transportation Authority (MTA) of New York provided that the CM was responsible for coordinating the work relating to the number 7 train subway extension project on the west side of Manhattan. This included “liaising with contractors to ensure that the project was completed in accordance with cost time, safety, and quality control requirements and reporting to the MTA.”

The agreement did not confer authority on the CM, however, to control the methods used by the contractors to complete their work. Deposition testimony established that the CM did not assume responsibility for the manner in which the work was conducted. For these reasons, the appellate court found that the injured contractor employee failed to raise a triable issue of fact, and held that the trial court correctly granted the CM’s motion for summary judgment. Willie Lamar v. Hill International, Inc., et al., 153 A.D.3d 685, 59 N.Y.S.3d 756 (2017).

The court explained that in order to impose liability on a construction manager for a violation of New York Labor Law sections 200, 240(1), or 241(6), the plaintiff must show that the defendant had the authority to exercise supervision and control over the work that brought about the injury so as to enable the defendant to avoid or correct an unsafe condition. A CM of a work site is generally not responsible for the injuries under the Labor Law, according to the court, “unless it functions as an agent of the property owner or general contractor in circumstances where it has the ability to control the activity which brought about the injury.”

Here, the court found that only in the event of an emergency was the CM authorized to stop the work of the contractor. The CM, “was authorized only to review and monitor safety programs and requirements and make recommendations, provide direction to contractors regarding corrective action to be taken if any unsafe condition was detect, and stop work only in the event of any emergency.”

Deposition testimony demonstrated that the CM did not have control, or a supervisory role, over the plaintiffs' day-to-day work and did not assume responsibility for the manner in which that works was conducted. The CM therefore satisfied the court that it had no control or supervisory authority over the plaintiff's work so as to enable the CM to prevent or correct any unsafe conditions.

Article 4

CM/General Contractor, as a Statutory Employer, is Entitled to Workers’ Compensation Act Immunity from Suit by Subcontractor’s Injured Employee

When a subcontractor employee was injured by being struck by pieces of concrete that unexpectedly shot out of a concrete pumping hose, he sued the project construction manager (CM) who had subcontracted the concrete work. Tutor Perini was serving as CM at risk and therefore subcontracted out construction work, including the concrete. Summary judgment was granted for the CM on the basis that it was immune from suit pursuant to the Pennsylvania Workers’ Compensation act because it met the five-part test used for determining that it was a “statutory employer” of the injured individual. Alexander v. Tutor Perini Corporation, et al., 2017 WL 4159338 (U.S. District Court, E.D. Pa., 2017).

The CM developed an environmental health and safety plan detailing the rules and procedures that subcontractors and their employees were expected to comply. They kept an office and trailer on the project premises to monitor the project and enforce safety procedures. CM employees maintained a constant presence on the site.

The accident occurred when a group of subcontractor employees attempted to dislodge a concrete jam inside the pumping pipes. The employees began disassembling pipes and found “frozen” or “hard” concrete in several locations. While chipping concrete out of the top of a pipe, an employee was hit from behind and injured by concrete that blasted free from another section of pipe.

The five-part test that the court applied to find immunity for the CM who had employed the subcontractor was the following:

“1) the general contractor must be under contract with an owner or one in the position of an owner;

2) the general contractor must occupy or control the premises of such owner;

3) the general contractor must enter into a subcontract;

4) the general contractor must entrust part of its regular business to such subcontractor; and

5) the injured party must be an employee of such subcontractor.”

The court stated, “A general contractor who meets the McDonald test is ‘entitled to its historic immunity as a ‘statutory employer’ from suit for common law negligence,’ even if the general contractor is not the common-law employer of the injured party.”

In attempting to avoid summary judgment based on statutory employer immunity, the injured employee argued that the concrete work that was entrusted to its employer (the subcontractor) was not part of the CM’s “regular business” under the McDonald test. In rejecting that assertion, the court quoted from other decisions that state, “the regular business requirement is satisfied ‘wherever the subcontracted work was an obligation assumed by a principle contractor under his contract with the owner.’ ” Moreover, the court found that element four of the McDonald Test does not require that the CM/general contractor be capable of carrying out that specific task itself, but only that the type of work be in the regular business of the CM.

Being satisfied that all five of the McDonald factors necessary to establish the CM’s status as a statutory employer, the court granted Tutor Perini’s motion for summary judgment.

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