Tag Archives: negligence

Contributory Negligence on the construction project (law note)

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scale of justiceI’m sometimes asked if the percentage of “fault” is something that a client can rely on to reduce the amount of money they may owe on construction project gone bad.  The short answer:  no.   As I mentioned in my post on joint & several liability, if you are even 1% liable for the damages on a project, you can be hit with 100% of the damages. 

 This is not true in many other jurisdictions, where proportional fault (called comparative negligence) is often allowed.  In those states, if you are found 20% liable, you only have to pay 20% of the damages. Not so in North Carolina.  Here, unless you are entirely passively negligent (a concept we’ll discuss next week), you may be on the hook for the full amount.

That’s not fair!

Perhaps.  But, that’s life on a North Carolina construction project.  One concept that helps to reduce the unfairness factor is the concept of contributory negligence.  In North Carolina (but few other states), if a party is negligent at all (even 1%), they cannot recover from another negligent party.  

For example:  the owner of a project sues its general contractor on a project for a late project delivery which costs the owner money.  While almost all of the delay was the contractor’s fault, the owner also caused delay by failing to deliver owner-furnished equipment in time to meet the critical path of the project.  The owner’s own failure means that the owner itself is contributorily negligent and, under North Carolina law, the owner cannot recover the rest of its damages from the contractor.

But wait! There’s more.

Before you get too excited about contributory negligence, you need to understand the concept of  jury nullification.  When contributory negligence is explained to a jury, the jury may sometimes decide not to find fault where they might otherwise apportion fault, to avoid what they perceive as an unjust result. 

In the above example, the jury might decide the owner’s failure was not really contributing to the delay after all, and therefore award the owner damages.  This is called jury nullification, and it can take the sting out of contributory negligence.

Change to NC’s Contributory Negligence law?

The concept of contributory negligence (and its complete bar to any recovery) is one which many would like to change.  There has been legislation in the NC General Assembly in recent years to abolish contributory negligence in favor of a comparative-fault  negligence, as is common in most states.  So far, this has not happened.  As they say, however, the jury is still out on whether such a change will occur.  

Do you have an opinion on contributory negligence vs. comparative negligence? Think NC’s law should change to one based on percentage of fault?  Share in the comments below.

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Photo “Scale—Image”  by Matthias Kulka/Corbis via Picasa/Creative Commons License. 



What is Indemnity, and why should you care?

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barber shop poleIf you have ever asked a lawyer to review your construction contracts (and you should have), you may have noticed that lawyers get very excited over the indemnity provisions that may or may not be in the contracts you are contemplating signing.  What are indemnity provisions, and why should you care?

What is it?

Quite simply, an indemnity provision is a statement that one of the parties agrees to pay any sums the other party might otherwise be legally required to pay to a third party.  Now that I’ve mentioned picking up someone else’s tab, I hope I have your attention.  As you might imagine, an indemnity provision can be a costly item, so you should have a thorough understanding of what such a provision means.

In general, indemnity provisions are contractual, and contract rules concerning them apply.  What that means is, if the contract says you will pay for the owner/builder/developer/designer’s legal liabilities to others, you may have to open the checkbook.

Common Indemnity Provision

An example of one type of indemnity provision is AIA A201 3.18.1, which states:

To the fullest extent permitted by law the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. . . .

When is it not legal?

There are some exceptions to the general applicability of indemnity provisions in North Carolina—most noticeably: you cannot be indemnified against your own negligence.  If an indemnity provision purports to indemnify one party against that person’s own negligence, public policy and state law prohibit such an indemnification in North Carolina  The applicable statute N.C. Gen. Stat. §22B-1, which reads:

§ 22B-1. Construction indemnity agreements invalid

Any promise or agreement in, or in connection with, a contract or agreement relative to the design, planning, construction, alteration, repair or maintenance of a building, structure, highway, road, appurtenance or appliance, including moving, demolition and excavating connected therewith, purporting to indemnify or hold harmless the promisee, the promisee’s independent contractors, agents, employees, or indemnitees against liability for damages arising out of bodily injury to persons or damage to property proximately caused by or resulting from the negligence, in whole or in part, of the promisee, its independent contractors, agents, employees, or indemnitees, is against public policy and is void and unenforceable. Nothing contained in this section shall prevent or prohibit a contract, promise or agreement whereby a promisor shall indemnify or hold harmless any promisee or the promisee’s independent contractors, agents, employees or indemnitees against liability for damages resulting from the sole negligence of the promisor, its agents or employees.
[Emphasis added].

However, construction indemnity clauses indemnifying a party for its own negligence can be valid and enforceable so long as the offending portion of the indemnity clause can be redacted (that is, stricken from the paragraph).  Vecellio & Grogan, Inc. v. Piedmont Drilling & Blasting, Inc., 183 N.C.App. 66, 644 S.E.2d 16 (2007).  In the example of the AIA A207 provision above, the phrase “To the fullest extent permitted by law” acts to keep the phrase within the permissible parameters of North Carolina law.  Therefore, if you signed a contract with such a provision, you may be on the hook.

Be Careful with Indemnity Provisions

Not all indemnity provisions are equal.  Some, such as in the above example, make attorney fees part of the expense which is passed along.  Others expressly exclude attorney fees.  Some provisions include a “duty to defend” on behalf of the other party, while others are silent on that issue.  What is most important is that you recognize that such language is extremely important and should be discussed in detail with your knowledgeable construction lawyer.

As with getting your hair cut, you could do it yourself, but should you?

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Photo “Barber Shop Pole” by MyEyeSees via Flickr/Creative Commons License.

Joint & Several Liability in NC (law note)

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British pennies & poundsIf a client has been sued, he wants to know how much is at risk if he loses at trial.  This is especially true where more than one person or company have been sued.  How is any damage award apportioned?

 The answer is not one clients generally like to hear:  your company can be on the hook for 100% of any damages.  This is true even if your company is really only liable for a tiny fraction of what caused the damages in the first place.  You can thank “joint and several liability” for that.

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For example, in a fairly typical construction dispute, an owner sues a contractor and the architect for construction defects. The contractor uses unsuitable substitutions, and the architect approves the unsuitable substitutes.   Both contractor and architect may be held liable for the resulting damages.  If a jury awards the owner $500,000, then both contractor and architect are liable for the entire $500,000 to owner.  That’s the “severability” part of the law.  As between the two, of course, they both share in the damages, and if the owner executes on the entire judgment against the architect (perhaps due to the architect’s insurance coverage), the architect can then go after the contractor for an equal share and get paid back $250,000 in “contribution.”  (That’s the “joint” nature of such an award).  This is, however, assuming the contractor has those funds.  Essentially, whoever has the funds when a judgment hits might end up paying for the entire award.  If the contractor doesn’t have $250,000 for the architect to be paid back, the architect is out of luck.

Does the result change if the jury finds the architect was only 5% liable for the damages and 95% were attributed to the contractor? Nope.  In North Carolina, where the parties’ actions together contribute to one indivisible injury, there is no apportionment.  “In for a penny, in for a pound” as the old saying goes.

Exceptions to the Rule?

Are there exceptions? But of course!  If the owner is also negligent, he can get no recovery at all since North Carolina is a pure contributory negligence state.  If one party is actively negligent and one passive, than the passively negligent party can seek indemnity from the active party.  If one party settles before trial, things become more complicated.  More on these subjects in future posts.  I’m also told that in other states apportionment is more the rule, so you may have better luck with your out of state projects in a similar situation.

As a general rule of thumb, however, for your North Carolina project, just assume that the entire amount of claimed damages may be presented to you for payment.  Unfair? Many times, yes.   That’s the nature of the beast.  It is also one of many, many good reasons to make sure you are doing business with people you trust and, more importantly, that other professionals are appropriately insured or bonded on any project you are working on.

If you have any questions about joint and several liability, drop me a line or a comment below.

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Photo “Shiny pennies” by David Pillbro (Flickr Creative Commons license)

 

What is the “Economic Loss Rule” and how does it effect me?

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You may wonder why you cannot recover for certain damages on a construction project. The answer, in all likelihood, is the Economic Loss Rule. The Economic Loss Rule is a rule of law that says, essentially, if you have a contract with another party, and the only damages you suffer are to the project which is the subject of that contract, then no negligence action can lie. Essentially, you are stuck with basic breach of contract principals and remedies.

The rationale for the economic loss rule is that where there is a contract, the parties are free to include, or exclude, provisions as to the parties’ respective rights and remedies. See, e.g., Hospira Inc. v. Alphagary Corp., __ N.C. App. __, 671 S.E.2d 7, 14 (2009), discussing the rationale behind the rule. The effect of the rule is that in those situations, parties are limited to their contractual remedies. (Another reason for a well-drafted contract!). No consequential, incidental, or other type claims can be made unless expressly provided for in the contract.

This rule does not apply if no contract exists between parties (a situation called “lack of privity”). The parties are free in that case to sue under a negligence theory.

For example, an architect may be sued by the general contractor or its subcontractors working on a construction project for economic loss foreseeably resulting from breach of architect’s common-law duty of due care in the performance of his contract with the owner. Davidson v. Jones, 41 N.C.App. 661, 255 S.E.2d 580 (1979).

Are there exceptions to the economic loss rule? Yep. Those exceptions are detailed in my next post.