Liability and Insurance Coverage for Subcontractor’s Negligence: Do Your Form Contracts and Insurance Policies Still Fit?

7/25/2017

Construction Law Update, July 2017

Two recent Indiana decisions highlight the importance of understanding the terms of your construction contracts, ensuring they are consistent with your insurance policies, and that they comply with the law of your jurisdiction. Simply using form contracts or recycling contract provisions without tailoring them to your specific project can have unintended consequences, and can create insurance coverage gaps.

In Ryan v. TCI Architects/Engineers/Contractors, Inc., N.E.3d, 2017 WL 1488853 (Ind. April 26, 2017), the Indiana Supreme Court held that a G.C. had assumed a “non-delegable duty” for the safety of the worksite, including owing a duty of care to a subcontractor’s employee. TCI entered into an agreement with Gander Mountain to serve as the G.C. on the project. TCI and Gander Mountain used a form DBAI contract for design-build projects. TCI then drew up a subcontract with Craft Mechanical, which placed the onus of ensuring employees’ safety on Craft. Craft entered into a subcontract with B.A. Romines Sheet Metal for heating and ventilation work. That contract charged Romines with the responsibility of implementing safety precautions. Plaintiff, a Romines employee, was injured when he fell off a ladder while removing duct work. Plaintiff sued TCI and Craft.

Like many states, Indiana follows the long-standing rule that a principal is not liable for the negligence of an independent contractor, thus a G.C. ordinarily owes no duty of care to a subcontractor’s employees. The rationale for the rule is that the G.C. has little to no control over the means and manner that a subcontractor uses to complete the work. However, one of several exceptions to the rule creates a duty of care where a contractual obligation imposes a “specific duty” on the G.C. As the Ryan court stated, “[a] contract that is found to demonstrate the general contractor’s intent to assume a duty of care exposes a general contractor to potential liability for a negligence claim where no such liability would have otherwise existed,” and a “duty imposed by contract, once formed, is non-delegable.”

The Ryan Court analyzed the provisions of the DBAI form contract and found five clauses related to the safety of the worksite impose a duty upon the G.C. to keep the workplace safe. The Court also identified other terms in the form DBAI contract that “bestowed upon TCI a level of control that satisfies our concerns over imputing liability on a general contractor who enjoys no control over the means and manner of completing the work.” The Court explained, “TCI certainly did not have to assume such a contractual duty. However, it did . . . and in doing so, assumed a duty of care not ordinarily imputed on a general contractor.”

The parties to the lawsuit both tried to analogize and distinguish prior Indiana decisions involving the duty of care of a general contractor to support their arguments. However, the Court made it clear that its decision was not based on those cases, but “is solely guided by our contract interpretation precedent,” applying the general principles used in Indiana to interpret any kind of contract. While the Indiana Supreme Court said its holding is narrow, its decision interprets a DBAI form contract. Despite the fact that the subcontracts specifically imposed the burdens of site safety downstream, the G.C. had assumed the “non-delegable duty” that would not have existed in the absence of the form contract.

Wilhelm Construction, Inc. v. Secura Insurance, Case No. 49A02-1604-CT-811 (Ind. Ct. App., May 24, 2017), is an unpublished Indiana Court of Appeals decision that shows potential consequences of assuming the “non-delegable duty” of worksite safety. In Wilhelm Construction, the Indiana Court of Appeals held that the indemnification clause in a construction subcontract was void and unenforceable under Indiana’s Anti-Indemnity Statute because the general contractor assumed a non-delegable duty for the safety of all subcontractor employees at the jobsite. The case arose from an injury to a subcontractor’s employee during construction of a dormitory at the University of Indianapolis. The University hired Wilhelm Construction, Inc. (“Wilhelm”) as the construction manager. Wilhelm subcontracted concrete and masonry work to J. C. Ripberger Construction Corp. (“Ripberger”). Ripberger then subcontracted some masonry work to Davenport Masonry, Inc. (“Davenport”). Rhone, a Davenport employee, was injured when a section of scaffolding fell on him. The trial court found both Wilhelm as construction manager and Ripberger were directly responsible for Davenport at the worksite. By demanding indemnification from Davenport for Rhone’s claims, the court reasoned that Wilhelm and Ripberger were “asking to be indemnified for their sole fault and the fault of independent contractors who are directly responsible to them.” The Court’s ruling also had the effect of excluding coverage for the G.C. as an “additional insured” under the subcontractor’s liability policy. However, because the Wilhelm case is unpublished and was recently appealed by Wilhelm, its holding has little precedential value until a reported decision is issued.

The Ryan case shows that it is important to tailor your contract terms for each project. The Wilhelm case, while not precedential, illustrates the importance of comparing the indemnity provisions of your construction contract to the “additional insured” provisions of the subcontractors’ insurance policies -- and comply with any restrictions on indemnification imposed by the law of the State where your project is located. If the provisions do not complement each other, you may find yourself without the indemnification and the insurance protections that you intended to have.

Joseph R. Fullenkamp is a partner in the Indianapolis office of Barnes & Thornburg LLP. He can be reached via telephone at (317) 237-1269 or by e-mail at Joseph.Fullenkamp@btlaw.com.

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