Alex Corey | Pepper Hamilton LLP | June 29, 2017
In general, courts will be hesitant to impose liability on contractors when the underlying problems stem from an alleged design flaw.
The legal doctrine of implied fitness of design warranty, recognized by the U.S. Supreme Court, provides that a contractor bound to build according to plans and specifications prepared by an owner will not be responsible for the consequences of defects in the plans and specifications. United States v. Spearin, 248 U.S. 132 (1918). Responsibility will remain with the owner, even when contractual provisions require the contractor to visit the site, check the plans and inform themselves of the requirements of the work. Id. Recently, the U.S. Court of Appeals for the Fifth Circuit ruled that a contractor’s immunity created by the doctrine of implied fitness of design warranty, as codified in Louisiana law, can include immunity for failure to warn an owner of defects or errors in the owner’s design. LaShip, LLC v. Hayward Baker, Inc., 2017 U.S. App. LEXIS 3694 (5th Cir. Mar. 1, 2017). Consequently, a contractor may not be responsible for damages resulting from its implementation of an owner’s design, even if the contractor could have discovered the defects therein.
Background
Beginning in 2007, LaShip, LLC undertook the construction of a large shipbuilding facility in Houma, Louisiana. In July 2008, LaShip retained Hayward Baker, Inc. (HBI) to complete the soil mixing and drill shaft work on the project.
The contract between LaShip and HBI provided for HBI to install subterranean soil-mix columns to form the foundation of the shipbuilding facility. Pursuant to the contract, HBI obtained soil samples to ascertain the columns’ strength. Laboratory testing revealed that, in general, the soil possessed the requisite compressive strength provided for in the contract. Nevertheless, as the work progressed, the columns exhibited spiraling, and HBI experienced several cave-ins during its installation of the drill shafts and unwanted settlement of the foundation columns.
On January 21, 2011, LaShip filed suit against HBI in the Louisiana federal district court, alleging that HBI was liable for not warning LaShip about alleged defects in the design of the columns. The district court, after a 10-day bench trial, ruled that LaShip failed to prove by a preponderance of the evidence its negligent failure to warn and breach of contract claims against HBI. LaShip v. Hayward Baker, 2015 U.S. Dist. LEXIS 186946 (E.D. La. Aug. 13, 2015). The district court found that HBI did not breach its duty to construct the columns in accordance with the express provisions of the performance specifications or that any deficiencies with respect to the construction of the columns caused the settlement of any phase of the project. Id. at *61.
Fifth Circuit Evaluates LaShip’s Claims Under Spearin-Like State Law
The Fifth Circuit reviewed the district court’s ruling de novo and fully affirmed the decision. In regard to LaShip’s arguments that HBI was liable for its failure to warn of the column defects, the Fifth Circuit found that HBI was “statutorily immune” from this claim under Louisiana Revised Statute 9:2771 (LRS 9:2711), which provides that:
No contractor . . . shall be liable for destruction or deterioration of or defects in any work constructed, or under construction, by him if he constructed, or is constructing, the work according to plans or specifications furnished to him which he did not make or cause to be made and if the destruction, deterioration, or defect was due to any fault or insufficiency of the plans or specifications.
Both LRS 9:2711 and the doctrine of implied fitness of design warranty, recognized by the U.S. Supreme Court in Spearin, provide that a contractor is not liable for defects in the owner’s design. The Fifth Circuit reaffirmed this principle, ruling that a contractor is “shield[ed] from liability for any defects that may arise as a result of the contractor’s adherence to plans and specifications that were provided to it.” Id. at *4.
However, the Fifth Circuit noted that a contractor will be liable “if he has a justifiable reason to believe that adherence to plans and specifications would create a hazardous condition.” Id. LaShip, however, failed to point to any specific evidence indicating that such an exception was applicable. Id. As an example of a “hazardous condition,” the Fifth Circuit cited to Oxley v. Sabine River Authority, 663 So. 2d 497 (La. App. 3d Cir. 1995), where a contractor was found responsible for defects in an owner’s electrical plans when following the plans would expose handlers or workers to electrical voltage hazards.
HBI Had No Duty to Warn
HBI was given performance specifications by LaShip that it did not make. In reviewing those specifications, the Fifth Circuit found that the problematic settlement of the structure in the project stemmed from a design defect in the length of the columns. As such, HBI was afforded statutory immunity, pursuant to LRS 9:2711, based on its installation of the columns according to specifications in the contract.
Significantly, the Fifth Circuit rejected LaShip’s argument that, based on HBI’s geotechnical expertise, HBI knew or should have known that the design was allegedly defective and thus had an affirmative duty to warn LaShip. The Fifth Circuit opined that such an argument would unduly broaden the affirmative tort duty of contractors. In affirming the district court’s decision, the Fifth Circuit distinguished prior case law where a contractor was found to have breached a duty to warn the owner of a potential defect in the construction of a grain storage tank, noting that, in that situation, the liable contractor “both designed and constructed” the storage tank. Bunge Corp. v. GATX Corp., 557 So. 2d 1376 (La. 1990). HBI did not design the soil-mix column specifications.
The court also affirmed the dismissal of LaShip’s breach of contract claim, finding that HBI fulfilled its contractual requirement in confirming that the soil tested met the minimum threshold for unconfined compressive strength.
A Broader Scope of the Spearin Doctrine?
While the Fifth Circuit’s decision rested on Louisiana law, the similarity of the language of LRS 9:2771 and the Spearin Doctrine create important implications for contractors nationwide. In general, courts will be hesitant to impose liability on contractors when the underlying problems stem from an alleged design flaw. Not surprisingly, courts will be reluctant to absolve a contractor of liability if adherence to a defect in the owner’s plans would create a “hazardous condition.”