Privity and Additional Insured Coverage

Larry P. Schiffer and Suman Chakraborty | Squire Patton Boggs | October 5, 2017

When a worker is injured on a construction job and sues the relevant parties, a side battle often ensues over which carrier has the duty to defend and indemnify the owner, general contractor or subcontractor based on the language in the various construction contracts requiring some or all of those parties to be named as additional insureds. When there are multiple subcontracts cascading down

to the injured worker’s employer, determining whether the employer’s policy must defend and indemnify other parties as additional insureds can be confusing. In a recent Summary Order, which does not have precedential effect, the Second Circuit Court of Appeals weighed in on this issue under New York law.

In Cincinnati Ins. Co. v. Harleysville Ins. Co., an employee of a sub-subcontractor was injured and sued the building owner, general contractor and subcontractor. The sub-subcontractor’s construction contract with the subcontractor required the sub-subcontractor to add the subcontractor, general contractor and owner as additional insureds to the sub-subcontractor’s insurance policy. The subcontractor’s carrier sued the sub-subcontractor’s carrier arguing that the latter carrier had to defend and indemnify the additional insureds. The district court granted the subcontractor’s carrier’s summary judgment motion in part by finding that the sub-subcontractor had a duty to defend and indemnify the building owner as an additional insured, but not the general contractor. On appeal, the Second Circuit reversed in part and held that the sub-subcontractor’s carrier had no duty as neither the building owner nor the general contractor were additional insureds under the policy.

According to the court, the sub-subcontractor’s policy had 2 endorsements that addressed additional insureds. The first was the “Privity Endorsement,” which grants additional insured coverage “when you and such person or organization have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy.” The second was the “Declaration Endorsement,” which refers to the declarations section of the policy for a schedule of additional insureds.

In reversing, the court held that the Privity Endorsement did not confer additional insured status on the building owner or general contractor because there was no contractual privity between them and the sub-subcontractor. Simply put, the sub-subcontractor had no direct construction contract with the owner or the general contractor. The court noted that the law in New York was clear on this point and that New York courts had interpreted the identical provision to require contractual privity. The court stated that it did not matter if the sub-subcontractor’s construction contract required the owner and general contractor to be named as additional insureds (this was a matter for breach of contract), that contract could not modify the insurance policy because the Privity Endorsement was clear on its face that the construction contract had to be between the insured and the purported additional insureds. Because the insured had no construction contract with the owner or the general contractor there was no contractual privity and no coverage.

As to the Declaration Endorsement, the court noted that neither party were listed on the schedule as additional insureds. The court also found that a reference to a heading on the Declaration Endorsement that was the same as the Privity Endorsement did not expand the additional insured coverage grant automatically to every party when required in any construction agreement with the insured. Essentially, the court refused to write the Privity Endorsement out of the insurance policy. The court held that the Privity Endorsement modified the automatic status heading language in the declarations, not the other way around. In essence, the court held under New York law that in insurance contracts that require privity for additional insured coverage, the lack of a direct contract between the insured and the party seeking the additional insured coverage precludes extending additional insured coverage.

California Appellate Court Holds No Liability for Contractor in Slip and Fall Lawsuit, Due to “Accepted Work” Doctrine

Sharifi Firm | Southern California Injury Lawyer Blog | July 19, 2016

In a premises liability case, the California Court of Appeal recently reviewed whether a contractor that performed tile work for a property management company could be held liable for injuries suffered by an individual who slipped on the wet tiles.  After slipping and falling, the plaintiff in this case brought a lawsuit against the property manager, which then filed a cross-complaint against the contractor.  The trial court denied the contractor’s motion for summary judgment, but after review, the appellate court vacated the order and directed the lower court to issue a new order granting the motion for summary judgment based on the “accepted work” doctrine.tiles

Connie Rogers was the plaintiff in a slip and fall case involving PMB, a Limited Liability Company and property manager, and Topline Supply, Inc.  Topline had contracted with PMB to provide renovation services, including installing tiles on a handicapped access ramp. Topline was not named as a defendant, but PMB filed a cross-complaint for indemnity and added Topline. Then, Topline made a summary judgment motion based on the “accepted work” doctrine.

The trial court denied the summary judgment motion on the ground that the “accepted work” doctrine did not absolve a contractor from liability if they had been hired by a third party.

The court stated that the “accepted work” doctrine holds that once an owner that contracted for the construction of an improvement has accepted the work, the owner is solely liable to third parties who are injured by a defect or condition in the improvement.  This rule is based on the notion that by accepting the work, the owner implicitly approves of its safety and is then responsible to third parties.

In this case, the defect was allegedly that the tiles were too slippery once they got wet.  PMB was aware that the tiles were slippery when wet, and it attempted to improve the situation.  The appellate court stated that the evidence showed Topline had been fully paid for the work, and final payment was to be made only after the work was inspected and found “acceptable.” That the tiles were slippery when wet was obvious to PMB before the plaintiff allegedly fell. The court held that Topline was therefore not liable for injuries suffered by third parties.

In short, the appellate court stated that the trial court erred in believing that the “accepted work” doctrine only applies to prevent actions by the injured party.  In fact, this doctrine bars actions for indemnity by a joint tortfeasor.  The appellate court stated that there cannot be a duty to indemnify if there is no liability to the injured party.

Next, the court stated the particularities of this case required asking whether PMB could represent in good faith that there was a triable issue of material fact.  The court stated that PMB did not do so. Instead, PMB argued the tile at issue was chosen by Topline.  There is no liability for a defective product, and furthermore, the court stated the tile was not shown to be defective.  PMB knew the tile was slippery when wet.

The acceptance rule, the court stated, places responsibility on owners that accept work that poses a risk to the public.  An owner, once it has accepted the work, has the sole power to correct known problems.

The court stated that the lower court should vacate the order denying Topline’s motion for summary judgment and enter a new order granting the motion.

The Resurrection of the “Completed and Accepted Work Doctrine”

John L. Shaw – September 10, 2012

In the recent Court of Appeals decision, Lamb vs. Duggins Welding, (No. COA12-129, August 7, 2012) the Court relied on a 1946 case (Price vs. Johnston Cotton Co. of Wendell, Inc. 266 N.C. 758) to  support the application of the “Completed and Accepted Work Doctrine” and bar an action for personal injuries by a construction worker.

The plaintiff, Jason Lamb, was the site superintendent for Lomax Construction, the General Contractor (GC) on a multi-story building project. The GC hired defendant Duggins Welding to install steel decking which in turn hired the defendant Mabe Steel to work on the steel.  In order to comply with OSHA regulations, Duggins requested Mabe to install a perimeter safety cable on the third floor. Mabe accomplished this work by threading the cable through holes in the columns and where there were no holes, threaded the cable through nuts welded onto the columns. Mabe terminated the end of the cable by wrapping it around a column and secured it with clamps and turnbuckles.

After Mabe left the site, the column to which the cable was attached was removed.  At the direction of the plaintiff, Lomax moved the cable to an adjacent column. Instead of wrapping the cable around the column and securing it, as Mabe had done, Lomax’s employees terminated the safety cable by attachment to a nut that Mabe had previously welded to the column.

One of Jason Lamb’s daily duties was to inspect the cable and while testing its deflection, the weld to the nut broke off, the plaintiff fell three stories and received serious injuries. Lamb sued Duggins and Mabe to recover damages due to his injuries.  The trial court entered summary judgment in favor of the defendants and Lamb appealed.

The Court of Appeals affirmed the summary judgment based on the “completed and accepted work” doctrine. The court, quoting Price stated the “completed and accepted work doctrine provides ‘that an independent contractor is not liable for injuries to third parties occurring after the contractor has completed the work and it has been accepted by the owner…a fortiori, an independent contractor is not liable where the injury is not due to the condition in which he left the work”.

The court noted the doctrine is rarely applied in North Carolina and is limited to construction and repair contracts.  The court also noted that the doctrine has previously been held not applicable to service contracts. Nevertheless, the court holds the doctrine applicable to this case because it involved a construction contract.

On an issue of first impression, the court further held that the plaintiff, although employed by the General Contractor, was a “third party” within the meaning of the doctrine. In support, the court relies on Fishback and Moore, Inc. v. Foxwworth, 246 Miss. 814, 152 So.2d 714 (1963).

The court recognized an exception to the doctrine if a contactor turns over work so negligently defective as to be imminently dangerous to third persons, provided the contractor knows or should have known of the dangerous situation created by him and the other contractor does not know of the dangerous condition or defect and could not discover it by reasonable inspection. The court then held that the welded nut was not imminently dangerous as originally used to maintain the height of the cable and therefore the doctrine was applicable to this case.

The resurrection of the Completed and Accepted Work doctrine and its application to claims involving construction contracts has several ramifications that may be the reason the doctrine was seldom used. First, a construction contract is a service contact to which,  according to one case, the doctrine should not apply. Second, and perhaps the most important, is how does one determine if a contractor’s or subcontractor’s work has been “accepted”?  Apparently, a latent defect will not be sufficient to benefit from the exception to the rule unless the entity furnishing the work knows its work is “imminently dangerous” to third persons and knows or should know of the dangerous condition. Therefore, mere negligently performed work causing injury would not take it outside the doctrine and allow a claim for personal injuries.

Although the court does not discuss the terms of the parties contracts, will the standard provision stating that “payment for work does not constitute acceptance of the work” be binding on “third parties.” Exactly when is work accepted in order for the doctrine to apply?

In the future, one would expect this case to be cited by defense counsel in connection with injuries during construction work and many arguments made as to whether the defective work was accepted and, if so, whether it was “imminently dangerous.”

There is some indication the Completed and Accepted Work Doctrine is an extension of the lack of privity defense, but even the economic loss doctrine allows claims for personal injuries. In addition, it appears that if the traditional defenses of contributory negligence or lack of proximate cause had been applied, the case would have had the same result without the application of the doctrine and its uncertainties.

via The resurrection of the “completed and accepted work doctrine” – Lexology.

OSHA Fines Massachusetts Construction Company $50,000

Powers, DiCicco & Sahagian – April 10, 2012

Construction sites can be dangerous places owing not only to the machinery present but also to the constant movement that takes place there. Fortunately, when a construction accident occurs, the injured worker is often eligible to receive workers’ compensation benefits. With this fact in mind, readers may be interested to hear of one Massachusetts company now facing a hefty fine by the Occupational Safety and Health Administration.

Readers in the Boston area should know that, in order to reduce the chance of injury, construction companies must follow state and federal regulations concerning worker safety. A failure to do so not only may subject the company to fines, but also pose serious risks to workers. After failing to follow at least one of these regulations, OSHA fined Shawnlee Construction $50,000.

The fine was in response to a failure by the company to take adequate steps to safeguard against dangerous falls at construction sites. In this case, an inspection of a public safety building that the firm is constructing in Connecticut revealed that the site was in violation of fall protection regulations. As the company has been cited in three different states over the past five years for similar hazards, OSHA decided to impose an especially large fine.

As one of OSHA’s area directors explained, falls are one of the deadliest hazards at construction sites. Often, workers are literally just a step away from a fall that could disable them or even cause a fatal injury. While workers’ compensation benefits fortunately help with financial expenses following a construction accident, companies in Massachusetts and elsewhere still have an obligation to take steps to greatly the limit the chance of worker injury.

via OSHA fines Massachusetts construction company $50,000 | Boston MA Workers’ Compensation Attorneys Blog.