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The Third Department Addresses Liability for Construction Related Flood Damage Resulting From the Diversion of Storm Water – Volume 2

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  • Posted on: Aug 27 2021

By Jonathan H. Freiberger 

Last week this Blog examined WFE Ventures, Inc. v. GBD Lake Placid, LLC, decided on August 12, 2021, by the Appellate Division, Third Department, which addressed numerous construction litigation issues [here].  Last week’s article focused on issues related to flood damage resulting from an underlying construction project; this week we will address other issues presented in the Court’s Memorandum and Order.  Knowledge of the facts as set forth in last week’s article are presumed, but will be summarized below, with additional facts germane to today’s discussion.

In WFE, the defendant owner (“Owner”) built a Marriot hotel in Lake Placid.  Owner hired an architectural firm (“Architect”) to obtain site plan (“Plan”) approval (“Approval”) from the applicable municipal review board (“JRB”) and an engineer (“Engineer”) to prepare a stormwater management plan.  The Plan included grading details that called for a retaining wall around the entire property.  The general contractor subcontracted the site-work to a site work subcontractor (the “Site Contractor”).  Architect’s contract with Owner contained a stormwater management exclusion (the “Stormwater Exclusion”).

After encountering certain field conditions, preliminary sketches were prepared to substitute the approved retaining wall with an extended slope made from a large volume of fill.  This change, however, was not submitted to JRB for approval.

The WFE plaintiff developed a nearby plot of land with four buildings – each containing multiple townhouses (the “Development”).  The Development was plagued by flooding over a two-year period, which may have been caused by Owner’s unapproved grading plan. Ultimately, plaintiff successfully addressed the flooding by taking remedial actions after Owner ignored Plaintiff’s requests to address the problem.  

The underlying action was commenced by plaintiff against Owner, who, in response, inter alia, brought third-party actions against the Site Contractor and Architect.  The parties made various motions for summary judgment. 

Among other things, Owner argued that “the actions undertaken on [its] behalf were performed by its contractor, not at [its] direction, and, therefore, [it] cannot be held vicariously liable for the contractor’s conduct – however wrongful or negligent it might have been.”  Supreme court rejected Owner’s argument and the Third Department agreed.  Issues of fact exist as to the “extent of [Owner]’s control over the construction project.”  The Court, citing several Court of Appeals cases, noted that, in general:

a party who retains an independent contractor, as distinguished from a mere employee or servant, is not liable for the independent contractor’s negligent acts. Although several justifications have been offered in support of this rule, the most commonly accepted rationale is based on the premise that one who employs an independent contractor has no right to control the manner in which the work is to be done and, thus, the risk of loss is more sensibly placed on the contractor.  [(Citations and internal quotation marks omitted.)]

Here, Owner argued that Architect and Site Contractor were independent contractors retained to “perform the day-to-day construction tasks” and, therefore, it was not liable in damages to plaintiff.  The Court, however, found that the evidence adduced during discovery (as set forth in the decision), indicating that, inter alia, Owner was “hands-on,” created an issue of fact “regarding the degree of control and oversight exercised by defendant over the work performed, particularly with respect to the decision to use fill to affect a slope change, as opposed to approved use of a [retaining] wall.”

The Court also found that Architect’s motion for summary judgment as related to the Stormwater Exclusion was properly denied.  The Court noted that while Architect’s role was initially limited to assisting “Owner in connection with its responsibility for filing documents required for the approval of governmental authorities prior to construction[, d]uring construction [Architect] undertook various responsibilities over the work”.  (Internal quotation marks and brackets omitted.)  Owner’s contract with Architect “included an indemnification provision by which [Architect] assumed liability for property damage to the extent caused by the negligent acts or omissions of [Architect].”  However, Architect’s “motion – insofar as [its] potential liability to defendant for indemnification is concerned – is, in essence, predicated upon [the Stormwater Exclusion].”  The Court explained that:

a contractual indemnification provision must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed. The promise to indemnify should not be found unless it can be clearly implied from the language and purpose of the entire agreement and the surrounding facts and circumstances.  [(Citations, internal quotation marks and brackets omitted.)] 

Supreme court found, and the Court agreed, that there were factual issues as to whether Architect acted negligently “in connection with its contract administration duties, leaving extant the issue of whether [Architect] would be obligated to indemnify defendant.”  Architect “insinuated itself” into the aspects of the project related to stormwater management and “certified the construction as substantially complete in April 2007 – even though it was apparently not in conformity with the JRB approved plans because the JRB never formally approved the slope change.”  Further, Architect was “unaware that the slope had been extended until well after the hotel project had been completed when, in March 2009, it was informed of the first flooding event.”  Thus, the Court concluded, “it was for the jury to determine whether Architect’s “actions – or failures to act – can be characterized as negligent conduct that, in turn, caused damage to defendant so as to trigger the indemnification clause of the underlying contract”.  (Citation omitted.)

Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

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