CONSTRUCTION LAW: Appellate Decision Has Far Reaching Implications for Construction Industry

Subcontractors who supply and incorporate defective products into construction now may be held strictly liable for such conduct according to the Second Appellate District. The holding in the Hernandezcueva case stands a departure from establish precedent which insulated subcontractors who followed project specifications and plans. In doing so, it has provided another avenue for hungry plaintiff's attorneys to seek relief. This decision is yet another example of the California's trend of liability expansion in defective construction actions.

E.F. Brady Co., Inc. was a subcontractor whose trade specialties included plastering and the installation of drywall and fireproofing materials. In the early 1970's, Brady served as a subcontractor in the construction of several office buildings in Irvine, California. As part of its scope of work, Brady installed drywall and drywall taping mud. Unbeknownst to Brady, both the drywall and drywall taping mud contained asbestos.

In the early 1990's, Joel Hernandezcueva worked as a janitor at the offices buildings. During his time of employment, the office buildings were remodeled with the drywall in certain areas removed and replaced. Hernandezcueva cleaned up drywall debris and dust as part of his job responsibilities.

In or about 2011, Hernandezcueva was diagnosed with mesothelioma. Hernandezcueva then filed suit including Brady as one of the defendants in his action. At trial, Brady moved for partial nonsuit on Hernandezcueva's cause of actions for strict liability, misrepresentation, and intentional failure to warn, plus his request for punitive damages. The trial court granted the motion for the causes of action but denied it on the request for punitive damages. After the motion, only a cause of action for negligence remained. After Brady's presentation of evidence, the jury returned a verdict in favor of Brady. Hernandezcueva appealed.

In Hernandezcueva v. E.F. Brady Co., Inc. (2015) 243 Cal.App. 4^th 249, the Second Appellate District reversed the trial court's decision and found that Brady could be held liable under a strict liability theory. Previously, California law provided that a subcontractor who supplies and installs a product is not liable under a strict liability theory if that product is defective. See, e.g., Monte Vista Development Corp. v. Superior Court (1991) 226 Cal.App. 3d 1681 (a tile subcontractor not strictly liable for supplying and installing a defective soap dish).

The appellate court also ignored or distinguished the decision in La Jolla Village Homeowners Association v. Superior Court (1989) 212 Cal.App. 3d 1131. The La Jolla decision previously afforded subcontractors who provide products in compliance with the project's plans and specifications a defense, finding that they cannot be held strictly liable for a defective product. The Second Appellate District reasoned that the La Jolla decision was not consistent with existing law because it predated the imposition of strict liability on a party's "participatory connection – rather than its precise legal relationship – to the stream of commerce." The court determined that a fact sensitive inquiry into a party's activities concerning the defective product was required for the imposition of strict liability.

In Hernandezcueva, the Second Appellate District focused upon a "stream of commerce" analysis, finding that Brady always provided and installed the products on its projects. With respect to the Irvine project, evidence showed that Brady's workmen contacted the manufacturer and supplier of the drywall mud due to a problem with its application. The manufacturer and supplier of the product both sent representatives to the site to meet with Brady and observe the problem. The court found that Brady's ability to "summon" the manufacturer and supplier to investigate the problem and that 25% of Brady's bid was for the supply of product or materials supported liability under a strict liability theory. Based upon these considerations, the Second Appellate District held that the question of whether Brady was in the "stream of commerce" for strict liability should have gone to the jury.

The California Supreme Court subsequently denied Brady's petition for review of the Second Appellate District's decision.

Given the Second Appellate District's decision in Hernandezcueva, subcontractors can anticipate the following potential negative impacts from that decision. First, subcontractors can anticipate that more personal injury plaintiffs will seek to hold them accountable for asbestos-related injuries from construction projects in the 1970's and prior. Second, because the decision is not limited to only asbestos-related injuries, subcontractors should anticipate that plaintiffs in construction defect actions will pursue them for strict liability where plaintiffs can show that the subcontractor installed a defective product, or in the context of mass produced residential housing, for strict liability where plaintiffs alleged that the home itself is a defective product. Under either scenario, the subcontractor may no longer be able to rely on the La Jolla defense that it complied with the plans and specifications a defense to a strict liability claim. Finally, given that the Hernandezcueva decision concerned a commercial construction project, an ambitious plaintiff may attempt to extend strict liability for defective construction from mass produced residential construction to commercial construction.

The decision in Hernandezcueva should be viewed as a continuation of the expansion of liability for defective construction, similar to the California Supreme Court's holding in Beacon Residential Community Association v. Skidmore, Owings & Merrill LLP, California Supreme Court No. S208173 (July 3, 2014). Moreover, based upon the decision in Hernandezcueva, California subcontractors should anticipate an increase in litigation filed against them with likely increases in liability resulting from the same. This, in turn, could likely result in increased insurance costs for California subcontractors. Accordingly, subcontractors need to find a means to limit their exposure to strict liability claims. One such method may be to require the general contractor to purchase all of the products to be used and installed in the construction of a project.