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The Construction Advantage

Conor Shankman, Michael R. Bosse

If You Control Worksite Safety, You’ll be Taking the Blame For Your Negligent Subcontractor

By James Monteleone

Consider this scenario: Your company hires an independent subcontractor to install a natural gas heating system at your project site. You agree to pull the permits, but that task gets delayed. The sub starts the installation, mistakenly assuming that the permits are in order. There’s an explosion involving the sub’s installation, seriously injuring one of the sub’s employees.  Who’s on the hook?

Your company would share in the blame, according to the California Court of Appeals in its recent decision, Regalado v. Callaghan, handed down on September 16.

Here’s what happened in Regalado: The case involved a contractor-owner who arranged for Sub No. 1 to install an underground vault to house a swimming pool’s propane-fueled heating unit. Sub No. 2 was hired to install the heating unit. The contractor-owner failed to pull the permits, but miscommunications led Sub No. 2 to believe the permits were pulled, and he started work.  None of the parties — not the owner-contractor, Sub No. 1 or Sub No. 2 recognized that installing an unventilated propane heater underground created a serious explosion hazard. The permitting officer likely would have noticed the problem. Sub No. 2 completed the installation believing the permits were in hand, turned the propane heater on, and set off an explosion that seriously injured their employee. The Sub No. 2 employee sued the contractor-owner for negligence and premises liability, and recovered $3 million.

The case called for a closer look at the traditional view that the general contractor is not liable for injuries that occur to the independent sub’s employees. Regalado, however, turned on an exception to that general rule. The exception being  that the hirer of an independent subcontractor will remain liable to the sub’s employees insofar as it retained control over safety conditions at the worksite, and that control “affirmatively contributed to the employee’s injuries.”  Regalado (quoting Hooker v. Dep’t of Trans., 38 P.3d 1081 (Calif. 2002).

The contractor-owner’s failure to manage the permitting process, and failure to communicate the status of the permitting, constituted an affirmative contribution to the injury.  Arguably, the contractor-owner’s failure to recognize the danger in his vault design could also satisfy that test, but that question was not addressed in detail by the court. A jury concluded that the Regalado owner-contractor shouldered 40 percent of the fault for the injuries. The sub’s employer, who failed to confirm the status of the permits, was deemed 55 percent at fault, but did not have to pay anything because of its participation in the state’s worker’s comp program. The worker was assigned 5 percent fault.

Here’s the takeaway: If you retain control over safety conditions, any failure to act (what lawyers call an omission) is just as bad as directing a sub to engage in inherently dangerous work.  A failure to act will be seen by the courts as “affirmatively contributing” to the resulting harm, and make you liable for any injury caused by your subcontractor.

It’s important to note that the outcome of this case may have been different had it been decided in Maine. Maine does not have case law detailing a hiring party’s obligations to look after a subcontractor’s safety. However, when the issue eventually also arises, Maine courts will look to other states that have considered such issues for guidance, and Regalado will likely be high on the court’s reading list.

Agency Principles Upheld by Pennsylvania Court in Response to General Contractor’s Prompt Payment Claim

By Conor Shankman

It is a longstanding legal principle that non-parties to a contract are not bound by the terms of that contract. Generally, an agent of a disclosed principal (e.g. the manager of an LLC or officer of a corporation) may not be held personally liable for contracts entered into within the scope of their agency to their employer. This principle was recently upheld by the Supreme Court of Pennsylvania in its decision in Scungio Borst & Associates v. 410 Shurs Lane Developers, LLC.

In this instance, general contractor, Scungio Borst & Associates (“Scungio”), filed suit under Pennsylvania’s Contractor and Subcontractor Payment Act (“CASPA”), against owner/developer 410 Shurs Lane Developers, and 410 Shurs’ president and part-owner Robert Debolt in his individual capacity. Scungio was seeking payment for over $1.5 million in outstanding payments due pursuant to a construction contract, and argued that under CASPA, Debolt was personally liable for the outstanding payments owed by the owner to the general contractor.

CASPA states that a contractor or subcontractor that improves real property is entitled to timely payment from the “owner” pursuant to the terms of the underlying contract. In the absence of the contracted terms, the contractor or subcontractor is entitled to payment with interest, penalty, and attorneys costs and fees. The term “owner” is defined by CASPA as:

“[a] person who has an interest in the real property that is improved and who ordered the improvement to be made. The term includes successors in interest of the owner and agents of the owner acting with their authority.”

In response, Debolt successfully argued that CASPA’s enforcement power applies only against the “party with whom the contractor or subcontractor has contracted.”  The court held that the reference to “agents” with the statute’s definition of “owner” merely reinforces that an agent’s conduct is “imputed to and binding upon the owner.” As a result, the claim against Debolt was dismissed on summary judgment.

Maine’s Prompt Payment Act, 10 M.R.S.A § 1111 et seq., contains similar language and protections to Pennsylvania’s CASPA. Therefore, an action in Maine courts to collect against a developer or land owner’s agent will likely result in the same outcome – dismissal with prejudice. Be sure to request a personal guarantee from the agent of a company or LLC if you have underlying concerns about the company’s health or ability to make payment.

 

Yes, Let’s Talk About Infrastructure Again

By Mike Bosse

Those who know us also know that we are passionate about fixing our aging infrastructure.  Without picking sides, it is worth noting that both political parties are calling for massive expenditures, from $250 to $500 billion, to repair our infrastructure.  So, once again, let’s talk about the topic in advance of a new federal political administration.

When we talk about infrastructure, we aren’t just talking about roads and bridges.  We are also talking about ports, rail, energy systems, and high speed broadband.  Substantial spending in these areas could continue to advance our economy, not just for the short term but the longer term.  We are now a half century away from the federal government’s build out of the interstate highway system and initial creation of commuter rail networks.  In fact, we only spend half as much on infrastructure as we did in the 1950s and 1960s, when infrastructure was substantially built out in the country.

Now we own a D- minus grade for our nation’s infrastructure.  The average age of streets and roads is 30 years.  We are all familiar with the epic problems with bridges in the State of Maine.  Regardless of our political affiliation, repairing our nation, and state’s infrastructure is something to think about in the coming electoral cycle and beyond.  The infrastructure isn’t going to repair itself.