LIABILITY IN CONSTRUCTION CONTRACT LAW

Liability is a state of being legally responsible for something. In contract law, parties face
liability when they breach a contract. Breach means that one party had a duty to perform or
only partially performed that duty. One contract party who sues another for breach has the
evidentiary burden to show that he was ready to perform, but the other party did not do so.

TORT LAW LIABILITY

A tort is a legal term describing a violation where on person causes damage, injury or harm to
another party. The violation may result from intentional actions, a breach of duty as in
negligence or due to violation of statutes.

The party that commits the tort is called a tortfeasor. A tortfeasor incurs tort liability,
meaning they will reimburse the victim for the harm that they caused. In other words, the
tortfeasor who is found liable will be required to pay damages.

Types of liability in a tort setting include;

Joint liability

This is where several tortfeasors are held liable for a tort against one party. The tortfeasors
are said to be jointly liable for the harm. How much each tortfeasor is required to pay will
depend on their degree of liability as well as rules of a particular jurisdiction.

Vicarious Liability

Vicarious liability arises when a supervisory party(employer) bears for the actionable conduct
of a subordinate(employee) based on the relationship between the two parties.
The law recognizes a distinction between employees and independent contractors.
Independent contractors cannot be controlled by their employer and so no vicarious liability
attaches to the employer for acts of independent contractors. Accordingly, the distinction
between employees (servants) and independent contractor is an important and fundamental
one since servants attract vicarious liability for their employees while independent
contractors do not.
However, the nature of the relationship must depend on all the circumstances and control is
only one though an extremely important factor, an employer does not attract liability to his
employee for every negligent act, only those which are referable to the employment
relationship subsisting between them. One problem is to determine whether what is done by
an employee, an
authorized act is referable to the employment relationship. For instance, in Whatman v.
Pearson, “A contractor allowed his workmen an hour for lunch but they were not permitted to
go home or leave their horses and carts unattended. One workman however went slightly out
of his way in order to go home for lunch and he left his horse in front of his house. The horse
ran off and damaged the plaintiff’s property. The question was whether the employer was
vicariously liable
and this turned on whether or not the workman was acting in a way which was referable to
his employment. The court decided that this was properly left to the jury for their decision
and that they could justifiably decide that the employer was vicariously liable.”

Liability to third parties

Third party interactions can affect tort liability. Sometimes one may be held liable for injuries
sustained by a third party. For example, a landlord has a duty not only to ensure that their
tenants are free from harm on the premises, but also that third party visitors are safe as well.

Plaintiff/ victim liability

If the victim actually contributed to their injury, they may actually share liability with the
tortfeasor. This is knowns as contributory negligence and may result in the damages award
being reduced or completely barred.

Strict liability

This means that the tortfeasor may be held liable for a violation even if they did not intend to
violate a statute. For example, transporting hazardous materials in an off-limits zone.

Strict liability in construction field

Strict liability is a legal term referring to the holding of an individual or entity liable for
damage or losses without having to prove carelessness or mistakes. . In order to prove strict
liability in tort, plaintiff needs to prove only that the tort happened and that the defendant was
responsible for the act or omission.
Strict liability in construction could occur when the contractor while performing his
activities at site even while using at most care ends up causing damage to the plaintiff or the
plaintiff’s property.

Strict liability applies to two forms of activity and these include

Abnormally dangerous activities; these activities are more likely to cause injury but the
potential for causing injury cannot be eliminated through taking reasonable care. An example
in construction of such activities is demolition of structures for example a piece of brick
could hit the neighbor’s glass window and break it while a building was being demolished.

The contractor would be held liable since the damage was caused due to the undertakings of
the contractor.

Product liability; this involves defects in the final product due to negligence but in particular
under construction it surfaces when dealing with design defects for example a bend appearing
in a beam because the structural engineer while forming the structural drawings
recommended reinforcement bars that were not strong enough to withstand the forces applied
on the beam

This therefore proves liability on the side of the contractor because he was not able to carry
out his job with atmost care.

Statutory Liability of a Contractor.

A contractor’s statutory liability arises out of breach of standards and obligations set in a law
regulating building works that the contractor is involved in. For statutory liability to arise,
there must first be a law stipulating particular standards in respect of whose breach the
contractor will be held liable. Such kind of liability is usually strict liability, attracting penal
sanctions such as fines and/ imprisonment.

Statutory Liability of a Contractor.

A contractor’s statutory liability arises out of breach of standards and obligations set in a law
regulating building works that the contractor is involved in. For statutory liability to arise,
there must first be a law stipulating particular standards in respect of whose breach the
contractor will be held liable. Such kind of liability is usually strict liability, attracting penal
sanctions such as fines and/ imprisonment.
This kind of liability found expression in a famous Gammon v Attorney General case. The
case arose from the collapse of part of a temporary lateral support system which was included
in plans approved by the building authority of Hong Kong. There was in force a statute
whose purpose was to regulate building works and therein were provisions regulating
building activities which involved potential danger to public safety. Section 40 of that law
specifically prohibited both any substantial deviations from the approved plans and the
carrying out the building works in a manner likely to cause risk of injury to any person or
damage to any property. Breach of these provisions amounted to criminal offenses of a strict
liability nature, since strict liability would promote greater vigilance 1 on the part of
contractors and all those undertaking construction works.

The offending act on the part of the contractors and their Manager was the removal of part of
the lateral support system on the site, a system which was required in the interest of safety by
plans approved by the building authority. The removal was ‘a deviation of substance’ from
the plans and it was the view of the regulator, and the court, that the removal was one likely
to cause a risk of injury or damage.

Following the collapse, the company, who were the contractors, was charged with a material
deviation from an approved plan and with carrying out works in a manner likely to cause risk
of injury or damage in contravention of the abovementioned law. The manager of the
Contractors’ company was also charged for permitting the works to be carried out, in a
manner likely to cause risk of injury or damage, in contravention of the law on building
standards.

In its holding, the Privy Council noted that the overall purpose of the Building Standards
statute, under which the charges had been brought, was clearly to regulate the planning,
design and construction of the building works to which it related in the interests of safety.
The statute covered a field of activity where there was a potential danger to public safety.
And the activity which the statute was intended to regulate was one in which citizens have a
choice whether they participate or not. Section 40 of the statute made it very clear that the
legislature intended that criminal sanctions for contraventions of the ordinance should be a
feature of its enforcement.

Their Lordships were satisfied that strict liability would help to promote greater vigilance in
the matters covered by the two offenders (the contractor and Manager) with which this appeal

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was concerned. Their Lordships noted further that important as were the provisions of the
ordinance for the registration, disqualification and discipline of persons qualified, authorized
and registered to perform the duties and obligations required by the ordinance, the legislature
by enacting section 40 of the statute clearly took the view that criminal liability and
punishment were needed as a deterrent against slipshod or incompetent supervision, control
or execution of building works. The imposition of strict liability for some offences clearly
would emphasize to those concerned the need for high standards of care in the supervision
and execution of work.

In view of the purpose of the ordinance and as to the meaning of the particular provisions of
section 40 of that Hong Kong statute regulating building standards, the Judicial Committee of
the Privy Council dismissed the appeal and upheld the court of the Appeal orders to have the
case remitted back to the Magistrate for criminal prosecution of the Contractors and their
Manager under strict liability imposed by the statute.

CONTRACTUAL LIABILITY
The term contractual liability means liability that one party assumes on behalf of another by
way of a contact. It is implemented through an indemnity agreement in a contract.

This type of liability can be used to transfer risk of lawsuits from one party to another.

Indemnity Agreements

Many businesses engage in contracts like building leases, equipment leases, maintenance
agreements, and construction agreements. These contracts are likely to contain an indemnity
agreement.

An indemnity agreement is a promise by one party to assume liability for third-party claims
filed against someone else. In a typical indemnity agreement, Party X agrees that if Party Y is
sued by Party Z because of Party X's negligence, Party X will indemnify (reimburse) Party Y
for costs that result from Party Z's lawsuit. The party providing indemnification is called the
indemnitor while the party being indemnified is the indemnitee.

In a building or equipment lease, the property owner is usually the indemnitee while the
lessee is the indemnitor. In a construction or service contract, the person doing the work or
providing the service is the indemnitor while the property owner or general contractor is the
indemnitee. An indemnity agreement is also called a hold harmless agreement. The following
example demonstrates how such an agreement works.

Example

Busy Builders is a general contractor that has been hired by a property owner to construct a
new office building. Busy hires Lucky Landscaping to design and build the outdoor space.
Lucky will be responsible for planning and installing walkways, gardens, fountains, seating
areas, and other features.

Busy knows that Lucky could make a mistake while performing its landscaping work. The
error could trigger an accident that injures someone or damages someone's property. The
injured party might seek compensation from Busy Builders as well as Lucky Landscaping. To
protect itself against potential claims, Busy requires Lucky Landscaping to sign a contract
containing an indemnity agreement.

The agreement states that if someone sustains bodily injury or property damage because of
Lucky’s negligent landscaping work and the injured party sues Busy Builders, Lucky will pay
for the loss. Lucky will pay any damages assessed against Busy and defend Busy (or pay its
defense costs).

Contractual liability for transferring risks.

Busy Builders has used an indemnity agreement to transfer the risk of landscaping-related
lawsuits to Lucky Landscaping. Lucky will be doing the landscaping work so it is in a better
position than Busy Builders to prevent landscaping-related losses. For this reason, Lucky
assumes the risks associated with those losses.

An indemnity agreement transfers from Party A to Party B the financial consequences of a

loss. It does not eliminate Party A's liability for the injured person. In the previous example,
Lucky Landscaping has agreed to pay damages and defense costs that result from lawsuits
against Busy that arise out of Lucky's work. The agreement will not prevent lawsuits by third
parties against Busy Builders, nor will it affect Busy's liability to an injured third party. It
merely transfers liability for the financial consequences of the lawsuit (damages and defense
costs) from Busy Builders to Lucky Landscaping.
Contractual Liability Coverage

Most general liability policies contain a contractual liability exclusion like the one found in
the standard ISO policy. The exclusion is located under Coverage A, Bodily Injury and
Property Damage Liability. It eliminates coverage for the following:

Bodily injury or property damage for which the insured is obligated to pay damages by
reason of the assumption of liability in a contract or agreement.

The exclusion contains two important exceptions. It does not apply to:

1. Liability the insured would have in the absence of the contract; or

2. Liability assumed under a contract that qualifies as an insured contract

Liability That Exists in the Absence of the Contract

First, the exclusion doesn't apply to bodily injury or property damage for which you would
liable if the contract did not exist. For example, suppose that you rent a forklift from an
equipment rental company. You are using the forklift to move some crates outside your
warehouse when you accidentally drop a crate on a truck that belongs to a customer.

When you signed the rental agreement, you probably assumed liability for damage you might
cause to other people's property while using the forklift. If the rental agreement did not exist,
you will still be legally liable under common law for the damage you have caused to the
customer's truck.

Liability Assumed Under an Insured Contract

The second exception applies to liability assumed by an insured under an insured contract if
the injury or damage occurs after the contract has been executed. Insured contract is a
defined term that includes virtually any contract in which you assume the tort liability of
someone else. If you engage in a contract that meets this definition, your assumption of
liability should be covered.

In the Busy Builders scenario outlined previously, suppose that the building owner's cousin
(Jim), is visiting the construction site when he is injured by a backhoe operated by a Lucky
Landscaping employee. Jim sues Lucky Landscaping and Busy Builders for bodily injury.
Lucky is liable for the claim against Busy under the construction contract. If Lucky is insured
under a general liability policy, its insurance should cover Jim's claims.

No Contractual Coverage for Personal and Advertising Injury

Note that contractual liability applies only to bodily injury or property damage. If you assume
liability under a contract on behalf of someone else for claims that allege personal and
advertising injury, the claims will not be covered under your liability policy. Contractual
liability is specifically excluded under personal and advertising injury liability coverage
(Coverage B).