Texas Legislature Relieves Contractors of Liability for Design Defects—With a Few Caveats
by Tatianna Brannen
September 7, 2022
Should contractors be on the hook for defective designs that they didn’t create? For more than a century, the Texas Supreme Court answered that question with a “yes,” placing Texas among the small minority of states that expose contractors to liability for defective plans provided to them by the project owner. But the Legislature has now taken matters into its own hands: its latest addition to the Business & Commerce Code relieves builders of liability for defective plans and brings the Lone Star State into line with the national consensus. As with any law, there are exceptions, but the experienced construction attorneys at Griffith Davison are here to help you navigate them. So, what does the new law say, and what does it mean for you?
Under the newly added Chapter 59 of the Texas Business & Commerce Code, contractors are no longer responsible for the consequences of design defects. Tex. Bus. & Com. Code § 59.051(a). The law also ensures that a contractor need not (indeed, may not) “warranty the accuracy, adequacy, sufficiency, or suitability of plans, specifications, or other design documents provided to the contractor by” anyone other than the contractor’s own agent or associate. Id.
Chapter 59 represents a sea change in Texas’s contractor-liability law. Since 1907, the so-called Lonergan Rule has left contractors responsible for defects in design plans and specifications—even where the plans were made by a separate design professional hired by the owner. See Lonergan v. San Antonio Loan & Trust Co., 104 S.W. 1061 (Tex. 1907). Chapter 59’s new regime frees contractors from the risk of legal liability for plans they had no part in creating. Builders can now rely on plans and specifications given to them by project owners without worrying about being sued for flaws in those designs. The new rule does have some important caveats, though. All actors in the construction industry should be aware of these three qualifications:
- Chapter 59 obliges contractors to disclose any design defect they learn about. Specifically, a contractor must, “within a reasonable time,” inform the other party to the contract about “any known defect in the plans, specifications, or other design documents that is discovered by the contractor, or that reasonably should have been discovered by the contractor using ordinary diligence, before or during construction.” Tex. Bus. & Com. Code § 59.051(b). A noncompliant contractor “may be liable for the consequences of defects that result from the failure to disclose.” Id. § 59.051(c). Texas courts have not yet interpreted the contours of this new disclosure duty, but until they do, contractors should scrupulously document and report any concerns raised by a client’s design plans.
- Chapter 59 does not apply to any project that falls within the statutory definition of a “critical infrastructure facility.” Id. § 59.002(b). That definition includes, among other things, oil refineries, power plants, and a range of oil-and-gas-related sites. Id. § 59.001(3). Contractors should carefully review the full list of critical infrastructure facilities before signing on to any large-scale project.
- Logically enough, Chapter 59 does not shield contractors from design-defect liability if they are the reason for the defect. Thus, the Lonergan Rule remains intact to the extent a contractor is responsible for any design documents that turn out to be defective. To this end, Chapter 59 specifically does not cover (1) design‐build contracts insofar as the designs or plans provided by the contractor are defective; (2) engineering, procurement, and construction contracts (again, to the extent the contractor’s designs are at fault); or (3) any portion of a contract where the contractor agrees to provide signed-and-sealed design input that is ultimately incorporated into the project. Id. §§ 59.002(c)–(d). This last carveout can put contractors in a particularly tough position because it determines liability on a piece-by-piece basis. For example, if a swimming pool subcontractor provides signed, sealed shop drawings that are later used during construction, the contractor is exposed to liability for any defect in the pool’s design. Thus, even if the contract with the owner wasn’t labeled as a “design-build” contract, the contractor may still be exposed to liability for the designs of his subcontractors.
In short, Chapter 59 is a momentous development for the construction industry. The Texas Legislature has turned more than a century of legal precedent on its head to protect contractors from flaws in other people’s designs. The news isn’t all rosy for builders, though: Chapter 59 carries several important caveats that may limit—or in some cases negate—the statute’s benefits. Careful attention to the letter of the law and its judicial interpretations will be indispensable as the industry adjusts to a new legal landscape.
To discuss how these design-defect laws could impact your business, please consult with one of our attorneys at (972) 392-8900.