At first glance, this case looked like a personal injury case and I had very little interest.  But, as I read further, I quickly realized that this case turns on contract law and has serious implications for owners and contractors with respect to liability for third-party claims.  The case is called Estate of Pitts v. City of Atlanta, and the troubling decision was entered by the Georgia Court of Appeals on October 5, 2011.

Here’s what happened:

  • On June 14, 2007, a construction worker named Mack Pitts was killed on a project at the Atlanta airport when he was struck by a vehicle driven by an employee of A&G Trucking, Inc.
  • In an action separate from this case, the estate of Mr. Pitts sued and obtained a wrongful death judgment against A&G Trucking, but the judgment exceeded the limits of A&G Trucking’s auto liability insurance coverage
  • The estate of Mr. Pitts then sued the City of Atlanta and several contractors alleging that the City and the contractors breached their contractual duties to require that A&G Trucking carried the minimum required auto liability insurance; the estate further alleged that the City breached the ministerial duty to require A&G Trucking to carry insurance in the amount dictated by the contract
  • The trial court granted summary judgment in favor of the contractors and the City on the breach of contract claims on the grounds that the Estate lacked standing to enforce the contractual minimum insurance requirement, and granted summary judgment to the City on the ministerial duty claim (this part of the decision was not overturned by the Court of Appeals)
  • The Court of Appeals reversed the trial court’s summary judgment in favor of the City and the contractors on the breach of contract claims holding that Mr. Pitts was a third-party beneficiary to the construction contracts (the prime and subcontract) that contained minimum auto liability insurance requirements of $10,000,000

The most fascinating (and scary) part of this case is how the Court of Appeals persuaded itself that Mr. Pitts was an intended third-party beneficiary of the prime and subcontract.  Normally, to make a claim as a third-party beneficiary, a claimant has to show that the parties to the contract clearly intended to provide a benefit to that claimant.  The benefit can not be merely incidental, but must have been intended.  That’s usually a pretty high standard.  The defense raised several good arguments against finding that Mr. Pitts’ Estate had standing to sue for breach of contract.  After all, he wasn’t a party to any of these agreements and probably never even saw the contracts themselves or knew of their contents.  To conclude that the Owner, prime contractor, and subcontractor all entered into agreements with the intent to provide Mr. Pitts third-party benefits and rights to enforce those agreements on his behalf seems like a stretch.  But that’s exactly what the Court of Appeals held.

The Court was apparently persuaded by language contained in the OCIP (Owner Controlled Insurance Program) that stated its purpose was “to provide one master insurance program that provides broad coverages with high limits that will benefit all participants involved in the project.”  The Court looked to the definition of “participant” to determine that it was broad enough to include individual workers on the project, not just other contractors.

There was one argument buried deep in the decision that addressed a provision of the subcontract that expressly stated that no third-party benefits were created.  This seemed like a great argument and might well have changed the outcome of the case.  However, the provision was worded too narrowly.  The exclusionary language referred only to Subcontractor’s lower tier subcontractors and vendors.  Thus, the Court correctly found that this provision did not apply to Mr. Pitts because he was not a subcontractor or vendor the Subcontractor.

Some of the defendants are seeking the Court’s reconsideration of this decision, and given the impact of this decision, there may be further appeals to come.  But until the dust has settled and the final decision on this case has been made, there are at least two lessons that every owner, contractor, and construction lawyer in Georgia should take away:  (1)  be absolutely sure that contractors and subcontractors at every level are carrying the minimum insurance coverages required by their contracts; and (2) draft “no third-party beneficiary” clauses very broadly to expressly exclude rights of third-party beneficiaries of any kind.