Mesothelioma Litigation Has a New Face in California: Court Holds that Contractors Can Face Strict Liability for Injuries Decades After Completing Construction
A recent court of appeal decision drastically expanded contractors’ potential exposure to strict liability claims on California construction projects. In Hernandezcueva v. E.F. Brady Co., Inc., 243 Cal.App.4th 249 (2015), as modified (Jan. 15, 2016), review denied (Mar. 9, 2016), the plaintiff was a janitor at a building where a drywall subcontractor installed materials containing asbestos during the 1970s. Decades later, the plaintiff was diagnosed with mesothelioma and filed a products liability lawsuit against the subcontractor. The court found that, even though the subcontractor did not manufacture products containing asbestos, it financially benefited from supplying and installing those products, and that the subcontractor could be strictly liable for the plaintiff’s damages under this “stream-of-commerce” theory. On March 9, 2016, the California Supreme Court declined the subcontractor’s petition for review and allowed the appellate court’s decision to stand as binding law in California. This article analyzes the court’s decision and discusses steps that contractors can take to mitigate their potential liability in connection with strict liability lawsuits arising from long-since-completed projects.
During the 1970s, E.F. Brady Company, Inc. (Subcontractor) was a drywall subcontractor that installed drywall, plaster, and fireproofing materials. In the early 1970s, Subcontractor learned that asbestos in materials that it installed was potentially hazardous, but never tested its materials for asbestos. In 1974, Subcontractor entered into a $2,024,272 fireproofing, framing, and drywall subcontract (Subcontract) with C.L. Peck, the prime contractor on a construction project for the Fluor Corporation (the Project). The Subcontract required that Subcontractor furnish and install the drywall and related materials designated in the Project’s plans and specifications. The specifications called for asbestos-free fireproofing and insulation, but did not designate asbestos-free drywall material and joint compound (also called “taping mud”). Subcontractor bought and installed drywall and taping mud from a material supplier who delivered the materials to the Project, but those materials did not contain asbestos warnings. Subcontractor completed its portion of the Project.
Plaintiff Joel Hernandezcueva worked as a janitor on the Project during the early 1990s. During that time, the Project was under renovation and Plaintiff cleaned up drywall debris and rubbish from the areas where Subcontractor had previously worked. Subcontractor was not involved in the renovation. In 2011, Plaintiff was diagnosed with mesothelioma, which he claimed resulted from his exposure to products containing asbestos on the Project. Plaintiff and his wife filed suit against Subcontractor, numerous manufacturers, suppliers, and distributors of asbestos-laden products for negligence, strict liability, misrepresentation, intentional failure to warn, premises owner and contractor liability, and loss of consortium. By the time of trial, only Subcontractors and two material suppliers remained as defendants.
At trial, Plaintiff’s experts testified that Subcontractor installed products containing asbestos, which, in turn, caused Plaintiff’s mesothelioma. After Plaintiff put on his case, the trial court granted Subcontractor’s motion for partial nonsuit on his claims for strict liability, misrepresentation, and intentional failure to warn. The jury found that Subcontractor was not negligent even though Plaintiff was exposed to asbestos through the materials that Subcontractor installed. Plaintiff appealed (plaintiff died during the appeals process, so his wife prosecuted his appeal and shall also be referred to as Plaintiff). On appeal, Plaintiff argued that Subcontractor was strictly liable for Plaintiff’s asbestos-related injuries. The court of appeal reversed, concluding the trial court erred in granting nonsuit on Plaintiff’s strict liability claim.
In California, manufacturers of defective products — and those who place those products in the stream of commerce — are subject to strict liability for injuries to consumers arising from those products. Those who place products into commerce can be held liable for passing the product down to consumers because they are “able to bear the cost of compensating for injuries,” and “play[ed] a substantial part in insuring that the product [was] safe or ... [were] in a position to exert pressure on the manufacturer to that end.” Bay Summit Community Assn. v. Shell Oil Co., 51 Cal.App.4th 762, 772–773 (1996) (citations and punctuation omitted). However, “a defendant will not be held strictly liable unless doing so will enhance product safety, maximize protection to the injured plaintiff, and apportion costs among the defendants.” Arriaga v. CitiCapital Commercial Corp., 167 Cal.App.4th 1527, 1537 (2008). The doctrine of strict liability normally does not apply to transactions in which the “service aspect predominates and any product sale is merely incidental to the provision of the service.” Pierson v. Sharp Memorial Hospital, Inc., 216 Cal.App.3d 340, 344 (1989).
The court of appeal found that Subcontractor reaped a considerable benefit from supplying drywall and plastering products because the Subcontractor supplied approximately $500,000 in materials and made profit by installing that material. The court also found that Subcontractor was capable of bearing the costs of compensating for injuries due to the products because it specialized in heavy commercial projects, made sizeable purchases of the defective products, and always arranged to pass on its material costs through to the ultimate user. The court concluded that Subcontractor’s relationship with product manufacturers placed Subcontractor in a position to exert pressure on those manufacturers to improve product safety. The court distinguished Monte Vista Development Corp. v. Superior Court, 226 Cal.App.3d 1681(1991), which declined to impose strict liability on a tiling subcontractor that supplied and installed a defective soap dish that injured someone. In Monte Vista, there was no evidence that the subcontractor was a “seller” of the soap dish, and it did not matter to the tiling subcontractor “whether [the developer] or someone else supplied the tile fixtures. [The tiling firm’s] job was to do the tile work.” Id. at 1687. Unlike Monte Vista, the evidence showed that Subcontractor could not win contracts unless it supplied material. Thus, because Subcontractor financially benefited from installing products containing asbestos, it could be liable for Plaintiff’s injuries under a “stream-of-commerce” theory, and the court remanded the case for a trial on the Plaintiff’s strict liability claim against Subcontractor.
Hernandezcueva places contractors in a difficult position because they can face potentially massive liability for work that they completed several decades ago. It remains to be seen whether Hernandezcueva will create a new wave of strict liability litigation against contractors. However, in light of Hernandezcueva, contractors can take steps to try and reduce their potential liability on future projects by examining material safety and data sheets for the products that they furnish, testing their products, and requiring that their suppliers guarantee safe products. Contractors should always include an indemnity clause in their contracts with downstream subcontractors, material suppliers, and vendors. A proper indemnity clause would, among other things, provide that the downstream entities will hold contractors harmless from liability arising from the products that they supply. Another way for contractors to try and minimize liability is to perform installation-only contracts, although as a matter of commercial reality, installation-only contracts are not an option for the great majority of contractors. In light of Hernandezcueva, contractors should also review and update their insurance policies to minimize the risk of strict liability lawsuits arising from construction projects. For projects that have already been completed, contractors should keep their historical insurance policies and job files accessible, which may be useful in the event they are faced with a products liability lawsuit.
========================================================Subcontractor Liable for Using Asbestos-Laden Materials
A janitor at a large commercial complex developed mesothelioma cancer from his alleged exposure to asbestos-laden products that were used by a drywall subcontractor at the facility 30 years earlier. He filed suit against several parties, including the subcontractor.
The complaint against the subcontractor included a strict liability count that was dismissed on summary judgment by the trial court. This was reversed on appeal, with the court stating that the subcontractor was within the "stream-of-commerce" and was responsible for having placed the product where the janitor would be exposed to it. Hernandezcueva v. E.F. Brady Co., Inc., 243 Cal. App. 4th 249, 196 Cal. Rptr. 3d 594 (2015).
Stream-of-Commerce Rule
In California, even though they are not necessarily involved in the manufacture or design of the final product, parties may be subject to strict liability for "passing the product down the line to the consumer" because they "were able to bear the cost of compensating for injuries." This is called the "stream-of-commerce" approach to strict liability. Under this approach, no precise legal relationship to the member of the enterprise causing the defect to be manufactured or to the member most closely connected with the customer is required before courts will impose strict liability.
In the appeal, the court explained that its inquiry concerned the propriety of imposing strict liability on a subcontractor that bought and installed defective products in fulfilling its contract. The subcontractor's bid for the work included buying and installing the materials necessary for the job. His selection of the particular brand of joint compound was agreed upon by the architect.
The court said the following.
In view of the evidence concerning [the subcontractor's] practices in submitting bids, a jury could reasonably find that [it] was more than an "occasional seller" of drywall and joint compounds whose provision of those products was merely incidental to its services.
Court Rejected Subcontractor as "End User," Not "Seller"
The subcontractor argued that instead of being the manufacturer or seller of a defective product, it was actually the "end user" of the product in question. It asserted that this was evidenced by the fact that it paid sales tax in buying the product from the supply house for use on the project.
The court rejected that argument. It explained that "the imposition of strict liability hinges on a party's 'participatory connection' to the stream of commerce regarding the defective product, rather than the party's 'precise legal relationship' to members of that stream."
Public Policy Considerations Afford No Protection
The American Subcontractor's Association filed an amicus brief supporting the subcontractor in this appeal, in which it argued that considerations of public policy dictate that subcontractors involved in construction projects should not be subject to strict liability when they provide products complying with the architect's specifications. The court rejected that broad argument as being "inconsistent 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 also rejected a legal argument that considerations of public policy preclude the imposition of strict liability in this case due to there being an alternative source of compensation potentially available to the janitor—namely, the asbestos bankruptcy trust system that was created pursuant to federal bankruptcy law. That system apparently includes trusts established by approximately 100 companies to compensate worker claims due to exposure to asbestos.
That contention failed in this case, said the court, because no evidence was presented to show that the individual here had received compensation from any bankruptcy trust.
Conclusion
In summing up, the court held that the trial court erred in dismissing the janitor's claim for strict product liability for the reasons explained herein. It is important to note that the construction work that was involved here took place decades before the janitor was diagnosed with cancer and filed suit against the subcontractor. There was no discussion in the case of whether the suit might have been time-barred by a statute of limitations or statute of repose. Applying the "discovery rule," the statute of limitations would not come into play until after the janitor discovered the asbestos in the drywall joint compound had allegedly caused his injury.
There was also no discussion of what insurance, if any, might have responded to the claim. This case provides a good lesson, however, in the importance of having an insurance policy that will cover damages arising out of asbestos and, if it is a claims-made policy, having a retroactive date going back far enough in time to pick up claims arising out of work performed long ago.