Who is responsible if a contractor damages the property adjacent to a construction project? In many instances, the contractor is responsible and must “indemnify” the project owner against any claims for such damage. However, a recent case decided by New York State’s highest court has highlighted important limitations of two standard contract provisions involving these types of claims. In the case, Watral & Sons, Inc. v. OC Riverhead 58 LLC, the Court found that a contractor was not responsible for “economic” damage that allegedly occurred at the property adjacent to a construction project as a result of the construction.
Watral was an excavation contractor on a contract to perform excavation, drainage and sanitary work for OC Riverhead, a property owner and the developer of an Applebee’s restaurant in Riverhead. While Watral was performing the work called for under its contract, one of its workers struck an underground power cable that provided electricity for Adchem, the store next door to the project, allegedly disrupting Adchem’s power. Before Watral began work at the project, “New York Call-One” had marked the location of the electrical cables on the property. The damaged cable was not where it was supposed to be because it had been moved by an unidentified electrician. Approximately two weeks later, again while Watral was performing excavation work at the project, the ground gave way, pulling the same power cable towards the project, damaging it and causing another power outage at Adchem. On both occasions, Watral paid part of the cost to fix the cable.