Can a Subcontractor Employee File a Personal Injury Lawsuit Against the General Contractor?

Jonathan Rosenfeld | Rosenfeld

The general rule in Illinois is that workers’ compensation is an injured employee’s sole remedy for workplace injuries unless certain very limited exceptions apply. 820 ILCS 305/5 states that there is no right to recover for these injuries or death “other than the compensation herein provided.” Of course, the compensation that the statute is referring to is workers’ compensation. However, there may be some scenarios under which an injured employee can file a negligence lawsuit, namely when someone else is responsible for their injury.

It is common in the construction industry for there to be a general contractor and multiple subcontractors on a worksite. It is a standard business practice. Each entity is responsible for different parts of the job. As a result, there are hundreds of construction workers on a site answering to different people. However, they only answer to their direct employer.

In Illinois, the laws are very strict about workers being required to stay within the workers’ compensation system. There are very limited exceptions to the rule that workers’ compensation benefits are the sole remedy for injured workers. In Illinois, there is not even an exception for gross negligence as there is in some states. Essentially, the employer has to act intentionally to be liable in a lawsuit. Otherwise, workers’ compensation benefits are the exclusive remedy for a worker’s injury.

An Injured Subcontractor Should Always Explore a Personal Injury Lawsuit

First, for some background, it is important to know why an employee of a subcontractor would prefer to file a negligence lawsuit instead of a workers’ compensation claim. The short answer is that they can get more money in compensation. Workers’ compensation claims do not pay for pain and suffering and generally pay you lost wages and medical bills.

There are a couple of different scenarios that can lead to a negligence lawsuit for a workplace injury. They involve situations in which a general contractor’s employee can sue a subcontractor. Alternatively, a subcontractor’s employee may be able to file a negligence lawsuit against the general contractor.

Construction sites may usually not just be staffed with employees of the general contractor. Instead, the general contractor may hire various subcontractors to handle certain discrete tasks. There may be numerous different companies working on-site, each with control over their own parts of the job. Many companies have their own employees. They each work for their statutory employer.

A subcontractor’s employee does not work for the general contractor and vice versa. Normally, the remedy that the Illinois Workers’ Compensation Act requires when a worker gets hurt is that they file a lawsuit against their own employer for their injuries.

Workers’ Compensation Cases Have Challenges When There Are Multiple Employers on a Construction Site

The interrelationship of the general and subcontractor can make liability complicated in Illinois injury cases. In some instances, that may actually work to the injured employee’s advantage.

One scenario under which there may be a possible negligence lawsuit is when the subcontractor’s employee is injured, but it is due to the negligence of someone else. However, even in this case, the rule of thumb is that the general contractor is not liable to an employee independent contractor that it employs at the site.

The reason for this general rule is that the subcontractor’s employee works for the subcontractor who has the responsibility for overseeing their work conditions. In other words, the general contractor retains no control over the site that would get in the way of the normal employer/employee relationship of the independent contractor.

How Retained Control Impacts Your Case

The concept of “retained control” is what would possibly make a general contractor liable for the injuries suffered by a subcontractor’s employee.   In Illinois, the retained control exception to workers’ compensation laws is not found specifically in Illinois law. Instead, it happens because of a common law principle that takes a subcontractor employee and makes them into an independent contractor if someone other than their employer can direct their work.

This will almost always be an issue when a subcontractor’s employee is injured on a job site. The Illinois Supreme Court weighed in on this matter in 2016 in its decision in the case of Carney v. Union Pacific R. Co. In this case, a subcontractor employee was injured on the job and sued the general contractor. The Illinois Supreme Court held that the usual principle is that the general contractor would not be liable. However, when they exercise some control over the subcontractor’s work, they can assume responsibility for injuries caused by subcontractors.

This could occur when the general contractor retains control of the site through a foreman who oversees the entire project. It could also occur when the general contractor issues safety directives to the subcontractors on the site under threat of termination.

It is important to understand the concept of retained control because that is also the basis of when a general contractor could be liable to the subcontractor’s employees in a negligence claim. When the general contractor retains control over the site, it must exercise control with reasonable care.

The way that you can think of it is this. The general contractor generally does not owe the duty of care to the employees of the subcontractor. However, the minute it assumes control over the site or aspects of the subcontractor’s work, they form a relationship in which they owe this duty of care. This is what is the beginning of any negligence lawsuit.

When there is an incident at a job site, while the court may look at the contract between the general contractor and the subcontractor. However, the court will pay more attention to what actually happened on the job site.

This is exactly what happened in the case of Larsen v. Ephraim. Here, the general contractor accepted responsibility for making sure that a certain roof was cleared of snow. Then, the general contractor’s foreman asked one of the subcontractor’s employees to go onto the roof, even though the contract between the general contractor and the subcontractor excluded work in winter conditions. When the subcontractor’s employee slipped on the roof and was injured, the court held that the general contractor had retained control of the site and was liable in a negligence lawsuit.

As you can see, whether you can sue the general contractor for negligence is a complicated issue. This is where an Illinois workers’ compensation lawyer can help you decide whether you can try to work outside of the workers’ compensation system to try to get a larger verdict or settlement. This will benefit you because you can receive more compensation in a negligence lawsuit than you would in a workers’ compensation claim.

Michigan Finds Coverage for Subcontractor’s Faulty Work

Tred R Eyerly | Insurance Law Hawaii

    The Michigan Supreme Court held that under a CGL policy, an “accident” may include unintentional subcontractor work that damages the insured’s work product. Skanska USA Building Inc. v. M.A.P. Mechanical Contractors, Inc., et al., 2020 Mich. LEXIS 1194 (Mich. June 29, 2020).

    Skanska USA Building Inc. was the construction manager on a renovation project for a medical centre. The heatng and cooling portion of the project was subcontracted to M.A.P. Mechanical Contractors, Inc. (MAP). MAP installed a steam builder and piping for the heating system. The installation included several expansion joints. After completion, Skanska learned that MAP had installed some of the expansion joints backward. This caused significant damage to concrete, steel and the heating system. The medical center sent a demand letter to Skanska, who send a demand letter to MAP. Skanska did the repairs and replacement of the damaged property. Skanska then submitted a claim of $1.4 million for its work to Amerisure Insurance Company. The claim was denied. 

    Skanska sued Amerisure. The trial court rejected Amerisure’s motion for summary judgment which argued MAP’s defective construction was not a covered “occurrence.” The Court of Appeals reversed and ordered that summary judgment be granted to Amerisure. The court reasoned that there was no “occurrence” because the only damage was to the insured’s own work product. 

    The Michigan Supreme Court reversed the Court of Appeals. Under Michigan law, an “accident” was “an undefined contingency, a casualty, a happening by chance, something out of the usual course of things, unusual, fortuitous, not anticipated and not naturally to be expected.” Generally, faulty work by a subcontractor could fall within the plain meaning of most of these terms. The accident happened by chance, was outside the usual course of things, and was neither anticipated nor naturally expected. 

    The policy as a whole confirmed this interpretation. The policy contained an exclusion precluding coverage for an insured’s own work product, but it contained an exception for work performed by a subcontractor on the insured’s behalf. If faulty workmanship by a subcontractor could never constitute an “accident” and therefore never be an “occurrence” triggering coverage in the first place, the subcontractor exception would be nugatory. Therefore, given the plain meaning of the word “accident,” faulty subcontractor work that was unintended by the insured could constitute an “accident” under a CGL policy. 

    The context and history of CGL policies supported the court’s conclusion that an “accident” could include damage to an insured’s own work product. In 1986, the ISO added the policy language on a subcontractor’s faulty work. It adopted changes to expand coverage to include some of the business risks that were previously excluded, specifically damage caused by a subcontractor’s faulty workmanship (with no carveout based on whose property was damaged). The 1986 reformation of the scope of coverage under the CGL policies underscored a plain reading of “accident” – that faulty subcontractor work may fall within the policy’s coverage. 

Subcontractors Found Liable to Reimburse Insurer Defense Costs in Equitable Subrogation Action

Christopher Kendrick and Valerie A. Moore | Haight Brown & Bonesteel

In Pulte Home Corp. v. CBR Electric, Inc. (No. E068353, filed 6/10/20), a California appeals court reversed the denial of an equitable subrogation claim for reimbursement of defense costs from contractually obligated subcontractors to a defending insurer, finding that all of the elements for equitable subrogation were met, and the equities tipped in favor of the insurer.

After defending the general contractor, Pulte, in two construction defect actions as an additional insured on a subcontractor’s policy, St. Paul sought reimbursement of defense costs solely on an equitable subrogation theory against six subcontractors that had worked on the underlying construction projects, and whose subcontracts required them to defend Pulte in suits related to their work. After a bench trial, the trial court denied St. Paul’s claim, concluding that St. Paul had not demonstrated that it was fair to shift all of the defense costs to the subcontractors because their failure to defend Pulte had not caused the homeowners to bring the construction defect actions.

The appeals court reversed, holding that the trial court misconstrued the law governing equitable subrogation. Because the relevant facts were not in dispute, the appeals court reviewed the case de novo and found that the trial court committed error in its denial of reimbursement for the defense fees. The appeals court found two errors: First, the trial court incorrectly concluded that equitable subrogation requires shifting of the entire loss. Second, the trial court applied a faulty causation analysis – that because the non-defending subcontractors had not caused the homeowners to sue Pulte, thereby necessitating a defense, St. Paul could not meet the elements of equitable subrogation.

The trial court had also questioned the propriety of St. Paul seeking equitable subrogation over equitable contribution, but in a footnote, the Pulte court explained that, as between St. Paul and the subcontractors, the claim was for equitable subrogation and not equitable contribution. The Pulte court said that “[c]ontribution is available only between obligors who share the same level of liability. Thus, had St. Paul sued defendants’ insurance companies, contribution would be the appropriate cause of action. Alternatively, if St. Paul were not an insurance company but one of the subcontractors hired by Pulte to work on the developments, it could have sued defendants for contribution.” (Citing Aerojet-General Corp. v. Transport Indem. Co. (1997) 17 Cal.4th 38, 72.) Therefore, the Pulte court held that an insurer versus subcontractor claim for defense costs is one for equitable subrogation.

Regarding the trial court’s error in concluding that equitable subrogation requires shifting of the entire loss, the Pulte court stated that: “If that were the rule, we agree it would be unfair to burden only a small subset of the subcontractors that worked on a project with the entire cost of defending a construction defect action alleging defects in every trade. However, a cause of action based on equitable subrogation allows an insurer to step into the shoes of its insured and recover only what the insured would be entitled to recover from the defendants. (Rossmoor Sanitation, Inc. v. Pylon, Inc. (1975) 13 Cal.3d 622, 633-634) [“[a]n insurer on paying a loss is subrogated in a corresponding amount to the insured’s right of action against any person responsible for the loss”].) Under the principles articulated in Crawford v. Weather Shield Mfg., Inc. (2008) 44 Cal.4th 541 and the subcontracts at issue here, defendants’ duty to defend the general contractor arose when the general contractor tendered its defense to them, and that duty covered the cost of defending claims related to their work. Under these circumstances, St. Paul is subrogated to the general contractor’s entitlement to the portion of defense costs each defendant owed as a result of its duty to defend the general contractor.”

As to the trial court’s second error, causation, the Pulte court stated that: “[T]he trial court employed a flawed causation analysis when balancing the equities of this case (the seventh element of equitable subrogation). The appropriate inquiry is whether defendants’ failure to defend the general contractor caused St. Paul to incur the defense costs, not whether that failure caused the underlying lawsuits.”

The Pulte court found that the trial court had incorrectly relied on Patent Scaffolding Co. v. William Simpson Constr. Co. (1967) 256 Cal.App.2d 506, because that was a case about indemnity for property damage. Instead, the Pulte court said that where the claim is for defense reimbursement, Interstate Fire & Casualty Ins. Co. v. Cleveland Wrecking Co. (2010) 182 Cal.App.4th 23, and Valley Crest Landscape Development, Inc. v. Mission Pools of Escondido, Inc. (2015) 238 Cal.App.4th 468, provide the applicable standard.

The Pulte court listed the eight elements of a cause of action for equitable subrogation: “(1) the insured suffered a loss for which the defendant is liable, either as the wrongdoer whose act or omission caused the loss or because the defendant is legally responsible to the insured for the loss caused by the wrongdoer; (2) the claimed loss was one for which the insurer was not primarily liable; (3) the insurer has compensated the insured in whole or in part for the same loss for which the defendant is primarily liable; (4) the insurer has paid the claim of its insured to protect its own interest and not as a volunteer; (5) the insured has an existing, assignable cause of action against the defendant which the insured could have asserted for its own benefit had it not been compensated for its loss by the insurer; (6) the insurer has suffered damages caused by the act or omission upon which the liability of the defendant depends; (7) justice requires that the loss be entirely shifted from the insurer to the defendant, whose equitable position is inferior to that of the insurer; and (8) the insurer’s damages are in a liquidated sum, generally the amount paid to the insured.” (Quoting Interstate Fire, supra, 182 Cal.App.4th at pp. 33-34.)

The issue came down to elements two, three and seven – primacy of liability and superior equities. The Pulte court said that in balancing the equities, Interstate Fire and Valley Crest had enumerated four further factors: (1) cause of the loss, (2) nature and scope of the contractual promises; (3) receipt of premiums; and (4) public policy.

The first factor was met because, relying on Interstate Fire and Valley Crest, the Pulte court said that “the primacy of the subcontractor’s liability for defense costs incurred in an action relating to a construction project [is] greater than that of a general liability insurer not involved in the construction project.”

As to the contractual promises, the equities tipped in favor of St. Paul because the subcontractors had agreed to indemnify Pulte against the specific loss incurred: “An entity which, like [the subcontractor], agrees to indemnify the other party to the underlying transaction has a liability of greater primacy than an independent insurer that insures against loss. [] The parties directly involved in the transaction are better able to evaluate and control the risk. Therefore, for purposes of weighing the equities in an equitable subrogation case, . . . the Agreement between the parties who were connected to the incident giving rise to the loss. . . creates the greater equitable responsibility for indemnification, as compared to that of the general liability insurer. . . .” (Quoting Interstate Fire, supra, 182 Cal.App.4th at p. 44.)

Receipt of premiums was deemed a “neutral” factor. And public policy favored subrogation because “denying subrogation would incentivize subcontractors to breach their agreements with general contractors.” Consequently, the Pulte court stated: “[W]e conclude the equities tip slightly in St. Paul’s favor because it had nothing to do with causing the plaintiff homeowners’ property damage, whereas defendants’ work was at least alleged to have contributed to the damage—and those allegations are what precipitated the defense costs.”

Although the underlying bench trial involved evidence of the amounts at issue, the appeals court declined St. Paul’s request to fix numbers on the subcontractors’ respective liabilities, instead stating that any allocation was up to the discretion of the trial court. Nor was it a jury question – the Pulte court rejected an argument that the subcontractors would be entitled to a jury trial on remand, pointing out that the claim was purely equitable in nature, with no right to a jury trial.

This document is intended to provide you with information about insurance law related developments. The contents of this document are not intended to provide specific legal advice. If you have questions about the contents of this alert, please contact the authors. This communication may be considered advertising in some jurisdictions.

Coverage for Defective Work? Michigan Joins Majority

Alexander G. Thrasher and Heather Howell Wright | Buildsmart

Michigan has joined the majority of jurisdictions in holding that a general liability policy may provide coverage for claims for property damage allegedly caused by the defective work of a subcontractor. In a unanimous decision reversing the Michigan Court of Appeals, the Michigan Supreme Court held that a subcontractor’s unintentional defective work was an “accident” and, thus, an “occurrence” covered under the subcontractor’s commercial general liability (CGL) policy.

In Skanska USA Building Inc. v. MAP Mechanical Contractors, Inc., Skanska USA Building Inc. served as the construction manager on a medical center renovation project. Skanska hired defendant MAP Mechanical Contractors, Inc. (MAP) to perform heating and cooling work that included the installation of expansion joints on part of a steam boiler and piping system.  Several years after the installation, extensive damage to concrete, steel, and the heating system occurred, and Skanska determined that the cause was MAP’s incorrect installation of some of the expansion joints. Skanska repaired and replaced the damaged property at a cost of about $1.4 million and submitted a claim to MAP’s insurer, co-defendant Amerisure Insurance Company. Amerisure denied coverage for the claim, and Skanska filed suit.

The trial court denied competing summary judgment motions, and Skanska and Amerisure both filed applications for leave to appeal to the Court of Appeals. The applications were granted, and the appeals were consolidated.

The policy provided coverage for “property damage” caused by an “occurrence.” The term “occurrence” was defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Interpreting this language, the Michigan Court of Appeals held that summary judgment should be granted to Amerisure as “there was no ‘occurrence’ under the CGL policy because the only damage was to the insured’s own work product.” The term “accident” is not defined in the policy and the Court of Appeals, applying a definition of “accident” from Michigan appellate court precedent, reasoned that there was no “accident” and thus no “occurrence” to trigger coverage under the policy.

Skanska appealed to the Michigan Supreme Court. The Skanska Court began its review by focusing on the policy’s definition of “occurrence” as an “accident.” In doing so, the court relied on a definition of “accident” as “an undefined contingency, a casualty, a happening by chance, something out of the usual course of things, unusual, fortuitous, not anticipated and not naturally to be expected.” Amerisure contended that an “accident” must involve “fortuity,” or “something over which the insured has no control,” but the court disagreed. Instead, the court concluded that the term “accident” is both plain and broad in its meaning and a subcontractor’s faulty work may fall within the court’s definition of an “accident.” Although “fortuity” is one way to show an accident occurred, the court was steadfast that it is not the only way to do so.

The court also rejected the Court of Appeals’ conclusion that “accident” cannot include damage limited to the insured’s own work product because the policy at issue did not limit the definition of “occurrence” with any reference to the owner of the damaged property.

Finally, the court rejected Amerisure’s argument that providing coverage for the faulty subcontractor’s work would convert the insurance policy into a performance bond. The court observed: The fact that “coverage may overlap with a performance bond is not a reason to deviate from the most reasonable reading of the policy language.”

Whether faulty or defective workmanship constitutes an “occurrence” under the CGL is a state-specific question, and courts across the country are divided on this issue. While some states have held that faulty workmanship or improper construction is not an “occurrence” because it can never be an “accident,” others have held that faulty workmanship can be an “accident” if the resulting damage occurs without the insured’s expectation or foresight. The recent trend has been for courts to find that a construction defect or faulty workmanship satisfies the “occurrence” and “property damage” requirements under a general liability policy and losses sustained as a result of such defects may be covered. The Michigan Supreme Court’s decision is yet another example that the tide continues to change in favor of insureds as to whether property damage caused by defective work may be covered under a general liability policy.Print:EmailTweetLikeLinkedIn

Timing Is Everything: Miller Act Notice Defect Saves Surety

Douglas L. Patin, Aron C. Beezley and Amandeep S. Kahlon | Buildsmart

The Miller Act protects subcontractors from nonpayment on federal projects by requiring prime contractors to issue payment bonds. To obtain relief under the Miller Act, a subcontractor must (1) give the prime contractor written notice of its claim within 90 days of the date it last performed work on a federal project and (2) file suit against the bond for any outstanding nonpayment within one year of the date work was last performed. A subcontractor’s non-compliance with these timing requirements, when applied strictly, can allow a surety to escape liability. In A&C Constr. & Installation, Co. WLL v. Zurich American Insurance Company (decided June 30, 2020), the surety, Zurich, was able to do just that. There, the U.S. Court of Appeals for the Seventh Circuit upheld a summary judgment ruling dismissing a sub-subcontractor’s claim for not complying with the Miller Act notice and suit timing requirements.

The Facts

Before the trial court, the surety moved for summary judgment against A&C Construction, a sub-subcontractor on a U.S. Army Corps of Engineers project in Qatar. Zurich argued A&C last performed work on May 16, 2016, but did not provide notice of its claim until August 16, 2016 (91 days later) and did not file suit until June 7, 2017, more than a year after it last performed work on the project. A&C countered by arguing it continued leasing equipment on the project until February 28, 2017, so its rights under the Miller Act did not accrue until that later date.

Finding for the surety, the trial court noted that the later date of last performance presented by A&C did not cure the defect with respect to the initial 90-day notice requirement. Even assuming A&C last performed work for purposes of its Miller Act claim on February 28, 2017, August 16, 2016, is not “within 90 days” of that February date. A&C, thus, did not satisfy the condition that notice be filed within 90 days of last performing work.

On appeal, the Seventh Circuit agreed with the trial court. Per the Seventh Circuit, the 90-day notice requirement was a strict precondition for filing suit under the Miller Act, the statute was unambiguous as written, and the court had to enforce the statute as written.

Lessons from A&C Construction

Like lien notice and filing requirements, Miller Act timing requirements can be, and often are, strictly enforced. Subcontractors and second-tier vendors should be mindful of meeting these preconditions to preserve payment security on their claims. Conversely, general contractors and sureties may be able to use these timing requirements to their advantage. Dismissal of the surety from a subcontractor dispute can simplify a dispute, lessen a contractor’s litigation expenses, and, of course, avoid any future payment dispute with the surety.