I.     MECHANIC’S LIEN BASICS

Texas law recognizes two types of mechanic’s and materialman’s liens—statutory and constitutional. This section provides an overview of the requirements for both types  of liens, the enforcement and foreclosure of liens, and waiver of liens.

Additionally, one should be aware of filing a lien asserting a claim to “removables” which are defined as fixtures which may be removed without material  injury to the land and pre-existing improvements or to the actual fixtures.¹ Original contractors and subcontractors may file a lien for “removeables.”² Texas courts have held the following to qualify as “removables”: dishwashers, light fixtures, and toilets.

A.      Requirements

• • Constitutional Liens

Article XVI, § 37 of the Texas Constitution grants to mechanics, artisans and materialmen of every class a lien on the buildings and articles made or repaired by them for the value of their labor performed or material furnished, and requires that the Legislature provide by law for the speedy and efficient enforcement of such liens.³ No notice or filing requirements must be met for Constitution Liens to attach.

While this is a self-executing lien for improvements on the property Constitutional Liens are limited in comparison to Statutory Liens. Generally, Constitutional Liens are only available to the original contractor and the owner. However, a subcontractor is deemed to have the same rights as the original contractor for Constitutional Liens if it can be shown that the original contractor acquired his status by virtue of a sham relationship with the owner. ⁴ Specifically, Texas Property Code § 53.026 provides that a subcontractor has the same rights as a general contractor if (1) the owner contracted with other[s] for the construction and the owner can control the other person[s] through power from voting stocks, directorships, or otherwise or (2) the owner contracted with other[s] for the construction, but the contract was made without good faith that the other person would perform the construction. Because it is much easier to perfect a lien as a general contractor than as a subcontractor, a subcontractor should determine whether it can raise its status via the “Sham Contract.”

• • Statutory Liens

Statutory liens are available for more people than Texas Constitutional Liens as anyone who provides labor or materials, including specially fabricated materials, for the construction or repair of real property is afforded protection by statutory mechanics’ liens.⁵ The Texas Property Code’s statutory mechanics’ lien may be asserted by general contractors, subcontractors, materialmen, mechanics, laborers, or artisans.⁶ Consequently, lower-tier derivative claimants have lien rights in the event of nonpayment; however, the notice requirements are more extensive for these claimants than for the original contractor.⁷ All lien claimants other than the original contractor (the contractor that has a direct contract with the owner) are defined as derivative claimants, and derivative claimants must give notice and take other steps. If these numerous rules as set out in the Texas Property Code and described below are not strictly followed, the subcontractor will lose any lien claim rights.⁸

A claimant whose contract is not with the owner (a subcontractor or lower-tier claimant) must send periodic notices of the unpaid balance of the claim to the owner in order to perfect its statutory lien. These notices must be given periodically and not merely upon completion of work. These notices of nonpayment are preconditions to the validity of the lien, and if not provided there cannot be a valid lien, even though the lien affidavit itself may be timely filed.⁹ Contractually agreed retainage is considered an unpaid amount for the purposes of the statute and must be noticed in the same manner as amounts due and unpaid, unless notice of a retainage agreement is provided to the owner in the early stages of the project.¹⁰

The notices required to be delivered to the owner must be given to the owner and copied to the original contractor no later than the 15^th day of the third month following each month in which the claimant performed all or part of its work.¹¹ Notices must be sent by certified or registered mail, return receipt requested.¹²

If the derivative claimant’s contract is not with the original contractor (sub- subcontractors or other lower-tier claimants), notice must be given to the original contractor and the owner.¹³ Sub-subcontractors and other lower-tier claimants not in a direct contractual relationship with the original contractor must give notice to the original contractor no later than the 15^th day of the second month following each month in which the claimant performed all or part of its work.¹⁴

By contrast, an original contractor must complete only two steps to  establish his or her lien on the owner’s property. First, the original contractor must file a lien affidavit with the county clerk of the county in which the property is located. The deadline  for filing the lien affidavit is the 15^th day of the fourth calendar month from the day on which the indebtedness accrues, which is always the last day of the month in which the project was completed, except when the original contractor leaves the job before completing it.¹⁵ Second, the original contractor must send a copy of the lien affidavit to the owner by certified mail no later than five business days after the affidavit is filed.¹⁶

B.       Enforcement and Foreclosure

• • Constitutional Liens

The constitutional lien is self-executing but it is not self-enforcing.¹⁷ Thus, the Constitution further requires that the Legislature provide for the enforcement of mechanic’s liens.¹⁸ Pursuant to this constitutional mandate, Chapter 53 of the Texas Property Code sets forth the procedure for enforcing constitutional and statutory mechanic’s liens.¹⁹

• • Statutory Liens

Any lien claimant, whether original contractor, subcontractor, or lower-tier claimant, must file a lien affidavit with the county clerk in the county in which  the property is located in order to enforce or perfect its lien.²⁰ The affidavit must be signed by the claimant or by another person on the claimant’s behalf and must contain : (1) a sworn statement of the amount of the claim; (2) the name and last known address of the owner or reputed owner; (3) a general statement of the kind of work done and materials furnished by the claimant and, for a claimant other than an original contractor, a statement of each month in which the work was completed and materials furnished for which payment is requested; (4) the name and last known address of the person by whom the claimant was employed or to whom the claimant furnished materials or labor; (5) the name and last known address of the original contractor; (6) a description, legally sufficient for identification, of the property sought to be charged with the lien; (7) the claimant’s name, mailing address, and, if different, physical address; and (8) for a claimant other than the original contractor, a statement identifying the date each notice of the claim was sent to the owner and the method by which the notice was sent.²¹

The lien claimant must file the affidavit on the earlier of the 30^th day after the actual completion of the construction project, or the 15^th day of the fourth calendar month after the day on which the indebtedness accrues.²² A person claiming a lien arising from a residential construction project must file an affidavit no later than the 15^th day of the third calendar month after the day on which the indebtedness accrues.²² A proper determination of the date the indebtedness accrues depends on the category of lien claimant. The owner’s debt to the original contractor accrues on the last day of the month in which (1) the original contract is completed, finally settled or abandoned, or (2) either the owner or contractor receives from the other a written notice of contract termination.²³ A debt owed to a subcontractor or any party other than the original contractor or one furnishing specially fabricated materials, accrues on the last day of the last month in which the claimant performed labor or furnished materials.²³

A copy of the lien affidavit must be sent by registered or certified mail to the owner and original contractor no later than the fifth day after the date the affidavit is filed with the county clerk.²⁴ If the person claiming the lien is not an original contractor, he or she must also send a copy of the affidavit to the original contractor.²⁵

The deadline for bringing suit to foreclose the lien is the later of: (1) two years from the last day for the claimant to file its lien affidavit; or (2) one year after completion, abandonment, or termination of the original contract.²⁶ For residential construction, the limitations period is one year from the later of: (1) the last day for filing the affidavit; or (2) completion, abandonment, or termination of the original contract.²⁷

C.      Ability to Waive and Limitations on Lien Rights

Texas courts have held that the right to assert a mechanic’s or materialman’s lien may be waived.²⁸ Until 2011, waiver of these liens in Texas was analyzed strictly under case law, with courts finding waiver where there existed either an express agreement or an implication of waiver resulting from acts inconsistent with the continued existence of rights under the lien.²⁹ But there was no intentional waiver unless such intent has been made “very plain and clear.” The presumption was (and remains) against waiver.³⁰

However, in 2011 the Texas Legislature enacted new statutory language specifically addressing waiver of mechanic’s and materialman’s liens. For contracts entered into after January 1, 2012, purported waivers of mechanic’s and materialman’s liens are unenforceable unless a waiver and release is executed in accordance with Chapter 53 of the Texas Property Code.³¹ This chapter provides that a waiver and release releases the owner, the owner’s property, the contractor, and the surety on a payment bond from claims and liens only if: 1) the waiver and release substantially comply with the forms in Texas Property Code § 53.284; 2) the waiver and release is signed by the claimant or the claimant’s authorized agent and notarized; and 3) in the case of a conditional release, evidence of payment to the claimant exists.³²

Additionally, statements purporting to waive liens are only enforceable if: (1) the claimant has actually received payment in good and sufficient funds in full for the lien;

(2) the statement is in a written original contract or subcontract for land development related to, or the construction, remodel, or repair of a single-family house, townhouse, or duplex, and the statement is made before labor or materials are provided under the original contract or subcontract; or (3) the statement is in writing and substantially complies with Texas Property Code § 53.284.³³

Texas Property Code § 53.284 provides form language to be used to execute: a conditional waiver and release in exchange for or to induce the payment of a progress payment; an unconditional waiver and release to prove the receipt of good and sufficient funds for a progress payment; a conditional waiver and release in exchange for or to induce the payment of a final payment; and an unconditional waiver and release to prove the receipt of good and sufficient funds for a final payment.³⁴

These conditions on enforceability do not apply to “written agreements to subordinate, release, waive, or satisfy all or part of a lien or bond claim in: (1) an accord and satisfaction of an identified dispute; (2) an agreement concerning an action pending in any court or arbitration proceeding; or (3) an agreement that is executed after an affidavit claiming the lien has been filed.”³⁵

II.          PUBLIC PROJECT CLAIMS

Texas has codified statutory provisions to protect contractors and subcontractors who provide work on public construction projects. These protections are found in Texas Property Code § 53.231, the McGregor Act (Chapter 2253 of the Government Code), and the Texas Construction Trust Fund Act (Chapter 162 of the Texas Property Code). Note that while there are the aforementioned protections, a lien cannot be asserted against the public improvement itself.

A.      State and Local Public Work

Texas Property Code § 53.231 divides public work projects into two categories. Category #1 is for public work projects in which the prime contractor has entered into a contract that does not exceed $25,000 (or for $50,000 or less if the government entity is a municipality or a joint board created under Subchapter D, Chapter 22, Transportation Code). Category #2 is for public work projects with prime contracts that exceed $25,000 (or that exceed $50,000 if the applicable government entity is a municipality or a joint board created under Subchapter D, Chapter 22, Transportation Code). Category #2 is governed by the McGregor Act. Most public works projects fail into this category.

In both categories, the public official who receives proper notice must retain enough money to pay for the claim amount in the notice instead of directly paying the original contractor. However, the original contractor may file a bond for release of the lien which, if approved, releases all liens secured by the proper notice.

• • Notices and Enforcement

Category #1: A person who furnishes material or labor to a contractor has a lien on the money, bonds, or warrants due to the prime contractor.³⁶ Such claimant must give written notice to the official with the duty to pay the contractor within the time limits prescribed by the statutes.³⁷ Also, notice is due to the governmental authority and the contractor before the 16^th day of the second month after the month in which the labor was performed or the material was furnished.³⁸ Texas Property Code lists the requirements regarding what the notice must contain.³⁹

Category #2: A claimant who furnished material or labor provided for in a contract covered by a payment bond must send the notices by certified or registered mail, return receipt requested, to the prime contractor and the surety or sureties.⁴⁰ The notice requirements can be waived by the surety when the surety, after receiving improper notice, creates an impression that the notice is adequate.⁴¹ The surety and prime contractor must be given notice on or before the 15^th day of the third month after each month the labor was performed or materials supplied and must be accompanied by a sworn statement of account.⁴² Further, Texas Government Code § 2253.043(a) contains the requirements for notice when there is no written agreement between the payment bond beneficiary and the prime contractor (or subcontractor), and Texas Government Code § 2253.044 contains notice requirements regarding a claim for lump-sum payment for multiple items of labor or material. If the claimant is delivering material or working for a subcontractor, the claimant has additional notice requirements.⁴³

B.       Claims to Public Funds

There are no claims to public funds for public project works in Texas. Instead, the remedies are described above.

III.          STATUTES OF LIMITATION AND REPOSE

A.     Statutes of Limitation and Limitations on Application of Statutes

• • Breach of Contract

The limitations period for an action for breach of contract is four years after the day the cause of action accrues.⁴⁴

• • Tort

The statute of limitations for negligence,⁴⁵ professional negligence,⁴⁶ and negligent misrepresentation⁴⁷ is two years. However, note that the economic loss rule precludes recovery in tort where the damages relate only to the subject matter of a contract.⁴⁸

• • Fraud

The statute of limitations for fraud is four years from the date of accrual of the cause of action.⁴⁹

• • Deceptive Trade Practices Act

An action must be commenced within two years after the date on which the false, misleading, or deceptive act or practice occurred or within two years after the consumer discovered, or in the exercise of reasonable diligence should have discovered, the occurrence of the false, misleading, or deceptive act or practice. The limitation period is extended by 180 days if the plaintiff proves that its failure to commence the action timely was caused by the defendant’s conduct that was calculated to induce the plaintiff to refrain from or postpone the commencement of the action.⁵⁰ The plaintiff does not need to know the full extent of the injury for limitations to begin to run.⁵¹

• • Breach of Implied Warranty

Generally, the limitations period on a breach of implied warranty ends four years from the date of the breach that results in the legal injury.⁵² The application of the discovery rule has not yet been determined by Texas courts. It is not available for breach of implied warranty cases under the Uniform Commercial Code (UCC). ⁵³ Further, there is no implied warranty for breach of professional services.⁵⁴

• • Discovery Rule

The discovery rule defers the accrual of a cause of action’s accrual until the plaintiff knows, or by the exercise of reasonable diligence should know, of the wrongful act and resulting injury.⁵⁵ For the discovery rule to apply, the plaintiff must prove the injury was inherently undiscoverable and objectively verifiable.⁵⁶ The limitations period accrues when the plaintiff discovers or should have discovered the damage and that it was likely caused by the wrongful acts of another—it is unnecessary for the plaintiff to know the exact identity of the wrongdoer.⁵⁷The Texas Supreme Court has held that once a plaintiff learns of a wrongful injury, the statute of limitations begins to run even if plaintiff does not yet know the cause of injury, the responsible party, or the full extent of damages.⁵⁸ The discovery rule has been applied to construction defect cases.⁵⁹ It is specifically applicable to a cause of action under the Texas Deceptive Trade Practices Act.⁶⁰ It is undetermined, however, whether the discovery rule applies to a breach of implied warranty to perform services in a good and workmanlike manner.

B.    Statutes of Repose and Limitations on Application of Statutes

• • Contractors and Subcontractors

A claimant must bring suit for damages for personal injury, property damage, wrongful death, contribution or indemnity against a person who constructs or repairs an improvement to real property within ten years after the substantial completion of the improvement in an action arising out the defective or unsafe condition of the real property or deficiency in the construction or repair of the improvement.⁶¹ If the claimant presents a written claim for damages, contribution, or indemnity to such a person during the ten-year limitations period, the period is extended for two years from the date of presentment.⁶² Further, if the damage, injury, or death occurs during the 10^th year of the limitations period, the claimant has two years after the date the cause of action accrues to bring the claim.⁶³

• • Design Professionals

A person must bring a suit for damage to real or personal property, personal injury, death, contribution, or indemnity against a registered or licensed architect, engineer, interior designer, or landscape architect who designs, plans, or inspects the construction of an improvement to real property or equipment attached to real property  no later than ten years after (a) the substantial completion of the improvement or (b) the beginning of operation of the equipment in an action arising out of a defective or unsafe condition of the real property, the improvement, or the equipment.⁶⁴ If a written claim for such damages is brought against these persons within the ten-year limitations period, the period is extended for two years from the date the claim is presented.⁶⁵

• • Surveyors

A person must bring suit for damages arising from an injury or loss caused by an error in a survey conducted by a registered public surveyor or a licensed state land surveyor not later than ten years after the date the survey is completed.⁶⁶ If a written claim for damages to the surveyor is presented during the ten-year limitations period, the period is extended for two years from the date the claim is presented.⁶⁷

• Exception to Limitations and Statutes of Repose

In Texas, there is a process whereby a defendant may designate a person as a “responsible third party” without formally adding that person to the lawsuit as a party.⁶⁸ The plaintiff is not barred by limitations from seeking to join a person designated as a responsible third party, even though joinder would otherwise be barred by limitations, as long as the claimant seeks joinder within sixty days of the designation .⁶⁹ The application of this section includes only “limitations,” not statutes of repose.⁷⁰

IV.      PRE-SUIT NOTICE OF CLAIM AND OPPORTUNITY TO CURE

Generally, in construction defect cases, there is no requirement to provide pre-suit notice of claim or to provide an opportunity to cure, except in certain statutory instances.

A.     Breach of Contract

There is no requirement for pre-suit notice of claim. However, if the claimant intends to seek statutorily allowed attorney’s fees, the claimant must present the claim to the opposing party and allow thirty days for payment of the claim, prior to filing suit.⁷¹

B.     Texas Deceptive Trade Practices Act

A consumer must give written notice to the proposed defendant at least sixty days before filing a DTPA claim.⁷² The notice must provide in reasonable detail the specific complaints and amount of economic damages, damages for mental anguish, and expenses, including attorney’s fees reasonably incurred in asserting the claim against the proposed defendant.⁷³ During this sixty-day period, a written request to inspect in a reasonable manner and reasonable time and place may be presented to the consumer.⁷⁴ If this sixty-day notice requirement is not met, the person against whom the lawsuit is subsequently filed may file a plea in abatement no later than thirty days after the answer is filed.⁷⁵ The court must abate the lawsuit and the abatement continues until the 60^th day after the date that written notice is served in compliance with this statute.⁷⁶ Notice is not required if it is impracticable because the statute of limitations is about to run or if the plaintiff’s claim is brought as a counterclaim.⁷⁷

However, the DTPA does not apply to certain large transactions. Section 17.49(f) states that the DTPA does not apply to claims arising from a written contract if the total consideration is more than $100,000, the consumer was represented by counsel in negotiating the contract, and the contract does not involve a residence. Section 17.49(g) also explains that the DTPA does not apply to claims involving total consideration of more than $500,000, other than a cause of action concerning a consumer’s residence.

C.     Residential Construction Defects

An action to recover damages or other relief arising from a construction defect, except a claim for personal injury, survival, or wrongful death or for damage to goods, is governed by the Residential Construction Liability Act (RCLA).⁷⁸ A claimant seeking damages under the RCLA must give written notice to the contractor at least sixty days before the date the claimant files an action.⁷⁹ However, if this claim is a counterclaim or asserted to avoid limitations, the notice requirement is excused. If notice is not provided, the contractor can abate the lawsuit or arbitration if the homeowner fails to (1) provide the required notice to the contractor of the RCLA proceeding; (2) permit inspection of the property; or (3) follow the procedures applicable to the contractor’s settlement and repair offers.⁸⁰

Within forty-five days of receiving notice, the contractor may make a written settlement offer to the claimant, which may include an agreement to repair the defect or have it repaired by an independent contractor at the contractor’s expense.⁸¹ A claimant who rejects a reasonable settlement offer or who does not permit a reasonable  opportunity to inspect or repair the defect after accepting the offer may not recover more than the fair market value of the contractor’s last settlement offer or a reasonable settlement amount.⁸² If the contractor fails to make a reasonable settlement offer, the contractor loses all defenses to liability and the protections of damages limitations provided by the RCLA.⁸³

III.                INSURANCE COVERAGE AND ALLOCATION ISSUES

A.     General Coverage Issues

Texas state and federal courts are divided on the applicability of commercial general liability (“CGL”) coverage for defective construction, especially on the issue of whether a contractor’s negligence can constitute an “occurrence” or “property damage.” In Lamar Homes, Inc. v. Mid-Continent Casualty Company, the Texas Supreme Court addressed this issue on the following certified questions from the Fifth Circuit Court of Appeals:

• When a homebuyer sues his general contractor for construction defects and alleges only damage to or loss of use of the home itself, do such allegations allege an “accident” or “occurrence” sufficient to trigger the duty to defend or indemnify under a CGL policy?
• Do such allegations allege “property damage” sufficient to trigger the duty to defend or indemnify under a CGL policy?⁸⁴

The Texas Supreme Court answered these questions in the affirmative, but it did not reach the question of duty to indemnify.⁸⁵

In Lamar Homes, homebuyers purchased a new home from Lamar Homes and subsequently encountered problems that they attributed to defects in the home’s foundation.⁸⁶ The homebuyers sued Lamar Homes and its subcontractor and Lamar Homes, in turn, forwarded the lawsuit to Mid-Continent Casualty Company (“Mid- Continent”) seeking defense and indemnification under a CGL insurance policy.⁸⁷ When Mid-Continent refused to defend, Lamar sought a declaration of its rights under the CGL policy.⁸⁸ On cross motions, the federal district court granted summary judgment for Mid- Continent, holding it had no duty to defend Lamar Homes for construction errors that harmed only Lamar Homes’ own project.⁸⁹ In view of the inconsistent authority concerning this issue, the Fifth Circuit asked the Texas Supreme Court to resolve the conflict.⁹⁰

The Texas Supreme Court first analyzed whether defective construction or faulty workmanship damaging only the insured’s work is an “occurrence.”⁹¹ Noting the CGL policy’s definition of “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions,” the Court explained that “the determination of whether an insured’s faulty workmanship was intended or accidental is dependent on the facts and circumstances of the particular case,” and that for purposes of the duty to defend, the eight-corners rule applies.⁹² Because the complaint alleged that the defective construction was a product of the builder’s negligence, the Court found no allegation of intentional conduct.⁹³

The Court then analyzed whether the contractor’s negligence constituted “property damage” and noted the definition of “property damage” as “‘[p]hysical injury to tangible property, including all resulting loss of use of that property.”⁹⁴ The Supreme Court stated that, on its face, this definition did not eliminate the work performed by Lamar Homes.⁹⁵ Mid-Continent disagreed and argued that CGL coverage does not apply to defective construction that injures only the work of the contractor because the policy’s purpose is to protect from tort liability, not claims of defective performance under a contract, and that defective work is not an occurrence because it is not accidental.⁹⁶ The carrier also urged that damage to the insured’s own work was a contractual economic loss, not “property damage.”⁹⁷ In response, the Court emphasized that “the proper inquiry is whether an ‘occurrence’ has caused ‘property damage,’ not whether the ultimate remedy for that claim lies in contract or in tort.”⁹⁸ Thus, the Court held that “claims for damage caused by an insured’s defective performance or faulty workmanship’ may constitute an ‘occurrence’ when ‘property damage’ results from ‘unexpected, unforeseen or undesigned happening or consequence’ of the insured’s negligent behavior.”⁹⁹

B.       Trigger of Coverage

Another split among Texas courts concerns the proper rule to determine when property damage “occurs” under a CGL policy. In Don’s Building Supply, Inc. v. OneBeacon Insurance Company, the Texas Supreme Court resolved this issue on the following certified questions from the Fifth Circuit Court of Appeals:

• When not specified by the relevant policy, what is the proper rule under Texas law for determining the time at which property damage occurs for purposes of an occurrence- based commercial general liability insurance policy?
• Under the rule identified in the answer to the first question, have the pleadings in lawsuits against an insured alleged that property damage occurred within the policy period of an occurrence-based commercial general liability insurance policy, such that the insurer’s duty to defend and indemnify the insured is triggered, when the pleadings allege that actual damage was continuing and progressing during the policy period, but remained undiscoverable and not readily apparent for purposes of the discovery rule until after the policy period ended because the internal damage was hidden from view by an undamaged exterior surface?¹⁰⁰

The Texas Supreme Court held that, at least with respect to the CGL policy at issue, “property damage” occurred when actual physical damage occurred and that the duty to defend was triggered when the property damage occurred, which was within the policy period.¹⁰¹

In Don’s Building Supply, various Texas homeowners filed lawsuits  against Don’s Building Supply (“DBS”) from 2003 to 2005, alleging that a certain siding system installed in their homes between 1993 and 1996 was defective.¹⁰² During that period DBS was covered by CGL policies issued by OneBeacon Insurance Company (“OneBeacon”).¹⁰³ The homeowners argued that their injuries “‘actually began to occur on the occasion of the first penetration of moisture behind [the siding system],’ which they say was ‘within six months to one year after the application of the [siding system].’”¹⁰⁴ The homeowners sought to avoid limitations problems for their claims by pleading the discovery rule, arguing that the home damage was “‘hidden from view’ by the siding’s undamaged exterior” and “not discoverable or readily apparent to someone looking at that surface until after the policy period ended.”¹⁰⁵ OneBeacon filed for a declaratory judgment action in federal district court seeking a ruling that it had no duty to defend or indemnify under the CGL policies.¹⁰⁶ The district court agreed with  OneBeacon and held that the duty did not arise until the damage became identifiable.¹⁰⁷ DBS appealed to the Fifth Circuit, which certified the above questions to the Texas Supreme Court.¹⁰⁸

With respect to the first question, the Court first considered the definition of “property damage” provided in the CGL policy and held that “property damage” under this policy occurred when actual physical damage was inflicted.¹⁰⁹ As such, property damage to one of the homes at issue occurred when the home suffered wood rot or other physical damage. The Court further stated that “the date the physical damage is or could have been discovered is irrelevant under the policy.”¹¹⁰ After a thorough examination of case law regarding various approaches courts have taken in determining when “property damage” occurs, the Court adopted the actual injury rule, as opposed to the manifestation or exposure rules.¹¹¹ The Court reasoned as follows:

The policy in straightforward wording provides coverage if the property damage ‘occurs during the policy period,’ and further provides that property damage means ‘[p]hysical injury to tangible property.’ Whatever practical advantages a manifestation rule would offer to the insured or the insurer, the controlling policy language does not provide that the insurer’s duty is triggered only when the injury manifests itself during the policy term, or that coverage is limited to claims where the damage was discovered or discoverable during the policy period.

Similarly, the policy’s language does not support adoption of an exposure rule, at least not where there is ‘physical injury to tangible property’ as alleged in this case. Again, the policy provides coverage if the “‘property damage’ occurs during the policy period.” The policy does not state that coverage is available if property is, during the policy period, exposed to a process, event, or substance that later results in bodily injury or physical injury to tangible property.

We therefore decline to recognize a manifestation rule or exposure rule for the property damage claims alleged under this policy. (Citation omitted). This policy links coverage to damage, not damage detection. Engrafting a manifestation rule to limit coverage—by conditioning coverage on the observations of a third-party claimant would blur the distinction between this occurrence-based policy and a claims-made policy.¹¹²

The Court further emphasized that it did not endeavor to create a “universally applicable ‘rule’ for determining when an insurer’s duty to defend a claim is triggered under an insurance policy,” but rather that “determinations should be driven by the contract language-language that obviously may vary from policy to policy.”¹¹³

In answering the second certified question, the Court relied on the eight-corners rule in holding that the insurer’s duty to defend DBS depends on whether the homeowners’ pleadings allege property damage that occurred during the policy term:

Under the actual-injury rule applicable to this policy, a plaintiff’s claim against DBS that any amount of physical injury to tangible property occurred during the policy period and was caused by DBS’s allegedly defective product triggers OneBeacon’s duty to defend. This duty is not diminished because the property damage was undiscoverable, or not readily apparent or “manifest,” until after the policy period ended. Nor does it depend on whether DBS has a valid limitations defense. The parties could have conditioned coverage on identifiability, but the contract imposes no such limitation.¹¹⁴

The Court stressed that its holding was directed only to the specific questions posed by the Fifth Circuit and was limited to the specific language of the CGL policy at issue concerning property damage in the construction defect context.¹¹⁵

C.      Allocation Among Insurers

In cases where property damage occurs over the course of two or more policy periods, Texas law is clear that an insurer’s duty to defend its insured “is not reduced pro rata by the insurer’s ‘time on the risk’ or by any other formula.”¹¹⁶ On the contrary, “the insurer’s duty is to provide its insured with a complete defense.”¹¹⁷

D.      Issues with Additional Insurance

Traditionally, Texas law has allowed construction contracts to require the general contractor and subcontractors to name the owner and/or the general contractor as “additional insureds” under their liability policies.¹¹⁸

However, for construction contracts entered into after January 1, 2012, additional insurance requirements designed to protect an owner or general contractor from the consequences of their own negligence are voided. This is a consequence of the Texas Anti-Indemnity Act, which includes anti-indemnification language designed to prevent owners and general contractors on construction projects from shifting the risk of their own negligence or breach of contract to subcontractors.¹¹⁹

IV.                CONTRACTUAL INDEMNIFICATION

A.      Contracts entered into Prior to January 1, 2012

The Texas Anti-Indemnity Act significantly changed contractual indemnification in the context of construction contracts. Its anti-indemnification provisions are effective for contracts entered into after January 1, 2012.¹²⁰ For contracts entered into before January 1, 2012, normal rules of contract construction will govern the enforceability of indemnification provisions, with the primary goal of determining the intent of the parties.¹²¹ However, even prior to the new law’s enactment, the Texas Supreme Court recognized the extraordinary risk shifting associated with indemnifying a party for its own negligence and required that indemnity clauses satisfy the express negligence test and the conspicuousness requirements.¹¹²² Whether an indemnity clause complies with these fair notice requirements is a question for the court, and a clause which fails to satisfy either of the fair notice requirements when they are imposed is unenforceable as a matter of law.¹²³

• •     The Express Negligence Doctrine

The express negligence doctrine is set out in Ethyl Corp. v. Daniel Const. Co.¹²⁴ The purpose of the express negligence test is to require a party who attempts  to indemnify itself from its own negligence to express that intent in specific terms.¹²⁵ The intent of the parties must be specifically stated within the four corners of the contract.¹²⁶

The Texas Supreme Court adopted the express negligence test in an attempt to stem the tide of litigation resulting from ambiguous indemnity agreements.¹²⁷ The Court sought to thwart the efforts of drafters to “indemnify the indemnitee for its negligence, yet be just ambiguous enough to conceal that intent from the indemnitor.”¹²⁸ The courts have recognized that indemnifying a party for its own negligence involves a dramatic shifting of risks.¹²⁹ The express negligence test was designed to guard against the unfairness that results when one party is unaware that it has assumed responsibility for another’s negligence.¹³⁰ Requiring such an indemnity provision to be clearly and unambiguously drafted ensures that the indemnitor is well aware that he is assuming this extra burden.¹³¹

In Ethyl, an employee of the contractor, Daniel Construction, was injured while working on a construction project for the owner, Ethyl. The employee sued the owner, who in turn sued the contractor for indemnification based upon the following indemnification clause in the contract between the owner and the contractor: “Contractor shall indemnify and hold Owner harmless against any loss or damage to persons or property as a result of operations growing out of the performance of this contract and caused by the negligence or carelessness of Contractor, Contractor’s employees, Subcontractors and agents or licensees.”¹³² Ethyl argued that the words “any loss” and “as a result of operations” showed an intent by the contractor to indemnify Ethyl for Ethyl’s own negligence.¹³³ The Court disagreed and held that the indemnity provision did not meet the express negligence test.¹³⁴

Another example of an indemnity agreement that failed to meet the express negligence test occurred in Robert H. Smith, Inc. v. Tennessee Tile, Inc.¹³⁵ The contract in Smith provided that the subcontractor, Tennessee Tile, would indemnify the contractor, Robert H. Smith, for “any negligent act or omission of Tennessee Tile, arising out of or resulting from the performance of the Subcontractor’s Work … regardless of whether it is caused in part by a party indemnified hereunder.”¹³⁶ That court held the subcontractor did not, by that language, indemnify the contractor for the contractor’s own negligence.¹³⁷

The Supreme Court of Texas has also found that the express negligence doctrine was satisfied in a number of cases involving indemnity agreements. In Enserch Corp. v. Parker,¹³⁸ the contract stated that Christie, the indemnitor, “assumes entire responsibility for any claim … regardless of whether such claims … are founded in whole or in part  upon alleged negligence of [Enserch], [Enserch’s] representative, or the employees, agents, invitees, or licensees thereof.”¹³⁹ The Court held that this contract sufficiently showed that Christie expressly agreed to indemnify Enserch for the consequences of Enserch’s own negligence.¹⁴⁰

One Texas appellate court has applied Enserch to find that the express negligence requirement may be met when an indemnity agreement is comprised from multiple separate provisions of the contract.¹⁴¹ The Houston Court of Appeals read Enserch as supporting the conclusion that the agreement need not be confined to one paragraph, and that the contract should be read as a whole to divine the parties’ intent.¹⁴² Taking the multiple indemnity paragraphs together, the court found that the contract as a whole met the express negligence test.¹⁴³

• • The Conspicuousness Requirement

In Dresser Industries, the Texas Supreme Court adopted the UCC standard for conspicuousness.¹⁴⁴ The UCC provides: A term or clause is conspicuous when it is so written that a reasonable person against whom it is to operate ought to have noticed it. A printed heading in capitals (as: NON-NEGOTIABLE BILL OF LADING) is conspicuous. Language in the body of a form is “conspicuous” if it is in larger or other contrasting type or color. But in a telegram, any term is “conspicuous.”¹⁴⁵

At least one Texas court of appeals has applied Dresser in holding that a capitalized heading and text of the indemnity clause rendered the indemnity clause conspicuous, even when part of the clause was on a subsequent page and not capitalized.¹⁴⁶ The indemnification clause in the service contract began with the capitalized heading “INDEMNIFICATIONS,” and the main body of the clause was also capitalized, including an indicator that examples were to follow (“…INCLUDING BUT NOT LIMITED TO:…”).¹⁴⁷ On the next page of the contract, the clause continued with numbered paragraphs in regular, uncapitalized text.¹⁴⁸ The court found that the capitalization of the initial indemnification paragraph was sufficient to attract the attention of a reasonable person to both the main clause, and the subsequent, uncapitalized portions of the agreement.¹⁴⁹

B.     Contracts Entered into After January 1, 2012

The Texas Anti-Indemnity Act, which became effective January 1, 2012, did away with the express negligence and conspicuousness considerations discussed above for contracts entered into after January 1, 2012.¹⁵⁰ The Act added anti-indemnification language designed to prevent owners and general contractors on construction projects from shifting the risk of their own negligence or breach of contract to subcontractors.¹⁵¹

In particular, Section 151.102 of the Texas Insurance Code now provides that “a provision in a construction contract … is void and unenforceable … to the extent that it requires an indemnitor to indemnify, hold harmless, or defend a party, including a third party, against a claim caused by the negligence or fault … of the indemnitee, its agent or employee, or any third party under the control or supervision of the indemnitee …”¹⁵²

The new provisions of the Texas Insurance Code contain exceptions, including claims brought by an employee of a subcontractor.¹⁵³ This will allow a  general contractor to continue to protect against claims brought by injured persons who are  barred from suing their own employer. Other exceptions include such things as homebuilders, municipal projects, oil and gas projects and railroad work.¹⁵⁴ These  groups already have laws in effect, however, which may achieve similar purposes.

C.     Indemnity with Respect to Architects and Engineers

Section 130.002 of the Texas Civil Practice & Remedies Code states that any provision in a construction contract which attempts to require a contractor to indemnify or hold harmless a registered architect or licensed engineer, or an agent, servant, or employee of a registered architect or licensed engineer from liability for damage caused by defects in plans, specifications, or other design documents, or the negligence of the architect or engineer in his professional duties arising out of the construction design documents, is void and unenforceable.¹⁵⁵

At least one Texas court has narrowly construed this statute. In Foster, Henry, Henry & Thorpe, Inc. v. J.T. Constr. Co.,¹⁵⁶ after a jury apportioned 0% fault to the architect, the architect sought to enforce its contractual indemnity clause against the contractor in order to recover attorney’s fees and court costs.¹⁵⁷ The Foster court concluded that Section 130.002 did not apply, as Plaintiff’s claimed damages were the result of the contractor’s, not the architect’s, negligence, and as Section 130.005 of the Code specifically states that the chapter does not apply where the indemnity is for the negligent acts of the contractor. Accordingly, the court reversed the contractor’s take nothing judgment against the architect.¹⁵⁸

V.                CONTINGENT PAYMENT AGREEMENTS

The Texas Legislature has set parameters on the use and enforceability of contingent payment clauses, also known as “pay when paid” and “pay if paid” clauses, in construction contracts. A contingent payment clause is defined by statute as “a contract for construction management, or for the construction of improvements to real property or the furnishing of materials for the construction, that provides that the contingent payor’s receipt of payment from another is contingent precedent to the obligation of the contingent payor to make payment to the contingent payee for work performed or materials furnished.”¹⁵⁹

Assertion of a contingent payment clause is an affirmative defense in a civil  action for payment under a contract.¹⁶⁰ Obligors—those persons obligated to make payments to the contingent payor for the improvement, and primary obligors—the owners of the real property to be improved or repaired under the contract— may not prohibit contingent payors from allocating risk by means of contingent payment clauses.¹⁶¹

A.      Enforceability

Such clauses are unenforceable to the extent that the obligor’s nonpayment to the contingent payor is the result of the contingent payor’s failure to meet the contractual obligations, unless the nonpayment is the result of the contingent payee’s failure to meet the contingent payee’s contractual requirements.¹⁶²

Contingent payment clauses may not be enforced if the contingent payor is in a “sham relationship” with the obligor, or if the enforcement would be unconscionable.¹⁶³

A contingent payor or its surety may not enforce a contingent payment clause as to work performed or materials delivered after the contingent payor receives written notice from the contingent payee objecting to the further enforceability of the clause, and such written notice becomes effective.¹⁶⁴ The written notice may be sent only after the 45^th day after the date the contingent payee submits a written request for payment to the contingent payor that is in a form substantially in accordance with the contingent payee’s contract requirements for the contents of a regular progress payment request or an invoice.¹⁶⁵ As detailed in Chapter 56 of the Texas Business and Commerce Code, the date the written notice becomes effective is dependent upon the type of project.¹⁶⁶ In addition, a contingent payment clause may not be used to invalidate the enforceability  or perfection of a mechanic’s lien.¹⁶⁷

B.       Notable Exceptions

The statutory restrictions on enforceability do not apply to contracts that are solely for: design services; construction or maintenance of a road, highway, street, bridge, utility, water supply project, water plant, wastewater plant, water and wastewater distribution or conveyance facility, wharf, dock, airport runway or taxiway, drainage project, or related type of project associated with civil engineering construction; or improvements to or the construction of a detached single-family residence, duplex, triplex, or quadruplex.¹⁶⁸

These provisions do not affect a contract provision concerning the timing of a payment in a contract for construction management or for the construction of improvements to real property if the payment is to be made within a “reasonable period.”¹⁶⁹

C.    Waiver Prohibition

These statutory provisions may not be waived, and any purported waiver is void.¹⁷⁰

VI.                SCOPE OF DAMAGE RECOVERY

A.     Personal Injury Damages vs. Construction Defect Damages

A plaintiff’s available damages arising from a construction project are dependent upon whether the claim is a personal injury claim brought under tort law or a claim for construction defects brought under theories of general contract law or certain statutes.

• • Personal Injury Damages

In a personal injury suit, tort principles apply, which entitle a plaintiff to his actual damages. Actual damages may include both economic and non-economic damages, such as medical expenses (economic) and compensation for physical and mental pain and suffering (non-economic).¹⁷¹ By statute, exemplary damages are only available if the harm results from: a) fraud, b) malice, c) gross negligence, or d) specified circumstances or culpable mental states set out in particular statutes.¹⁷² The claimant must prove the elements of exemplary damages by clear and convincing proof.¹⁷³ Attorney’s fees are not generally available in personal injury suits.

• • Construction Defect Damages
    • Standard Breach of Contract

Construction defect claims may be brought in several different ways, each with its own damage limitations. In a standard breach of contract suit for the construction defect, the claimant is entitled to his expectancy damages.¹⁷⁴ Exemplary damages are not generally recoverable in breach of contract cases.¹⁷⁵ Attorney’s fees may be allowed under Chapter 38 of the Texas Civil Practices and Remedies Code, which permits recovery of attorney’s fees for breach of oral or written contracts.¹⁷⁶  Attorney’s fees  may also be recovered if the contract contains provides for such recovery.¹⁷⁷ If a direct contractual relationship does not exist, a claimant may rely on the statutory attorney’s fees provisions applicable to suits for rendered services, performed labor, or furnished material.¹⁷⁸

• • • Residential Construction Liability Act

If the claim relates to a construction defect in residential property and is brought under the Residential Construction Liability Act, the claimant may recover only the following economic damages: 1) the reasonable cost of repairs necessary to cure any construction defect; 2) the reasonable and necessary cost for the replacement or repair of any damaged goods in the residence; 3) reasonable and necessary engineering and consulting fees; 4) the reasonable expenses of temporary housing reasonably necessary during the repair period; 5) the reduction in current market value, if any, after the construction defect is repaired, if the construction defect is a structural failure; and 6) reasonable and necessary attorney’s fees.¹⁷⁹

• • • Deceptive Trade Practices Act

Additionally, if a claimant brings suit under the Deceptive Trade Practices Act for breach of express or implied warranty, the claimant may recover economic damages and attorney’s fees. If the trier of fact finds that the breach was committed knowingly or intentionally, the court may award mental anguish and exemplary damages.¹⁸⁰

B.       Attorney’s Fees Shifting and Limitations on Recovery

• • Generally

For more than a century, Texas law has refused to allow the recovery  of attorney’s fees in tort actions or suits on contract unless such fees are specifically authorized by statute or contract.¹⁸¹ Trial courts are not permitted to require a losing party to pay the prevailing party’s fees without such statutory or contractual authorization.¹⁸² This is known as the traditional “American Rule.” The opposite rule, known as the “loser pays” or “English Rule,” is common in many other countries and allows a court to award attorney’s fees to the prevailing party.¹⁸³

• • Statutory Authorization

For certain actions, the Texas Legislature has provided statutory authorization for the award of attorney’s fees. For example, an award of attorney’s fees in contract cases is provided by Chapter 38 of the Texas Civil Practice and Remedies Code, which authorizes the recovery of fees “from an individual or corporation” for any claim on an ‘‘oral or written contract,” provided that the claimant actually retains an attorney, presents the written claim to the opposing party, and allows the opposing party at least thirty days to tender payment of the contract damages.¹⁸⁴ This statute also allows for fee recovery associated with claims for performed labor and furnished material, amongst other claims.¹⁸⁵ However, note that recovery is not allowed from an LLC as an LLC is not a corporation under the eyes of the law.¹⁸⁶

In 2011, the Texas Legislature expanded opportunities for fee recovery by adopting a limited version of the English Rule. Chapter 30 of the Civil Practices and Remedies Code now provides that, “on a trial court’s granting or denial, in whole or in part, of a motion to dismiss” of a cause of action that has a basis in law or fact on motion and without evidence, the court shall award attorney’s fees to the prevailing party.¹⁸⁷ However, this legislation does not apply to actions by or against the state, other governmental entities, or public officials acting in their official capacity or under color of law.¹⁸⁸

• • Contractual Authorization

Many contracts include “fee-shifting” provisions stating that attorney’s fees may be recoverable by the prevailing party in a dispute related to the contract. The contract may specify a particular amount or provide for the recovery of “reasonable” attorney’s fees. In Texas, these provisions are generally enforceable, and the language of the contract governs, even if attorney’s fees would have been available under statute.¹⁸⁹

C.      Consequential Damages

Section 2-719 of the U.C.C. allows parties to limit or exclude consequential damages in their contracts.¹⁹⁰ This is codified in Texas Business and Commerce Code § 2.719(c) as follows: “Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable. Limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not.”¹⁹¹

D.      Delay and Disruption Damages

Delay and disruption damages are generally allowed in Texas. To recover such damages, the Plaintiff has the burden to prove that the delays caused the Plaintiff’s damages.¹⁹²

However, most construction contracts have a “no damage for delay”  clause, which can modify the rights to damages for delay.¹⁹³ These clauses are often upheld, but as held by the Texas Supreme Court, there are notable exceptions when the delay:

• was not intended or contemplated by the parties to be within the purview of the provision;
• resulted from fraud, misrepresentation, or other bad faith on the part of one seeking the benefit of the provision;
• has extended for such an unreasonable length of time that the party delayed would have been justified in abandoning the contract; or
• is not within the specifically enumerated delays to which the clause ¹⁹⁴

E.       Economic Loss Doctrine

The economic loss rule limits recovery in negligence cases when the damages relate only to the subject matter of a contract. LAN/STV v. Martin K. Eby Constr. Co., 435 S.W.3d 234, 238-45 (Tex. 2014); Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d 407, 415-18 (Tex. 2011). More specifically, the economic loss rule “precludes recovery in tort for economic losses resulting from a party’s failure to perform under a contract when the harm consists only of the economic loss of a contractual expectancy.” Chapman Custom Homes v. Dallas Plumbing, 445 S.W.3d 716, 718-19 (Tex. 2014) (per curiam).

In Levco Constr., Inc. v. Whole Foods Mkt. Rocky Mt./Sw. L.P., No. 01-15-00620- CV, 2017 Tex. App. LEXIS 7614 (Tex. App.—Houston [1st Dist.] 2017, no pet.), the court held that a subcontractor’s claim for fraud against the owner was barred by the economic loss rule.¹⁹⁵ The subcontractor sued because the owner did not reveal during the bidding process that the plans and specifications were incomplete. The court explained that the fact that the Plaintiff subcontractor sued in fraud was irrelevant and  that instead the court must “look to the source of a defendant’s duty and the nature of the claimed injury.”¹⁹⁶ Here, the Defendant owner’s duty stemmed purely from a Construction Contract requiring the owner to provide various documents.¹⁹⁷ Additionally, Plaintiff’s claim concerned the “accuracy of the Contract Documents and remedy for expenses or delays caused by deficiencies in the Contract Documents” which was also addressed in the Construction Contract.¹⁹⁸ Thus, the claim sounded in contract and was barred by the economic loss rule.

F.       Interest

Under Chapter 28 of the Texas Property Code, the Texas Private Prompt Pay Act provides protections for contractors and subcontractors. Specifically, the Act requires (1) the owner to pay the general contractor within 35 days of the invoice and (2) the general contractor then to pay the subcontractors due amounts within seven days of when the general contractor received payment. If there is a genuine, good faith dispute concerning the work, no more than 100% for non-residential and 110% for residential projects of the difference between the amounts each party believes is due may be withheld. Interest accrues at 1.5% monthly. The Texas Private Prompt Act cannot be waived by contract

Under Chapter 2251 of the Texas Government Code, the owner must pay the general contractor before 31 days of receiving the invoice and (2) the general contractor must pay subcontractors within 10 days after the general contractor receives payment. Interest accrues at  1.0%  plus the established prime rate. Amounts be withheld if there is a good faith dispute, but the Texas Public Prompt Act cannot be waived by contract.

G.     Punitive Damages

Punitive damages are disfavored in breach of contract claims in construction lawsuits and are generally not allowed.¹⁹⁹ Exemplary damages are not recoverable unless the contractor pleads and proves a tort, regardless of whether the breach is malicious.²⁰⁰

H.     Liquidated Damages

The parties may agree that damages for a specific breach are ‘‘liquidated,’’ that is, will be assessed as a certain amount or calculated by a set formula. The general rule in Texas is that parties are bound by their agreed-to measure of damages for a breach of contract, unless the agreed-to measure is shown to be an improper penalty provision.²⁰¹

The Texas Supreme Court has fashioned a two-part test for the enforceability of a liquidated damages provision, applicable in cases not governed by the UCC. A liquidated damages clause is enforceable if (1) the harm caused by the breach was impossible or difficult to estimate at the time the contract was made and (2) the amount of liquidated damages was a reasonable forecast of just compensation.²⁰² This is referred to as the Stewart test.

Construction contracts often contain liquidated damages clauses, especially with reference to unexcused delays in completion. The results of applying the Stewart test to these clauses vary. For example, one court of appeals upheld a clause providing for damages of $100 per day of delay in the construction of a school gymnasium on the grounds that it would have been difficult to ascertain damages under the circumstances.²⁰³ However, another court of appeals found that $250 a day for delayed usage of a football stadium was an improper penalty.²⁰⁴

I.         Other Damage Limitations

• • • Mental Anguish

The general rule in Texas is that mental anguish damages are unavailable for breach of contract.²⁰⁵

• • • Liability for Acts of Independent Contractors

Under Texas Civil Practice and Remedies Code § 95.003, a person or entity that owns real property primarily used for commercial or business purposes (“property owner”) is not liable for personal injury, death, or property damage (“claim”) to a contractor, subcontractor, or an employee thereof who constructs, repairs, renovates, or modifies an improvement to real property, including claims arising from the failure to provide a safe workplace, unless both (1) the property owner exercises or retains some control over the manner in which the work is performed, other than the rights to order the work to start and stop, to inspect progress, or to receive reports; and (2) the property owner had actual knowledge of the danger or condition resulting in the claim and failed to adequately warn.²⁰⁶

VII.                CASE LAW AND LEGISLATION UPDATE

As of September 1, 2017, Senate Bill 807 took effect, and expanded upon the choice of law and venue protections from the Texas Business & Commerce Code.²⁰⁷ Section 272.001 et seq. has given contractors and subcontractors the ability to require disputes to be heard in Texas and decided under Texas law so long as the project is located in Texas- even in the face of clause stating otherwise. However, while the ability to void the choice of law and venue provisions in contracts were formally only for subcontractors and contractors who provided labor and materials for a construction project, the law was revised to also include architects and engineers.²⁰⁸

Likewise, House Bill 3021 passed and took effect on September 1, 2017 as Texas Government Code Section 2254.0031 and Local Government Code Section 271.904(d)(g).²⁰⁹ The law alters indemnity obligations, specifically by stating that a state or governmental entity may not require an architect or engineer to defend the state for claims or liabilities resulting from negligent acts of omissions of the state governmental entity or its employees.²¹⁰