Is Governmental Immunity Still Available for Wisconsin Contractors?
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1 Is Governmental Immunity Still Available for Wisconsin Contractors? June 2015 *Reading course materials without attending the seminar does not qualify for credit
2 A Cautionary Note The State Bar of Wisconsin s CLE publications and seminars are presented with the understanding that the State Bar of Wisconsin does NOT render any legal, accounting or other professional service. Due to the rapidly changing nature of the law, information contained in a publication or seminar material may be outdated. As a result, an attorney using the State Bar of Wisconsin s CLE materials must always research original sources of authority and update the CLE information to ensure accuracy when dealing with a specific client s legal matters. NOTICE TO ALL REGISTRANTS, INSTRUCTORS, EXHIBITORS, GUESTS: By attending this State Bar event, you understand and agree that you may be photographed and/or electronically recorded during the event and you hereby grant to the State Bar the right to use and distribute your name and likeness for promotional or educational purposes without monetary compensation. The State Bar assumes no liability for such use.
3 About the Presenters Jim (James S.) Thiel served 40 years as counsel for WisDOT. He is the Chair of the Legal Resources Group of the Transportation Research Board, a member of the Dane County Bar, State Bar Construction and Public Contract Law Section and a member of the Board of Governors , and Jim also served as Chair of the National Cooperative Highway Legal Research Project Panel and Chair of the Legal Subcommittee of AASHTO. Admitted to practice in various U.S. District Courts, Seventh Circuit, Surface Transportation Board. Yale University, US Navy, University of Wisconsin Law School. Carrie Cox is an Assistant General Counsel with WisDOT. At WisDOT, Carrie is the lead attorney associated with WisDOT's highway projects. Carrie focuses on projects which are complex or controversial and advises on matters including NEPA planning, compliance and litigation, and project related real estate acquisition, utility relocation, contracts and disputes, construction damages, inter governmental agreements, and WisDOT central office issues involving funding, legislation, utilities, planning and real estate. Previously, Carrie was VP Legal and Regulatory Affairs at Charter Communications responsible for management of telecommunications and cable regulatory policy and issues. Carrie graduated from Marquette University Law School. Cameron E. Smith is an assistant general counsel with the Wisconsin Department of Transportation. He received his bachelors of science in civil engineering from the University of Minnesota (2006), and his law degree from the University of Wisconsin, magna cum laude (2013). Mr. Smith is assigned to highway improvement projects in WisDOT s Southeast Region, which includes the Milwaukee metropolitan area. Mr. Smith serves as a board member for the Construction and Public Contract Law Section of the Wisconsin State Bar.
4 Contractor Immunity (or not) on Government Contracts in Wisconsin State Bar of Wisconsin Annual Meeting & Conference June 25, 2015 Presented by Carrie Cox Cameron Smith Wisconsin Department of Transportation Office of General Counsel I. OVERVIEW Wisconsin courts generally recognize three types of immunity as affirmative defenses for government entities: sovereign immunity, governmental immunity, and discretionary immunity. Anderson v. City of Milwaukee. Contractor immunity, if available, will attach to the state or municipality s discretionary immunity. A. Sovereign Immunity State may only be sued with consent of the Legislature. Wis. Const. art. IV, 27. Lister v. Bd. of Regents. Example: Wis. Stat (eminent domain right to take action) Zinn v. State (some constitutional rights give rise to claims against the state, but the legislature can define procedure for recovery). B. Governmental Immunity Defense to units of government (not individual) C. Discretionary Immunity Defense for governmental subdivisions, officers or employees for discretionary acts. Wis. Stat (4); Kimps v. Hill. II. CONTRACTOR IMMUNITY So how does a contractor attach to the immunity which is granted the state or municipality? A. Estate of Lyons Wis. Stat (4) Establishment of how agency is determined. If contractor is agent for government immunity attaches. Agency exists for immunity if: Government approved reasonably precise specifications Contractor conformed to those specifications Contractor warned supervising governmental authority about dangers in specs which were known to contractor but not governmental authority Page 1 of 3
5 B. Showers Appraisals, LLC Supreme Court in Showers expanded the requirements to attach governmental immunity in order to limit the further expansion of immunity beyond what the governmental is entitled to. Must also meet determination that contractor act was one for which the governmental authority would have immunity. For decisions made within the scope of the government s legislative, quasi-legislative, judicial, or quasi-judicial functions. Lifer v. Raymond. C. Cases subsequent to Showers 1. Manning v. Vinton Construction Co. Flooding occurred as a result of road construction. Immunity not available because contractor while agent of government was responsible for means and methods and was instructed not to submit detailed plans for water and sewer management. Provides a nice summary of how means and methods is inconsistent with conduct for which immunity will be available. substantial independent decision making is granted when means and methods is required in a contract. How work was completed led to the tort, not what work was required. Quantities, final product, and specifications on where and in what order do not equate to contractor ability to implement the how. Means and methods is contrary to the Lyons reasonably precise specifications requirement. 2. Melchart v. Pro Electric Electric contractor placing light was given specific instruction on what, where and what tools to use (circular auger). Sewer lateral was severed causing damage. Court determined immunity was conferred on contractor, since contractor met Lyons test for agency. Interestingly the Lyons test states that the warning provision is in addition to (and) the precise specifications and contractor conformance. In this case, court essentially ignored that piece because it determined contractor did not know of any danger [and therefore could not communicate it] III. IV. SUMMARY Contractor immunity attaches only when it is determined that 1) contractor is agent under Lyons test and that the act in controversy is one for which governmental immunity would be available to the government as further explained in Showers. AUTHORITIES Page 2 of 3
6 A. Wisconsin Constitution Article IV, 27. Suits against state. The legislature shall direct by law in what manner and in what courts suits may be brought against the state. B. Wisconsin Statutes Wis. Stat (4) ( ) C. Cited Cases (4) No suit may be brought against any volunteer fire company organized under ch. 213, political corporation, governmental subdivision or any agency thereof for the intentional torts of its officers, officials, agents or employees nor may any suit be brought against such corporation, subdivision or agency or volunteer fire company or against its officers, officials, agents or employees for acts done in the exercise of legislative, quasi-legislative, judicial or quasi-judicial functions. Anderson v. City of Milwaukee, 208 Wis.2d 18, 559 N.W.2d 563 (1997). Estate of Lyons v. CNA Ins. Co., 207 Wis.2d 446, 558 N.W.2d 658 (Ct. App. 1996). Holytz v. City of Milwaukee, 17 Wis.2d 26, 115 N.W.2d 618 (1962). Kimps v. Hill, 200 Wis.2d 1, 546 N.W.2d 151 (1996). Lifer v. Raymond, 80 Wis.2d 503, 259 N.W. 2d. 537 (1977). Lister v. Bd. of Regents, 72 Wis.2d 282, 240 N.W.2d 610 (1976). Manning v. Vinton Construction Co., 2014 WI App 110, 357 Wis.2d 721, 855 N.W.2d 903 (unpublished). Melchart v. Pro Elec. Contractors, 2015 WL (Ct. App.) (pending publication). Showers Appraisals, LLC v. Musson Bros., 2013 WI 79, 350 Wis.2d 509, 835 N.W.2d 226. Zinn v. State, 112 Wis.2d 417, 334 N.W.2d 67 (1987). Page 3 of 3
7 Is Governmental Immunity still available for Wisconsin Contractors? Session 3, THU, June 25, 2015, 1:55-2:45 p.m. James S. Thiel Short Answer: Yes, But. What is Governmental Immunity? State Immunity: The State of Wisconsin s immunity is guaranteed against judicial encroachment or judicial modification by the Wisconsin Constitution Article IV, Section 27. In constitutional theory, state government immunity to suit can only be modified by Wisconsin legislation. Although there are many Wisconsin and Federal statutory and constitutional exceptions: 1 - Thiel Suits against state. SECTION 27. The legislature shall direct by law in what manner and in what courts suits may be brought against the state. Local Government Immunity: Local governments are not protected by this Wisconsin constitutional immunity provision, but local governments also have a degree of immunity provided by statute and case law. When Does Governmental Immunity Apply to Contractors on Public Projects? Contractor Governmental Immunity: Governmental immunity of Wisconsin contractors is a derivative of State or Local Government immunity. This derivative governmental was made available to contractors on state and local projects by judicial decision. The legal test for contractor immunity derived from the State or Local Government can be modified by court decisions, legislation and by contract. Leading Case: Estate of Lyons v. CNA Insurance Cos., 207 Wis. 2d 446, 558 N.W.2d 658 (Ct. App. 1996), Petition for Review Denied March 11, 1997; Abstract: A driver (Waller) was passing over a local bridge, missed a stop sign on the other side, and broadsided a car legally proceeding on the cross road and killed the occupant of that car (Lyons). The bridge was a federal-locally funded project, administered by WisDOT. Strand Associates, Inc. was the designer. It had told WisDOT a 150-foot bridge was consistent with AASHTO standards, but as a result of discussions between Strand and WisDOT, and cost and site condition considerations, WisDOT approved a 70-foot bridge design. The estate of the driver that died said the 70-foot bridge resulted in sight distances that were a substantial factor leading to the crash and death and sued Strand for negligent design. The trial court dismissed the case against Strand and the Court of Appeals affirmed that decision. What the case decides? The fundamental design decision was WisDOT's, not Strand's. Strand could not be held independently responsible for WisDOT's governmental decision.
8 What the case does not decide? Consultants and contractors were not agents of the State or WisDOT for purposes of sovereign immunity or for purposes of compliance with the notice and limitation on tort liability statute applicable to state officers, employees, and agents, sec , Stats. The decision did not make WisDOT's consultants or contractors immune for failure to meet professional standards and responsibilities in developing designs for WisDOT and others. The indemnity and related provisions in WisDOT's contracts also continued to apply. Consultants and contractors could still be successfully sued by persons who were injured or whose property was damaged. Three part test. The court adopted the following three part test to determine when a decision is essentially that of State government (WisDOT) rather than the contractor: "In summary, we adopt a form of governmental contractor immunity applicable to parties who contract with municipal or state authorities and are directed to perform certain tasks under that contract. An independent professional contractor who follows official directives is an agent for the purposes of (4), Stats., [the applicable Local Government liability statute] or is entitled to common law immunity [applicable to Local Governments] when: (1) The government approved reasonably precise specifications; (2) The contractor's actions conformed to those specifications; and (3). The contractor warned the supervising governmental authority about the possible dangers associated with those specifications that were known to the contractor but not to the governmental officials. This three-part test will ensure that state and municipal government, and the public at large, is able to make the best use of professional design assistance, but that professional contractors are not unfairly burdened by lawsuits when they follow governmental directives. (Notes in italics added.) Practice Tip: To obtain Lyons immunity, contractors and consultant with State and Local Governmental entities should provide and document warnings given to these entities and seek more precise, written directives or orders. NOTE: Standard State and Local Governmental contract language still makes consultants and contractors responsible for adhering to professional standards and specifications. It didn t take long, about a year, before the Courts decided cases in which contractors asserted Lyons governmental immunity, but failed because they did not meet the three part Lyons test. Compare Maddox v. Barricade Flasher, 1997 WL , [unpublished], Nos , , , November 26, 1997; Petition for Review Denied February 3, Three-part Lyons immunity test approved, but specifications in contract were not precise enough to provide immunity to contractor. The Court Should More Clearly Distinguish State from Local Government Derived Contractor Immunity. Recall State governmental immunity is provided by the Wisconsin Constitution and is not subject to judicial evolution as other common law doctrines under the Article XIV, Section 13:. 2 - Thiel
9 Common law continued in force. SECTION 13. Such parts of the common law as are now in force in the territory of Wisconsin, not inconsistent with this constitution, shall be and continue part of the law of this state until altered or suspended by the legislature. (Emphasis added.) The State may be sued indirectly through its employees pursuant to Wis. Stat , for failure of its employees to perform a ministerial function 1, or in a limited manner after rejection of a claim by the Wisconsin Legislature under Wis. Stat Local governments, however, are subject to a different regime of statutory immunity including Wis. Stat and relevant common law that is not applicable to the State. Abstract: The Wisconsin Supreme Court paid little attention to the distinction between State and Local Governmental immunity in the recent case of Showers Appraisals LLC v. Musson Bros. Inc., 2013 WI 79, 350 Wis.2d 509, 835 Wis.2d 226 (2013). It did not focus on the distinction due to the way the case originated against a City and contractor, but not the State/WisDOT. The Wisconsin Supreme Court reversed the Court of Appeals in a case involving substantial water damage to Mark Showers building in the City of Oshkosh. Musson had contracted with WisDOT for the work and in the course of the work the contractor removed the City storm water drainage system in a manner that led to the serious flooding of Marc Shower s building. The Supreme Court applied the three part Lyons test and concluded that the contractor Musson was not following government approved reasonably precise specifications. The court referred to the means and methods provision of WisDOT s Standard Specifications incorporated in every WisDOT contract by reference. That provision reads as follows in the WisDOT 2015 Standard Specifications: (4). The contractor is solely responsible for the means, methods, techniques, sequences, and procedures of construction. The contractor is not responsible for the negligence of others in the design or specification of specific means, methods, techniques, sequences, or procedures of construction described in and expressly required under the contract As a result of the contractor s independent judgment and actions, the contractor was not entitled to Lyons derivative immunity. The Court could have stopped right there but due to the posture of the case against the City and contractor, the court felt obligated to construe Wis. Stat (4) that reads as follows: No suit may be brought against any volunteer fire company organized under ch. 213, political corporation, governmental subdivision or any agency thereof for the intentional torts of its officers, officials, agents or employees nor may any suit be brought against 1 Cords v. Anderson, 80 Wis.2d 525, 542 (1977), the Wisconsin supreme Court held that a Department of Natural Resources (DNR) park manager (an individual state employee) had a ministerial legal duty to either notify his superiors that a path was within inches of a dangerous cliff or to erect signs to warn the park visitors. 3 - Thiel
10 such corporation, subdivision or agency or volunteer fire company or against its officers, officials, agents or employees for acts done in the exercise of legislative, quasi-legislative, judicial or quasi-judicial functions. (Emphasis added.) In my view that statute does not expressly apply to the State of Wisconsin. The State must follow the statute if it sues such a local government, but it is not otherwise applicable. When the Legislature clearly intended to include the State it did so. See Wis. Stat (7): No suit may be brought against the state or any governmental subdivision or agency thereof or against any officer, official, agent or employee of any of those entities who, in good faith, acts or fails to act to provide a notice to a property owner that a public nuisance under s (1) or (1m) (b) exists. Statutes of general application do not apply to the State unless the State is specifically included 2. Most of the Showers decision in my view is dicta and the attempt to harmonize the language of sec (4) with the discretionary/ministerial function distinction applicable to State governmental employee immunity is unnecessary and confusing. The statute relating to the statutory waiver State government constitutional immunity is Wis. Stat , Claims against state employees; notice of claim; limitation of damages, not Wis. Stat But Showers is Controlling as Applied by the Court of Appeals in Manning. In Manning v. Vinton Constr. Co., 2013AP1029, 357 Wis.2d 721, 855 N.W.2d 903 (2014), the contract was with the Village of Whitefish Bay, so Wis. Stat (4) was indeed applicable. The Mannings found 4 feet of sewage in their basement after two contractors had performed improvements to sanitary sewers and storm drains. The contract provided that no sewage shall be allowed to back up into any homes or buildings, and no sewage shall be discharged in streets, storm sewers, private property or surface waters. It was a performance contract with means and methods otherwise left to the discretion of the contractor and also disclaimed any responsibility by the Village or its engineer for the contractor s choice. Mannings claim alleged breach of contract as well as negligence. The Manning court applied the new Showers test which it articulated as follows at 19: 2 "A basic rule of statutory construction is that statutes of general application do not apply to the state unless the legislature has so stated in explicit terms. "It is universally held... that... statutes [of general application] do not apply to the state unless the state is explicitly included by appropriate language." State ex rel. Dep't of Pub. Instruction v. DILHR, 68 Wis. 2d 677, 681, 229 N.W.2d 591, 594 (1975) (quoting State ex rel. Martin v. Reis, 230 Wis. 683, 687, 284 N.W. 580, 582 (1939)). It is a "presumptive" rule, exempting the state from general statutes that can be read as applicable to both the government and private parties alike, Town of Janesville v. Rock County, 153 Wis. 2d 538, 542, 451 N.W.2d 436, 437 (Ct. App. 1989), and it derives from the presumption that the "legislature does not intend to deprive the [state] of any prerogatives, rights, or property unless it expresses its intention to do so in explicit terms...." State v. City of Milwaukee, 145 Wis. 131, 135, 129 N.W. 1101, 1102 (1911) (emphasis added)." State v. P. G. Miron Const. Co. Inc., 175 Wis. 2d 476, 481, 498 N.W.2d 889 (1992). Reversed on other grounds: State v. P.G. Miron Const. Co. Inc., 181 Wis. 2d 1045, 512 N. W. 2d 499 (1994). 4 - Thiel
11 5 - Thiel where a third party s claim against a government contractor is based on the allegation that the contractor negligently performed its work under a contract with a governmental entity, in order to assert governmental immunity, the contractor must prove both that the contractor meets the definition of agent under Wis. Stat (4), as set forth in Lyons, and that the contractor s act is one for which immunity is available under (4). Showers-S.Ct., 350 Wis. 2d 509, 2 (footnote omitted; emphasis added). In other words, in order to qualify for governmental immunity, a contractor must show not only that it is a government agent, but also that it was acting in accordance with a decision the government entity made in the exercise of a legislative, quasi-legislative, judicial or quasi-judicial function. Id., 34 The contractor s claim for governmental immunity was rejected. The court also concluded that although the Mannings were not a direct party to the contracts, they were possibly within the scope of third-party beneficiaries under the contract terms. The Mannings property was adjacent to the project although it did not directly abut the contracted project. The case was reversed and remanded for trial on the negligence claim and on the intended scope of third party beneficiaries intended under the contract. How to Draft Contracts to Potentially Allow or Not Allow for Contractors to Avail Themselves of Governmental Immunity? Seek Governmental Approval as a Discretionary Decision. It is unlikely that State or Local Governments will negotiate away standard clauses that leave the Contractor solely responsible for means and methods, but there is no harm in asking or from seeking actual direction or specific approval of the governmental entity for specific decisions. Phrase the request in such a manner as to characterize the decision or direction sought as a governmental discretionary decision, or legislative or quasi-legislative if it is a local government contract. Exclude Third Party Beneficiaries. However, it is possible that standard contract clauses will exclude any third party beneficiaries. For example, WisDOT 2015 Standard Specification (1) Third-party Beneficiary This contract does not create anyone as a third-party beneficiary. This contract does not authorize non-parties to the contract to maintain actions for damages under the contract. Similar language is included in WisDOT consultant engineering contracts. Governmental bodies are more likely to accept these exclusionary clauses because they also benefit the contracting governmental entity. Provide for Indemnification and Insurance. Indemnification clause are not against public policy in Wisconsin. The risk of injury or harm should be passed along to those entities that are most likely to control the risk, but as there is always risk, insurance in conjunction with indemnification is the safest course and generally keeps all of the involved governments, contractors and subcontractors on the same side if litigation ensues. Make sure you pass along all the indemnification and the scope of insurance coverage is adequate. For example, WisDOT 2015 Standard Specification requires the following indemnification:
12 6 - Thiel Responsibility for Damage and Tort Claims (1) The contractor and the contractor's insurer shall defend, indemnify, and save harmless governmental entities involved in the project, or in which all or a part of the project site is located, including the officers, agents except for consulting firms, and employees of any of the foregoing from suits, actions, or claims brought because of injuries or damages sustained by any person or property arising from one or more of the following: 1. Contractor operations. 2. Contractor neglect in safeguarding the work. 3. Contractor use of unacceptable materials in constructing the work. 4. Acts or omissions, neglect, or misconduct of the contractor. 5. Claims or amounts recovered for an infringement by the contractor of patent, trademark, or copyright. 6. Claims or amounts arising or recovered under the workers compensation act, relating to the contractor's employees. 7. The contractor s noncompliance with a law, ordinance, order, or decree relating to the contract. Take Advantage of Statutory Liability Assigned to Conflicting Utilities or Others. Look for statutes such as Wis. Stat (4)(c): (4) RESPONSIBILITIES. (c) If the utility facility owner fails to comply with sub. (3), the department or its contractor shall not be liable to the owner for damages to a utility facility resulting from the highway improvement if the department or its contractor complies with s (2) and the owner shall be liable to the department or its contractor for damages resulting from the failure to comply. Or Wis. Stat , as a public utility also has the duty, upon notice by the contractor, to temporarily protect or change the utility s own structures when the governmental body determines the protection or change is reasonably necessary to enable the [contractor s] work. On governmental projects the cost of the temporary protection or change to the utility facilities is borne by the public utility Interference with public service structure. A contractor with a contract for work upon, over, along or under a public street or highway may not interfere with, destroy or disturb the structures of a public utility, including a telecommunications carrier as defined in s (8m), encountered in the performance of the work in a manner that interrupts, impairs or affects the public service for which the structures may be used, without first obtaining written authority from the commissioner of public works or other appropriate authority. A public utility, if given reasonable notice by the contractor of the need for temporary protection of, or a temporary change in, the utility's structures, determined by the commissioner of public works or other appropriate authority to be reasonably necessary to enable the work, shall temporarily protect or change its structures located upon, over, along or under the surface of a public
13 street or highway. The contractor shall pay or assure to the public utility the reasonable cost of the temporary structure or change, unless the public utility is otherwise liable. If work is done by or for the state or by or for any county, city, village, town sanitary district, metropolitan sewerage district created under ss to or to or town, the cost of the temporary protection or temporary change shall be borne by the public utility. If You Litigate, Try to Get the Court to Correctly Distinguish State Constitutional Immunity from Local Government Statutory and Common Law Immunity. 7 - Thiel
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