Berkel & Co. Contractors v. Providence Hosp.
1984 Ala. LEXIS 4002, 454 So. 2d 496 (1984)
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Rule of Law:
A project owner who affirmatively directs a subcontractor's work owes a duty of reasonable care to that subcontractor to avoid causing economic harm, even without a direct contract. However, an owner can contractually disclaim liability for information it furnishes, such as a soils report, and has no duty to disclose unrelated problems from prior projects.
Facts:
- Providence Hospital issued an invitation for bids for a hospital addition, providing bidders with plans and a soils report prepared by an engineering firm.
- Greenhut Construction Company was the general contractor and subcontracted with Berkel and Company Contractors, Inc. to install 304 cast-in-place foundation piles.
- The contract specifications required a certain type of grout mix for the piles, subject to the architect's approval.
- Berkel's initial test piles, installed with 'Underwood grout' per the specifications, failed load tests in June 1980.
- Providence's architect verbally instructed Berkel, through Greenhut, to proceed with installing 97-ton production piles using the Underwood grout, despite the test failures and ongoing uncertainty about the cause.
- After Berkel installed 87 production piles, another test pile failed, and the architect ordered work to stop.
- Berkel was ultimately required to use a different grout mix ('Radcliff grout') and either replace or load test the 87 previously installed piles, incurring significant extra costs.
- Berkel later discovered that a different subcontractor had experienced pile failures on a nearby Providence project in 1968, a fact Providence had not disclosed, though the cause of the 1968 failures was different from the 1980 failures.
Procedural Posture:
- Berkel submitted a claim for additional compensation to Providence Hospital, which was denied.
- Berkel filed a four-count complaint against Providence in the circuit court (trial court), alleging negligence, misrepresentation, and suppression of material fact.
- Providence moved for summary judgment on all counts.
- The circuit court granted summary judgment in favor of Providence on all four counts.
- Berkel, as appellant, appealed the summary judgment order to the Supreme Court of Alabama, the state's highest court; Providence is the appellee.
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Issue:
In the absence of a direct contract, does a project owner owe a duty of care to a subcontractor to prevent economic loss when the owner affirmatively directs the subcontractor's work, provides a soils report with a disclaimer of liability, and fails to disclose problems from a previous construction project?
Opinions:
Majority - Torbert, Chief Justice
The answer is mixed. Yes, a duty is owed regarding the affirmative direction of work, but no duty exists regarding the provided information with a disclaimer or the non-disclosure of past issues. 1. A project owner owes a duty of care to a subcontractor, despite the lack of contractual privity, when it affirmatively directs the subcontractor's work. Alabama law does not require privity for negligence actions where harm to a third party is foreseeable. Applying a six-factor test for duty in construction contexts, the court found Providence's control over Berkel's work created a relationship that imposed a duty to act reasonably. Because facts were in dispute as to whether the architect's direction to proceed was negligent, summary judgment on this count was improper. 2. An owner is shielded from liability for a faulty soils report if it includes a clear and unequivocal disclaimer. Providence's bid documents stated it made no warranty as to the report's adequacy and required bidders to obtain their own information. Citing Alabama's strong policy of freedom of contract, the court held that such disclaimers are legally effective for commercial parties to allocate risk, even if they seem economically inefficient. 3. An owner has no duty to disclose problems from a prior, unrelated project in an arm's-length transaction. A duty to disclose under the 'particular circumstances' test requires more than just one party having superior knowledge. Here, the parties were sophisticated entities, and the prior 1968 problems were factually distinct from the 1980 failures, meaning the undisclosed information did not cause Berkel's pecuniary loss.
Analysis:
This case clarifies the boundaries of tort and contract law in multi-party construction disputes in Alabama. It affirms the modern trend of eliminating the privity requirement for negligence claims involving economic loss, holding that a duty of care arises from affirmative control and foreseeable harm. However, the decision strongly upholds the power of contract, allowing sophisticated commercial parties to allocate risk through explicit disclaimers. The ruling establishes that while an owner's negligent actions can create liability to a subcontractor, the owner can effectively shield itself from liability for information it provides and has a very limited duty to volunteer historical project information.
