A recent Tennessee Supreme Court case, Federal Insurance Co. v. Winters, 354 S.W. 3d 287 (Tenn. 2011), addressing two previously unresolved issues in Tennessee, concluded that a contractor has an implied duty to perform work in a careful, skillful, and workmanlike manner and that, absent the owner’s consent, this duty is not delegable to subcontractors.
One Sentence Takeaway
In Tennessee, contractors face liability for breach of contract based on an independent subcontractor’s failure to perform work in a careful, skillful, diligent, and workmanlike manner.
Martin Winters, a contractor, entered into an oral contract to replace the roof of a home owned by the Emersons. Winters was incapable of replacing the entire roof, so, without informing the Emersons, he subcontracted out the work. Within a few months of the work’s completion, the roof began to leak. When notified of the problem, Winters agreed to repair the roof and hired a different subcontractor, Bruce Jacobs, to remedy the problem.
Winters and Jacobs entered into a written subcontract providing in part that “any and all work will be the responsibility of Bruce Jacobs” and “[a]ny and all leaks/damages caused by work performed…will be [his] responsibility to repair or replace.” While performing the repairs, Jacobs used a propane torch on the roof. Shortly after Jacobs completed his work, a fire occurred, causing over $800,000 in damages to the house. Winters was not present while Jacobs was performing the repairs. A fire investigator found that Jacobs’ use of the propane torch caused the fire. Nei-ther Winters nor Jacobs had liability insurance coverage when the fire occurred.
The Emersons’ insurance company, Federal Insurance Company, covered the damages to the house and then filed suit against Winters, asserting that Winters had an implied duty to perform the roofing work skillfully, carefully, diligently, and in a workmanlike manner. Furthermore, Federal argued that this implied duty was non-delegable, making Winters liable for Jacobs’ negligence in burning down the house. The trial court granted Winters’ motion for summary judgment, finding that Jacobs, not Winters, was liable, and that no implied non-delegable duty existed that would make Winters liable for Jacobs’ work. The Tennessee Court of Appeals reversed, finding that Winters did have an implied duty and that the duty was not delegable, thus making Winters liable for Jacobs’ work. The Tennessee Supreme Court agreed, based on the existence of a non-delegable implied duty, which Winters breached when Jacobs’ actions caused the house to catch fire.
Tennessee Supreme Court’s Decision
The court based its decision on two primary factors. First, the court concluded that construction contracts are service contracts and that service contracts carry an implied duty to perform the service skillfully, carefully, diligently, and in a workmanlike manner. Thus, any construction contract contains the implied duty to perform the work in a skillful, careful, diligent, and workmanlike manner. Second, the court ruled that a contractor could not avoid this implied duty by delegating the work to a subcontractor. Therefore, contractors remain liable under the contract for work performed by subcontractors.
Although at first glance this decision seems to expose the contractor to inescapable liability, the decision contains two caveats. First, it has no effect on tort liability. A contractor remains protected from tort liability for a subcontractor’s actions, assuming the subcontractor is an independent contractor. Second, the owner and contractor can agree to release the contractor from liability for a subcontractor’s actions and negligence. Therefore, while the contractor may not delegate the duty to perform services skillfully, carefully, diligently, and in a workmanlike manner on its own, the contractor may still avoid liability for subcontractors’ work by obtaining a release from the owner for work performed by independent subcontractors.
- Put It In Writing: Oral contracts are cheap and easy, until a dispute arises. Once a dispute arises, the cost savings quickly become negligible in light of lost productivity and litigation costs. Put the deal’s terms in writing. A well-drafted contract can address and resolve many potential issues between the parties. If Winters and the Emersons had entered into a wellwritten contract then their dispute may have been avoided.
- Understand Independent Contractor Status: While a contractor is not liable under tort theories for the acts of an independent contractor, the contractor may be liable under a breach of contract theory if the contract is not performed in a skillful, careful, diligent, and workmanlike manner. Under Winters, contractors face liability for subcontractors’ negligent construction, and other tort centered claims, under breach of contract theories.
- Insurance is Irrelevant: Wright exposes contractors to liability for breach of contract based on an implied duty, not tort claims based on negligence. Because insurance policies frequently exclude breach of contract damages from coverage, contractors ultimately face liability for damages not covered by insurance. From an insurance standpoint, contractors would be better off if courts allowed recovery in tort instead of contract because the tort claims would be covered by existing insurance policies.
- Contractors, Obtain a Release: Contractors should attempt to obtain a release from the owner whenever possible. The release should relieve the contractor from liability to the owner for a subcontractor’s actions. This is especially important on larger projects where a contractor faces liability for work performed by a large number of subcontractors, subsubcontractors and so on. Under Wright, a contractor potentially faces liability for breach of contract for work performed by any person on the project that is not performed in a skillful, careful, diligent, and workmanlike manner.
Wright has the potential to have widespread ramifications on the construction industry. At minimum, the court, by creating a non-delegable implied duty to perform work in a careful, skillful, and workmanlike manner, exposes contractors to liability that often falls outside of existing insurance policies’ coverage.