Utah Supreme Court considers non-contractual liability of contractors for damages resulting from defective work.

Interwest Construction v. A.H. Palmer & Sons,
292 Utah Adv. Rep. 27, 1996 Utah LEXIS 44 (Utah June 14, 1996)

The Supreme Court of Utah held that the intermediate court of appeals erred in holding that a tort action for negligence and strict liability arising out of a breach of contractually defined obligations was precluded. However, the Supreme Court of Utah also held that the tort claims should be dismissed because the claimant failed to prove causation between the alleged defect and the resultant injury.

In the fall of 1988, Thiokol Corporation (“Thiokol”) contracted Interwest Construction (“Interwest”) to build a wastewater treatment facility for Thiokol. In turn, Interwest subcontracted with A.H. Palmer & Sons (“Palmer”) to supply the labor and materials and Palmer, in turn, contracted with Fiberglass Structures and Tank Company (“Fiberglass”) for the purchase of three fiberglass wastewater storage tanks for the facility. Palmer’s purchase order required Fiberglass to follow Thiokol’s plans and specifications, unless prior approval was obtained from Thiokol.

Thiokol’s plans and specifications designated the three tanks as T32, T33 and T34, and required the tanks to be constructed in accordance with “applicable requirements” of NBS/PS 15-69, the national standard governing the construction of fiberglass tanks. Through a gravity feed system, four smaller tanks would feed T32-T34 and because of the discrepancy in tank size, T32-T34 would remain less than 2/3 full at maximum.

On April 30, 1989, the three tanks had been constructed from prefabricated fiberglass panels. However, during a trial test, T34 burst along a vertical seam connecting two of the panels. Nevertheless, Thiokol inspected the facility on May 2, 1989, and issued a certificate of substantial completion. That same day, Palmer issued Thiokol a one-year warranty on all then-installed work. Following some repairs recommended by an independent consulting engineer retained by Thiokol, the facility commenced operations in June of 1989. Later that month, on its own initiative, Thiokol changed the tanks’ filling system from gravity feed to an overhead, high-pressure pump feed.

On August 24, 1989, T33 ruptured, spiling its wastewater contents. The trial court found that the overhead feed had allowed the tank to be overfilled. After significant procedural maneuvering, Thiokol counterclaimed against Interwest, Palmer and Fiberglass for breach of contract, breach of express and implied warranties, negligence and strict liability.

After a two-week trial, and relying upon Beck v. Farmers Insurance Exchange, 701 P.2d 795 (Utah 1985), the trial court held that it would not address Thiokol’s tort claims because the case was “entirely controlled by contract.” The intermediate court of appeals affirmed the decision, finding that Thiokol’s contract calling for a product “free from defects” supplanted any independent tort duties the suppliers might have had to deliver nondefective products or services.

Upon appeal, the Supreme Court held that Beck does not compel such a result. In particular, the Court limited its holding in Beck to a first-party relationship between an insurer and its insured. Although Beck acknowledged that such a limitation could extend beyond the insurer/insured relationship, each category of relationship must be analyzed to determine, as a matter of law and policy, whether in that setting a party to a contract owes any tort-type duties to the other beyond the duties spelled out in the contract. After a thorough analysis, the Court concluded that the “free from defects” contractual provision cited by the court of appeals is insufficient as a matter of law to exempt Thiokol’s suppliers from strict tort or negligence liability.

In addressing the merits of the tort claims, however, the Supreme Court reached the same result and dismissed the negligence and strict liability actions. After setting out the applicable standards, the Court noted that to successfully prosecute such tort claims, the complaining party must prove that another party’s breach of duty proximately caused the first party’s injury. Here, Thiokol was unable to prove that any defect in the design or manufacture of T33 proximately caused the August 24, 1989 failure.

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