The Infrastructure Act: Beneath the Surface

After the passage of the Infrastructure Investment and Jobs Act, municipalities are repairing and upgrading their aging infrastructure. This has led to an increase in the number of damaged underground utility claims in construction involving roadways, water/sewer/storm drains, and landscaping.

Though simple on the surface, handling these claims is often a quagmire. For example, a utility strike can involve a contractor, its subcontractors, the property owner, design engineers, construction managers, and even the utility owner itself. And that is before considering each party’s differing insurance coverages, indemnity obligations to one another, and additional insured statuses.

Effective claims handling requires claims professionals and attorneys who know the right questions to ask. With a plan of action, claims adjusters and attorneys can reduce or eliminate liability to the utility owner.

Understanding the Problem

Let’s say a project owner has a project involving underground excavations. These projects are usually water/sewer/storm drain construction, electrical conduit construction, or roadway repair. During the project, one of the contractors working the site strikes and damages an underground utility. The most common strikes involve electrical, gas, or fiber optic lines. The utility owner sues the project owner and contractor. Eventually, more parties are roped in. Indeed, these lawsuits usually include many parties with different insurance coverages and indemnity obligations to one another.

The lawsuits allege negligence or trespass. Some states, like California, have laws that allow for damage multipliers if the damage was caused by willful and malicious conduct. Thus, a damage multiplier commonly finds its way into the initial lawsuit.

Before going much further, it is useful to discuss the types of parties claims adjusters and attorneys will see in these claims, and the theories of liability against each.

Project owner—Most of the time, the project owner is a municipality. Unless the owner damaged the line itself, the normal theories of liability against it are vicarious liability for the prime contractor, a negligence or trespass claim, or inverse condemnation.

Contractor/subcontractor—The contractors are the ones doing the work. Theories of liability will be negligence and trespass. Also, the project owner usually makes an additional insured tender and contractual indemnity claim to the contractor(s). On occasion, the project owner may sue the prime contractor for indemnity and/or breach of contract.

Construction manager—The construction managers almost never hit the utility themselves, so the utility owner rarely sues them directly. Instead, the project owner will bring them in under a professional negligence theory. The project owner may also assert a contractual indemnity claim, but because it will be a professional liability policy, do not expect an additional insured tender.

Design engineer—Design engineers are becoming targets in recent claims, although it is not usually the utility owner that sues them. Instead, a project owner or prime contractor will assert a negligence or indemnity theory. In a design-build job, however, the prime contractor will have privity of contract and can use that to sue the design engineer too.

The combinations of which parties can sue can complicate these claims. Indeed, many claims involve six parties with seven or eight insurance carriers involved—some of which may be defending both a primary and additional insured.

Claim Investigation Approach

Given the claim’s complexity, claims professionals and attorneys should have a workable approach to start with. What we offer is a handful of steps to take, and facts to consider and investigate, when making settlement and litigation decisions. Critical to this analysis is that the claims adjuster and attorney must get their hands dirty. They need to interview the people that struck the utility early instead of just talking to their managers.

Was the utility known or unknown when struck? Investigations often overlook whether the struck utility was known or unknown. These claims are not strict liability, no matter how much the utility owner wants you to think they are. Investigate if the person who hit the utility knew it was there. There is a good chance they did not because people do not expose themselves to live electricity or gas explosions deliberately. Moreover, the utility owner may not have known this line existed because it was old and built by a previous utility owner.

A helpful strategy is to ask the utility owner for all as-built plans showing the existence of the line. If they do not have any, and the line was unknown by those who hit it, that is an excellent defense against the utility owner.

If the utility was unknown, was it knowable? What if the utility owner provides as-builts after the fact showing the utility? First, verify if those as-builts are correct. If they do not match the field conditions, they are irrelevant except to show that nobody knew where the utility line was—again, a great defense. Also, it is important to verify who had access to the as-builts and if anyone had ever requested them.

If the utility was known, was it located where it should be? The next issue is if the utility was known, but not located where it should be. Perhaps a third party mark out company spray painted the wrong location, or maybe the as-builts were off as to the utility’s depth or lateral location. Put differently, was the utility somewhere unexpected? That sets up a good defense.

Defense Approaches

Negligence and trespass to chattels claims will involve some variation of standard of care, breach, and proximate cause analysis. No matter who your client is, the investigation above centers on determining what the standard of care is and if/how it was breached. Then the investigation moves into a proximate cause analysis.

The standard of care will differ depending on who you represent and even the type of contract they have. For contractors and subcontractors, the “normal” standard of care is to avoid known utilities if the owner provides as-builts, and to call out third party utility locating companies before working. If contractors follow those steps, they have generally met the standard of care if they did not know the utility was there. In design-build projects, the contractors’ standard of care can include requesting and analyzing as-builts from local utilities too. That is why, in design-build projects, finding out what as-builts were requested and when, and if they are accurate, is key.

For design engineers, the standard of care analysis hinges on whether they requested the as-builts and if the utilities were knowable. Engineers request the as-builts first because it affects their design. For example, an engineer may not design a new 24-inch sewer through a congested utility site. Instead, the engineer may just go around it. If the engineers requested as-builts, that is a good start. Then the standard of care analysis will depend on if the as-builts were ever given and, if so, if they were accurate. If the answer is “no” to either question, that is a good engineering standard of care defense.

For construction managers, their standard of care is broader and will turn on their contract language and their interactions with the contractors. Is the construction manager ensuring that markouts are being completed and complied with? If not, that could violate their standard of care. Is the contractor performing construction where it should or in conformance with the plans? If not, that could be a violation.

Next is proximate cause—if there was a violation of the standard of care, would it have mattered? For example, if the utility line was unknowable (e.g. not on any as-builts), then a contractor not calling for a markout or an engineer not requesting an as-built did not cause the strike. Or perhaps if the fiber optic line was literally in the roadway asphalt instead of buried in the soil underneath, then not potholing was not the cause of the strike because it would have happened anyway.

Damaged utility claims will only become more commonplace as municipalities work to update their aging infrastructure in the wake of the new infrastructure bill. With careful case management, a thoughtful litigation plan, and some foresight, claims professionals and attorneys can limit the liability owed to the utility owner, and they can even set up defensive counter suits.

The first step is to evaluate and identify all the parties to the claim to determine any theories of liability and standard of care owed. Second, it is crucial to investigate the facts of the strike directly with the persons who struck the utility—not only their managers. The facts of the strike will be critical in establishing whether the line was known or unknown. Third, it is vital to ask the utility owner for all as-built plans that show the existence of the line, and to verify that any as-builts provided are correct and match the field conditions. At the end of the day, the party with the strongest grasp of the plans, parties involved, field conditions, and facts of strike will have the strongest hand in limiting its client’s exposure for the strike.