In construction cases, owners must often deal with claims made against it by contractors, despite the fact that the claim may really be a design professional’s fault. Common contracts may also prevent all three parties—contractor, owner, and design professional—from resolving the dispute in one lawsuit or arbitration. This result may require two separate lawsuits to resolve, or require one lawsuit with an extra party, which really has no stake in the claim. This wastes the resources of everyone involved, and solves nothing.
Subcontractors encounter similar difficulties when they have a claim that results from the owner’s breach of contract with its general contractor. In the case of the subcontractor claim, courts have routinely solved this problem by allowing the contractor to present the subcontractor’s claim to the owner via a method called pass-through claims. However, pass-through claims have traditionally been limited to a claim by a subcontractor, through a general contractor/intermediary, against an owner.
Pass-through claims should be universally applicable to all contractual relationships on a construction project. For example, a general contractor should be able to make a claim through the owner as intermediary, against a design professional. What makes a pass-through claim viable is not the label or position in the pecking order of the party making the claim, but the money and time saved by having one lawsuit instead of two, so long as all of the procedural safeguards of pass-through claims are complied with.
Pass-through claims are equitable because they prevent the responsible party from receiving a windfall if the responsible party was somehow not responsible to the damaged party, or the intermediary for damages suffered under a contract. Pass-through claims preserve judicial and client resources, by allowing what is really only one lawsuit to be solved in one lawsuit, and not two.
The few courts that have examined the expansion of pass-through claims have uniformly found that the equitable nature of the claims and the public policy of judicial efficiency supports their use. For these reasons, anyone who is involved in the construction or real estate industry should advocate for the expansion of the use of pass-through claims.
Benton T. Wheatley, shareholder at Munsch Hardt Kopf & Harr PC, has more than 20 years of experience litigating complex construction and environmental matters. Jessica Neufeld is an associate in the firm’s Business Litigation section, concentrating her practice on construction litigation.