Products Liability for Subcontractors? You Bet!

By March 17, 2016 October 25th, 2018 Construction Litigation Blog, James Wakefield
James R. Wakefield

James R. Wakefield

By now, many of you may have heard about the “gift” the California Court of Appeals gave subcontractors a few days before Christmas. For those still in the dark, now besides all of the other things you have to be concerned about in trying to make a living, you get to worry about people suing you for products liability. This is a first for sub-contractors.

What does that mean? For the E.F. Brady Company, it meant a court determined this past December that the company could be held liable for a person dying from mesothelioma allegedly as a result of asbestos-containing drywall installed by the company for the Fluor Corporation in the mid-1970s (Hernandezcueva v. E.F. Brady Co). (Note that on March 9, 2016, the California Supreme Court denied E.F. Brady’s petition for review.)

Keep in mind that E.F. Brady did not know the drywall contained asbestos, and there was no mention of this fact in any materials produced by the manufacturer. There was no way for E.F. Brady to know that the drywall it was installing was potentially hazardous. Nevertheless, the Court of Appeal decided the company could be held strictly liable for injuries the plaintiff claimed he suffered.

Does this apply to you? It depends. Or perhaps better, who knows! The court determined that if a subcontractor provides materials for a job (and many do just that), then first one must determine whether the “service aspect predominates and any [material] was merely incidental to the provision of service.” The court decided that since materials composed 25 percent of E.F. Brady’s bid, the materials were not “incidental.” Does that mean 15 percent materials would be incidental, or maybe 10 percent? That remains to be determined.

The court also based its opinion on two questions that it answered:

  • Was E.F. Brady capable of bearing the costs of compensating for injuries due to the products? (The court answered yes without saying why.)
  • Was the company in the position to exert pressure on the manufacturer to enhance product safety? (Again, the court said yes primarily because at the time E.F. Brady was a large drywall firm.)

This opinion begs the question, how could a subcontractor put pressure on a manufacturer to make its product safer when the subcontractor did not know the product was unsafe to begin with? Alternately, how much economic power does a subcontractor need to have before it is considered large enough to exert pressure on a manufacturer? If the company buys materials worth $500,000 a year and the manufacturer sells $3 billion in product, is the subcontractor large enough to be held liable? How large is “big enough” to be held liable? The court provided no clues.

This case is terrible. It is bad law resulting from bad facts (a painful death). But it is the law now and will expand the universe of strict liability defendants, in both asbestos and non-asbestos cases.

So how can you protect yourself? There is only one way—insurance. The subcontractor must have products liability coverage. And judging from this case in which the subcontractor’s actions occurred 40 years ago, it means that the subcontractor should never get rid of its insurance information for any policy year. I recommend checking your current coverage, as well as conducting a historic review to ensure you have copies of insurance policies for as many years as possible. Scan all policies and save electronic copies in several places. When you change networks, computer systems, or data storage systems, be sure to keep your proof of insurance. If you don’t have older policies, check with your insurance broker.

If you have questions about products liability coverage, feel free to contact me via my email, or call me at (949) 852-1800.