Understanding Legal Liability in a Construction Joint Venture

October 1, 2022

A partner in a construction joint venture may have legal liability for the actions and debts of the joint venture. This can include liability for any claims or damages resulting from work performed. This liability comes in several forms.

This can include liability for defects in the construction, personal injury or property damage resulting from the joint venture’s work, and breach of contract claims brought by clients or other parties involved in the construction project. Furthermore, you may be jointly or individually liable for any claims or damages. This means that each partner may be individually responsible for the entire amount of a claim or damage, rather than just their share of the liability. For example, if the joint venture is sued for breach of contract and a judgment is entered against it, each partner may be required to pay their share of the judgment, but may also be required to pay the entire judgment if the other partners are unable to pay their share.

An example of liability in a joint venture

Here is a hypothetical example of liability resulting from a project to illustrate liability dynamics in a joint venture. Anna, Ben, and Carl are members of a joint venture called ABC Construction. They are hired to build a new apartment complex. During the construction process, one of the workers employed by ABC Construction is injured on the job and files a workers’ compensation claim. ABC Construction is liable for the worker’s medical expenses and lost wages resulting from the injury.

After the apartment complex is completed and the clients move in, several tenants discover significant defects in the construction, such as water leaks and faulty electrical wiring. The tenants bring a lawsuit against ABC Construction for breach of contract and seek a judgment for damages. The court enters a judgment against ABC Construction for $100,000 in damages. Anna, Ben, and Carl are jointly and severally liable for the judgment, which means that each is individually responsible for paying their share of the damages. Anna is able to pay her share of the damages, but Ben and Carl are not. Anna is now required to pay the entire $100,000 judgment, even though she is only responsible for one-third of the damages. If Anna had negotiated appropriate indemnification provisions in the joint venture agreement, she might have been able to shift some of the liability to the other partners or third parties, such as subcontractors or suppliers. In this case, however, Anna is left to bear the total burden of the damages.

What you may not know about legal liability in a joint venture

Here are some things that people may not know about legal liability in a joint venture:

  1. Partners in a construction joint venture may have legal liability for the actions and debts of the joint venture, even if they are not directly involved in the day-to-day operations of the joint venture.
  2. Partners in a joint venture may be jointly and severally liable for any claims or damages arising from the joint venture’s activities, even if the actions of a single partner cause the damages.
  3. Indemnification provisions in the joint venture agreement or contracts with third parties may not fully protect partners from legal liability. For example, if the indemnifying party is insolvent or unable to pay, the indemnified party may still be required to pay the damages.
  4. Insurance may not cover all potential claims or damages arising from the joint venture’s activities. Carefully review the terms and limits of any insurance policies obtained by the joint venture.
  5. Legal liability in a construction joint venture may be complex and depend on various factors, including the terms of the joint venture agreement and other contracts, the laws and regulations applicable to the joint venture’s activities, and the specific circumstances of any claims or damages. 

To protect yourself from potential legal liability as a party in a construction joint venture, a careful review of the terms of the joint venture agreement with an eye to indemnification provisions and minimizing risk is vital. Additionally, consider obtaining insurance to cover potential claims or damages arising from the project. An attorney experienced in construction law can help you understand your potential legal liability and take steps to protect your interests.