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Security Nation Bank v American Piping: General Contractor’s Liability for Subcontractor’s Torts Defined by Owner-General Contractor Contract

Contractor

The Iowa Court of Appeals in Security Nation Bank v American Piping, 213 WL 2145763 (Iowa App. May 15, 2013) recently provided some additional guidance regarding the liability of a general contractor for the torts of a subcontractor. As noted by the court in that case, “in Iowa, the general rule is the employer of an independent contractor is not liable for physical harm caused to another by an act or omission of the contractor for his service.” Id. at *2. There are a number of exceptions to this general rule; however, Security National Bank focuses on cases where “a contract imposes responsibility on the general contractor for the safety of the employees of the subcontractor.” Id. In such cases, the general contractor is liable for the torts of its subcontractors because the general contractor is deemed to have a non-delegable duty. Id.

The contract at issues in Security National Bank required the general contractor to “take reasonable precautions for the safety of, and [the general contractor] shall provide reasonable protection to prevent damage, injury or loss to ΓǪ employees on the Work and other persons who may be affected thereby.” Security National Bank, 213 WL 2145763, *4.

However, the same contract also provided that the contractor:

“Shall require each Subcontractor, to the extent to the work to be performed by the Subcontractor, to be bound to the Design-Builder by terms of the Contract Documents, and to assume toward the Design-Builder all the obligations and responsibilities, including the responsibility for safety of the Subcontractor’s Work, which the Design-Builder by those Documents, assumes towards the Owner.” Id. at *5.

The contract further provided:

“The Design-Builder shall comply with all safety precautions and programs initiated and maintained by the Owner in connection with the Project and the Design-Builder’s performance of the Work. In accordance with such safety precautions and programs, except the extent specifically indicated in the contract documents to be the responsibility of others, the Design-Builder shall assume the duties and responsibilities set forth in section A.10.2-A.10.6 below.” Id. (Emphasis added)

The district court concluded that the contract contained an exception to the clause creating the non-delegable duty relating to “safety precautions assigned to others,” and as a result, the general contractor was not liable for torts committed by its subcontractor resulting in in an injury to the subcontractor’s employee. Id.

The Court of Appeals disagreed and concluded that once the general contractor assumed a duty to the construction site owner for the safety of workers “the liability buck stopped at [the general contractor.]” Id. The court noted that while the additional paragraphs cited by the general contractor contemplated that the general contractor could contractually obligate other parties to perform subcontracting services and to take safety precautions, the general contractor’s contractual obligation to “take reasonable precautions for the safety ΓǪ of employees on the Work” was controlling and created a non-delegable duty for purposes of tort liability. Id.

The court next considered whether the injured employee was a third party beneficiary of the general contractor and the owner. The court noted that this analysis was necessary “because [plaintiff’s] suit is for neglecting a duty arising from a contract from which he is not a party.” Id. at *6. The district court concluded that the plaintiff was not a third party beneficiary of the owner-general contractor contract because the language in that agreement “prohibits the agreement from being construed to create any contractual relationship between any person or entity other than [owner] and [general contractor].” The appellate court disagreed and held “the contract language severing any potential contractual relationship of any kind does not impact the third party beneficiary rights.” The court noted that because the plaintiff’s suit was based in tort, the limiting language was inapplicable. Id. (quoting 4 Corben on Contracts, §777, which draws distinction between “an intent to create a right and a third party and an intent that a performance beneficial to him should be rendered”).

Bottom line:

An application for further review by the Iowa Supreme Court was filed on or about May 31, 2013. If the Court of Appeals decision is not disturbed by the Iowa Supreme Court, the guidance of the Court of Appeals is that once a general contractor agrees to take reasonable precautions for the safety of employees at the job site, subsequent language contemplating that subcontractor will also have responsibility for safety may not be sufficient to negate the general contractor’s liability in tort for injuries caused by a subcontractor’s negligence. Likewise, contractual language intended to prevent the creation of contractual relationships to third parties may not be sufficient to prevent a third party from bringing a tort claim based in contract.

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