San Antonio Business Journal

VOLUME 11, NUMBER 40 WEEK OF NOVEMBER 14-20,1997

Legal Developments

JAMES E. MONTGOMERY, JR.

Municipalities, Builders Can Guard Against Product Liability

 

Businesses, developers and municipalities throughout the nation are buying products and materials for various construction projects every day. Inevitably, a certain amount of these products will be faulty or will not live up to their promotions. When this happens, a product liability suit is likely to follow.

For example, the city of Round Rock recently finalized an out-of-court settlement which will allow it to replace its existing water pipeline. Round Rock is replacing its plastic, blue polybutylene pipeline with copper and polyethylene lines. With more than 3,700 connections from the water main to the water meters, and each of the lines measuring approximately 60 feet in length, the city is in the process of replacing some 37 miles of pipe. Round Rock had experienced 749 breaks over a four-year period, which caused the loss of millions of gallons of water from the water delivery system.

In the suit, Round Rock negotiated a $7.65 million settlement with Vanguard Plastics, producer of the polybutylene pipes which were made from a resin manufactured by Shell Chemical. Round Rock sought damages for replacing the polybutylene water-service pipes installed in the city’s water system between 1980 and 1988. The water lines were made out of blue polybutylene that was supposed to last 50 years, however, the pipes have the tendency to break down in chlorine, a popular additive to purify drinking water. Other municipalities have also filed suit in similar circumstances, including one still pending in Austin.

Round Rock was aided in the suit by a public works department that kept detailed records of all repairs made to the pipes. The records, which tracked the performance of the pipes back to the time of their installation, also helped establish the cost of past and future repairs. This case is an excellent example of how keeping detailed records can benefit both businesses and municipalities with impending litigation.

But municipalities and other owners and builders can help themselves before problems occur, at the time of product purchasing.

A governmental entity can be held liable for ownership or from an approval process which results in an “approved” product list. In order to bring new products into the marketplace, manufacturers will often target the entities, including municipalities, that publish building codes. For example, in Round Rock, the manufacturer, Shell Chemical, made an in-person presentation to the board that was responsible for the building code for the municipal locale. The representations that were made at that hearing formed the basis for the municipality’s suit for the product failure.

These presentations can have other implications. In the suburban Maryland area, the Washington Suburban Sanitary Commission (WSSC) specified building codes which had “approved” products. One of the products which was approved was a thin-wall copper pipe that was used to plumb the interiors of homes in the late 1970s and early 1980s In use, the pipe was alleged to be more fragile than regular copper pipe. After a number of failures, lawsuits were brought by homeowners and developers against the WSSC to recover damages for replacement. Since the WSSC had “approved” the product for use in the area, it was brought into the suit as a defendant. Although lengthy litigation did not result in a finding of liability, major resources had to be devoted to manage and pay for the litigation.

Many suits are now brought by homeowners for damages to their homes and property as a result of defective products. The primary defense raised is that the products was “approved” as part of the local building code. The local governmental body acts as a representative for the citizens in the selection process, as once the approval is granted, it is not typically necessary for the manufacturer to make continuing presentations of the product to homeowners or builders. Once the product is “approved,” the product marketing is no longer required as homeowners and builders rely on the “list” of products. This reality of the marketplace makes the procedures discussed below equally important, whether the municipalityis purchasing for itself or permitting new products to be used within its jurisdiction.

In the normal course of a construction project, the owner, whether a municipality or private developer, delegates the task of selecting the various products to be used in construction to the contractor. This delegation is based upon the understanding that the contractor has more expertise in the selection process than the owner. However, by creating an intermediary between the owner and the product’s supplies or manufacturer, the owner can lose remedies in the event of a defective product.

For example, a product manufacturer could argue successfully that their liability does not extend to all entities in the chain of distribution when none of the alleged misrepresentations made by the manufacturers ever reached the consumer. A court might find that unless the manufacturers’ misrepresentations were repeated to the ultimate consumer, then the deceptive trade practice or act was not committed in connection with the consumers transaction. This ruling would effectively cut off a consumer’s direct remedy against the product manufacturer because the alleged misrepresentation would have been made to the middle-man contractor.

An important step in limiting liability is the actual review of those products with the contractor, such that the contractor repeats the benefits of the products as represented by the manufacturer as well as any other representations made by the manufacturer. This step enables the owner or builder to delegate the selection of products to the contractor, yet places the owner in a position where representations by the manufacturer are in fact made in connection with this particular purchase and construction contract. In situations where a municipality “purchases” public improvements by its promise to provide future maintenance, the same process should be followed.

In fact, an owner or developer should insist upon receiving and reviewing with the contractor a complete file of all products that are used in the construction, from the cement to the bricks and roofing materials. This file should include a product brochure on each significant product that was used and in particular any products that are new to the marketplace. For purposes of these situations, new means any product that has not been on the market for more than about 10 years. For example, polybutylene pipe entered the marketplace in the early 1980s, but the problems were not fully recognized until seven to 12 years later. Municipalities, such as Round Rock, as well as owners and developers need to protect themselves at the time of purchase in order to preserve their claims to recovery.