Bowie & Jensen Case Law and Legal Update:
A recent appellate decision makes clear that contractors owe a duty of care to prevent damage to the tangible personal property of third parties.
In June, the Maryland Court of Special Appeals held that an unrelated third party may be awarded damages arising from the contractor’s negligence, even in situations where the contractor did not know and was not informed that the third party’s property were onsite.
In Cash & Carry America, Inc. v. Roof Solutions, Inc., 223 Md. App. 451 (2015) issued over the summer, the court held Roof Solutions liable for damages to two computers owned by Cash & Carry America, Inc. (“Cash & Carry”), despite the fact that Roof Solutions did not have a contract with Cash & Carry and the work performed by Roof Solutions arose out of the repair of a residential property. Specifically, Roof Solutions contracted with Merle Coe, the CEO of Cash & Carry, not his company, to replace Mr. Coe’s roof at his residence.
During the course of construction, Roof Solutions used a torch to heat tar paper, which accidentally ignited the roof. The District of Columbia Fire Department extinguished the fire and, as a result of water damage, destroyed two computers owned by Cash & Carry that contained company propriety software. Roof Solutions claimed they had no knowledge of the existence of the computers in Mr. Coe’s house until its investigation after the fire.
Cash & Carry sued Roof Solutions and its owner, claiming Roof Solutions’s negligence resulted in damage to the computers, and seeking damages for: (i) the repair and replacement to the computers; (ii) repair and replacement to the software; (iii) value and time expended by Mr. Coe in repairing and replacing the computer and the software; (iv) the cost of disruption and delay in implementing Cash & Carry’s business plan; and (v) the loss of profits.
Roof Solutions argued successfully at trial in Circuit Court for Montgomery County that it had no duty of care to Cash & Carry; however, the Court of Special Appeals of Maryland reversed on appeal. The appellate court found that the risk of harm by Roof Solutions’s negligence could foreseeably cause injury, death, or damage to the owner or even a third party. As such, Roof Solutions should be liable for damages to the tangible property, but the court did not award damages relating to the non-tangible property, which included destruction of Cash & Carry’s proprietary software. The court based this distinction on the foreseeability of damages to the tangible computer equipment, as opposed to the software inside, of which the contractor could not be reasonably aware.
As a practical response to this development, contractors might consider seeking to narrow the scope of damages provisions in their contracts with owners or high-tiered subcontractors so as to exclude liability for unrelated third-party damages.