Lawsuit Against Contractors And The Lesson Learned

It doesn’t matter if you have been a contractor for six months or twenty years, you know that Murphy is never far away from the work site. Things can and will go wrong on a regular basis, and this is why contractor insurance exists, to protect everyone involved. Having the right contractor insurance program in place assures you the business owner that if an honest mistake or an oversight will not destroy your business and it also assures the client that no matter what might happen, there is enough liquidity on the table to compensate them for the damages.

Contracts Contribute to Damages

Determining the single party to be at fault is extremely difficult. The actions or oversights of multiple parties create the conditions for damage to occur. Even then, conditions must sometimes be combined with an act of God to create an actionable claim. In some cases, the drafters of the contract itself can unwittingly push contractors into a corner where they are financially incentivized to make unsound decisions

In one case, according to construction and business research firm Longwoods.com, a general contractor hired a roofing contractor to put a roof on a building. The arrangement was a design-build contract that provided the general contractor with a bonus schedule based on meeting a series of completion milestones, but if the project ran off schedule the general contractor would have to forfeit the bonus earnings.

Severe weather hindered progress on the roof, and the roofing contractor recommended holding off on the work until the weather got better.

The general contractor insisted that the work moved as planned. The general contractor was providing many of the roofing materials in the project and the materials were not fitting together well. While both the general contractor and the subcontractor knew of the lean problems, they were unable to fix the issue prior to the owner taking delivery. Later a building occupant reported there was “moisture damage” more than million dollars.

What Happens Now?

The general contractor has liability for the leak damage, but perhaps something else caused the moisture damage.

What Could Have Caused the Damage?

Moisture damage could have been cause by a multiple things; the humidity and climate in the area, moisture wicking upward through the concrete from the ground, the goods could have already been damaged, or the packaging could have had significant moisture that led to the damage.

At first glance, the roofing company should be assigned primary responsibility for its own roofs. The work they do on the roof would be a more proximate cause to any faults in the end, but in reality, there are externalities that mitigate the roofing company’s liability; the general contractor provided the faulty materials and ignored the recommendation from the subcontractor to halt work until weather improved. This case is still in litigation.

Lessons Learned

Remember to document your recommendations to change the method, timetable or scope of work, as well as any other party’s refusal to accept your recommendations. Don’t micromanage the operations of subcontractors if you can avoid it. If the general contractor had left the subcontractor to select the roofing materials, the general contractor could have been held for a lower degree of fault. The assumption is that the subcontractor knows more about roofing than the general contractor.

Call Frimark/Keller & Associates if you have questions about your contracting business policy. We will walk you through the process and make sure you have the correct coverage to keep your loss ratio down. We are here to help, 847-907-4520.

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