Contract sloppiness costs $2.24 million

Most contractors think of lawyers as total alarmists, trying to scare their clients with tales of dire consequences from not using exactly the right words in the right order. As sad as it is for the contractor who ends up with the fuzzy end of the lollipop (as Marilyn Monroe put it), I at least found a good example of what we are trying to tell you in a recent Massachusetts decision. Well, sued they

Most contractors think of lawyers as total alarmists, trying to scare their clients with tales of dire consequences from not using exactly the right words in the right order. As sad as it is for the contractor who ends up with the fuzzy end of the lollipop (as Marilyn Monroe put it), I at least found a good example of what we are trying to tell you in a recent Massachusetts decision.

Well, sued they both were by an employee of another sub who was injured two days before the subcontract’s ‘effective date.’

Suffolk Construction Co. v. Lanco Scaffolding Co. Inc., 716 N.E. 2d 130 (Mass. App. 1999) involved a very, very common set of facts. Suffolk was a general contractor, which hired Lanco as a sub. Lanco started its work on or before May 7. Several weeks later, it got a subcontract from Suffolk dated May 24 and signed it. The contract contained a fairly typical indemnification clause, which required Lanco to defend Suffolk if Suffolk got sued for something even if the plaintiff filing the suit accused both Suffolk and Lanco of doing something wrong.

Well, sued they both were by an employee of another sub who was injured while working on Lanco’s scaffolding on May 22, two days before the subcontract’s “effective date.”

The jury in fact found that Lanco was 100% responsible, but also found that Suffolk was liable as the general contractor. It awarded plaintiff $2.24 million against Suffolk but nothing against Lanco, because it settled before trial (for $525,000).

Suffolk tried to argue that Lanco should have to pay the whole $2.24 million judgment because of the indemnity agreement. It argued that the fact that the subcontract was dated two days after the accident was just sloppiness and that both parties knew that the contract was to cover anything that happened while Lanco was on the job. The trial judge agreed and ruled that the entire judgment was just passed through from Suffolk to Lanco (although Lanco got credit for the $525,000 it already paid).

The Court of Appeals did not agree that Lanco had ever agreed to indemnify Suffolk for this injury. It said that nothing was ambiguous about the date May 24 as the effective date of the subcontract, and the court was not willing to look beyond the written words of the contract. Suffolk was stuck paying $2.24 million to the injured worker (although it apparently got some money from the employer of the worker).

In most states, Suffolk could still sue Lanco for indemnification even without a signed contract, since the jury found that this was 100% Lanco’s fault. (If the jury had found partial fault on the part of both Lanco and Suffolk, Suffolk would have had to bear its share of the verdict because the contract’s indemnity clause, which would have made Lanco responsible for all joint liabilities, was not yet in effect.)

Thus, even though Suffolk was blameless and had a contract written to fully protect it, it ended up without the benefit of that contract — all because somebody was sloppy.