99 N.Y.2d 104 (2002)

A contractor performing work pursuant to a contract does not owe a duty of care to third parties unless the contractor’s actions created or increased a risk of harm, the plaintiff reasonably relied on the contractor’s performance, or the contractor entirely displaced another party’s duty to maintain the premises safely.

Summary

This case addresses the question of when a contractor owes a duty of care to third parties for injuries sustained as a result of the contractor’s alleged negligence in performing its contractual obligations. The New York Court of Appeals held that a subcontractor hired to install a guiderail system did not owe a duty of care to a plaintiff injured in a car accident where the subcontractor failed to complete the full length of guiderail specified in the contract. The Court reasoned that the subcontractor’s actions did not create or increase the risk of harm, the plaintiff did not rely on the subcontractor’s performance, and the subcontractor did not entirely displace the Thruway Authority’s duty to maintain the premises safely. Therefore, the subcontractor was not liable for the plaintiff’s injuries.

Facts

A nine-year-old, Ned Church, was severely injured when the car he was riding in crashed after veering off the New York State Thruway. The accident occurred in an area where Callanan Industries, Inc. had been contracted to resurface and improve safety, including replacing guiderails. Callanan subcontracted with San Juan Construction and Sales Company to install the guiderail system. The contract specified the installation of 312.5 feet of guiderail, but San Juan only installed 212 feet. The accident occurred in the area where the guiderail was not completed.

Procedural History

The plaintiff sued Callanan, San Juan, and the project engineer, Clough Harbour, alleging negligence in failing to complete the guiderail installation. San Juan moved for summary judgment, arguing it owed no duty to the plaintiff. Supreme Court denied the motion. The Appellate Division reversed, granting summary judgment to San Juan. The case reached the Court of Appeals due to a two-Justice dissent at the Appellate Division.

Issue(s)

Whether a subcontractor, San Juan, hired to install a guiderail system, owed a duty of care to a third party, the plaintiff, who was injured in a car accident allegedly caused by the subcontractor’s failure to complete the full length of guiderail specified in the contract.

Holding

No, because San Juan’s actions did not create or increase the risk of harm, the plaintiff did not reasonably rely on San Juan’s performance, and San Juan did not entirely displace the Thruway Authority’s duty to maintain the premises safely.

Court’s Reasoning

The Court of Appeals relied on the principle established in H.R. Moch Co. v Rensselaer Water Co., stating that a breach of contract does not typically create tort liability to non-contracting third parties. The Court then discussed the three exceptions to this rule, as articulated in Espinal v. Melville Snow Contrs.:

1. Where the promisor, while engaged affirmatively in discharging a contractual obligation, creates an unreasonable risk of harm to others, or increases that risk.
2. Where the plaintiff has suffered injury as a result of reasonable reliance upon the defendant’s continuing performance of a contractual obligation.
3. Where the contracting party has entirely displaced the other party’s duty to maintain the premises safely.

The court found that none of these exceptions applied. San Juan’s failure to install the additional guiderail did not make the highway less safe than it was before the project began; it merely neglected to make it safer. There was no reliance by the injured party on San Juan’s performance. Finally, San Juan did not entirely displace the Thruway Authority’s duty to maintain the premises safely, as the Thruway Authority retained a project engineer to oversee the work and ensure contract compliance. The court distinguished this case from Palka v Servicemaster Mgt. Servs. Corp., where the defendant had a comprehensive and exclusive contract for safety inspection and repair. Here, the Thruway Authority retained significant oversight. The court emphasized that imposing liability based on a safety-related aspect of an unfulfilled contract would swallow the general rule against recovery in tort based merely upon the failure to act as promised. As the Court stated, San Juan’s failure was “merely in withholding a benefit * * * where inaction is at most a refusal to become an instrument for good.” (quoting Moch, 247 N.Y. at 167-168).