Texas Court Ruling Highlights Need to Establish Responsibilities

October 18, 2010
Legal Alert

Window manufacturers need to pay attention to a recent Texas Supreme Court ruling. Its decision in the case of Fresh Coat Inc. v. K-2 Inc. makes it more important than ever to establish clear, bright lines of roles and responsibilities between manufacturers and re-sellers.

The State of Texas has a statute providing that a “manufacturer shall indemnify and hold harmless a seller against a loss arising out of a products liability action, except for any loss caused by the seller’s negligence, intentional misconduct, or other act or omission, such as negligently modifying or altering the product, for which the seller is independently liable.” On its face, the statute appears to say essentially that a manufacturer should take responsibility over a re-seller for a claim of defective product where the re-seller did nothing wrong.

With the re-seller’s role in events such as product selection, code compliance, and even installation, it is not far-fetched to think that this statute is rarely ever applied against a window manufacturer. However, this has changed. The Texas Supreme Court recently interpreted this seemingly harmless statute to hold a manufacturer responsible for indemnifying a re-seller that was contractually obligated to indemnify a builder regardless of whether the re-seller was at fault.

A synthetic stucco re-seller/installer was found responsible for paying the builder for the builder’s settlement with the claimants and the builder’s attorneys’ fees ($726,642) which were owed based on the re-seller’s contract with the builder. The re-seller agreed in the contract to indemnify the builder regardless of whether the re-seller was actually at fault. The manufacturer had no notice of this contractual shifting of risk. When sued by the builder, the re-seller invoked the statute discussed above to transfer to the synthetic stucco manufacturer responsibility for paying to the builder the money owed by the re-seller.

The case involved a synthetic stucco manufacturer and re-seller/synthetic stucco installer, but could easily be applied to a window manufacturer  and a window dealer/installer as well. This outcome very likely could have been prevented if there were clear, bright lines delineated the roles and responsibilities of the manufacturer and re-seller. These clear, bright lines should be stated in the manufacturer’s documents that reach the re-seller, whether it be a distributor or dealer agreement, quotes and other sales documents.

This Legal Alert is presented by Paul Gary and Susan MacKay , attorneys at the Gary Law Group based in Portland, Ore. The firm specializes in legal services for the window and door industry. More information is available at www.prgarylaw.com.  Questions about this article and other legal issues may be sent to paul@prgarylaw.com.