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September 1st, 2016
construction
TEXAS SUPREME COURT HOLDS GENERAL CONTRACTOR NOT ENTITLED TO INDEMNITY FROM MANUFACTURER OF DEFECTIVE PRODUCT

    In Centerpoint Builders GP, LLC v. Trussway, Ltd., 2016 WL 3413329 (Tex. 2016), the Texas Supreme Court held the general contractor, Centerpoint Builders, LLC (“Centerpoint”), was not a “seller” under the Texas Products Liability Act and could not obtain indemnity from the manufacturer of the defective product even though Centerpoint had not altered the product in any form.   

            The owner, Glenmont Madison Beaumont, LLC (the “Owner”), hired the general contractor Centerpoint to build the Beaumont Trace Apartments (the “Apartment Complex”).  Centerpoint subcontracted with Sandidge & Associates, Inc. (“Sandidge”) to install wooden roof trusses, and Centerpoint purchased the trusses directly from the manufacturer, Trussway, Ltd. (“Trussway” or the “Manufacturer”).  During construction, a subcontractor moved the wooden trusses to the second-floor ceiling and left them lying flat until the trusses were ready to be installed.  One of the wooden trusses broke while being worked on, causing an independent contractor to fall and suffer permanent and debilitating injuries.   

            The independent contractor sued Centerpoint and Trussway and ultimately settled with both.  Centerpoint filed a cross-claim against Trussway for statutory indemnity, alleging Trussway as the manufacturer was legally required to indemnity Centerpoint.  Centerpoint argued that the contract and truss purchase order with the Owner confirm that Centerpoint was “in the business of placing the trusses, for a commercial purpose (fulfilling its contract to build the apartment building), into the stream of commerce for use or consumption.”  The trial court held Centerpoint qualified as a truss “seller” under the Texas Products Liability Act and could seek indemnity from the Manufacturer.

            The Texas Supreme Court reversed, holding Centerpoint was not a “seller” of trusses entitled to indemnity from the Manufacturer under the circumstances in this case.  The Texas Products Liability Act gives an innocent seller of an allegedly defective product a statutory right to indemnity from the manufacturer.  The appellate court evaluated whether Centerpoint qualified as a “seller” under the Act.  “‘Seller’ means a person who is engaged in the business of distributing or otherwise placing, for any commercial purpose, in the stream of commerce for use or consumption a product or any component part thereof.” The Texas Supreme Court determined Centerpoint was not “engaged in the business of” selling trusses and could not be considered a “seller.”  

            The Court supported its decision by commenting the sale of the wooden trusses by Centerpoint to the Owner was merely incidental to the sale of services because Centerpoint did not sell the trusses to achieve a gain or a profit.  Centerpoint was effectively reimbursed for the cost of materials under the construction contract with the Owner.  It is important to note, however, the Court did not hold a general contractor would never be considered a “seller” or entitled to indemnity from a manufacturer for injuries caused by an alleged defective product.  The opinion states, “[W]e conclude only that, under the circumstances presented in this record, Centerpoint was not a seller of truss, and Centerpoint is therefore not entitled to indemnity from Trussway.”             

           All construction professionals, particularly general contractors, should understand the implications of the Centerpoint decision.  Under Texas law, if the general contractor receives a defective product from the manufacturer, the contractor may be liable for damages arising from the defective product without having the benefit of obtaining indemnification from the manufacturer. 

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