All in Agreement
A person who acts "reasonably or prudently" is defined as someone who is "clever and careful in action and judgment." A prudent person may be considered a "judicious" person. A judicious person exercises, or is characterized, by sound judgment.
In other words, a reasonable or prudent subcontractor is a contractor who is careful in action and judgment. If a subcontractor is not reasonable or prudent in action or judgment, it's possible the subcontractor may be found negligent in the event of litigation.
In studying this subject, I've learned there are approximately eight different types of negligence described in law dictionaries. After reading and learning about negligence and how it applies to subcontractors, I've learned that negligence can be accidental.
Mushroom VillaA plastering contractor believed his crew installed work correctly, and was surprised when he found out he and his insurance company were being sued for water intrusion damages as well as "consequential damages," as a result of the water intrusion. The plastering contractor read the lawsuit, and couldn't believe the owner could come up with so many allegations. He knew his crew had performed the work properly, because he personally visited the job site weekly.
Although the contractor had finished the project three years ago, he thought he should go look at the job site to see firsthand. He was surprised to find that the 40-unit condominium was completely vacant and that another general contractor had started restoration. He walked the job and found wall cavities full of mold, as well as a nice crop of mushrooms. At that point, he introduced himself to the new GC and was promptly escorted off the site.
The plastering contractor drove back to his office wondering what went wrong, how could this happen and more importantly, was it his fault? After returning to the office, he pulled out a copy of the lawsuit and read it carefully.
Consequential damagesThe plastering contractor decided to call his attorney to ask about "consequential damages." His attorney explained that "consequential damages" are damages, "of an indirect or secondary result." For example: The RZA Hotel and Tower was shut down for mold abatement. The cost to correct the mold damage was approximately $30 million; however, the hotel suffered a loss of income that far exceeded the $30 million for repairs. Therefore, the "consequential damages" were the hotel's lost revenues, which exceeded the repair bill.
After talking to his attorney about "consequential damages," the plastering contractor realized that he and his insurance company may be responsible for repair costs plus the consequential damages to the homeowners; such as costs related to moving expenses, temporary housing, lost value and lost income-as well as anything else their attorneys can think of. It didn't take long for this plastering contractor to realize that he didn't have enough insurance coverage in the event his company was found partly or fully negligent.
Sole negligenceRarely is one subcontractor solely responsible for water intrusion. It is also rare that one subcontractor would have enough insurance or assets to cover a water intrusion claim on his or her own.
In the event this plastering contractor was found to be solely negligent, he would most likely have to close his doors. As well, it would be difficult and or very expensive for this contractor to get insurance coverage in the future.
Subcontractors can help protect themselves from becoming solely negligent by spending a little time documenting job conditions. For example, if windows, doors or flashings are not properly installed, you have the perfect opportunity to advise the GC of your concerns. If weather conditions or if moisture contents are excessive, once again there is a perfect opportunity to advise the GC of the problem. Many subcontractors miss golden opportunities to shift or minimize liability.
The form "To be Made a Part of the Subcontract or Purchase Order" can be modified to include language unrelated to drywall. It could be modified to relate to EIFS, stucco, acoustical ceilings, interior plaster, or other installations. Feel free to use this form as a guide in creating your own. In developing a form it's important to always include the word "watertight."
Not-if-but-whenIf and when you're named in a defect claim, it's important that you get involved in the process. If you take the position that your insurance company is going to take care of the problem, and that everything will work out, I think you're fooling yourself. No one knows your business like you do. You don't want your insurance company to make payment decisions without your knowledge and input.
It seems insurance companies view subcontractors as guilty before proven. In other words, it appears that once involved in a defect claim the insurance company goes through the process of hiring an attorney, and the attorney and the insurance company compile the information, and input it into some sort of secret spreadsheet to determine how much money it's going to cost in legal fees vs. repair fees. If the secret spread sheet determines it's cheaper to settle the case rather than run up attorney fees, the insurance company writes a check and settles it. You're not guilty or innocent in this case but there will be a record of a claim paid on your behalf.
Your claim record will follow you around like an angry hornet and you will be asked to explain the issue each time it comes up.
Large claims, from what I understand, follow a similar pattern. Your insurance company hires an attorney. All the facts are put into the secret spreadsheet and a deal is cut at some point. You may not agree with the deal, but you have to realize that the insurance company is trying to get what they think is the very best deal for them, not necessarily the best deal for you.
If you don't stay in the loop by getting involved in the process, the decision will be made for you in most cases. Yes, you may want to involve your own attorney, because your own attorney may look at the case differently.
As you know, right and wrong have become blurry these days. I was once told, "It has nothing to do with right or wrong. It has to do with taking the least expensive way out." Proving you're right carries a big price tag, and it appears insurance companies are not interested in who is right or wrong. It seems they are interested in cutting the best deal they can and letting the construction industry as a whole pay the bill in the form of skyrocketing insurance premiums.
If subcontractors do their best to modify subcontracts and purchase orders to the best of their ability, risk can be shifted. Shifting moisture and water intrusion risk back to the GC and owner is one way to avoid an expensive crop of inedible mushrooms. All of us get lulled into a place where we don't think critically and we sometimes refuse to think outside the box.
Wake up. Things are changing all around us. It's the perfect time to get creative, because subcontractors are in the cross hairs of risk. As well, subcontractors are the key to making GCs and owners successful, and they rely on us more than they ever have before. Modifying a subcontract or creating an attachment to reduce your risk is only going to help you. Risk and reward is limited to ones ability to think critically as well as ones willingness to experiment. "Watertight" is the word.
Remember: Teamwork begins with a fair contract.