South Carolina and Strict Liability 

In light of last week’s discussion regarding Hernandezcueva v. E.F. Brady, I thought it fitting to clarify current SC precedent on the issue of strict liability and contracts for services. A link to that article is here.

In South Carolina, strict liability applies only to sales of products and not to the provision of services. Fields v. J. Haynes Waters Builders, 376 S.C. 545, 658 S.E.2d 80 (2008) (builder, as general contractor for construction of home, provided services was not subject to strict liability for damage from installation of defective stucco siding that allowed moisture intrusion).

South Carolina has a Defective Products Act which states that one who sells any product in a defective condition, which is unreasonably dangerous to the user, or consumer, or to his or her property, is subject to liability for physical harm caused to the ultimate user or consumer, or to his or her property, if the following apply:

A. the seller is engaged in the business of selling such a product

B. it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.

The application of strict liability is illustrated as it is actionable regardless of whether (a) The seller has exercised all possible care in the preparation and sale of his product, and (b) The user or consumer has not bought the product from or entered into any contractual relation with the seller. S.C. Code Ann. Section 15-73-10; see also S.C. Jurisprudence Products Liability § 18.

Strict Products Liability for Non Selling Contractors?

In Hernandezcueva v. E.F. Brady Company, Inc., California Court of Appeals for the Second District, Case No. B251933 (December 22, 2015), the Court of Appeals has held for the first time that a contractor who installed drywall using a joint compound – both of which contained asbestos – which the contractor was not aware of – could be found liable for strict products liability. The case’s subject matter can be simplified to the following scenario. During the 1970’s a commercial building was remodeled by E.F. Brady. Part of the remodeling project included drywall which was bid by Brady with a one percent (1%) built in adjustment for unknown material price fluctuations. Evidence supported Brady’s contention that it was not a seller of any asbestos containing product as its contract price also clearly set forth 75% to labor and 25% for materials with no mark up or profit other than the 1% floating adjustment.
The Plaintiff, Hernandezcueva, worked at the remodeled facility where his duties included cleaning up drywall debris. While performing those duties he inhaled dust. In or about 2011, he was diagnosed with mesothelioma which his medical experts attributed to his exposure to asbestos-containing products installed by E.F. Brady.
At trial, the court found that Brady could not be found liable on a strict products liability theory of liability. The Plaintiff appealed and California’s Court of Appeals reversed based on some fairly creative reasoning.
The Court of Appeals decision appeared to base its reversal on a rationale that would be considered favorable to Brady. The decision makes a distinction between parties whose primary objective involves the sale of a product (manufacturers, distributors, etc) in which case strict products liability applies; and service providers who are identifiable by the fact a “service aspect predominates and any product sale is merely incidental to the provision of the service…..” In the latter distinction, strict liability would not apply based on traditional rationale and reasoning.
The Court reaches its decision in a manner resembling a storyline which dove tails. Notwithstanding the fact that Brady made profits from labor and not materials, the Court reasoned that Brady placed large quantities of products in the stream of commerce.
The court further reasoned that even though Brady paid sales tax on the materials in a manner such resembling an end user rather than supplier, its close participatory connection to the products caused Brady to become a quasi supplier and significant factor leading to the exposure of harmful materials.
Contractors providing services have always been considered outside the stream of commerce of products supplied incidentally to services. The “primary objective or essence of the transaction” between a customer and a contractor is the provision of services, not obtaining a product, and California courts have long recognized that this fact places contractors outside the stream of commerce of products they provide under their contracts. (E.g., Monte Vista Development Corp. v. Superior Court (1991) 226 Cal.App.3d 1681 [tiling subcontractor not strictly liable for defective soap dish]. 
At the risk of editorializing, I am going to provide some editorial opinion. The decision, when read verbatim, overrules previous notions that a contractor or laborer is free from liability for defective products so long as the service provider abided by instructions and architectural plans. While the facts leading to this decision involved a very controversial product (asbestos), there is no limiting or qualifying language such that we are left with a broad net which might subject the lowest tier subcontractor or handyman liable for installing a product which is later deemed to be defective. The decision, for example, leaves open the possibility that a residential framing contractor might face strict liability for the installation of properly specified windows which are later found to be defective.
As this case has been appealed to the Supreme Court, time will tell if the Court of Appeals sweeping decision holds.

OSHA and Silica Regulations Close to Finality

The the Occupational Safety and Health Administration (OSHA) has finally sent its comprehensive rule governing worker exposure to silica dust to the White House Office of Management and Budget (OMB) for final review.

A proposed rule until now, the silica guidelines’ pending approval by OSHA will make them law.

Silicosis is the lung disease the rule is trying to curtail. While neither I or anyone I know has ever heard of it, silicosis can be fatal. Evidence suggests that the disease is rare, however, and fatalities have declined since its identification in 1968.

The OSHA guidelines would affect all trades which involve sand blasting, rock drilling or ceramic and glass manufacturing. From a construction industry viewpoint, the silica rule certainly applies to folks working in almost any capacity with concrete and masonry. The rule might also affect those in the business of manufacturing or applying drywall and other synthetic products such as siding materials.

In the grand picture, those in the field will not be overly burdened as silica dust control measures boil down to wearing a half-face respirator and using water or vacuums to dampen dust exposure. Silica dust particles are not super fine like asbestos so it is believed that minimal protection (paper mask) is adequate.

The largest significance will be felt administratively. OSHA guidelines require documentation, reporting, logs, control readings, and further documentation. This burden will serve to keep construction safety and legal departments at the office longer starting in 2017 when the rule is expected to be in effect.

Still a Beneficial Tool, Mediation Process Is Not Perfect

South Carolina Construction Defect Law by Christopher Clay Olson

In 2001 I mediated my first case as a young lawyer with just enough knowledge to be dangerous…..to myself most likely. Over the past 14 years I have observed the process and it’s uncanny ability to resolve the previously unresolvable. Lately I have noticed the indirect, less tangible benefits. That said, a review of the past 15 years leaves me with a few criticisms.

Mediation

The legal definition of mediation is as follows:

“A settlement of a dispute or controversy by setting up an independent person between two contending parties in order to aid them in the settlement of their disagreement.”

That independent person, the mediator, is typically a lawyer removed from the parties and case prior to mediation. He or she wears many hats during the process. One should be a capable listener who possesses other qualities such as man management, a calm demeanor, and the ability to remain…

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Still a Beneficial Tool, Mediation Process Is Not Perfect

     In 2001 I mediated my first case as a young lawyer with just enough knowledge to be dangerous…..to myself most likely.   Over the past 14 years I have observed the process and it’s uncanny ability to resolve the previously unresolvable.  Lately I have noticed the indirect, less tangible benefits.  That said, a review of the past 15 years leaves me with a few criticisms.

Mediation

The legal definition of mediation is as follows:

“A settlement of a dispute or controversy by setting up an independent person between two contending parties in order to aid them in the settlement of their disagreement.”

That independent person, the mediator, is typically a lawyer removed from the parties and case prior to mediation.   He or she wears many hats during the process.   One should be a capable listener who possesses other qualities such as man management, a calm demeanor, and the ability to remain neutral in both mind and exterior actions.   While it is argued that a mediator should not be an advisor, I think the two can coexist if practiced in an artful manner.

Advantage of Mediation Part 1: Cost

This should come as no surprise.   Trials are very expensive in all practice areas.  Within complex construction defect matters, the time preparing witnesses and evidence alone can anhilate a litigation budget before the trial has begun.

These trials take weeks.   Mediation can be concluded in as few as a couple of days.

Advantage of Mediation Part 2: Control

Some people refer to this principal as predictability.  I don’t know if a mediation is always a predictable endeavor, yet I find it leaves less to chance than a resolution which involves 12 strangers who have spent too much time away from life and reality.  Even the most unfavorable mediation outcome requires the parties, rather than strangers, to dictate outcomes.

Advantage of Mediation Part 3:  Venting

Lawyers are guilt of forgetting that there can be value, in the form or personal satisfaction, derived by a client who has the opportunity to air their hurt, anguish etc.  In construction defect matters this can be best illustrated by a homeowner providing specific instances of inconvenience due to the alleged defective construction.

Contractors often feel affirmed as their reputation is put on the line.  Having the ability to tell a crowded room, “Hey, I am a quality professional and human being.  I take these allegations seriously and I feel that I was kept out of the loop when problems were mentioned.”   This helps the insured contractor as he more than likely has not been in any contact with the Plaintiff since initiation of suit.

Ways We Can Improve

Suggestion 1:  Light Judicial Involvement

This might be more idealistic than realistic but medications would be aided with some judicial monitoring.  In South Carolina the court administration is pretty hands off, with the exception of requiring contested civil matters participate in some form of ADR within the first 300 days.  If there were more formal requirements to report back to court post mediation, it might allow an insurance coverage issue to be fast tracked for judicial ruling.  Having a conference call which allowed the Judge or a law clerk to document the issues impeding settlement might allow for these to be addressed sooner, rather than two years later.

Suggestion 2:  Multiple Days

This is self explanatory.   Attempting to settle a large, complex case with multiple defendants is simply too much of an endeavor and typically fails.   Further, I would argue that these one day events are viewed by lawyers as wasted efforts prior to attending mediation and thus less effort is initiated prior to the event.  If, for instance, a two day mediation is scheduled 90 days in the future there should be none of the common impediments such as securing settlement authority after fully evaluating your position and exposure.
Conclusion

Complex construction defect suits are perfectly posture for the mediation process.   Without mediation, these suits would not be resolvable due to the numerous parties and issues.  Trial judges and court administrators would be the equivalent of sheephearders without it as babysitting the parties, jury, lawyers etc would be rendered impossible.   All that said, the process can be improved and tweaked in slight ways which would only make mediation a more satisfying and successful means of resolving disputes.

Construction Manager entitled to Additional Insured Status

A recent decision in New York has held that a construction manager was entitled to additional insured treatment under a general contractor’s CGL policy.  Turner Constr. Co. v. Navigators Ins. Co., 2015 N.Y. Misc. LEXIS 2704 (N.Y. Sup. Ct. July 23, 2015).

The Construction Manager (“Turner”)    was hired to “provide pre-construction services and construction management services for the Project.”  

The owner hired two prime contractors under condition that each would procure endorsements to their CGL policies which were to name the owner and a “construction manager” which went unnamed.  

Plaintiff in the underlying suit, Edward Walls, was an employee of a prime contractor and was injured at the job site. He sued Turner and others for injuries. Turner claimed it was an additional insured under a Travelers policy which was issued to the prime contractor employing Plaintiff. Travelers argued Turner was not an additional insured because it was not named in the policy and was nowhere identified as the construction manager. Travelers further contended that Turner was not entitled to a defense because its costs in the underlying action did not equal the deductible in the Travelers’ policy.

The court found that Turner was the construction manager and the contractor’s promise in the contract with the project owner to provide additional insured coverage for the construction manager applied to Turner. 

The court went on to find that additional insured status was conferred under Travelers’ policy for any entity that the insured was required by a written contract to name as an additional insured.  

It was of no consequence that Turner was not named specifically in the contract or policy. Therefore, Travelers had a duty to defend Turner.