Prefabricated Construction Liability



Prefabricated residential and commercial construction brings both new building opportunities and new legal concerns. Building with prefabricated components provides for greater efficiency in cost, development, and installation than traditional building methods – allowing entire commercial and residential structures to be assembled at a worksite like building blocks consisting of prefabricated “units” or “modules.” However, this shift from field construction to field assembly also shifts the scope of potential liability for all parties involves – from engineers designing prefabricated components through component manufacturers and down to contractors completing installation and assembly. Below, we consider how changes to construction from prefabricated components affect liability and coverage in the realm of construction liability.

Professional Liability

Prefabricated components create new legal risks and issues for those involved in all stages of construction, starting with designing architects and engineers. Generally, architects and engineers are professionals and, in litigation, their conduct is considered according to the standard of care for a reasonable individual practicing their same profession. Reasonability is an incredibly malleable standard, will vary significantly from state-to-state, and may be based upon or influenced by industry standards, regulations, statutes, or precedent. Ultimately, reasonability does not mean that the design and end product must be “perfect,” just that the final component is designed to be reasonably safe and appropriate for its intended use. 

Architects and engineers must consider a greater number and variety of variables in prefabricated design, creating greater risk of liability. While an individual construction component may be generally designed to fit one specific role within certain specifications, a prefabricated unit or module may comprise an entire room or section of a building. Moreover, components, modules, and units will need to interconnect with one another to make a finished structure. This greatly complexifies prefabricated design, requiring numerous professionals from a multiplicity of disciplines to work together to create, one cohesive design. Greater complexity creates greater potential for liability, as a crafty attorney can quickly exploit even a minor or seemingly insignificant design detail to assert a basis for professional liability.

The key to combating this increased risk is effective communication and review. Multi-disciplinary design teams must work together not only in creating a prefabricated design, but in reviewing it for potential design flaws and unsafe conditions. Clear channels of communications, open mindedness among professionals, and documenting the assessment and resolution of potential design issues will help establish reasonable professional conduct among design team.

Products Liability

Construction component manufacturers are no strangers to products liability claims; however, prefabricated designs only expand this potential for liability. Products liability is typically premised on one of three theories: unsafe design, unsafe manufacture, or failure to warn or instruct. Moreover, most states recognize both negligent products liability (which considers the reasonableness of the manufacturer’s conduct) and strict products liability (which only considers whether the product was reasonably safe).

Modern techniques allow for the manufacture of components off-site with delivery to a worksite for assembly. These components can include “modules” or “units” – which are entirely prefabricated rooms, wall segments, and other building sections.  Prefabricated units or modules could be considered “products” within the confines of most states’ product liability laws, regardless of their size or complexity. The larger and more complex the product, the more potential exists for the allegation of design or manufacturing defects, as plans for large, complex prefabricated units provide plaintiff’s attorneys with greater latitude to argue a defect.

Prefabricated components often come partially disassembled to ease shipment and are typically intended to be joined with other prefabricated units in the field. Construction contractors will rely upon manufacturer guidelines, instructions, and warnings in completing this field assembly. As such, any problems with assembly could open the door to a failure to warn or instruct claim. This potential is only increased with larger and more complex prefabricated module and unit designs, as more complex designs have more complex instructions and may require a greater level of skill to complete.

However, component manufacturers can mitigate the above risks. Much like with smaller components, manufactures must review designs relative to realistic field conditions to assess and resolve risks. The unit design team – its architects, planners, engineers, managers, and field personnel – must assess the proposed design relative to applicable codes, standards, regulations, and the worksite. Identified safety risks and issues must be resolved by either design or, where appropriate, warning. Once safety concerns are addressed, the design team must assemble clear, concise, direct instructions that are easy to follow and do not leave room for misinterpretation. While no prefabricated component can be litigation-proof, reviewing a design for real world risks will provide the best means of minimizing risk of litigation and liability.  

Construction Liability

While prefabrication is intended to limit the complexity and duration of construction projects, it does not completely eliminate field work. Professional tradesmen will be responsible for the assembly of prefabricated components into a finished structure. This work will involve a variety of trades and disciplines working in conjunction. Unsurprisingly, this work creates potential liability for personal injury and property damage, as well as potential contract liability depending upon the language of the agreements between and among the developer, contractor, and various sub-contractors. A supplier who provides a defective product to a construction site may also be liable to the owner of the project for construction defect claims and resulting damage.

Using prefabricated components has a limited, although significant, impact on construction liability. The use of prefabricated components, units, and modules creates the same risks of personal injury, property damage, and contract liability as does the use of traditional construction methods. However, prefabricated components limit the scope, extent, and duration of work by tradesmen, limiting the relative risk for liability. Nonetheless, the use of prefabricated components also increases the level of technical skill and coordination among trades needed for assembly, increasing the complexity of the project and risk of property damage or injury. To avoid increased risk of liability, contractors must ensure that their tradesmen and supervisors are experienced in their tasks and are ready and willing to work closely with other tradesmen.

Insurance Coverage

Construction with prefabricated components also creates new insurance coverage issues, blending previously distinct areas of coverage. As was discussed in greater detail above, prefabricated designs create a wider scope of potential liability under theories of professional and products liability. Thus, a property damage claim to a construction contractor based upon the assembly of prefabricated units could very easily become a tender to the unit manufacturer based upon product liability, and, potentially, a professional liability tender from the manufacturer to the designer. While these chains of liability existed prior to the rise of prefabricated construction, the complexity and multifaceted nature of modern prefabrication only increases the risk of claims and litigation by strengthening the interconnections between the designers, suppliers, and constructors.

Ultimately, policy language will change to account for developing coverage issues, but there is a risk that many of these changes could be reactive. There is also a risk that clients may be resistive to changes in coverage language, fearing uncovered exposure. The use of prefabricated components could also result in damage with concurrent causes, some of which may be excluded under a policy, making it extremely important for contractors to work with their underwriters and agents to buy a policy that fits the specific construction project. Underwriters should consider prefabricated construction and its impact on their client’s insurance needs in order to craft policies that provide the appropriate level of coverage for this changing insurance environment.

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