Notice of Furnishing and Remote Claimants

A “remote” claimant can be defined as one contributing labor or materials to a construction project who does not have a direct contract with the general contractor.   This is typically a sub of a sub or a material supplier who sells to a subcontractor.   The key is the provider must not be in privvity with the GC or owner.   

In order to protect remote rights, a provider should “raise its hand” by sending notice to the general contractor by Certified Mail, Return Receipt Requested (see S.C. Code Ann. § 29-5-20). This should be done at the beginning of the project and on subsequent occasions assuming more materials or services are provided.   

Formal requirements are found in the statute.

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.

South Carolina Supreme Court Upholds Court of Appeals Bar Using “Your Work” and Product Replacement Exclusions to Deny Subcontractor Recovery

In Precision Walls, Inc. v. Liberty Mutual Fire Insurance Co., No. 2013-000787 (S.C. Ct. App. July 23, 2014), the general contractor contracted with Precision for the installation of exterior insulation board. Precision, being an approved applicator sold the installation board in question. After Precision completed its work, a masonry subcontractor began construction of the brick veneer wall which came into contact with the Precision product. The joint sealing tape installed by Precision began to come loose due to contact with the masonry contractor’s work product. Full repair could only be accomplished via the removal of brick as it now obstructed Precision’s work. The general contractor deducted the cost of tearing down and rebuilding the brick veneer wall from Precision’s contract. Precision sought reimbursement for this amount from its CGL policy issued by Liberty Mutual. Liberty Mutual denied coverage and Precision filed a declaratory judgment action. The trial court entered judgment for Liberty Mutual determining that the amount sought by Precision failed the “occurrence” requirement of the initial two pronged coverage analysis. The trial court also cited the “your work” exclusion. The Court of Appeals affirmed.

The opinion at issue today is the Supreme Court’s ruling, which affirmed and held that all of the damages fell within the “your work” exclusion. The court largely ignores the “occurrence” aspect of the case, yet ruled further “the defective tape, and all costs associated with its replacement, fall squarely within the exclusion.” The exclusion referenced is “your work”, and I have attached the opinion for further review.

Link http://sccourts.org/opinions/HTMLFiles/COA/5250.pdf

Building On a Rebound | PropertyCasualty360

The following article discusses a resurgent construction industry and the nuances which create more liability for injuries on job sites and defect centered litigation. It seems natural that an increase in construction might lead to an increase in litigation, although this article discusses those not so obvious factors which serve as catalysts for litigation. Building On a Rebound | PropertyCasualty360.

Modified Comparative Fault and Construction Defect Litigation – The End of Joint and Several Liability?

As many readers already know, South Carolina adopted a modified comparative fault theory as an approach to apportioning damages in which more than one party has contributed to the damages beng sought by a claimant.   A plaintiff in South Carolina may recover only if his/her negligence does not exceed that of the defendant’s and amount of plaintiff’s recovery shall be reduced in proportion to amount of his or her negligence; if there is more than one defendant, plaintiff’s negligence shall be compared to combined negligence of all defendants. Nelson v. Concrete Supply Co., 303 S.C. 243, 399 S.E.2d 783 (1991).

In 2005, the South Carolina legislature took matters further when joint and several liability was addressed in the context of the comparative fault logic set forth in Nelson. For all construction projects reaching substantial completion before July 1, 2005, a pro-rata theory of liability with the possibility of joint and several treatment of any defendant named. 

The South Carolina legislature included the language affecting joint and several liability in an overal “Tort Reform” act which became affective in 2005.  In the multiple party, construction defect scenario we are all used to seeing, the South Carolina Construction Defense Blog asks the question, “when, if ever, will a situation arise in which a party is found jointly and severally liable?”  In short, joint and several treatment is unlikely in most case scenarios due to a party having to be more than 50% of the aggregate fault leading to or causing damages.  Specifically, in an action to recover damages resulting from personal injury, wrongful death, or damage to property………….  if indivisible damages are determined to be proximately caused by more than one defendant, joint and several liability does not apply to any defendant whose conduct is determined to be less than 50% of the total fault for the indivisible damages as compared with the total of: (i) the fault of all the defendants; and (ii) the fault (comparative negligence), if any, of the plaintiff. A defendant whose conduct is determined to be less than 50% of the total fault shall only be liable for that percentage of the indivisible damages determined by the jury or trier of fact. A defendant shall retain the right to assert that another potential tortfeasor, whether or not a party, contributed to the alleged injury or damages and/or may be liable for any or all of the damages alleged by any other party.

Significantly, these provisions do not apply to a defendant whose conduct is determined to be wilful, wanton, reckless, grossly negligent, or intentional.  In the context of construction defect claims, most settlements are funded via CGL policies of insurance that include exclusions for such reckless or intentional conduct.

Take the following scenario in which Mr. and Mrs. Abraham file suit against Birmingham Builders (GC), Conneticut Composite Siding (Exterior Siding Sub), Washington Window and Truss (Window Installation and Framer), as well as the manufacturers of both products installed by subs Connecticut and Washington.

Assume that Birmingham Builders took full control of all site supervision while altering the architectural plans to incorporate a less expensive truss system.  Further, it is shown that Birmingham failed to purchase the specified window product, opting for a cheaper model which has been deemed incongruent with the siding material.  At all times subcontractors followed explicit instructions of Birmingham Builders which were typically provided in the form of field directives from a rookie superintendent. 

Three years after construction, suit is filed for latent defects including water intrusion caused by Birmingham’s improper sequencing of trades, purchase of non-conforming materials, and improper supervision.  As the subcontractors are bound by an implied warranty of service, these parties are not able to secure a release or dismissal as there are issues of fact which limit the power derived from summary judgment.

In the situation described above, a well-founded argument could be made supporting the fact that the general contractor was the cause in fact of all injuries to property which are the subject of this claim.  After all, the materials suffered due to cost cutting, instructions and supervision were either lacking or provided incorrectly, and these issues were part and parcel of each of the Plaintiffs’ causes of action.

A jury instruction on the issue would ask fault to be assigned on a proportionate basis so long as the causes of action seek damages which are “indivisible” such as a concentration of water intrusion which has manifested around the intersection of window units and composite siding.  An argument would be made that, despite the general contractor’s clear disregard for the plans and standard procedure, Conneticut Composite Siding (Exterior Siding Sub), Washington Window and Truss (Window Installation and Framer), as well as the manufacturers of both products would be considered with the general contractor as “indivisible units” which contributed to the damage.

As we have five tortfeasors in the situation described, a jury need only find the two subcontractors to have each contributed 15% of the indivisible damage.  Further, the manufacturers specifications might be remotely criticised, along with the architect’s failure to set forth specific instructions regarding installation sequencing (even though the design professional did not contract to provide more than was provided, nor was his architectural firm allowed onsite) which is determined to have contributed to another 15% of the indivisible damages.  At this point, we have 45% allocated to the subs and architect, thus having yet considered any fault in the manufacture or sale of the windows and siding materials.

Drawing the logical conclusion that it will be difficult to show a tired and understandibly bored jury that the product manufacturers were not negligent, the final allocation is provided as follows:

Jury Verdict for the Plaintiff ($400,000)

Framing Sub:  (15%) or $60,000

Siding Sub:  (15%) or $60,000

Architect (15%) although not a party to suit.

Window Manufacturer (5%) or $20,000

Siding Manufacturer (5%) or $20,000

This allocation leaves only 45% allocated to the general contractor, which results in a $180,000 verdict against the general contractor.  While this amount is larger than any other defendant, the contribution is less than the combined sum of all other defendants who, arguably, acted as reasonably prudent and similarly situated actors would under the circumstances.

Is this fair and equitable?  Maybe not.  Does it ensure that a claimant will receive some relief regardless of the solvency or insurance status of the general contractor?  Absolutely.  Was the pro-rata system one which resulted in a more just result?  Absolutely not as a general contractor in such circumstances could be treated as a percentage contributor equal to each of the defendants which the general contractor, arguably, caused to be involved in the suit.

Chinese Drywall News from CDC regarding health

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The centers for disease control have released some findings which are attached for your review.  The attorneys at Olson & Good make no representations and have formed no opinions regarding the health and safety issues that may or may not exist as we are not health professionals.  It is worthy of mention, however, as this is one of the issues we have focused significant attention to over the past 18 months.

May a homeowner recover for “stigma damage”? The wrecked car syndrome applied to South Carolina Construction Law

Over the past ten years, my construction defect practice has led me to believe that most lawsuits arise over some sort of condition which is perpetuated by public sentiment. EIFS and Mold cases served to create an entire niche of experts, or professional witnesses equipped with equipment of all kinds, some being more sophisticated than others (The individuals and their equipment). The increase in publicly condemned products has led entire neighborhoods to hire inspection teams who find defects or, deviations, perhaps from “industry standards”, architectural plans, and other standards of care.

When these deviations cause physical damage to the tangible, or physical property, a construction case can be actionable for monetary damages. The issue I would like to ponder today, however, involves those situations when there is truly minimal, or no physical damage resulting from a ridiculed product or deviation from the industry norm. Some owners file suit claiming that there is a certain “stigma” attached to their home and this will not allow them to enjoy it, or resell it.

South Carolina case law does not provide specifically for the claim of stigma damages and the prevailing case law is only clear that some damage, albeit temporary, must be a pre-requisite to a monetary award.

Under South Carolina law, “[t]he general rule is that in case of an injury of a permanent nature to real property … the proper measure of damages is the diminution of the market value by reason of that injury, or in other words, the difference between the value of the land before the injury and its value after the injury. Where (defective construction practices or products) result in a temporary or non-permanent injury to real property, the injured landowner can recover the depreciation in the rental or usable value of the property caused by the pollution.” Yadkin Brick Co., Inc. v. Materials Recovery Co., 339 S.C. 640, 529 S.E.2d 764 (Ct. App. 2000).
Where the injury is temporary, the landowner can recover the depreciation in the rental or usable value of the property caused by the injury. Peoples Federal Savings and Loan Ass’n of South Carolina v. Resources Planning Corp., 358 S.C. 460, 596 S.E.2d 51 (2004).

Manufacturer Knauf Plasterboard Reportedly Settles with Beazer

Knauf Plasterboard Tianjin Co. Ltd. has reportedly settled with Beazer Homes for $800,000 for an unspecified number of homes that may have contained drywall that was tainted.

As the blog author and a representative of my firm, Olson Good & Brown, I would like to warn against speculation as settlements like these are typically kept in confidence when they are truly negotiated. Reports vary as to how many homes were “covered” as part of this payment. As of today, I have not read anything which verifies the scope of this settlement.

Beazer is known in the community as taking a pro-active approach to construction defect matters, as it makes more fiscal sense to repair potential problems on its own. Beazer has been successful in recouping these funds against subcontractors, material suppliers, and others in the past.

To be continued.

Chinese Drywall Analysis and The Economic Loss Rule- Forum Matters

This is an outstanding article by Timothy Hughes, a construction attorney with Bean Kinney & Korman in Arlington, Virginia.  With his permission, we are reprinting the text below.  For more information on Mr. Hughes, please check out his profile from the Bean Kinney website:

http://www.beankinney.com/index.phpoption=com_attysearch&Itemid=271&task=view_profile&profile_id=43

While this site focuses on South Carolina construction defect litigation, it is helpful and informative to follow well informed lawyers in other parts of the country.  Here is the text of Mr. Hughes’ article:

I spent this weekend thinking about thesignificant victory for Virginia home owners in the Chinese drywall litigationthat was tried as part of the pending class action in New Orleans.  It may have mattered quite a bit that this ruling was issued in New Orleans as opposed to Virginia. 

I run the risk of delving into legal complexity, but it is necessary here to understand these issues.  We have talked about the economic loss rule several times here, in particular as it relates to products liability cases, and implications of classifying damages in such cases.  Those interested in design and construction issues in Virginia absolutely need to understand the economic loss rule.  The contours of this rule define who can whom and for what.  This rule is heavily briefed, argued, and litigated and can mean the difference between a big payday and a big goose egg.

It is clear in the Chinese drywall case that the home owners purchased a single unitary home from various builders and that one part of the home (the drywall) damaged others (piping, wiring, HVAC, et c).  There is a strong argument these cases fall under the clear mandate of the seminal Virginia case on this topic, Sensenbrenner v. Rust, Orling & Neale.  At least as to the home repair issues, theSensenbrenner case would potentially eliminate all of the negligence based property damage theories of recovery for home repairs.

The remaining theories of recovery against remote manufacturers would be for breach of UCC warranties.  The next layer of analysis would be to evaluate whether the repair costs claimed are direct damages or whether they were consequential damages requiring privity of contract that are thus barred.  The products cases in Virginia have stuck to the statutory measure of direct damages which is the difference of the value of the product as warranted versus as delivered.

Reading the court’s opinion issued last week in the drywall case, the court never discussed any of these issues.  The court discusses Virginia law, property damage, and recoverable measures of damages for property damages at length.  The economic loss rule is never mentioned, nor is the Sensenbrenner case, nor is the UCC line of cases on direct versus consequential damages.  Reviewing the cases and our previous posts, this case may have turned out very differently if tried in a Virginia court.

I spent this weekend thinking about thesignificant victory for Virginia home owners in the Chinese drywall litigationthat was tried as part of the pending class action in New Orleans.  It may have mattered quite a bit that this ruling was issued in New Orleans as opposed to Virginia. 

I run the risk of delving into legal complexity, but it is necessary here to understand these issues.  We have talked about the economic loss rule several times here, in particular as it relates to products liability cases, and implications of classifying damages in such cases.  Those interested in design and construction issues in Virginia absolutely need to understand the economic loss rule.  The contours of this rule define who can whom and for what.  This rule is heavily briefed, argued, and litigated and can mean the difference between a big payday and a big goose egg.

It is clear in the Chinese drywall case that the home owners purchased a single unitary home from various builders and that one part of the home (the drywall) damaged others (piping, wiring, HVAC, et c).  There is a strong argument these cases fall under the clear mandate of the seminal Virginia case on this topic, Sensenbrenner v. Rust, Orling & Neale.  At least as to the home repair issues, theSensenbrenner case would potentially eliminate all of the negligence based property damage theories of recovery for home repairs.

The remaining theories of recovery against remote manufacturers would be for breach of UCC warranties.  The next layer of analysis would be to evaluate whether the repair costs claimed are direct damages or whether they were consequential damages requiring privity of contract that are thus barred.  The products cases in Virginia have stuck to the statutory measure of direct damages which is the difference of the value of the product as warranted versus as delivered.

Reading the court’s opinion issued last week in the drywall case, the court never discussed any of these issues.  The court discusses Virginia law, property damage, and recoverable measures of damages for property damages at length.  The economic loss rule is never mentioned, nor is the Sensenbrenner case, nor is the UCC line of cases on direct versus consequential damages.  Reviewing the cases and our previous posts, this case may have turned out very differently if tried in a Virginia court.