Texas Legislature Ends Lonergan’s Reign

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Texas Senate Bill 219, which governs liability for construction defects due to flaws in design documents, goes into effect on September 1, 2021. With a few exceptions, the statute will effectively wipe out the Texas Supreme Court’s long-standing Lonergan holding that absent contractual language to the contrary, a contractor—rather than an owner—bears the risk of deficiencies in design documents.

In 1907 in Lonergan, the Texas Supreme Court dismissed a contractor’s contention that the owner impliedly guaranteed the plans and specifications and found an absence of language in the contract evidencing a guarantee by the owner of the sufficiency of the plans and specifications. Due to the absence of such language, the Court held that the contractor—rather than the owner—bore the risk of loss due to defective plans and specifications. Lonergan v. San Antonio Loan & Trust Co., 104 S.W. 1061, 1065–66 (Tex. 1907). This holding is problematic for contractors because, in most cases, contractors have no direct contractual relationship with or control over design professionals, and therefore, cannot seek relief against them.  The holding in Lonergan was arguably affirmed by the Texas Supreme Court in the MasTec case in 2012. El Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802, 811–12 (Tex. 2012). 

Senate Bill 219, which will be codified at Chapter 59 of the Texas Business and Commerce Code (and amendments to certain portions of Chapter 130 of the Texas Civil Practice and Remedies Code relating to standards of care for design professionals), aims to address the Lonergan holding by shifting the risk of loss due to design deficiencies away from contractors. 

Specifically, Section 59.051(a) provides: 

A contractor is not responsible for the consequences of design defects in and may not warranty the accuracy, adequacy, sufficiency, or suitability of plans, specifications, or other design documents provided to the contractor by a person other than the contractor’s agents, contractors, fabricators, or suppliers, or its consultants, of any tier. 

Thus, under the new statute, the risk of design defects is no longer on the contractor where the design documents are furnished by someone other than the contractor’s agents. 

A contractor must, however, disclose certain design defects in writing. Specifically, Section 59.051(b) provides that a contractor must, within a reasonable time of learning of a defect in the design documents, disclose in writing to the person with whom they entered into a contract the existence of the defect discovered by the contractor or that reasonably should have been discovered by the contractor using ordinary diligence, before or during construction. Section 59.051(c) provides that a contractor who fails to disclose such a defect may be liable for the consequences of defects that result from the failure to disclose. 

As with most statutes, there are a few exceptions. Section 59.002 provides that Chapter 59 does not apply to the following: 

  • Contracts entered into for the construction or repair of a “critical infrastructure facility,” as defined in Section 59.001(3); 
  • Design-build projects where the design defect is in the design documents for which the contractor is responsible under the contract; 
  • EPC projects where the design defect is in the design documents for which the contractor is responsible under the contract; or 
  • That portion of a contract under which the contractor agrees to provide input and guidance on plans, specifications, or other design documents to the extent that: (1) the contractor’s input and guidance are provided as the signed and sealed work product of an engineer or architect; and (2) the work product is incorporated into the plans, specifications, or other design documents used in construction.

Unless one of the foregoing exceptions applies, Chapter 59 governs, and a contractor will not be liable for losses resulting from design defects so long as the contractor complies with its duty to disclose. Where an exception applies, however, Lonergan arguably continues to govern and a contractor may be liable for design issues unless the responsibility is allocated otherwise in a contract.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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