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Two Real-World Lawsuits and Lessons Learned for Contractors

Things go wrong on a regular basis on construction projects. That’s why contractor’s liability insurance exists – to protect everyone involved.

The policy holder is assured that an honest mistake or oversight will not destroy a thriving business, and the client and other stakeholders are assured that no matter what foreseeable event might come to pass, there is enough liquidity on the table to compensate them for damages incurred.

Contracts contribute to damages

There is the occasional straight-ahead case, but in most cases, determining a single party to be at fault is extremely difficult. Often, the actions or oversights of multiple parties create the conditions for damage to occur.

Even then, these conditions must sometimes be combined with an act of God to create an actionable claim. In some cases, the drafters of the contract itself can unwittingly push contractors into a corner where they are financially incentivized to make unsound decisions.

For example, in one case, according to construction and business research firm, a general contractor hired a roofer to put a roof on a building.

The overall arrangement was a design-build contract that provided the general contractor with a bonus schedule based on meeting a series of completion milestones. But the contractor had to forfeit damages if construction ran behind schedule.

Bad weather hampered progress on the roof, and the roofing contractor recommended holding off on work until weather improved.

The general contractor insisted that work move forward. Furthermore, the general contractor was providing many of the roofing materials in the project.

The roofing materials were not fitting together well, however, and while both the general contractor and the subcontractor knew of leak problems, they weren’t able to fix the issue prior to the owner taking delivery. The building occupant later reported that “moisture damage” was in excess of $1 million.

So what happens now?

Well, the general contractor has liability for leak damage, sure. But perhaps something else caused the moisture damage.

What could have caused the damage?

Moisture damage could have been caused simply by the overall humidity and climate in the area. It could also be moisture wicking upward through the concrete from the ground.

The goods the occupant claimed were damaged could have already had damage, or the packaging could already have had significant moisture that then led to the damage.

Furthermore, at first glance, a roofing company should be assigned primary responsibility for its own roofs. Its work on the roof would be a more proximate cause to any faults in the end product, but in reality, there are externalities that mitigate the roofing company’s liability; the general contractor provided the faulty materials and ignored the recommendation of the subcontractor to halt work until weather improved.

The case is still in litigation, but among the lessons learned:

Document your recommendations to change the method, timetable or scope of work, as well as any other party’s refusal to accept your recommendations.
Don’t needlessly micromanage the operations of subcontractors if you can avoid it. Had the general contractor left it to the subcontractor to select the roofing materials, the general contractor may be held to a lower degree of culpability. The assumption, of course, is that the subcontractor knows more about roofing than the general contractor.

Don’t roll over too soon

In another case involving accusations of contractor negligence, a California homeowner accused a contractor of leaving her bathroom in an “unsafe condition.”

According to the plaintiff, the contractor’s negligence caused her to trip and fall, and caused her to break her foot and ankle, resulting in the need for multiple surgeries. She sued, claiming total damages of over $700,000.

The contractor didn’t roll over, though, and their counsel and their insurance carrier’s counsel insisted on checking on her background and claims and medical history.

Through this discovery process, the defendants tore the plaintiff’s claims apart. They found that the plaintiff had already experienced a similar injury. They also found that the plaintiff was partially at fault for the slip and fall. The case was settled in mediation for just $37,500.

The moral of the story

Don’t buy everything the plaintiff tells you, and don’t be quick to admit fault before you have spoken with an attorney.