Over the years Ohio appellate courts have not been consistent in cases where contractors have sought damages from utility companies who fail to accurately mark their underground utilities. Unfortunately for most contractors, their claims in such cases have been hindered by a long standing legal rule known as the economic loss doctrine. However, two recent Ohio courts of appeals decisions could bring relief to contractors impacted by mismarked utilities.

Economic Loss Doctrin

When an excavator strikes an underground utility, the greatest concern, obviously, is with physical injury to persons, followed by the possibility that equipment or other property may be damaged. What is often overlooked, however, is the downtime that a contractor must endure while the utility is repaired and then correctly marked.

During this downtime, the contractor must still pay workers and carry overhead, which includes the cost of idled equipment. Then later, in order to catch up with the contract schedule, the contractor may have to accelerate work, absorbing even more unanticipated costs. All of a contractor’s damages for unanticipated downtime are considered economic losses because they do not arise from personal injury or damage to property

Until recently, what has prevented contractors from recovering damages from utility companies who have mismarked their utility locations is what the courts refer to as the “economic loss doctrine,” where a damaged party is prevented from recovering purely economic losses from a negligent party if there is no contract between them.

The leading Ohio case explaining the economic loss doctrine in a construction setting is Floor Craft Floor Covering v. Parma Comm. Gen. Hosp. (1990), 54 Ohio St.3d 1, where the Supreme Court of Ohio held that an architect was not liable to a contractor for the architect’s defective plans and specifications because there was no contract between them. The court did identify one way around the lack of a contract problem—it held that there could exist some “nexus” (i.e. some link or compelling public policy reason) that could substitute for contractual privity between the plaintiff and defendant, thwarting the economic loss doctrine and allowing the plaintiff to recover purely economic damages. For a more recent discussion of economic loss see Corporex Dev. & Constr. Mgmt. v. Shook, Inc.(2005), 106 Ohio St. 3d 412.

Inconsistent Decisions

The leading case that precluded a contractor from recovering damages for its downtime in a mismarked utilities case is Columbia Gas v. Crestline Paving & Excavating Co., 2003-Ohio-793, decided by the Sixth District Court of Appeals, which encompasses Williams, Fulton, Lucas, Wood, Ottawa, Sandusky, Erie, and Huron Counties. The Crestline court held that the economic loss doctrine barred recovery of damages because there was no nexus that substituted for privity of contract between the contractor and utility, even within R.C. 153.64 (the statute addressing protection of underground utilities on public projects). It is notable that the Crestline decision did not include any discussion of the public policy reasons behind the utility protection statutes.

However, what is good for the goose is also good for the gander. In RWP, Inc. v. Fabrizi Trucking and Paving, Inc., 2006-Ohio-5014, a case decided by the Eighth District Court of Appeals, Cuyahoga County, the court relied upon the Crestline decision and the economic loss doctrine to prevent a group of utility customers from recovering from a contractor who allegedly severed underground cables that provided them phone, fax, internet, and cable services.

However, other courts have reached conclusions more favorable to contractors in their claims for damages against utility companies. They have applied the “nexus” concept to preclude utility companies from obtaining summary judgment and directed verdicts against contractors—in essence holding that a contractor should at least be given the opportunity to prove a nexus between itself and the responsible utility company.

Like the contractor in Crestline, contractors have tried to establish a nexus through the statutory duties imposed on themselves and utility companies by R.C. 153.64 and R.C. Chapter 3781 to prevent utility damage. Two examples where the contractors were allowed to submit evidence of a “nexus” are found in United Telephone Co. v. Southwest Licking Comm. Water & Sewer District (Allen App. 1997), 125 Ohio App. 3d. 135; and East Ohio Gas Co. v. Kenmore Const. Co., Inc. (Summit App. 2001), 2001 Ohio App. LEXIS 1444, which cites the United Telephone case.

It should be noted, however, the Crestline court expressly rejected the analysis of United Telephone refusing to even consider whether a nexus existed, be it based on R.C. 153.64 or some other consideration, seemingly giving the Crestline court the final word, at least in the Sixth Appellate District.

Recent Developments

The law in this area, like the law generally, is constantly evolving, and two cases in 2009, especially when taken together, show that the pendulum may be swinging in favor of contractors, recognizing a nexus that may enable a contractor to recover purely economic damages from a utility that mis-marks its underground facilities.

The first case, from this past August, is Cincinnati Ins. Co. v. City of Cleveland, 2009-Ohio-4043. In Cincinnati Ins. a contractor sued the City of Cleveland for economic losses arising out of the City’s failure to mark the location of a water main on a private construction project. The primary issue decided in the case was whether the City had statutory immunity from the contractor’s claims. (It did not.)

As part of the court’s analysis, it also looked at the contract between the Ohio Utility Protection Service (OUPS) and it member utility owners. The contract (which had been in place between the City and OUPS for more than 20 years) stated that OUPS and its members would:

Support the purpose for which [OUPS] was formed, which is to operate a statewide one-call system . . . in order to reduce dig-in damages, periods of utility service disruptions, and the risk of injury to excavators and the public.

While this provision was not very important to outcome in the Cincinnati Ins. case, it was important in a case decided in September where the court arrived at a decision that may have more wide ranging implications. In that case, Boyd v. Moore, 2009-Ohio-5039, a neighboring business sued a fencing contractor for economic loss after the contractor allegedly failed to notify OUPS and damaged phone and electric cables when digging post holes for its customer. (The Court of Appeals for the Second Appellate District includes Darke, Miami, Montgomery, Clark, and Greene Counties.)

The plaintiff in Boyd was similarly situated to the plaintiffs in RWP, Inc. v. Fabrizi Trucking and Paving, whose cause of action against a contractor was rejected by the Court of Appeals for Cuyahoga County because of the economic loss doctrine. In Boyd, the plaintiff alleged that the contractor was negligent per se, meaning that if damages are proven, the contractor should be held liable for merely violating the utility protection statute (in this case R.C. Chapter 3781 because it was a private project).

Interestingly, the court did not discuss the economic loss doctrine. Instead, it focused solely on the negligence per se argument. As part of its analysis, the court, in citing to the OUPS contract language from the Cincinnati Ins. case, as well as information from the OUPS website, concluded that the purpose of the utility protection statutes “is broader than mere protection of underground utilities.” The Court further stated that:

We doubt that the General Assembly enacted this statute to protect underground utilities for their own sakes. And we find no evidence, and see no good reason to think, that the statute contemplates only the interests of utility companies. It only makes sense that the statutory scheme . . . seeks to prevent damage to underground utilities in order to prevent potential injuries and to protect a variety of interests—the utility owners’ interests in preventing damage to their equipment, no doubt, but also the public’s interest in safety, and the interest in undisrupted service that those who rely on an underground utility have.

In holding opposite of the RWP court, the Boyd court held that the contractor was liable for the economic losses suffered by the neighboring business owner when the contractor failed to follow the utility protection statutes and damaged underground cables—even though the contractor and neighboring business had no contractual relationship.

The irony, however, is that the Boyd case, which establishes a new mechanism for a contractor’s liability to a utility customer, also creates an equally powerful “nexus” argument that a contractor can use to try to avoid application of the economic loss doctrine when claiming damages from a utility company’s mis-marking. In these instances, a contractor will allege that the utility company failed to follow the statutory requirements for marking its utilities and that such failure caused the contractor damages f or downtime.

Conclusion

A contractor now has two appellate decisions explaining in detail that Ohio’s utility protection statutes are not meant merely to protect the utility companies. They are meant to protect the public at large and contractor’s personnel too—that policy is the “nexus” that could trump the economic loss doctrine. This seems reasonable in light of the many published references to construction workers and members of the public who have been injured or killed by accidents involving damage to underground utilities such as gas and electric lines.

It will be interesting to see if other Ohio trial courts and courts of appeals adopt this line of reasoning as well. Eventually, it may take the Supreme Court of Ohio to iron out the inconsistencies in the case law.