Who is Liable? Contractor or Client?
Liability Basics: Who is the Contractor and Who is the Client?
A client hires a contractor to perform work. Sometime later, the client discovers that the work has damaged or interfered with other parts of the client’s property. This raises a threshold question of liability: Is the contractor or the client responsible for the damage and, therefore, the cost of repairs? The answer generally turns on who created the risk and whether the contractor’s actions fell within the range of what the parties contracted.
In general terms, liability is a broad doctrine of law that "imposes on persons the duty to conduct themselves so that the foreseeable risk of harm to others will be reduced in accordance with prevailing standards of conduct." For example, contractors are typically responsible for harm caused by their own negligence. While damages suffered by the client may not be a harm , damage to third party property is generally a kind of property damage giving rise to liability. A client (building owner) that suffers property damage as a result of a contractor’s mistake may well have a claim for damages against the contractor hired to perform the work for the building owner.
Just as important, liability is not the only measure of responsibility for project costs. In other words, liability and cost to repair may be measured differently or separately. Even though the contractor or its employees may not have created the problem that resulted in the property damage, the contractor may still be called upon to pay some or all of the cost of the repairs. A dispute may arise between the parties as to whether those costs should be borne by the contractor, the client or both.
Application of these principles to any particular situation will depend on the specific facts of the case and the contract documents.
Contracts, Agreements, and Liability
Contractual agreements play a significant role in determining liability for contractor damage. Often, the contracts that companies have with their clients have specific language relating to liability issues, or even a waiver of liability clauses, which can sometimes shift the liability onto the contractor or the client. Some contracts may even specifically state the types of damages for which the contractor is liable. For example, a contract may state that the contractor is not liable for lost profits as a result of their negligence or a similar type of problem. In a situation where the contractor has been negligent, there is language in the contract that could have a contractor arguing that they are not liable.
Additionally, contractors may be added as an "additionally insured," which could mean that they are contractually responsible for losses and damages. If there is an indemnification clause that states the contractor is liable and will pay the damages, then you have it. An indemnity clause that says one party has to indemnify (meaning to pay costs for damages or losses) the other party regardless of fault can be a gem, but one time. However, if you have agreed to indemnify the other party without limitation, then you are contractually obligated to do so. At least until someone gives you a call with an indemnification request.
Understanding Legal Liability of a Contractor
The law generally holds the contractor responsible for damage to your home in the following circumstances:
If a contractor neglects or refuses to comply with widely-accepted industry standards for taking certain precautions to prevent property damage that may arise during a home renovation, the contractor may be held legally responsible for damage. This standard includes the application of basic care in following the requirements of the project and protecting your property. If you have a question about whether your contractor exercised reasonable care, good practice or the mandated due diligence, you should not hesitate to call an attorney. Seven days a week, twenty-four hours a day, attorneys are available to answer your inquiry. If there is another basis for liability on the part of the contractor besides negligence or failure to follow accepted industry standards, we can provide you with the appropriate guidance.
The Client’s Responsibility in Cases of Damage
Either a client or an owner may be responsible for damage to a property. In particular clients can be held responsible for "contributory negligence" and may be liable as an "indemnitee". This section will consider two possible client liability scenarios.
First, a client can be held responsible for contributing to damage by causing the property to be damaged or worsened. Therefore, the client must be attentive to how his or her actions will impact the property’s condition. Apportionment or contributory negligence can play a significant role in mitigation of damages. To prove apportionment or contributory negligence against a property owner or client, appellant courts have stated that it must be demonstrated that (1) the plaintiff was negligent and that (2) his negligence contributed to the damages for which he sues. However, apportionment or contributory negligence will be found where the injury is the result of concurrent causes and substantial conduct of the property owner or client. The mere fact that the plaintiff suffered damage does not as a matter of law establish that the defendant contributed to the damage.
In one case, Florida Mastercraft Corp. v. Lake County, 733 So. 2d 524 (Fla. Dist. Ct. App. 1999), the trial court erred in excluding an apportioned claim for damages caused by an adjacent property owner whose land was unreasonably close to the lake’s high water mark and whose structures atop a seawall encroached beyond that mark, because such actions combined with the defendant’s actions, caused the damage to plaintiff’s boat. In another case, Ron v. Sun Bank, 264 So.2d 18 (Fla. Dist. Ct. App . 1972), the plaintiff property owners were negligent as matter of law and their negligence contributed to the damage for which they sued, where the plaintiffs’ actions resulted in the release of water from their property, thus flooding a pond, and causing the pond’s wall to burst and flood a neighbor’s property, and as a matter of law, each of the plaintiffs was responsible for the injuries proximately resulting from such negligence.
Second, as an alternative to an apportionment of damages, a client may be liable to indemnify the owner from the intentional or negligent acts of one’s employee or independent contractor under a contractual theory of indemnification or rights of indemnification held by employees. Thus, if the client’s negligence contributed to the damages and then the client is liable to indemnify a third-party, that third-party may seek reimbursement for some, if not all, of the damages paid by third-party to the property owner. The right of an indemnitee to recover the loss it suffered when it was required to pay the damages caused by a "negligent, willful or even intentional act of a third party" is rooted in public policy and is a very old and venerable one. An important policy underlying indemnity is that the person who should bear the burden of a loss should be the one whose act, fault or neglect caused the loss. Where duty to indemnify exists, it tends to be broad in scope and is based on equity and good conscience.
It is important for clients to protect themselves in their contracts through the careful drafting of indemnity provisions and limitations of liability. Limitation of liability clauses are a useful tool in the event that an indemnity obligation is not enforceable.
Insurance and Damage Control
Insurance always finds its way into the picture when posing this question and therefore, we will touch a bit on it here. In short, your General Liability insurance is going to be your first line of defense. However, its existance does not mean a Contractor’s damage is automatically covered. It is important for a client to understand the role that insurance can play in their circumstances, as well as the limitations of such insurance. A Contractor is not going to have separate coverage for your project. In other words, your contractor’s General Liability insurance coverage will be the same no matter how many projects he or she is working on at a given time. And with the exception of additional premiums, it will not matter whether the damage being claimed was as a result of your project or another one.
What this means is that if there is any argument as to liability between you and your contractor for property damage that is a result of his work on your project, you will first look to the contractor’s General Liability insurance coverage for reimbursement. Further, it means that you are not only seeking reimbursement from your contractor but also, from his insurance carrier. The benefit of looking to the contractor’s insurance policy is that it is throwing the damage claim into the insurance system and preventing the contractor from personally feeling the pain of the damages. This is particularly important when a Contractor has multiple jobs or clients and may or may not have the financial resources to cover large damages.
It is important to note that the contractor’s insurance will not cover negligent acts.
So how do you protect yourself? When interviewing prospective contractors, it is always a good idea to ask for what insurance they have in place, especially at the onset of new projects. Having requests to see insurance in writing is a good idea. Ask whether the contractor has Umbrella coverage, which might provide further coverage above the base coverage amounts. Be sure you are provided with copies of insurance certificates evidencing coverage prior to the start of work, and make sure to renew your requests throughout the duration of the project. These steps not only put your contractor on notice of your interests, but also show the contractor that you are educated on insurance requirements and do not intend to be victimized.
Legal History, Case Law, and Examples
Proving who is liable for damages caused by contractors has been an issue in construction law for decades. The problem appears to be the ever evolving roles of developers, owners, general contractors and subcontractors as the industry has progressed into vast projects and new terrains.
In 1989, with the Wheeling, Co. v. Cas. Indemnity Company, 337 Pa. Super. 236, 486 A.2d 430 (Pa. Super 1989) decision, the Pennsylvania Superior Court found that while "under a primary case, an injured employee may sue and obtain judgment against either the defendant general contractor who owes him an implied non-delegable duty to provide a safe workplace to him and his co-workers or against the specific subcontractor who is responsible for the unsafe conduct which is the basis for the suit," it went on to clarify this finding with "there is nothing to prevent the trial judge from imposing several liability between them thereby allocating between these two defendants and their indemnitor, County, the total liability to plaintiff of $60,000 (the amount for which the latter was found liable)."
This means that if more than one party is found to be responsible for risk, they can be apportioned liability. In the past 30 years, this has played out 2010 and the Davis & New York, Inc. v. Kucker Hanain & O’Donnell disbursement case where a well prepared subcontractor agreement, listed "Reimbursement of Legal Fees" as an expense for work "not included in the original contract documents" or "in the provision of any additional services," among other activities, was allowed. The court required the subcontractor to pay the general contractor who was sued extra because it prepared "its defenses to the Third-Party Plaintiff’s claims" from such work . This obligation is typically stated as a "Duty to Defend" clause in contracts. Parties who don’t define their responsibilities and allowances are at risk of losing their funding for defense of a legal claim. There is no guarantee that a court will grant them that funding.
In 2010, with Pittsburgh National Bank v. American Casualty Company of Reading PN Bank, a bank who hired a general contractor to complete structural renovations to its future banking location sued the general contractor for cost overruns. The general contractor impleaded the subcontractor to cover costs of incorporating a vault into the plan. The court found that the subcontractor was liable for the costs of complying with the bank’s master agreement, an integration of two agreements.
The court found that the subcontractor was not entitled to rely upon the general contractor’s representations, because it indisputably had its own right to read and understand the terms of the bank Master Agreement, that it agreed to be legally bound to, and did not take reasonable steps to ensure that its work complied.
This ultimately meant the subcontractor was required to pay the general contractor which had already been held liable for failing to comply to the bank’s contract.
In each of these examples the Greater Philadelphia region saw a simple matter of liability allocated among several parties and recovered by the party considered most responsible (or negligent). When engaged in some type of contract with a third-party, it is always advised to share the cost of claims against each other and against you, by clearly defining your liabilities. Doing so will protect your group against over-reach next time someone sues.