We begin the month with a case from the Court of Claims of Ohio. The Court was asked to determine whether the Ohio Department of Transportation (ODOT) was responsible for regulating workplace safety where a contractor’s employee was injured. Our second case also comes from the Court of Claims of Ohio, where a contractor’s complaint was barred because it was not filed within the period provided in the applicable statute of limitations. The last case, from the State of Indiana, deals with insurance coverage for damages caused by a contractor’s defective workmanship.

Owners Have No Duty for Contractor’s Workplace Safety Unless Actively Participating

When an accident occurs on a construction site, there are often disputes over who is responsible for various tasks and duties related to safety. When it comes to workplace safety, the parties generally dictate such responsibility in the contract. In Theodore Krystalis, et al. v. The Ohio Department of Transportation, 2009-Ohio-631, the court determined that a provision of ODOT’s Construction and Materials Specifications Manual was not to be interpreted as ODOT assuming the responsibility of regulating workplace safety, and a provision in the contract indicated that the contractor assumed such responsibility.

The plaintiff in Krystalis was employed by a contractor to assist in blasting and spray-painting highway bridges on various projects in Ohio. Three months into a project, the plaintiff collapsed at the site. A doctor diagnosed the plaintiff as having lead poisoning and being permanently disabled. As a result, the plaintiff filed suit against ODOT claiming that it was responsible for monitoring workplace safety and was negligent in failing to protect the plaintiff from exposure to toxic heavy metals.

The plaintiff pointed to Section 105 of ODOT’s Construction and Materials Specifications Manual as the provision that made ODOT responsible for regulating workplace safety. The provision gave ODOT the right to suspend work on a project if ODOT determined that working conditions were unsafe. The plaintiff referenced a prior case where ODOT was found liable for the death of a worker where ODOT did not timely install bridge overpass fencing.

However, the Court indicated that the case referenced by the plaintiff involved a situation where ODOT was mandated to provide bridge overpass fencing. In that case, ODOT prepared a prioritized list of bridges that needed fencing, and ODOT employees and agents were responsible for installing the fencing. The Court found that ODOT failed to do this work in a timely manner. In Krystalis, ODOT had assumed no duty to protect employees of contractors from harm.

The Court indicated that ODOT did not announce a decision to regulate workplace safety. The provision of ODOT’s Construction and Materials Specifications Manual merely gave ODOT the authority to suspend work, not the obligation to regulate workplace safety.

The Court indicated that, under Ohio law, a project owner does not have the duty to ensure workplace safety for employees of an independent contractor unless the owner actively participates in the contractor’s work. Active participation occurs where the owner “directs or exercises control over the work or over a critical element of the work as opposed to exercising a general supervisory role.” Maintaining the authority to suspend work is not active participation.

ODOT, through its contract, informed the contractor that the employees would be exposed to lead and chromium during the project. The contract indicated that the contractor would be “responsible to assure that workers take proper safety precautions when working in this environment.” The contract also indicated that the contractor was responsible for providing personal protective equipment and to construct containment enclosures. The Court opined that the contract language was clear and unambiguous and the parties to a contract are “free to define their relationship by contract.”

The plaintiff also claimed that he was a third-party beneficiary of the contract and that ODOT breached the contract – causing him injury, pain, suffering, and economic loss. The Court indicated that a third-party beneficiary needed to be an intended beneficiary of the contract before the plaintiff could enforce the contract. The Court found that the contract was not entered into for the benefit of this plaintiff, and the plaintiff’s claims were denied.

Statute of Limitations Bars Contractor’s Complaint Against OSU

A “statute of limitations” is a legal term for a law establishing time limits during which a lawsuit may be filed. If a lawsuit is not filed before the end of that time period, a party loses the right to do so. In early 2009, the Ohio Court of Claims issued a unanimous opinion in The Painting Co. v. The Ohio State University, 2009 Ohio 645, barring a contractor’s complaint for additional fees as untimely based upon the expiration of the statute of limitations.

In 2003, The Painting Company entered into a $370,225 public works painting contract involving the Ross Heart Hospital located on The Ohio State University’s campus. On January 6, 2005, the contractor submitted an uncertified claim of more than $800,000 based upon out-of-sequence work and work not included in the original contract.

After The University denied the claim for additional fees, the contractor appealed to the architect under the contract’s dispute resolution provisions by letter dated August 23, 2005. The architect rendered a final decision regarding the dispute on January 6, 2006. Following the architect’s decision upholding The University’s denial of additional fees, the contractor filed a lawsuit in the Court of Claims on July 29, 2008.

Shortly after the Contractor’s lawsuit was filed, The University filed a motion for summary judgment on the ground that the contractor’s claims were barred by the two-year statute of limitations applicable to civil actions against the state.

The Court’s analysis started with Section 153.16(B) of the Ohio Revised Code. This statute deems exhausted a contractor’s administrative remedies 120 days after the filing of a claim. You may be asking yourself how this is relevant. The answer: a lawsuit generally cannot be filed prior to the exhaustion of administrative remedies. As a result, the 120 day time period had to expire before the Contractor could file a lawsuit against The University.

In this case, the Court treated August 23, 2005, the date on which the Contractor sent its notice of appeal, as the date that the claim was submitted because the prior correspondence in January had not been certified as required by the contract’s dispute resolution provisions. Thus, the Court concluded that the contractor could have filed a lawsuit 120 days after the submission of its claim, or December 21, 2005.

Returning to the applicable two-year statute of limitations, the Court explained that the Contractor had until December 21, 2007 (two years later) to file a lawsuit against the University. Because the Contractor did not file its lawsuit until after this date, it was not timely filed. As a result, the Contractor’s claims were barred.

In Indiana, Commercial General Liability Insurance Does Not Cover Defective Workmanship

A misunderstanding or false belief in what is covered under a commercial general liability policy can have devastating effects. In T.R.. Bulger, Inc. v. Indiana Insurance Company, 2009 Ind. App. LEXIS 347, a contractor believed its commercial general liability insurance policy covered defective workmanship. Its policy, however, did not cover defective workmanship, and the contractor was responsible for costs associated with the repair and replacement of the defective work.

In T.R. Bulger, a property owner hired a contractor to install a heating, ventilation, and air conditioning (HVAC) system. A dispute arose between the property owner and the contractor, and the contractor left the jobsite and did not return. The property owner started up the HVAC system and noticed leaking pipes and a great deal of noise coming from the system’s air compressor. In fact, the noise was so great on the outside of the home that it violated local noise ordinances. The owner sued the contractor, and the case went to arbitration where the property owner was awarded $2,325,000.

The contractor previously purchased commercial general liability insurance that included coverage for “products/operations completed hazards,” and commercial umbrella liability insurance coverage from Indiana Insurance Company. Indiana Insurance filed a declaratory judgment action to determine whether the insurance policy that it sold to the contractor covers losses sustained by a homeowner as a result of the contractor’s defective work. The trial court granted summary judgment to Indiana Insurance, and the contractor appealed that decision.

The appellate court indicated that a contractor’s work will give rise to two types of risk, one of which is a business risk. A business risk stems from the duty of a contactor to complete the contract work in a workmanlike manner. Where the contractor fails to perform in a workmanlike manner, the workmanship is considered defective and the property owner may recover damages to repair or replace the work. This business risk is typically not covered under a commercial general liability insurance policy and the burden of this risk is on the contractor unless the contractor obtains appropriate coverage.

Damages for the inspection, repair, or replacement of the HVAC system or the economic damages related to the contractor’s breach of contract or breach of warrantee are generally not covered by the commercial general liability insurance policy – these are business risks. To hold otherwise would turn the commercial general liability insurance policy into a performance bond. The court determined from the insurance policy language that this was not the intention of the parties.

The other type of risk stemming from a contractor’s work is the “risk of occurrences that give rise to insurable liability.” In the case of defective workmanship, where the defective workmanship itself is typically not covered by a commercial general liability insurance policy, the damage to property or physical injury resulting from the defective work after the work is relinquished or completed may be covered under such a policy.

In this case, it was unclear whether the lump sum award of damages included damages to property, which may have been covered under the commercial general liability policy. The case was sent back to the trial court to determine exactly how much of the total damages may lie in the category of a “risk of occurrences that give rise to insurable liability.”