Appellate Court Opens Door To Substantially Increased Exposure For Subcontractors
LGC Staff
Fri June 24, 2016
3:56 AM UTC

Long-time LGC client E.F. Brady Company, Inc. was a family-owned drywall subcontractor that had been in business for many years.  In the early 1970s, E. F. Brady Company participated in the construction of several commercial buildings in Irvine, California.  E. F. Brady Company purchased and installed drywall and joint compound that allegedly contained asbestos.  E. F. Brady Company did not manufacture or supply the products.  Rather, E. F. Brady Company purchased them from the manufacturers or from supply houses.  The products installed were not labeled as containing asbestos, and E. F. Brady Company did not test the products for asbestos because, at that time, the dangers associated with asbestos were not known in the construction industry.

Joel Hernandezcueva subsequently worked as a janitor in the subject buildings, in the late 1980s and early 1990s.  At that time, renovations were being conducted involving the original interior walls.  Mr. Hernandezcueva's janitorial duties included cleaning up the debris, some of which contained pieces of the 20-year-old drywall.  He was diagnosed with mesothelioma in 2011 and filed suit against numerous entities, including E. F. Brady Company.

In 2013, the case went to trial.  At the conclusion of the Plaintiffs’ case in chief, E. F. Brady Company moved for nonsuit with regard to the strict liability cause of action, and the trial court granted the motion.  At the conclusion of the trial, the jury awarded E. F. Brady Company a defense verdict on the remaining negligence cause of action.  Plaintiffs appealed the granting of the nonsuit.

In Hernandezcueva v. E.F. Brady Company, the California Court of Appeal, Second Appellate District, Division Four, reversed the trial court grant of nonsuit, holding that the question of whether strict liability applies should have been presented to the jury, and that the trial court had erred by granting E. F. Brady Company’s motion for nonsuit.  In their discussion, the Court of Appeals stated that the facts in the case could support a finding that E. F. Brady Company was in the “stream of commerce” and might, therefore, be strictly liable for Mr. Hernandezcueva’s injuries.

It has been long held that a construction subcontractor that supplies and installs materials is not strictly liable if those materials prove to be defective.  A long line of cases had generally held that service providers are not sellers of the products they use or install.  For instance, in Monte Vista Development Corp. v. Superior Court (1991) 226 Cal.App.3d 1681, the Court of Appeal held that a tile subcontractor was not strictly liable for supplying and installing a defective soap dish purchased from another party that subsequently broke and cut a person’s hand.  The court found that a contractor involved in the installation of a component part is typically considered to be providing a “service.”

In Hernandezcueva, however, the Court of Appeal found it relevant to its stream of commerce analysis that E. F. Brady “always” provided the materials it installed on projects (as most subcontractors do).   On the project in question, there was evidence that E. F. Brady Company's installers had a problem with the application of a drywall compound being used.  E. F. Brady Company notified the manufacturer and supplier of the compound.  Both the supplier and the manufacturer sent representatives to the project to investigate the performance problem.  The Appellate Court held that E. F. Brady Company’s ability to “summon” the manufacturer and supplier to investigate the problem, along with the fact that E. F. Brady Company estimated that 25% of its bid was for material, supported the imposition of strict liability.  Based on those factors, the Appellate Court held that the question of whether E. F. Brady Company was in the stream of commerce should have been decided by the jury.

In reaching its decision, the Court also distinguished La Jolla Village Homeowners Association v. Superior Court (1989) 212 Cal App 3d 1131, which held a subcontractor is not subject to strict liability when it provides products that comply with the architect’s plans and specifications.  The court found La Jolla Village to not be consistent with existing law, "which predicates the imposition of strict liability on a party's 'participatory connection' -- rather than its 'precise legal relationship' -- to the stream of commerce."  The Court went on to state, "[Strict liability] dictates a fact-sensitive inquiry into the party’s activities relating to the defective product.”  This "fact-sensitive" standard may effectively eliminate the possibility of a subcontractor prevailing on a Motion for Summary Adjudication in the future, and claims for the imposition of strict liability will now nearly always be a question for the jury.

Unfortunately, on March 9, 2016, the California Supreme Court denied E. F. Brady Company’s petition for review.

What does this new holding mean?  First, in any bodily injury case or construction defect case in which it is alleged that a product is defective, the subcontractor installing that product will arguably be subject to strict liability.  In the past, the primary defense for subcontractors was that the subcontractor followed the plans and specifications and simply installed the product in question.  It is astonishing to now consider the increased exposure for subcontractors that installed the myriad of construction products that have been alleged to be defective in manufacture or design (Polybutylene pipe, ABS pipe, roof shingles, hardboard siding, EIFS, and Chinese drywall, to name a few).

Second, strict liability, which previously only applied to mass-produced residential housing (pre SB-800 in California), can logically be applied in the commercial construction context.  For instance, strict liability may now be viable against a subcontractor that installed defective drywall or EIFS on a commercial high-rise project.

The bottom line is the Hernandezcueva decision is not limited to asbestos exposure.  It is fully expected that we will see a huge increase in liability exposure, and commensurate sizable increase in insurance premiums, for subcontractors in California.

For more information about the case and its impact, contact Ted Cercos.

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