When a construction worker is killed or injured on a project, the remedy typically involves workers’ compensation or liability insurance. So, how could it result in a breach of contract claim? The answer lies in the facts of a recent noteworthy Georgia case. Estate of Mack Pitts v. City of Atlanta, et al, 323 Ga. App. 70, 746 S.E.2d 698 (2013).
The case involved construction of a new international terminal at the Atlanta airport. A worker was killed when struck by a vehicle driven by the employee of a sub-subcontractor trucking company. The worker’s estate obtained a wrongful death judgment against the company and driver, which exceeded the limits of the company’s automobile liability insurance coverage.
The estate then brought a separate action against the City of Atlanta, the joint venture general contractor, and the joint venture subcontractor that had contracted with the trucking company on the project. The estate alleged that the defendants breached a contractual duty to require that the trucking company (and other subcontractors of all tiers) carry a minimum of $10 million in auto liability insurance on the project. Such insurance would have been sufficient to satisfy the estate’s wrongful death judgment against the trucking company.
The trial court granted summary judgment to the defendants on the ground that the worker was not an intended third-party beneficiary of the contracts containing the minimum insurance requirement. On appeal, the Georgia Court of Appeals affirmed summary judgment for the City, but reversed the grant of summary judgment to the construction company defendants. Estate of Mack Pitts v. City of Atlanta, et al, 312 Ga. App. 599, 719 S.E.2d 7 (2011). The Georgia Supreme Court subsequently vacated the Court of Appeals’ decision and remanded the case for further consideration on certain issues. Archer Western Contractors, Ltd., et al v. Estate of Mack Pitts, 292 Ga. 219, 735 S.E.2d 772 (2012). On remand, the Court of Appeals stuck to its guns. Estate of Mack Pitts v. City of Atlanta, et al, 323 Ga. App. 70, 746 S.E.2d 698 (2013).
As to the construction companies, the Court of Appeals resolved the apparent ambiguity in the contract language and again found that the worker was an intended third-party beneficiary of the contractual obligation to obtain minimum automobile liability insurance coverage by all tiers of subcontractors. The Court also concluded again that the claim was not barred by the exclusive remedy provisions of the Georgia Workers’ Compensation Act.
The case has generated surprise and concern for several reasons. First, the remedy under workers’ compensation laws is typically a worker’s sole and exclusive remedy against his employer and other “statutory employers”. This worker’s employer was the defendant subcontractor that contracted with the trucking company, and the defendant general contractor would be a “statutory employer”. In this case, however, the worker’s estate has a contractual cause of action against those very entities.
Second, the claim is unlikely to be covered by insurance since it is based on breach of contract. In addition, holding a general contractor liable for ensuring that all tiers of subcontractors maintain proper limits of insurance can be an unforeseen burden. A lower tier subcontractor’s insurance may lapse or be cancelled during a project, and certificates of insurance are “for informational purposes only” under Georgia law and therefore not reliable proof of insurance.
Finally, this decision puts parties on notice of potentially unforeseen liability to third-party beneficiaries. The subcontract in this case included a provision titled “No Third Party Beneficiaries”. However, it was found not to apply to the subcontractor’s employee.
The case is not over and could generate further surprising developments. For example, construction contracts typically include indemnification obligations from the lower to the higher tier contractor. Thus, depending on the contract language, the parties may try to pass the obligation to the worker’s estate back down to the sub-subcontractor trucking company. Stay tuned.