I gave this to my class today and thought it might be of interest to some readers.
The principal can be held liable where the contractor’s performance involves an inherently dangerous activity. In the Majestic case, for example, the Parking Authority of the City of Paterson hired Toti Contracting to demolish a building adjacent to one owned by Majestic Realty.[1] A wrecking ball operated by a Toti employee knocked a section of wall onto the Majestic building’s roof, causing extensive damage. Humorously, the Toti employee explained: “I goofed.”[2] Majestic sued the Authority. The trial court held that Toti was an independent contractor and, accordingly, that the Authority could not be held liable. The New Jersey supreme court reversed, adopting:
[A] rule which would impose liability upon the landowner who engages an independent contractor to do work which he should recognize as necessarily requiring the creation during its progress of a condition involving a peculiar risk of harm to others unless special precautions are taken, if the contractor is negligent in failing to take those precautions. Such work may be said to be inherently dangerous, i.e., an activity which can be carried on safely only by the exercise of special skill and care, and which involves grave risk of danger to persons or property if negligently done.[3]
Demolition was just such an activity, according to the court.[4]
In a classic article, Professor Sykes explained that:
Vicarious liability is clearly efficient for many inherently dangerous activities. In cases where the agent’s activity requires particular, ex ante precautions the principal can require those precautions in the agency agreement, and provide that failure to undertake the precautions will result in loss of the agent’s fee in a one-period agency, discharge or demotion in a multiperiod agency, or some other adequately severe penalty. The enforcement costs of this simple agreement are low if the desired precautions are cheaply observable—opportunities for inexpensive observation of precautions arise in many inherently dangerous activities. Vicarious liability is unambiguously efficient under these conditions.[5]
Majestic distinguished inherently dangerous activities from ultra-hazardous ones.[6] Under Majestic, the principal is liable with respect to both types of activities. The difference is that the principal is vicariously liable with respect to liable ultra-hazardous activities without regard to the negligence of the contractor. As the Majestic court put it, the principal’s “liability is absolute where the work is ultra-hazardous, but it is contingent on proof of negligence in cases of inherently dangerous activity.”[7]
Judge Posner advanced an economic justification for the ultra-hazardous exception—which he called the “abnormally dangerous” activity exception—in Anderson v. Marathon Petroleum Co.[8] In general, Posner argued, a principal does not directly supervise the independent contractor’s work. Accordingly, the principal typically has little ability to prevent negligence on the part of the independent contractor (or the latter’s employees). Where an activity is abnormally dangerous, however, it is by definition one that “might very well result in injury even if conducted with all due skill and caution.”[9] With respect to such activities, Posner argued:
[I]t is important not only that the people engaged in it use the highest practicable degree of skill and caution, but also—since even if they do so, accidents may well result—that the people who have authorized the activity consider the possibility of preventing some accidents by curtailing the activity or even eliminating it altogether. . . . The fact that a very high degree of care is cost-justified implies that the principal should be induced to wrack his brain, as well as the independent contractor his own brain, for ways of minimizing the danger posed by the activity. And the fact that the only feasible method of accident prevention may be to reduce the amount of the activity or substitute another activity argues for placing liability on the principal, who makes the decision whether to undertake the activity in the first place.[10]
Note that this analysis seemingly would not justify an exception to the no liability rule where the conduct is merely inherently dangerous. Because inherently dangerous activities by definition can be conducted safely with special care and precautions, there seems less justification for requiring the principal to “wrack his brain” for precautions.[11]
[1] Majestic Realty Assoc., Inc. v. Toti Contracting Co., 153 A.2d 321 (N.J. 1959).
[2] Id. at 323.
[3] Id. at 326.
[4] Id. at 328.
[5] Alan O. Sykes, The Economics of Vicarious Liability, 93 Yale L.J. 1231, 1271–72 (1984).
[6] Majestic, 153 A.2d at 326. The court defined an ultra-hazardous activity as one that “(a) necessarily involves a serious risk of harm to the person, land or chattels of others which cannot be eliminated by the exercise of the utmost care, and (b) is not a matter of common usage.” Id. (quoting Restatement (First) of Torts § 520 (1938)).
[7] Id. (citations omitted).
[8] 801 F.2d 936 (7th Cir. 1986).
[9] Id. at 939.
[10] Id. at 939. Professor Sykes similarly argued that:
The imposition of vicarious liability is also generally efficient if the inherently dangerous activity is “dangerous in spite of all reasonable care.” The so-called “ultrahazardous” or “abnormally dangerous” activities, for which the tortfeasor is subject to strict liability, suggest a variety of examples. When the risk of loss from an activity is exceptionally great, the principal has an especially large incentive under a rule of personal liability to employ potentially insolvent agents. The result is a grossly excessive scale of risky activity-a problem that vicarious liability eliminates. Vicarious liability is efficient as long as this economic benefit outweighs any reduction in the loss-avoidance incentives of agents or any increase in the costs of agency contracts.
Alan O. Sykes, The Economics of Vicarious Liability, 93 Yale L.J. 1231, 1272 (1984).
[11] Anderson, 801 F.2d at 939. In Anderson, Posner also drew a distinction between tort suits brought against the principal by employees of the independent contractor and suits brought by injured third parties. As to the former, the “abnormally dangerous” exception does not apply. The common law rules are trumped by the “bedrock principle” that worker’s compensation statutes are the exclusive means of redress for injured workers with respect to job-related injuries. That principle protects not only the immediate employer—i.e., the independent contractor—but also the principals who contract with them. Id. at 941.
