Sox Are ‘Slippery When Wet’: Contractor May be Liable for Injury Caused by Work Installed According to Customer Specifications

Amandeep S. Kahlon | Bradley Arant Boult Cummings LLP | March 21, 2019

An Illinois appellate court recently addressed the scope of negligence liability for a slip and fall injury on a newly installed roof at the Chicago White Sox Stadium. In 2013, a maintenance employee slipped on the roof at the stadium and suffered severe muscle tears. The employee filed suit alleging negligence and strict liability against the White Sox, the roofing contractor, and the manufacturer of the roofing product. All three defendants moved for and were granted summary judgment by the trial court, and the employee appealed.

On appeal, the manufacturer argued that it owed no duty of care to the employee and, regardless, had provided sufficient warning to its immediate vendee, the contractor, so as to relieve the manufacturer of any liability. The contractor argued that it owed no duty of care to the plaintiff because it relied on the customer’s specifications and performed the work in accordance with the specifications.

After reviewing the manufacturer warnings, the appellate court agreed that the manufacturer had provided adequate warnings to the contractor regarding use of its roofing product and affirmed summary judgment in favor of the manufacturer. However, the appellate court reversed the trial court’s grant of summary judgment with respect to the White Sox and the contractor. Although the contractor cited past Illinois rulings that relieved contractors from liability to third parties when contractors followed the plans, specifications and instructions provided by an owner, the appellate court here found that the contractor still owed a duty of care to third parties. The court reasoned that, because the White Sox sought the contractor’s “expertise, advice, and direction” to make recommendations regarding roofing materials and necessary safety equipment, the contractor was not just “blindly replicat[ing]” specifications and plans.

The court was particularly persuaded by evidence that the White Sox and contractor negotiated the contract over several iterations and meetings. Unlike a traditional design-bid-build work scenario, the contractor had input on the specifications, plans and materials to be used in the construction of the roof, not unlike a design-build project.

The court’s decision places the contractor in a precarious position, where it may be held accountable for an injury to a third party, despite following its customer’s plans and specifications. Contractors, especially those involved in negotiated private work and, in particular, those performing construction manager roles with input into design and constructability decisions, should be mindful of the Illinois court’s decision and the implications the decision may have on future claims. A careful contractor can do several things to mitigate the risk of liability to third-party plaintiffs such as the White Sox employee in this case:

  1. pass on any manufacturer warnings explicitly to the owner;
  2. expressly disclaim liability for defective specifications or plans and seek indemnity from the owner for the same; and
  3. evaluate, during negotiations, the potential unintended consequences of recommending different materials, equipment or systems, especially if the recommended alternatives are to satisfy a demanding customer’s price concerns.

Minnesota Court Allows Punitive Damages Claim Against Contractor

Nicholas A. Loyal | Stinson Leonard Street | February 21, 2019

Punitive damages in construction cases are rare, but the Minnesota Court of Appeals recently allowed a driver to seek punitive damages after he was injured by debris falling from a construction company’s truck. The court’s decision provides a framework for punitive damage claims to proceed against contractors and serves as a cautionary tale for those who are involved in the construction industry.

In Carney Lien v. Casper Construction Inc., et al., a driver was hurt when a rock fell off of a dump truck hauling gravel from a pit to a construction site, broke through his windshield, and caused major injuries. After settling with the trucking company and the gravel pit, the driver went to trial against Veit & Company, which was responsible for supplying the gravel being hauled.

At trial, Veit argued that the injury was the result of a “freak accident,” while the driver argued that Veit was filling dump trucks dangerously full—so much so that rocks were falling off the top and sides of its trucks as they drove away. The injured driver produced testimony from eyewitnesses to the accident, as well as truck drivers on the project who testified that the trucks were being consistently overloaded. The jury found for the driver, and awarded $4,754,973.67 in compensatory damages.

Generally, in order to obtain punitive damages under Minnesota law, the party seeking damages must provide evidence that clearly and convincingly shows a “deliberate disregard for the rights or safety of others.” Minn. Stat. § 549.191 et seq. That standard is met if the evidence shows that the offending party “has knowledge of facts or intentionally disregards facts that create a high probability of injury to the rights or safety of others” and either deliberately proceeds to act with indifference or conscious disregard of that probability for injury. Id. at subd. 1(b). If awarded, punitive damages can greatly exceed the actual damages sought by a plaintiff in a lawsuit, as they are designed to punish an offending party to such a degree that the wrongdoing is not repeated.

In Carney Lien, the injured driver sought punitive damages after the verdict based on affidavits from five truck drivers working on the project asserting that Veit not only overloaded its dump trucks, but that it continued to do so despite complaints about the safety of this practice. While the district court denied the motion and struck the claim for punitive damages, the court of appeals reversed, finding that the district court abused its discretion by improperly weighing the evidence presented. As a result, the court of appeals remanded the case to the district court for further consideration of whether punitive damages were proper.

While it remains to be seen what the ultimate resolution of the punitive damages issue will be at the district court level, the court of appeals opened the door for claims seeking punitive damages by providing a framework for the type of damages needed to support such a claim. Specifically, if an injured party can present evidence establishing that a contractor is knowingly acting in a manner that could be detrimental to public safety, the contractor could face punitive damages for any injuries resulting from that action.

Obviously, construction companies should not knowingly act in a dangerous manner or disregard potential harm to public safety. However, in this case, the truck driver himself had a responsibility to secure his load and not allow his truck to be overfilled. To hold the excavator responsible for enormous damages resulting from such an accident creates the potential for extending punitive damages beyond their traditional limits.

Legal Accountability and Construction Accidents: Investigating, Reporting and Engaging Outside Counsel

Charles P. Keller and Richard G. Erickson | Snell & Wilmer | January 28, 2019

Construction accidents are inevitable, even for clients who implement and enforce a meticulous safety plan on a project. Despite best intentions and protections afforded to contractors, employees, subcontractors, vendors and property, construction accidents happen. We, therefore, try to advise clients about the best prevention, response and defense protocol that both demonstrates commitment to safe construction practices and honors due process and other rights associated with matters of civil and criminal liability when a construction accident occurs. Here are just a couple of key questions to consider. 

What Are the Boundaries to Investigating a Construction Accident?

The obligation to investigate is, for the most part, set by your internal safety plan that accounts for and encompasses any local and/or federal regulatory requirements. These requirements are very familiar to small and large builders and contractors, who devote the required attention to their safety policies and procedures, and to training their employees and seeking compliance through regular, periodic safety inspections. Proper training and documented workplace inspections are usually the first inquiry to any investigation, so a company’s safety plan should be a high priority well before the first shovel hits the ground. 

In addition, safety directors, managers and on-site safety representatives are oftentimes the first management representatives on the scene of an accident and are the key players who are initially trusted to decide when, what, why and who to investigate. Not every accident is worthy of a formal, written investigation, so these safety representatives are instrumental in setting the boundaries before company assets are dedicated to drafting a written or other record of what happened and how to prevent another accident. These types of incidents may necessitate the on-site employee to immediately contact in-house or outside counsel. Additionally, these types of incidents may also trigger several protocols necessary to preserve evidence, to videotape or photograph the scene and to outline steps to be followed by employee witnesses before interviews are allowed by law enforcement or government agency representatives. These boundaries are best set and identified in the company’s safety plan or in a separate accident investigation protocol and are vital to exercising command and control over the investigation. 

Is There a Way to Make Internal Investigations Confidential?

The short answer is, yes, there are ways a company can designate communications and reports incidental to an accident investigation as confidential. However, this usually, if not always, requires preparation and communication of the report to legal counsel. Because the attorney-client privilege afforded to in-house legal counsel may not be as protective as the attorney-client privilege afforded to outside counsel, and because in-house counsel may not concentrate in the safety and OSHA areas, it may be safer to communicate in writing to outside counsel about the investigation. The attorney-client privilege ideally protects these communications and the documentation flowing from the investigation from, among other things, discovery in litigation and government investigations. 

Federal OSHA, unlike Cal-OSHA, does not mandate that accident investigations are performed. While most companies do perform accident investigations, it may be wise to commit, in writing in your safety policies, only to perform written accident reports in certain circumstances. Examples might be a fatal accident, an OSHA reportable injury or illness, a significant injury or illness possibly caused by you to another employer’s employee or an accident causing property damage in excess of a certain predetermined monetary value.

In general, initially, communications to outside counsel about an accident should be expressly made for the purpose of giving the safety representatives at the scene direction regarding preserving the scene, spoliation issues, protecting your witnesses, obtaining evidence and controlling the interaction with governmental investigators. Additionally, outside counsel can later advise regarding tendering a liability or indemnity claim and preparing materials for litigation stemming from the construction accident. Consider emphasizing the intention of the privileged communications with titles or subject lines making it clear the document is for the benefit of legal advice from outside counsel (something as obvious as “ATTORNEY-CLIENT PRIVILEGED WORK-PRODUCT COMMUNICATION TO OUTSIDE COUNSEL IN ANTICIPATION OF LITIGATION AND TO PREPARE NECESSARY CLAIM OR RELATED MATERIALS”). Simply copying outside counsel on an email or other correspondence with key players in the company is generally a mistake. It may be wise to always include outside counsel directly in communications about the investigation and protect the overarching premise that outside counsel’s advice is necessary for preparing for claims and litigation arising from the accident. 

When Is the Ideal Time to Involve Outside Counsel in the Investigation?

Involve outside counsel in a construction accident investigation sooner rather than later. Despite the impression that incurring attorneys’ fees early on is premature and more expensive, it may actually be more cost-effective to make sure outside counsel is up to speed right away rather than spending time and more money to catch up later on. Involving outside counsel early also allows the company a more immediate means of communicating confidentially about the accident. Moreover, outside counsel can ensure that the governmental investigation is being conducted according to their procedures and the company and its employees are being afforded their proper legal rights. Also, it may be more difficult to claim attorney-client privilege with in-house counsel who may have less of a role in preparing the company for litigation arising from the accident. For example, if liability or other insurance will cover a claim and its defense, in-house counsel may have little to no involvement with the litigation or in responding to government agencies like OSHA. 

Outside counsel may be preferable for many reasons. First, as mentioned above, an outside legal counsel who concentrates on OSHA matters has familiarity with the government investigators. Also, such counsel knows how best to protect the employees during the regulatory interview process and protect the company from unintentionally prejudicing its own case. Additionally, outside counsel can often act as an intermediary for the company when demands are being made upon the company from many sources. Besides law enforcement representatives and OSHA investigators, insurance representatives and claim investigators quickly descend on the scene. Construction accidents involving property damage and personal injury or death additionally trigger a rush to broadly target liability insurance from all potential sources. Subrogation lawyers representing the primary insurer often show up on site at the same time government investigators are making their record of the accident. Second, despite workers’ compensation immunity typically applicable to the injured employees of the company, personal injury lawyers will try to identify any number of other possible tortfeasors who may have some liability for causing the same injuries. A company may also need the advice of outside counsel to address instantaneous media reports of the accident or to respond to inquiries by news agencies. These legal gymnastics that occur immediately after a construction accident may better be handled by outside counsel so the company can deal internally with comforting injured employees, conducting its investigation, maintaining daily operations and keeping the construction project on track.

Pennsylvania Federal Court Addresses Recurring Asbestos Coverage Issues

Craig O’Neill and Laura Rossi | Complex Insurance Coverage Reporter | January 18, 2019

In a pair of recent asbestos coverage decisions, a Pennsylvania federal court issued rulings addressing expedited funding orders, number of “occurrences,” and the applicability of aggregate limits under the Fourth Circuit’s Wallace & Gale approach.

Zurn Industries, LLC v. Allstate Insurance Company, 2018 U.S. Dist. LEXIS 197481 (W.D. Pa. Nov. 20, 2018)

Policyholder Zurn, a manufacturer and distributor of boilers, was named as a defendant in thousands of underlying asbestos-related bodily injury suits. After its primary insurers claimed exhaustion, Zurn moved on an expedited basis to require two of its excess insurers to each assume fifty percent of its defense and indemnity costs until they reached a permanent cost-sharing agreement. In denying Zurn’s expedited request for interim funding, the court held that the record was insufficient “in the opening stages of litigation, before discovery has occurred” to determine whether the underlying coverage had been properly exhausted but left the door open for Zurn to refile its motion on a more developed record.

Relying on J.H. France and Koppers, Zurn argued that it had properly “selected” the excess insurers’ policies and, therefore, they were obligated to share its defense and indemnity costs subject only to their right “to redistribute the burden among themselves.” Zurn also argued that, under Pennsylvania’s “four corners” rule, it only needed to make a prima facie showing that the underlying asbestos claims fell within the scope of coverage based on proof of exhaustion from a prior insurer. Zurn’s excess insurer countered that the relief sought was premature due to a dispute over the accuracy of the primary insurer’s representations concerning exhaustion that must be resolved following discovery and motion practice.

The district court noted that “extenuating circumstances” complicated the application of the usual “four corners” rule because the case involved (1) thousands of underlying asbestos claims rather than a single claim; and (2) excess insurance coverage, meaning that the policyholder must also establish that the insurer’s policies were triggered by the exhaustion of underlying coverage. The court further observed that exhaustion is “inherently a factual issue, and the record before the Court [was] both limited and underdeveloped.” Ultimately, the court concluded that it was premature to make any determination concerning exhaustion since the insurer who provided representations of exhaustion had yet to answer the complaint or file cross-claims against it. As the court explained:

To the extent that Zurn cites [cases] for the proposition that it has satisfied its prima facie evidentiary burden by supplying loss runs, . . . does not necessarily mean that the Court can or should determine whether that burden has been met in the opening stages of litigation, before discovery has occurred…. Notably, none of the cases cited by [Zurn] involved the type of interim relief being sought here in the opening stage of litigation, and this Court has been unable to find any Pennsylvania case in which such relief has been requested or granted at the outset (emphasis added).

The court therefore denied Zurn’s motion without prejudice. Because the court deemed Zurn’s defense of thousands of asbestos lawsuits a “serious matter that deserve[d] prompt attention,” it directed the parties to confer and submit a proposal for expedited discovery on the issue of exhaustion.

Ohio Valley Insulating Company, Inc. v. Maryland Casualty Company, 2018 U.S. Dist. LEXIS 216393 (W.D. Pa. Dec. 27, 2018)

Policyholder Ohio Valley Insulating Company (OVI), an installer of steam pipes and boiler insulation, brought a coverage action against its insurer in a dispute over numerous asbestos bodily injury claims. The district court held on summary judgment that (1) each site where the insured conducted operations was a separate “occurrence”; and (2) the aggregate limits of the “completed operations” hazard applied.

First, the district court considered whether the claims brought against OVI were one or multiple occurrences. The policies at issue provided that “all bodily injury . . . arising out of continuous or repeated exposure to substantially the same general conditions shall be considered as arising out of one occurrence.” The court was persuaded by Kvaerner v. OneBeacon, 74 Pa. D. & C.4th 32 (Pa. Ct. Com. Pl. Phila. Cty. 2005), which held that each construction site where the insured used asbestos constituted a separate “occurrence” because “the claimants that were exposed to asbestos at the same location and at the same time were exposed to substantially the same general condition.” The court distinguished between products and operations claims and concluded that the activities that “triggered the underlying claims did not arise from a single, negligent practice that could be considered one cause such as distributing a uniformly defective product from a single manufacturer or selling a product containing asbestos from one location.”

In following Kvaerner, the court emphasized that (1) the policies restricted coverage to OVI’s specified operations—i.e., “Steam Pipe or Boiler Insulation”—at various sites; (2) the policies provided coverage for “completed operations” hazards but were silent on “products” hazards coverage; (3) the asbestos suits derived from multiple contract, operations, and job sites; and (4) the insurers’ determination of OVI’s liability in the asbestos suits was based on a “contract book” match, i.e., whether a particular claimant’s work history coincides with the list of OVI’s contemporaneously recorded operations. According to the court, these facts “demonstrate[d] that claimants in the Asbestos Suits who were exposed to asbestos during the same time and at the same site where OVI was conducting one of its operations were subjected to continuous or repeated exposure to substantially the same general condition.”

Second, the court rejected OVI’s contention that the asbestos suits fell solely within the policies’ “operations” coverage. Instead, the court followed the rule announced by the Fourth Circuit Court in In re Wallace & Gale Co., 385 F.3d 820, 830 (4th Cir. 2004) (establishing that “where the injury that triggers coverage occurs subsequent to exposure to an operation, that claim is subject to the aggregate limits of the ‘completed operations’ hazard” which “encompass any bodily injury claim in which the claimant was injured by asbestos exposure attributable to an operation that the insured completed prior to the start of the policy period.”). The court found that the approach in Wallace & Gale “comports with Pennsylvania ‘trigger’ theory of coverage in asbestos cases”—specifically noting that, under J.H. France, a claimant’s exposure to asbestos, as well as all phases of an ensuing disease, independently “trigger” coverage. Thus, the court concluded that multiple policies were triggered and “the aggregate limits associated with the ‘completed operations’ hazard [were] applicable.”

Subcontracting In The Construction Industry And Who Is Responsible For The Injured Employee?

Ryan M. Hathcock | Drew Eckl & Farnham, LLP | December 5, 2018

The current trend in the construction industry involves the acquisition of specialized laborers and contractors to perform the various tasks required to complete each aspect of a given project. General contractors obtain the services of subcontractors as a common business practice to help construction projects become completed more efficiently. Often, these subcontractors are more capable of performing the specialized work, and in many ways, the construction industry is a subcontractor-driven industry.

The addition of subcontractors to a construction project brings additional workers hired by each subcontractor. In the event a subcontractor’s employee is injured in the performance of the work at the construction site, a question arises of who may be held responsible for payment of workers’ compensation benefits for those injuries.

Statutory Employment

A “statutory employer” is an entity that may be held liable for workers’ compensation benefits for injuries to a subcontractor’s employees. O.C.G.A. § 34-9-8(a) specifically lists the entities that may be considered statutory employers under the Workers’ Compensation Act and may liable for workers’ compensation benefits to an injured employee. That list includes principle contractors, intermediate contractors, and subcontractors. After identification of the appropriate immediate and statutory employers that may be held liable, the next question is determining which party is responsible for payment of any workers’ compensation benefits.

Under O.C.G.A. § 34-9-8(c), the immediate employer remains primarily liable for compensation, and the statutory employer is secondarily liable. In order to obtain workers’ compensation benefits from the statutory employer, a claim for benefits must first be brought against the immediate employer. If the immediate employer is uninsured or insolvent, the injured employee may then seek benefits from the statutory employer. In those situations where the statutory employer is held liable, the Georgia Workers’ Compensation Act allows the liable statutory employer to recoup their losses “from any person who, independently of this Code section, would have been liable to pay compensation to the injured employee or from any intermediate contractor.” O.C.G.A. § 34-9-8(b). Although there is an avenue for recovery for the statutory employer to recoup its losses, it may be impossible to recoup any losses from an insolvent immediate employer.

Employer/Employee Relationship Requirement

The Workers’ Compensation Act requires most employers with three or more employees to carry valid workers’ compensation insurance. Too often, one or more subcontractor fails to obtain and carry workers’ compensation insurance. Even if a subcontractor does not have three or more employees and does not obtain workers’ compensation insurance, the general contractor can be held liable for workers’ compensation benefits as a statutory employer. In those circumstances, the general contractor assumes liability for workers’ compensation coverage for the subcontractor’s employees injured on a general contractor’s project.

The polarity of that is O.C.G.A § 34-9-8 will only apply if the injured individual is an employee of his actual employer. While it has been determined that O.C.G.A. § 34-9-8(c) allows an employee to recover workers’ compensation benefits from the statutory employer if he is unable to recover those benefits from his direct employer, the injured individual cannot recover those benefits if he is not an actual employee. Thus, an injured individual will be unable to recover benefits from the statutory employer if he was working for his direct employer as an independent contractor.

Statutory Employer Tort Immunity

The Georgia Workers’ Compensation Act allows for medical treatment and lost wages to an injured employee without the need to prove fault of the employer (who may not be at fault at all). As a result, the injured employee gives up the right to sue his immediate employer and all other statutory employers for the injuries sustained on the job.

The obligation to pay workers’ compensation benefits provides immunity from tort claims arising from the same accident to all entities upward in the contractual chain between the principal contractor and the immediate employer. With that said, immunity does not extend to employees of the principal contractor. Immunity protection to a statutory employer is prompted by the statutory employer’s potential liability for workers’ compensation benefits even if the statutory employer (i.e. principal contractor) does not ultimately have to pay any benefits in connection with the workers’ compensation claim.

Third-Party Property Owner Liability

A property owner is not ordinarily a “statutory employer” under the Workers’ Compensation Act. However, an owner or an entity in control of the premises where an employee is injured may be subject to workers’ compensation liability as a statutory employer, “in the isolated situation where the party also serves as a contractor for yet another entity and hires another contractor to perform the work on the premises.” Creeden v. Fuentes, 296 Ga.App. 98(1), 673 S.E.2d 611 (2009) (citation and punctuation omitted). In other words, an owner or entity in control of property may be subject to statutory employer liability if that entity also functions as a contractor for another entity and hires a subcontractor to perform work on the premises. The corollary of this is that where the owner is potentially liable as a statutory employer, the owner is also entitled to tort immunity due to the exclusive remedy doctrine.

Practical Considerations for General Contractors

The Georgia Workers’ Compensation Act provisions regarding contractor-subcontractor relationships are designed to create a safety net for any injured worker to assure benefits will be paid by someone. General contractors are responsible for providing workers’ compensation coverage to their own employees, but they may also have additional exposure in instances where their subcontractors have not obtained coverage for the subcontractor’s employees. For a general contractor (i.e. statutory employer) to avoid being held financially responsible for another entity’s employees, it is essential that the general contractor protect itself by requiring every lower tier contractor to carry workers’ compensation coverage. In addition to statutory requirements, workers’ compensation coverage can also be contractually required. This verification process often fails through the life of a construction project as numerous subcontractors come and go. However, the cost to upstream contractors in the event of a workplace injury can be substantial.

The Nation Council on Compensation Insurance (NCCI) maintains an active list that allows for verification of workers’ compensation coverage for any company. General contractors are often not aware of the service provided by NCCI that could greatly limit their exposure in workers’ compensation matters. Aside from regularly checking the NCCI database, general contractors could ensure compliance by contractual language requiring for verification of coverage by providing valid certificates of insurance at each subcontractor pay request. Certificates of insurance should not be consider absolute verification of valid insurance, given that inaccurate or fraudulent certificates of insurance may be prepared. Checking directly with the insurance carrier to confirm proper insurance is held is always the best practice.

Work injuries in the construction industry are more common than in any other industry. Requiring all subcontractors down the contractual chain to obtain valid workers’ compensation insurance will prevent situations in which the general contract will be forced to accept responsibility for claims and reduce the number of instances in which they will tap their own insurance for coverage. In theory, a contractual requirement for subcontractors to present workers’ compensation coverage seems simple. In complex construction projects with numerous subcontractors and an ever approaching deadline, the need for skilled and efficient labor sometimes overrides a thorough examination of a subcontractor’s insurance coverage. Unfortunately, that mistake can become extremely costly as general contractors will assume liability for workers’ compensation benefits for injuries to an employee it did not directly hire.