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  • June 07, 2017

    On Construction-related Damages, Private Subcontractors, and Government Immunity: The Wisconsin Supreme Court’s Decision in Melchert

    In a recent decision, Wisconsin’s Supreme Court reiterated that private contractors may be immune from damages caused by implementing the plans and specifications provided by a governmental entity. "The decision provides a useful reminder that a private contractor may be able to benefit from the governmental entity’s immunity,” writes Chase Horne.

    Chase A. Horne

    In a blog post from Jan. 10, 2017, Cameron Smith discusses a recent oral argument before the Supreme Court of Wisconsin in Melchert v. Pro Electric Contractors. He notes that the Supreme Court was likely to expand on two aspects of contractor immunity law under Wis. Stat. section 893.80(4):

    “First, a contractor is only eligible for immunity when acting as a government agent, and can only be an agent when following ‘reasonably precise specifications’ issued by the government. This case will examine whether contractual requirements amount to “reasonably precise specifications” when they include location, depth, and method, but also general disclaimers for utility locations.

    “Second, even if a contractor is a government agent, only ‘discretionary’ functions are eligible for immunity, not failing to comply with ministerial duties. Thus, although the factual record is somewhat lacking, the Supreme Court may also weigh in on whether the Diggers Hotline statute imposes a ministerial duty.’”

    On April 7, 2017, the Supreme Court of Wisconsin issued its decision – Melchert v. Pro Electric Contractors, 2017 WI 30, __ Wis. 2d __, 892 N.W.2d 710.

    As Smith predicted, the decision touched on both these points.

    Melchert v. Pro Electric Contractors

    As you may recall, the case arose in August 2012 after Pro Electric, a subcontractor retained to install traffic signals on a highway construction project, severed an underground sewer lateral during its work on a roadway project. Pro Electric’s conduct caused sewage to back up, leading to damage to a nearby commercial property.

    A key fact for the Supreme Court was that the Wisconsin Department of Transportation (DOT) had prepared detailed plans and specifications for Pro Electric to follow when performing the excavation and installation work, including where to install the traffic light’s base by specific coordinates, the type of base to use, the type of auger to use to drill the hole, and the depth/width of the hole.

    Chase Horne Chase A. Horne, U.W. 2011, is an associate with DeWitt Ross & Stevens, S.C., in Madison, where he concentrates his practice on commercial and construction litigation.

    Then, and only after contacting Diggers Hotline to have underground transmissions facilities in the area marked, Pro Electric began its excavation and installation work. The DOT’s engineer was also on sight to supervise the work during this time. At some point during the project, Pro Electric severed a clay sewer line. However, both DOT’s engineer and Pro Electric were unaware that the line had been severed, because the line was made of clay and matched the surrounding soil. As such, Pro Electric backfilled the hole without inspecting for damage.

    Pro Electric and Immunity

    Even though Pro Electric’s conduct was a “but for” cause of the property damage, the Supreme Court found that Pro Electric was immune from liability for any damages resulting from the severed sewer lateral. However, the Supreme Court did not extend immunity to Pro Electric for backfilling the excavation without inspecting the sewer lateral (more on this later).

    With respect to severing the sewer lateral, Pro Electric’s immunity stemmed from “the longstanding principle that a governmental entity is immune from liability for acts done ‘in the exercise of its legislative or judicial or quasi-legislative or quasi-judicial functions.’” Id. at ¶ 18 (quoted source omitted).

    Wisconsin courts have routinely extended such immunity to private contractors acting for the government if those contractors can prove: 1) that it was an agent of the government; and 2) that the governmental entity’s decision leading to the conduct at issue stemmed from “the exercise of the entity's legislative, quasi-legislative, judicial, or quasi-judicial functions.” Id. at ¶¶ 19-20 (quoting Estate of Lyons v. CNA Ins., 207 Wis. 2d 446, 453, 558 N.W.2d 658 (Ct. App. 1996)).

    Pro Electric established both of the required elements.

    With respect to the first element, the record reflected that Pro Electric was the DOT’s agent because it had followed “reasonably precise specifications” (e.g., the exact location for auguring using measured coordinates). Simply put, Pro Electric did what they were told to do and where to do it. Id. at ¶¶ 25-27.

    As for the second element, the Supreme Court reiterated that a government entity’s decisions in planning and designing a system were legislative acts undertaken to expend state and federal aid to plan and promote the roadways. Id. at ¶¶ 28-30.

    The Supreme Court came to a different conclusion with respect to Pro Electric backfilling the excavation without first inspecting the sewer lateral for damage. Id. at ¶¶ 31-34. Although Pro Electric received express instructions as to where and how to dig the hole, the project’s specifications did not provide reasonably precise specifications as to how to fulfill the duties under the Diggers Hotline statute, such as inspecting the excavation area to ascertain any damage before backfilling. Id. at ¶ 33. Therefore, Pro Electric was not acting as the government’s agent with respect to Pro Electric’s independent obligations imposed by the Diggers Hotline statute. Id. at ¶ 34. Since Pro Electric was not the government’s agent, then Pro Electric did not receive the benefit of the governmental entity’s immunity.

    Pro Electric Not Negligent

    Even though Pro Electric did not benefit from immunity for backfilling the hole, the Supreme Court nevertheless upheld that Pro Electric was not negligent because it complied with the duties imposed on it by the Diggers Hotline (Wis. Stat. § 182.0175(2)). This includes contacting Digger’s Hotline at least three days before excavation (Pro Electric did), confirming that no marking indicated the presence of a transmission line before digging (there were no marks), and inspecting for damages to transmission facilities before backfilling.

    On the last point, the duty to inspect is triggered only if there is a reason to believe a lateral became exposed during excavation. Here, given the size of excavation, and since the lateral’s material matched the surrounding ground, the Supreme Court agreed that the duty to inspect was never triggered for Pro Electric. Therefore, Pro Electric complied with its duties under the Diggers Hotline statute and was not negligent for any damage.

    Not a Bright-line Rule – Showers Still Holds

    In the end, while Melchert provides a useful reminder that a private contractor may be able to benefit from the governmental entity’s immunity, it should not be read to create a bright-line rule that this is always the case.

    To this point, the Supreme Court reiterated that its 2013 holding in Showers Appraisals, LLC v. Musson Bros., 2013 WI 79, 350 Wis. 2d 509, 835 N.W.2d 226 continued to be good law. Id. at ¶ 21. In Showers, a private subcontractor was not given the benefit of government immunity because it had substantial independent decision-making authority when performing the work. 2013 WI 79 at ¶ 51.

    In contrast to Showers Appraisals, the facts in Melchert were nearly a “best case” scenario for the subcontractor. Not only did the DOT provide precise specifications for the excavation, including specific geographical coordinates, but the DOT’s engineer was on-site and could have moved the location of the hole. And, even for the aspects of the project for which Pro Electric did not receive immunity, the facts still supported that Pro Electric took reasonable steps under the circumstances.

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    The Construction & Public Contract Law Section Blog is published by the State Bar of Wisconsin; blog posts are written by section members. To contribute to this blog, contact Mark Schmidt and review Author Submission Guidelines. Learn more about the Construction & Public Contract Law Section or become a member.

    Disclaimer: Views presented in blog posts are those of the blog post authors, not necessarily those of the Section or the State Bar of Wisconsin. Due to the rapidly changing nature of law and our reliance on information provided by outside sources, the State Bar of Wisconsin makes no warranty or guarantee concerning the accuracy or completeness of this content.

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