When asserting or defending third-party claims in the context of construction litigation, the underlying plaintiff's choice of legal theories can often dictate the available remedies for defendant(s) to pass through liability to other parties involved in the project. The interplay between contractual relationships and potential theories of liability can leave certain defendants on the hook for the entirety of the claim despite allegations that other parties may be responsible for some or all of the alleged damage.

In a recent case decided by the United States District Court of the Eastern District of Pennsylvania (U.S.D.C. E.D. Pa.), the owner of a newly-constructed warehouse facility ("Owner") pursued a claim against its general contractor ("GC") when the pavement surrounding the facility began to fail prematurely. The GC had a contract with the pavement subcontractor ("Sub") to perform work related to the pavement. After the Owner settled with the GC, Owner obtained an assignment of rights from the GC, and decided to pursue the Sub, filing an action for breach of contract, breach of express warranty, and disgorgement of unearned subcontract payments. Believing the pavement failure to be caused by design defects, the Sub sought contribution and common law indemnity from two engineering firms with which the Sub had no contract. Due to the lack of contractual relationship with the engineers, the Sub asserted counts for negligence and negligent misrepresentation only against the engineers.

Noting that the Owner's original civil action complaint asserted only contractual claims against the GC, the court held that the Sub could not pass liability onto the engineering firms through the tort-based remedies of contribution and common law indemnity. Even assuming the breach of warranty claim could be properly construed as a tort, the court found that the inherent "mismatch" between the theories of liability barred the tort based contribution claim as a matter of law. Specifically, the court stated that the "mismatch between a defendant being sued for one potential tort claim—breach of warranty—and subsequently suing a third-party defendant for substantially different tort claims—negligence and negligent misrepresentation—is what further leads the Court to bar its claim for contribution."

Turning to the common law indemnity claim, the court reiterated that the theories of liability asserted in the Owner's underlying complaint against the Sub had effectively limited the Sub's ability to pursue other parties with which it had no contract: "Common law indemnity is a means of restitution to be used by one tortfeasor against another, and not when the third party plaintiff's liability is based on a breached contract between it and the original plaintiff." Based on the above analysis, the court dismissed the Sub's third-party complaint against the engineers in its entirety.

Most large-scale construction projects will involve several design professionals and contractors of different tiers working together. When something goes wrong, the parties will not always agree on allocation of responsibility and the causes of action could dictate risk transfer. Although it is uncommon to find a plaintiff's attorney who is not creative and all-inclusive of any number of theories of liability, this matter demonstrates a compelling defense in absence of contractual relationships and the claims being asserted. Well before litigation is initiated, it is imperative to gain an understanding not only of your contractual relationships but those between the project owner and other entities involved in each project. Project-specific contracts are favorable to boilerplate documents and one needs to assume that all contract documents related to a specific project may be effective on nonparties, sometimes as a third party beneficiary and sometimes negatively. Smart contracting is key to avoid surprises related to your contractual obligations on a project.

After suit is filed, the nature of the claims asserted against defendants will be significant regarding defense strategy and pursuit of risk transfer. As ruled by the Pennsylvania federal court, theories of liability asserted against one party can place significant limitations on its ability to pursue other parties that may otherwise be liable for the underlying claim.

Originally published in Great American Insurance Group

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