Business & Insurance Litigation Newsletter for Indiana

Acceptance Rule No Longer A Defense in Construction Cases

The Indiana Supreme Court recently reached a landmark decision altering the landscape of liability for contractors after their work is completed and accepted. Where the century-old "acceptance rule" or "completed and accepted rule" formerly precluded liability of a builder or contractor to a third party once the owner accepted the work, now, under the "modern rule," a contractor is liable for injury caused by a condition of the work to all those who may reasonably foreseeably be injured by such work due to the contractor's negligence. See Peters v. Forster, 804 N.E.2d 736, 742 (Ind. Ct. App. 2004). Moreover, the rule applies not only to contractors doing original work, but also to those who make repairs or install parts as well as supervising architects, engineers, and designers.

The acceptance rule, which originated in English common law, was first recognized in Indiana in 1896. The rule terminated a contractor's liability for negligence for injury to a third person after the work was completed and accepted because there was no contract between the contractor and an injured third party and because the owner was an intervening actor. While the contractor was liable for his negligence before the work was completed, acceptance terminated his responsibility and he was no longer liable to any third person for negligence.

Through the years, courts carved out exceptions to the rule. Indiana recognized two exceptions: (1) where a contractor turns over inherently dangerous work; and (2) where the work contained a concealed defect that the contractor was aware of, but concealed. Peters finally abrogated the rule entirely so that now traditional principles of negligence determine liability after acceptance.

In Peters, a contractor installed a ramp on the owner's home "with a few screws" and in violation of building codes. After acceptance, a third party delivering a meal to the home slipped and fell on the ramp and brought suit against the owner and contractor for negligence. The court, after doing away with the acceptance rule, determined that, "a general contractor has a duty to use reasonable care both in his or her work and in the course of performance of the work ... the duty is not owed to the world at large, but rather to those who might reasonably be foreseen as being subject to injury by the breach of duty." Id. at 743. The case could proceed to a jury to determine the contractor's negligence and liability.