In Tennessee, Contractors Are Not Usually Liable for Their Subcontractor's Negligence

A recent Tennessee Court of Appeals decision, Joe Patton Rogers v. Bradley Dean Hadju, No. W2016-00850-COA-R3-CV, 2017 WL 1077059 (Tenn.Ct.App. 2017) discussed whether a contractor can be held responsible for the actions of their subcontractor.  In this case, there were multiple contracts between several entities for a construction project where multiple contractors subcontracted out work.  Ultimately, the Plaintiff was involved in an automobile accident that caused serious injuries to the Plaintiff.  The question, therefore, was whether a contractor can be held responsible for the actions of its subcontractor (both were sued for the accident in question).

The general law in Tennessee is that “where one person has sustained an injury from the negligence of another, he must, in general, proceed against him by whose negligence the injury was occasioned.” Rogers at 3.  Further, “while an employer may be held liable for the negligence of its employee, however, they are generally not liable for the negligence of independent contractors.”  Rogers at 3 (citing Givens v. Mullikin, 75 S.W.3d 383, 384 (Tenn. 2012)).  The Court then discussed how people or entities are classified as either employees or independent contractors.  Generally, the relationship can be determined by examining the agreement between parties.  The Court went on to discuss this issue as follows:

In determining whether an individual is an employee or an independent contractor, Tennessee courts are guided by the following factors: (1) the right to control the conduct of the work, (2) the right of termination, (3) method of payment, (4) whether or not the worker furnishes his own helpers, (5) whether or not the worker furnishes his own tools, (6) self-scheduling of working hours, and (7) freedom to render services to other entities. Goodale v. Langenberg, 243 S.W.3d 575, 582-83 (Tenn. Ct. App. 2007). Those factors, however, are not absolute, and no single factor is conclusive.  While the “right to control” is the primary test, it is not exclusive, and the entire relationship must be examined.

Rogers at 3.  As a result, the essence of determining whether an entity is an “employee” or an “independent contractor” is the element of control.  The Court noted that the “mere fact that the contractor reserves the right to supervise the work to ensure that the end result conforms to the plans does not make this subcontractor an employee when the contractor doe...

Misrepresentation of Licensed Contractor Status in Tennessee Can Cause Significant Liability

Tennessee law is clear that any person, firm or corporation who misrepresents that they are a licensed contractor is subject to significant penalties.  It is also against Tennessee law to act in the capacity of a “contractor” in Tennessee when one is not properly licensed.  Specifically, T.C.A. § 62-6-136 discusses this issue in subsection (A) as follows:

(a) It is unlawful for any person, firm or corporation to represent itself as a licensed contractor or to act in the capacity of a “contractor” as defined in §§ 62-6-102, or 62-37-103, and related rules and regulations of this state, or any similar statutes, rules and regulations of another state, while not licensed, unless such person, firm or corporation has been duly licensed under § 62-6-103 or § 62-37-104.

A licensed contractor is specifically defined in this statute.  This is a rather lengthy statute, but the key part is the provision that licensure is required for projects beyond $25,000.00.  The complete definition is found in T.C.A. § 62-6-102 which defines a contractor as follows:

(4)(A)(i) “Contractor” means any person or entity that undertakes to, attempts to or submits a price or bid or offers to construct, supervise, superintend, oversee, schedule, direct or in any manner assume charge of the construction, alteration, repair, improvement, movement, demolition, putting up, tearing down or furnishing labor to install material or equipment for any building, highway, road, railroad, sewer, grading, excavation, pipeline, public utility structure, project development, housing, housing development, improvement or any other construction undertaking for which the total cost is twenty-five thousand dollars ($25,000) or more; provided, however, with respect to a licensed masonry contractor, such term means and includes the masonry portion of the construction project, the total cost of which exceeds one hundred thousand dollars ($100,000), materials and labor;

(ii) “Contractor” includes, but is not limited to, a prime contractor, electrical contractor, electrical subcontractor, mechanical contractor, mechanical subcontractor, plumbing contractor and plumbing subcontractor, masonry contractor, and roofing subcontractor where the total cost of the roofing portion of the construction project is twenty-five thousand dollars ($25,000) or more;

(iii...

Does Four Year Statute of Repose in T.C.A. § 28-3-202 Bar Tennessee Construction Defect Claims When Project is Not Complete?

The recent Tennessee Court of Appeals decision of Keith Gillis v. Covenant Health, 2015 WL 3563034 (Tenn. Ct. App. 2015) discussed the four year statute of repose found in T.C.A. § 28-3-202 for construction defect claims.  This statute of repose is a very good way to defeat many construction defect claims in Tennessee.  This particular case dealt with a situation where a radiology facility at Methodist Hospital was allegedly defectively constructed.  Specifically, the walls around the radiology facilities required a certain amount of lead shielding but there was a portion of the walls that did not contain the necessary lead shield to protect individuals from exposure to excessive radiation.  As a result, plaintiffs claimed they were exposed to excessive radiation and therefore they sued the construction company that failed to put in the necessary lead shielding.

Tennessee law is clear that we have a four year statute of repose that bars claims for construction defect cases filed greater than four years from the date of substantial completion (with certain exceptions).  The entire statute found in T.C.A. § 28-3-202 is as follows:

All actions to recover damages for any deficiency in the design, planning, supervision, observation of construction, or construction of an improvement to real property, for injury to property, real or personal, arising out of any such deficiency, or for injury to the person or for wrongful death arising out of any such deficiency, shall be brought against any person performing or furnishing the design, planning, supervision, observation of construction, construction of, or land surveying in connection with, such an improvement within four (4) years after substantial completion of such an improvement.

The question therefore, in many cases, centers around how to determine the date of “substantial completion.”  T.C.A. § 28-3-201(2) defines substantial completion as follows:

(2) “Substantial completion” means that degree of completion of a project, improvement, or a specified area or portion thereof (in accordance with the contract documents, as modified by any change orders agreed to by the parties) upon attainment of which the owner can use the same for the purpose for which it was intended; the date of substantial completion may be established by written agreement between the contractor and the owner.

Construction Law - Under Tennessee law what damages can be recovered for breach of a construction contract?

Analysis:  The recent Tennessee Court of Appeals decision of Brooke Buttrey v. Holloway's, Inc., No. M2011-01335-COA-R3-CV, 2012 WL 6451802 (Tenn. Ct. App. December 12, 2012) considered a case where the defendant failed to construct the home in a workmanlike manner.  The trial court concluded the defendant breached its contract based on the deficiencies in the construction of the home.  The next question was, what are the appropriate damages for the deficient work?  The trial court found the defendant was required to pay back the total amount the plaintiff paid to build her house, $143,272.00. Buttrey at 4.

It is clear under Tennessee law that in a breach of contract action, “damages resulting from the breach are a necessary element of the claim and, therefore, the claimant has the burden of proving damages at trial.”  Buttrey at 7.  Under Tennessee law the purpose of assessing damages in a breach of contact case is to "make the non-breaching party whole, to place the non-breaching party in the same position he would have been in had the contract been performed."  Buttrey at 7. (citing Hiller v. Hailey, 915 S.W.2d 800, 805 (Tenn. Ct. App. 1995)).  As a result, the “damages awarded by the trial court should have been designed to place Ms. Buttrey in the position she would have been in had the contract been performed as contemplated."  Buttrey at 7.

Construction Defect - Under Tennessee law what is required to establish a claim for intentional misrepresentation for a construction defect claim?

Analysis:  The recent Tennessee Court of Appeals decision of Brooke Buttrey v. Holloway's, Inc., No. M2011-01335-COA-R3-CV, 2012 WL 6451802 (Tenn. Ct. App. December 12, 2012) discussed the Tennessee tort of intentional misrepresentation in the context of a construction defect case.  In this case the trial court found there was ample evidence the home was not constructed in a workmanlike manner.  Buttrey at 5.  In fact the defendant did not even appeal this issue to the Tennessee Court of Appeals.  However, the defendant did appeal the trial court's ruling that the defendant was responsible for intentional misrepresentation under Tennessee law.

Under Tennessee law in order to establish a claim for fraudulent or intentional misrepresentation (these two torts have identical elements) the plaintiff must prove the following:

1) the defendant made a representation of an existing or past fact; 2) the representation was false when made; 3) the representation was in regard to a material fact; 4) the false representation was made either knowingly or without belief in its truth or recklessly; 5) the plaintiff reasonably relied on the misrepresented material fact; and 6) the plaintiff suffered damage as a result of the misrepresentation.

Buttrey at 5 (citing Walker v. Sunrise Pontiac – GMC Truck, 249 S.W.3d 301, 311 (Tenn. 2008)).  One of the alleged misrepresentations in this case was testified about by the plaintiff as follows:

Q: When you approached Mr. Holloway about building this home, did he make any representati...

Construction Defect – When can the Tennessee Consumer Protection Act be applied in a construction defect case?

Analysis:  The recent Tennessee Court of Appeals decision of Dan C. Ray v. Sadler Homes, Inc., No. M2011-01605-COA-R3-CV, 2012 WL 2150752 (Tenn. Ct. App. 2012) involved a construction defect case concerning the sale of a new home.  Soon after the plaintiffs purchased the home they started to experience hollow spots in the hardwood floors, leaking from the air conditioning, and uneven sagging flooring. Ray at 1.  After the defendant, Sadler Homes, Inc., was advised of the problems, Sadler Homes discovered that a load bearing beam was left off the construction plans and was not installed during construction.  Ray at 1.  Additionally, the home had been “stretched” from the construction plans “meaning the home was somewhat wider and longer and had more square footage than specified in the construction plans.”  Ray at 1.

After several repairs were conducted, the defendant refused to continue to conduct more repairs despite the fact the homeowner continued to experience more problems. Ray at 1. Sadler Homes’ representative testified that the plaintiff’s “were never going to be satisfied” which is one of the reasons he stopped making repairs. Ray at 2.  As a result, the case went to trial and the trial court found there was a breach of contract, breach of warranty and a knowing violation of the Tennessee Consumer Protect Act “based upon evidence that the house was built by an experienced contractor who stretched the house and left out a load bearing beam.”  Ray at 2.  The trial court found total damages of $90,000.00 based on diminution in value and also awarded additional attorney’s fee damages under the Tennessee Consumer Protection Act.

A prior blog post discussed when a diminution in value award is appropriate as damages in a construction defect case.  The second issue dealt with in this case was whether the trial court’s finding of a violation of the Tennessee Consumer Protection Act was appropriate.  The trial court used the “catch all provision” of the act found in T.C.A. § 47-18-104(b)(27) which makes it a violation of the act for “engaging in any other act or practice which is deceptive to the consumer or to any other person.”  Although the trial court record was not very clear, the appellate court noted it looked like the trial court found there was a deceptive act due to the omission of a load bearing beam and the fact the home was “stretched” from the original construction plans. 

The appellate court found that in order to recover damages under the Tennessee Consumer Protection Act a plaintif...

Construction Defect – When can diminution in value be used as damages in a construction defect case?

Brief Summary:  Diminution in value can be appropriate damages in a construction defect case under Tennessee Law depending on the facts of the case.  This is especially true when the defendant fails to introduce evidence showing the feasibility or cost of repairs to fix the defect in question.

Analysis:  The recent Tennessee Court of Appeals decision of Dan C. Ray v. Sadler Homes, Inc., No. M2011-01605-COA-R3-CV, 2012 WL 2150752 (Tenn. Ct. App. 2012) involved a construction defect case about the sale of a new home.  Soon after the plaintiffs purchased the home they started to have hollow spots in the hardwood floors, leaking from the air conditioning, and uneven sagging flooring. Ray at 1.  After the defendant, Sadler Homes, Inc., was advised of the problems, Sadler Homes discovered that a load bearing beam was left off the construction plans and was not installed during construction.  Ray at 1.  Additionally, the home had been “stretched” from the construction plans “meaning the home was somewhat wider and longer and had more square footage than specified in the construction plans.”  Ray at 1.

After several repairs were conducted, the defendants refused to continue to conduct more repairs despite the fact the homeowner continued to experience more problems. Ray at 1. Sadler Homes’ representative testified that the plaintiff’s “were never going to be satisfied” which is one of the reasons he stopped making repairs. Ray at 2.  As a result, the case went to trial and the trial court found there was a breach of contract, breach of warranty and a knowing violation of the Tennessee Consumer Protect Act “based upon evidence that the house was built by an experienced contractor who stretched the house and left out a load bearing beam.”  Ray at 2.  The trial court found total damages of $90,000.00 based on diminution in value and also awarded additional attorney’s fee damages under the Tennessee Consumer Protection Act.

Sadler Homes contended an award based on diminution in value was inappropriate in this case.  Sadler Homes requested that the court find instead that the appropriate damages should be the cost to repair.  The Tennessee Court of Appeals found the following: 

Construction Defect – Four year statute of repose from date of substantial completion

has a four year statute of repose for construction defect claims, with some exceptions.  A statute of repose bars a claim after a date certain and is different from a statute of limitations.  A statute of limitations generally bars a claim a certain amount of time after the cause of action accrues.  A statute of repose, however, generally bars a claim after a certain time period passes from an event other then the time the cause of action accrues. (See Wyatt v. A-Best Products Co., 924 S.W.2d 98, 102 (Tenn. Ct. App 1995) for a good discussion on the differences between the two).  The Tennessee Court of Appeals has stated that “because a statute of repose sets the triggering event as something other than accrual, it can have the effect of barring a plaintiff's claim before it accrues, most typically before the plaintiff becomes aware of his or her injury.”  Wyatt at 102. 

The statute of repose for construction defect claims is found in T.C.A. § 28-3-201 – T.C.A. § 28-3-205.  This statute has some nuances that need to be considered in all cases involving construction defects.  T.C.A. § 28-3-202 is the operative statute and provides as follows:

All actions to recover damages for any deficiency in the design, planning, supervision, observation of construction, or construction of an improvement to real property, for injury to property, real or personal, arising out of any such deficiency, or for injury to the person or for wrongful death arising out of any such deficiency, shall be brought against any person performing or furnishing the design, planning, supervision, observation of construction, construction of, or land surveying in connection with, such an improvement within four (4) years after substantial completion of such an improvement.

(emphasis added).  As a result, there is a four year statute of repose which prevents a lawsuit for construction defect claims (as defined in the statute) unless the cause of action is commenced within four years after substantial completion of the improvement.  

As a result, the definition of “substantial completion” is very important to determine when the four year time period begins to run. 

Construction Defect Case - Date of substantial completion for the statute of repose

A recent decision by the Tennessee Court of Appeals in The Counts Co. v. Praters, Inc., E2011-01624-COA-R3-CV, 392 S.W.3d 80 (filed June 22, 2012) discussed the Statute of Repose for construction defect cases.  This opinion can be found at http://www.tsc.state.tn.us/sites/default/files/countscoopn.pdf.  In this case, a contractor, Praters, Inc., installed hardwood flooring at the request of the plaintiff.  A certificate of occupancy was issued on May 15, 2006.  Praters Inc. completed this work and issued a warranty on May 28, 2006.  The hardwood flooring started to show warping soon after the flooring was installed  Approximately one year after the installation (in April or May of 2007) Praters, Inc. resurfaced the floor to try to correct the condition.  Praters, Inc. continued to provide additional advice about the flooring from 2007 through 2010.  This included the assertion by Praters, Inc. that the floor problem would correct itself once the moisture problem was resolved.  Apparently the problem did not resolve.

A lawsuit was not filed against Praters, Inc. until March 21, 2011, almost five years after the installation.  As a result, the issue before the Court was whether the four year Statute of Repose found T.C.A. § 28-3-202 barred this construction defect claim.  The Statute of Repose in T.C.A. § 28-3-202 provides:

All actions to recover damages for any deficiency in the design, planning, supervision, observation of construction, or construction of an improvement to real property, for injury to property, real or personal, arising out of any such deficiency, or for injury to the person or for wrongful death arising out of any such deficiency, shall be brought against any person performing or furnishing the design, planning, supervision, observation of construction, construction of, or land surveying in connection with, such an improvement within four (4) years after substantial completion of such an improvement.

(emphasis added).  The key dispute between the parties was when the four years, referred to in this statute, begins to run (i.e. the date of substantial completion).  The Appellate Court agreed with the trial court decision and decided the floor installation was “substantially complete” by, at the latest, May 28, 2006.  The fact resurfacing of the floor was completed approximately one year after the installation did not extend the Statute of Repose.  Further, the fact there were continued attempts to correct the floor for several years following the installation also did not extend the Statute of Repose.  The court found that the date of the discovery of the defect and the fact ongoing repairs occurred do not change the date of “substantial completion."

The term "substantial completion" is a defined...