Is a general contractor an innocent “seller” of building materials entitled to protection under the Texas Products Liability Act? Centerpoint Builders GP, LLC v. Trussway, Ltd. Supreme Court of Texas (2016), by Hugh Anderson

Centerpoint was the general contractor on an apartment building project. Centerpoint purchased roof trusses directly from the manufacturer, Trussway. During construction a truss had been set in place but not yet installed. A worker retained by a subcontractor crossed the truss carrying gypsum wallboard. The truss broke, and the worker was rendered a paraplegic by the fall of eight to ten feet. The worker  filed a lawsuit against Centerpoint, Trussway, and others based on various theories, including defects in the design and manufacture of the truss that broke. After the suit was settled with the injured worker, Centerpoint filed an action for statutory indemnity from Trussway.

The Texas Products Liability Act gives the innocent seller of an allegedly defective product a statutory right to indemnity from the manufacturer for losses arising from a products liability action. The manufacturer’s duty begins when it receives notice that the seller has been sued. The Products Liability Act defines “seller” as “a person who is engaged in the business of distributing or otherwise placing” products into the stream of commerce.

Centerpoint argued that it was a seller of trusses, because in fulfilling its contract to build the apartments, it placed the trusses into the stream of commerce. Trussway argued that Centerpoint was not engaged in the business of selling trusses, but rather that furnishing trusses was incidental  to Centerpoint’s business of selling construction services. This dispute over whether Centerpoint was a seller under the statute (and therefore entitled to indemnification from Trussway for Centerpoint’s payments to the injured worker) made its way to the Supreme Court of Texas.

Decision: In a previous case involving allegedly a defective exterior insulated finishing system (EIFS), the Texas Supreme Court had concluded that the EIFS subcontractor was a seller of the product, and that providing installation services did not preclude the subcontractor from the benefits of seller status. However, the court viewed the status of a general contractor as being significantly different from that of an EIFS sub. The court noted that various cases had established a rule that for strict liability purposes, general contractors are not sellers of goods; rather, general contractors sell services, and the “sale” of items such as an allegedly dangerous steel column is incidental to the core business of providing services. Having given general contractors the benefit of not being deemed a seller in the strict liability context, the court held that in the products liability context, Centerpoint was likewise not a seller of trusses—the furnishing of such items was incidental to the provision of construction services.

Comment: The decision is consistent with the widely held construction law principle that construction contracts are not primarily contracts for the sale of goods, and are not subject to the Uniform Commercial Code governing the sale of goods. However, according to some commentators, contractors in Texas had generally understood that they would be protected by the products liability indemnity statute, based on the previous case granting indemnity to a construction subcontractor.

The court did hold the door open for a different result under other facts and circumstances. One possible distinguishing feature in future cases is that the court here relied in part on a finding that Centerpoint was not setting prices on materials for gain or profit; rather, the contract allowed for reimbursement from the owner for actual costs of materials. However, obtaining a mark-up on materials may not be enough to support an argument that a contractor is “engaged in the business” of selling the materials.