A recent California appellate decision has expanded the doctrine of strict products liability to construction subcontractors that buy and install defective products in fulfilling their contracts.   Hernandezcueva v. E.F. Brady Co. (Case No. B251933, Dec. 22, 2015). The court held that a subcontractor may be strictly liable when it engages in the sale of a defective product that is more than "incidental" to the contractor's provision of services.

During the 1970's, defendant E.F. Brady had up to 1000 employees working on multiple large construction contracts, including one to install drywall and fireproofing in a facility owned by Fluor Corporation in Irvine, CA. Plaintiff Joel Hernandezcueva worked as a janitor at Fluor in the early 1990's. His duties included "cleaning up drywall debris and other rubbish from areas where E. F. Brady had installed the original drywall and fireproofing." Mr. Hernandezcueva was diagnosed with mesothelioma in 2011, after which he and his wife sued numerous defendants under multiple theories, including strict liability and negligence. He alleged that his mesothelioma was caused, at least in part, by inhaling asbestos-containing dust originating from the drywall and fireproofing materials installed by E.F. Brady.

At the close of Plaintiffs' case in chief, E. F. Brady moved for partial nonsuit on the strict liability claims, relying primarily on the court's frequently cited decision in Monte Vista Development Corp. v. Sup. Ct., 226 Cal. App. 3d 1681 (1991) (holding that a tiling subcontractor was not strictly liable for a defective soap dish it installed). The trial court dismissed the strict liability claim. The jury entered a special verdict finding that "although [Mr.] Hernandezcueva had been exposed to asbestos from a product installed by E. F. Brady, the company was not negligent regarding that exposure." Plaintiffs appealed.

The appellate court held that whether strict liability for harm caused by defective materials should be imposed on a contractor that both supplies and installs a defective product is a fact intensive inquiry that hinges on the circumstances of the contractor's transaction with its customer. Specifically, strict liability will not be imposed if the primary objective of the transaction is obtaining services and any product sale is merely incidental to the provision of that service. Otherwise, a contractor may be held liable because it is "responsible for placing products in the stream of commerce."

The court reversed the nonsuit initially finding that E.F. Brady was a seller of drywall products because its bids, including its bid for the Fluor project, always encompassed both labor and materials necessary for a project.

The court further found that the imposition of strict liability was, in light of policy considerations, appropriate because E.F. Brady's role in the stream of commerce relating to the products was significant. E.F. Brady obtained a substantial benefit from supplying the products as this was essential to its obtaining subcontracting work. E.F. Brady's contract was also structured to recoup the costs of the materials, even if it did not ensure itself a profit with respect to the materials, while providing for payment for the installation services. However, the material costs passed on to its customers was significant, ordinarily encompassing 25 percent of the amount of the bid.

In addition, although E.F. Brady had no dealership contract with the manufacturers of the drywall materials it purchased, it used their products when necessary to fulfill its contracts. The court noted that this "ongoing relationship" was sufficient to command the personal attention of the manufacturer's representatives to E.F. Brady's concerns regarding the products. Specifically, when one of the products proved ineffective during the Fluor project, the manufacturer's representatives went to the jobsite to address the problem.

Under these circumstances, E.F. Brady was capable of bearing the costs of compensating for injuries due to the products as it was a subcontractor specializing in heavy commercial projects, made sizeable purchases of the defective products and always arranged to pass its material costs through to the ultimate user. Moreover, due to its ongoing relationship with the product manufacturer, it was in a position to exert pressure on the manufacturer to improve product safety.

The court declined to follow Monte Vista finding that the facts in that case were distinguishable. In the court's view, the tiling contractor in Monte Vista was not a seller of the soap dishes it installed because it bought generic soap dishes in bulk, as well as other material from a supplier to complete the project, did not separate out charges for material or fixtures to the developer and on that basis "it did not matter to the subcontractor who provided the product they installed."

In sum, this is a troubling case for contractors who, for the first time, may be held strictly liable for products they install on a job. The decision potentially requires contractors to become significantly involved in analyzing the products they purchase for potential defects. Practically speaking, the court's decision puts the onus on contractors to consider the following options when bidding on a job: a) do not provide a quote for materials, b) require the owner or general contractor to obtain materials directly from suppliers, c) obtain indemnity from, or become an additional insured to, the product supplier.

Dicta that appear at the end of opinion regarding the bankruptcy trust system may also prove problematic. An amicus brief argued that the asbestos trust system provides an alternate source of compensation to the plaintiffs. That argument failed, in the court's opinion, under the collateral source rule which bars a defendant from shielding itself from liability for injuries by identifying a source of compensation for the plaintiff that is wholly independent of the defendant. These payments, however, are akin to settlement payments made by a co-defendant and should be used as an offset.