Contractor Warranty Liability: Recent Appellate Decision Greatly Expands Contractual Obligations

BRIEF SUMMARY

Contractor was hired to install a curtain wall system at Owner's NYC building in 2006.[1] The system's double-glazed widow units were both internally sealed and required a watertight silicone barrier. The project specifications called for a 5-year warranty on labor and materials (and specifically referenced sealant failure) and a 10-year warranty on any "seal failure of the double-glazed units." To fulfill this second requirement, Contractor secured a ten-year warranty from the silicone sealant manufacturer and assigned it to Owner.

Some nine years later, the silicone sealant began to deteriorate and Owner sued Contractor for breach of warranty. Contractor moved to dismiss, arguing that its 5 year warranty obligation had expired and that its 10 year warranty obligation was fulfilled when it assigned Owner the sealant manufacturer warranty at close out. The Trial Court agreed and dismissed the case. On appeal, the First Department overturned the dismissal. Why?

WHAT THE COURT HELD

The contract's warranty clause required Contractor to guarantee work and materials for the duration of one year or any “longer period” called for in the specifications. The appellate court reasoned that, given the specification's 10 warranty requirement, Contractor was obligated to guarantee the sealant for 10 years. Providing a 10-year manufacturer's warranty was not enough. Contractor was not simply an intermediary between Owner and the manufacturer but a guarantor of the sealant’s performance. 

This ruling, as pointed by the dissent, ignored the plain reading of the contract.[2] Although the 5-year warranty specifically included any sealant failure, the 10-year warranty spoke only to “seal failure of the double-glazed units.” If "Seal Failure” was meant to include both the seal between the units and the surrounding waterproof silicone seal, Owner would not have used such specific language. Instead, and as the dissent argued, the 10-year warranty language simply required Contractor to provide a manufacturer's warranty on the sealant, which it did.[2] Owner must have been in agreement with this back in 2006 as it accepted the warranty assignment and issued final payment.

TAKEAWAYS

1.Pay attention to the contract documents and perform a thorough review of drawings and specifications. I have too often seen critical warranty requirements scattered throughout various sections of the project manual, all of which increased the scope and duration of warranties called out for in the contract.

2. Analyze the risk and adjust your price accordingly. If the contract requires that you guarantee supplier warranties, as with the above case, potential liability is significantly increased. Who is to say that a particular manufacturer will still be in business in 10 years? Will the manufacturer stand by its product or refuse to respond to Contractor/Owner requests to repair? What if they disclaim? Any of these scenarios leaves you, Contractor, holding the bag.

[1] ​HTRF Venturers LLC v. Perma Stellaleisa North American Corp., 190 A.D.3d ( 1st Dept. 2021)

[2] Given this dissent, I would not be surprised if this matter makes its way up to New York's Court of Appeals.