Schinnerer’s 46th Annual Meeting of Invited Attorneys

Kenneth M. Elovitz is an engineer and in-house counsel with Energy Economics, Inc. inFoxboro, MA. He received a BS in Metallurgy and Materials Science from Lehigh Universityand a JD from Suffolk University Law School. He is registered as a professional engineer inmechanical and electrical disciplines. Before joining Energy Economics, Elovitz worked atBethlehem Steel’s Burns Harbor Plant and at Texas Instruments in Attleboro, MA. EnergyEconomics provides engineering services for HVAC, refrigeration, and electrical systems inbuildings.

1

THE TUMBLING TOWER OF PRIVITY

For years, the economic loss doctrine was the mainstay of defense against

claims by the 33.5% of claimants who do not have a contract with the design

professional. The economic loss doctrine provides that a plaintiff not in privity

with the defendant cannot maintain an action for negligence against the

defendant for pure economic loss.

The appendix to this paper provides a brief history of the economic loss

doctrine and includes a survey of the status of that doctrine in the 50 states.

Eighteen states still apply the economic loss doctrine to bar claims for pure

economic loss if the plaintiff is not in privity with the defendant.

Twenty-three states either reject the economic loss doctrine outright (8

states) or claim to follow the doctrine but apply some type of exception (15

states). The nine states where the survey found no stated position could go

either way. That makes 32 states either rejecting some aspect of the economic

loss doctrine or not yet stating a position. The economic loss doctrine may be

dying a slow death. Design professionals can no longer count on it as a strong

defense.

The economic loss doctrine arose out of products liability law, not

professional liability law. One argument in support of its demise for design

professionals is that the doctrine was never intended to apply to professional

liability in the first place. The real question is not the health of the economic loss

doctrine but the reasoning that courts use to hold design professionals liable to

parties not their clients.

THE SCHINNERER RISK MANAGEMENT BOOKLET FROM RISK TO PROFIT:

BENCHMARKING AND CLAIMS STUDIES IDENTIFIES PROJECT OWNERS AS THE SOURCE

OF 66.5% OF CLAIMS AGAINST DESIGN PROFESSIONALS. THE OTHER 33.5% OF

CLAIMS COME FROM GENERAL CONTRACTORS (10.9%) AND OTHER THIRD PARTIES

(22.6%). THESE CLAIMS ARE IMPORTANT, TOO. THEY NEED TO BE RECOGNIZED,

UNDERSTOOD, AND DEFENDED.

by Kenneth M. Elovitz, Esquire, PE

DESIGN PROFESSIONALS’ LIABILITY TO

THIRD PARTIES

Schinnerer’s 46th Annual Meeting of Invited Attorneys

Copyright 2007 by Victor O. Schinnerer & Company, Inc.

2 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

LIABILITY BASED ON RELIANCE

Cases claiming negligent misrepresentation can form the basis for an

exception to the economic loss doctrine, even in states that otherwise uphold

the doctrine. Legal theory provides some basis for treating misrepresentation as

a different tort from ordinary negligence. By analyzing negligent

misrepresentation as a separate tort from ordinary negligence, courts do not

have to abandon the economic loss doctrine to hold design professionals liable

to third parties for pure economics losses that derive from negligent

misrepresentation.

Courts that treat negligent misrepresentation as a separate tort impose

liability in these cases based on the plaintiff ’s “foreseeable expectation and

reliance.”1 Design professionals find themselves in situations where reliance by

third parties could be foreseeable with some frequency. In Craig v. Everett M.

Brooks Co.2, the Massachusetts court allowed a contractor to recover against a

civil engineer. The engineer had made a mistake in preparing plans and laying

out stakes for a road. As a result of the error, the contractor had to rebuild two

catch basins and relocate a road eight feet. The court held the engineer liable

because the contractor was reasonable in relying on the engineer’s plans and

specifications. The court said the engineer should have foreseen that reliance.

The court allowed recovery because both the contractor and the engineer were

under contract with the same owner, and the contractor’s contract

contemplated that the contractor would rely on the engineer’s services. The

court noted that the defendant engineer knew the only possible plaintiff and the

extent of his reliance. In addition, damages were not remote. Under those

circumstances, the court felt, imposing liability in the absence of a contractual

relationship was reasonable.

The Craig case has been cited favorably more than 40 times by other courts

that, like Massachusetts, endorse its reasoning. Yet in the 1996 case of Priority

Finishing v. LAL Construction,3 the Massachusetts Appeals Court affirmed that it

follows the “traditional rule that purely economic losses are unrecoverable in

tort and strict liability actions in the absence of personal injury or property

damage”. In that case, Priority Finishing incurred extra costs as a result of an

electric power outage and a water main break at a nearby construction site.

Priority Finishing sued the contractor (LAL construction) and the project

engineer. Because Priority suffered damage to property (the fabric it was

finishing) the economic loss doctrine did not protect LAL or the engineer from

liability. This case shows that courts can continue to apply the economic loss

doctrine without modifying its precedents that allow liability to third parties for

negligent misrepresentation.

The Restatement View

The reasoning in Craig and many other cases is similar to §552 of the

RESTATEMENT (SECOND) OF TORTS, which provides:

One who, in the course of his business, profession or employment ...supplies false information for the guidance of others in their businesstransactions, is subject to liability for pecuniary loss caused to them bytheir justifiable reliance upon the information ...4

THE 46th ANNUAL MEETING OF INVITED ATTORNEYS 3

Some people think this section pokes a big hole in the economic loss

doctrine. It potentially exposes design professionals to liability to any stranger

who suffers a loss, even if only economic, as a result of “justifiable reliance” on

information obtained from a design professional. Courts across the nation have

applied §552 to accountants, lawyers, and design professionals. Some opinions

state outright that they adopt the RESTATEMENT view, while others apply its

reasoning without identifying the source. The Craig case discussed above does

not cite the RESTATEMENT but is consistent with the RESTATEMENT view.5

The RESTATEMENT view has considerable appeal. It “recognizes commercial

realities by avoiding both unlimited and uncertain liability for economic losses

in cases of professional mistake.”6 It also provides for “exoneration of the

auditor in situations where it clearly intended to undertake the responsibility of

influencing particular business transactions involving third persons.”7

Many prominent cases like Bily (see note 6), from California, and Nycal (see

note 5), from Massachusetts, (which cites Bily) that apply RESTATEMENT §552

deal with accountants, not design professionals. There is nothing in

RESTATEMENT §552 that differentiates accountants from design professionals.

Accountants often provide information to their clients with the knowledge and

perhaps even the expectation that others will rely on it. Think of the volume of

annual reports and SEC filings that accountants prepare for publicly held

corporations to file every year.

Similarly, design professionals prepare plans and specifications with, not just

the knowledge, but the expectation that contractors will rely on those

documents to price the job and build the project. The Craig court was

uncomfortable with the prospect of imposing “liability in an indeterminate

amount for an indeterminate time to an indeterminate class”8 and limited the

engineer’s liability to situations where the engineer knows the identity of the

potential plaintiff and the extent of the plaintiff ’s reliance. However, other states

have taken a broader view and included many potential plaintiffs in the class of

people who “justifiably” rely on information that design professionals prepare

and disseminate.9

The RESTATEMENT §552 view is attractive in the sense that it holds

professionals accountable for their actions with some limits on what constitutes

the class of potential plaintiffs. As the product of the nation’s leading legal

scholars, the RESTATEMENT is a weighty authority. Claims based on negligent

misrepresentation with plaintiffs urging courts to adopt RESTATEMENT §552

appear to be the current danger for expanding design professionals’ liability to

third parties.

Avoiding §552 Liability

The key to avoiding liability in states that follow the RESTATEMENT §552 view

is avoiding “justifiable reliance.” The RESTATEMENT itself limits liability to “the

person or one of a limited group of persons for whose benefit and guidance” the

information is supplied. To take advantage of that limitation, design

professionals issuing reports or opinions can state right in them that the report

or opinion is being provided for a certain party and that others who rely on it

do so at their own peril. The RESTATEMENT contains several comments and


examples from actual cases to illustrate how that limitation can work (See note

4).

Design professionals can limit the class of people who justifiably rely on

information they prepare by including appropriate language in their contracts

for services. Schinnerer’s Management Advisory for Environmental Consultants

titled “Avoiding Third Party Claims” suggests that environmental consultants

include a provision that their deliverables are for the sole use of the client and

not for any other individuals. The Management Advisory also suggests that a

precise definition of the scope of services might under cut third-party claims on

the theory that the design professional was not retained to perform services for

the third party. While the Management Advisory offers those suggestions to

environmental consultants, they are worth considering for all design

professionals.

The Management Advisory is not the only source of suggested contract

language that hopes to limit “justifiable reliance” and, therefore, liability to third

parties.

� The Engineers Joint Contract Document Committee’s (EJCDC)Document E-500, Standard Form of Agreement Between Owner andEngineer for Professional Services, (2002 edition), includes language insection 6.07 that attempts to bar claims by third parties.10

� AIA standard contract forms can accommodate modifications with thesame purpose.11

� One law firm has developed similar contract language that limitsliability to third parties and has been successful in having its languageincorporated into the general conditions of the contract forconstruction.12

Will it Work?

Courts tend to uphold risk allocation agreements in contracts. “[A] party

may, by agreement, allocate risk and exempt itself from liability that it might

subsequently incur as a result of its own negligence.”13 At least one trial court

has upheld the contract language suggested in note 12.14

In Fleet National Bank v. The Gloucester Corp.,15 a Federal District Court

Magistrate provided a detailed analysis of state law and the RESTATEMENT §552

view. In applying the RESTATEMENT view to accountants, the magistrate noted

that professionals ought to be able to tailor the scope of their services and have

courts honor limiting or exculpatory language in contracts for professional

services.

On that basis, contractual provisions that seek to insulate design

professionals from claims by third parties should effectively make reliance

without the design professional’s permission not “justifiable” and therefore not

actionable. The technique ought to work in states that follow RESTATEMENT §552.

It might or might not work in states that reject the economic loss doctrine

because they seem to apply tort-based reasoning to impose liability to third

parties on a public-policy basis.


LIABILITY TO CONTRACTORS AND SUBCONTRACTORS

Contractors and subcontractors are probably the main class of third parties

who bring claims against design professionals. The most common claims are for

extra costs incurred as a result of alleged design deficiencies. These claims often

occur as a result of the design professional’s refusal to approve a requested

change. Contractors are also likely to bring claims against design professionals

if the contractor has suffered delays on the project, and the contract for

construction has a “no damage for delay” clause.

The case of Lundgren v. Freeman16 illustrates the types of claims contractors

bring against design professionals. In Lundgren, the owner terminated the

contractor on advice from the architect. The contractor sued the owner and the

architect claiming:

� Unpaid balance due on the contract (a certificate of final acceptance hadbeen issued)

� Losses due to defects in plans and specifications

� Having to do work not called for by the contract

� Having to redo work that had been done strictly in accordance with thecontract

The contractor included a claim against the architect for:

� Willfully and maliciously interfering with his performance of thecontract

� Inducing the owner to breach the contract

� Damage to the contractor’s reputation because of the architect’s claimthat the contractor failed to substantially perform

� Damage to credit standing with subcontractors, materialmen, andbonding companies

� Punitive damages

The District Court issued summary judgment for the architect on the

grounds that he was immune from suit because of his role as initial arbitrator of

disputes between the owner and the contractor under the contract. The Court

of Appeals began by explaining that the “architects were acting in one of three

capacities, either (1) as agents of school district, (2) as quasi-arbitrators, or (3)

on their own, in the sense that they were not acting as agents or as quasi-

arbitrators.”17

The court found the architects not liable to the contractor for acts as agents

of the owner because the contractor had agreed to arbitrate his claims against

the owner (which he had done).

The court also found the architects not liable to the contractor for acts as

quasi-arbitrators. “If their decisions can thereafter be questioned in suits

brought against them by either party, there is a real possibility that their

decisions will be governed more by the fear of such suits than by their own

unfettered judgment as to the merits of the matter they must decide.”18

Architects’ immunity as arbitrators does not extend to fraudulent actions or

to actions taken with willful and malicious intent to injure one of the parties. If


the contractor could prove that the architect damaged him by actions outside

the scope of the architect’s authority as agent or quasi-arbitrator, the contractor

could recover damages that naturally flow from that action. The contractor need

only show that the architect’s action was willful and intentional. The contractor

does not have to show a specific intent to injure him. Loss of credit standing and

damage to his reputation as a builder may be within the damages recoverable if

it can fairly be said that, under the circumstances, such damages were reasonably

foreseeable.19

Other cases have likewise held that the design professional’s immunity is

limited to the design professional’s role as arbitrator. It does not extend to all

activities on the project.20

A contractor might also claim that the design professional interfered with the

contractor’s contract by any of the following means:

� Refusal to approve “qualified” subcontractors. The case of Vojak v.Jensen,21 involved an architect who wrote a letter to owners and generalcontractors saying that a particular roofing subcontractor’s work wasunsatisfactory, so the architect would not approve that subcontractor onany future projects until the subcontractor could prove to the architect’ssatisfaction that it was reliable. The jury awarded the subcontractor$60,000 in actual damages plus $15,000 in punitive damages.

� Issuing contradictory instructions.

� Changing plans and specifications without regard to the contractor’sschedule.

� Arbitrarily withholding funds or approving less than the requestedamount on payment requisitions. In Blecick v. School Dist. No. 18 ofCochise County,22 a contractor sued the architect, claiming that thearchitect arbitrarily refused to issue a final certificate certifying to fullperformance of the contract without just excuse and for the sole purposeof hindering and delaying the contractor. The claim against the architectwas dismissed because of lack of contractual privity with the contractor.

The economic loss doctrine provides a defense to these claims from

contractors in some jurisdictions, as it did in the Blecick case.

The Lundgren case came out of Oregon, which does not have an announced

position on the application of the economic loss doctrine or RESTATEMENT §552

to design professionals. Regardless of whether a state follows the economic loss

doctrine or adopts the RESTATEMENT §552 approach, courts might view claims

for intentional or willful actions, like those alleged in Lundgren, more like

intentional torts than negligence. In that case, the economic loss doctrine would

not provide a viable defense.

Contractors also sometimes bring claims against design professionals for

failing to catch the contractors’ errors. These contractors want to be

beneficiaries of the design professionals’ obligation to “endeavor to guard the

owner against defects and deficiencies in the Work.”23 They claim that a design

professional who failed to catch the contractor’s error was negligent in fulfilling

a contractual duty, even though that duty was to the owner, not to the

contractor. Since that negligence caused the contractor to incur additional cost,

the contractor thinks the design professional should be liable to the contractor

in that amount.


A contractor might try to use the concept of common law or equitable

indemnity to bring a claim against a design professional for failing to catch the

contractor’s error. One basis for common law indemnity is breach of an

independent duty that the indemnitor (in this situation the design professional)

owes the indemnitee. The independent duty must be an activity or task

performed in connection with performing the contract but not essential to the

contract itself. For example, suppose a contractor agrees with the project owner

to notify a utility before working near power lines but fails to give that notice. If

the contractor’s work causes damage because the utility did not have the

opportunity to move its equipment, the owner has a right of common law

indemnity from the contractor if the utility brings a claim for the damage

against the property owner.

The contractor’s claim that the design professional owes the contractor a

duty of common law indemnity misapplies this concept. Common law

indemnity makes the design professional liable to the owner in tort for the

breach of an independent duty the design professional owes to the owner. The

contractor’s twist is that contractor wants to claim that a breach of the

indemnitor/design professional’s unrelated duty to the owner can be the basis of

liability to a third-party indemnitee (the contractor) who suffers damage

because of that breach. The problem with the contractor’s argument is that

common law indemnity might be implied in a contract, but the contract itself

cannot be implied.24 The “unrelated duty” has to be unrelated to the essence of

the underlying contract, not unrelated to the contracting party. The contractor

has no contract with the design professional, so the design professional does not

owe the contractor a duty of common law or implied indemnity.

If the contractor’s claim for common law indemnity survives a motion to

dismiss, design professionals can defend these claims with the economic loss

doctrine and an argument that the contractor is not justified in relying on the

design professionals services to the owner. However, design professionals have

an even more powerful defense based on the contractor’s contributory

negligence. After all, the contractor is the one who did wrong in the first place.

Skillful contract drafting that clarifies that the owner, not the contractor, is the

only intended beneficiary of the design professional’s contract administration

duties could head off these claims. Notes 10, 11, and 12 present suggested

contract language.

LIABILITY TO LENDERS, INSURANCE COMPANIES, AND SURETIES

Lenders, insurance companies, and sureties rarely have contracts with the

design professional they hope to sue. This group is probably the second biggest

class of potential third-party claimants after contractors and subcontractors.

The essence of their claims is usually that they relied on some representation

that the design professional made. These claims seek to apply a RESTATEMENT

(SECOND) OF TORTS §552 analysis.

If a surety takes over a job for a defaulting contractor, the surety stands in the

shoes of the defaulting contractor and thus has all the same claims (and is

subject to the same defenses) as the contractor. Sureties taking over for

defaulting contractors want to minimize their out of pocket costs and often look


beyond the assets of their defaulting contractor client for ways to recover their

costs. For that reason, sureties might be even more aggressive than contractors

in pursuing claims against design professionals.

For the design professional to be liable under the RESTATEMENT view, the

plaintiff ’s reliance must be justifiable. For reliance to be justifiable, the plaintiff

must be someone the design professional intended the information to influence

[§552(2)] or who the design professional reasonably expects to have access to

the information and will foreseeably take action on it (comment h).

Lenders, insurance companies, and sureties often ask design professionals to

provide a letter authorizing the lender, insurance company, or surety to rely on

some information the design professional has provided to another party, usually

the client. Be clear about one point: lenders, insurance companies, sureties, and

anyone else does not need permission or assistance from the design professional

to decide whether to rely on information from the design professional or from

any other source. These people are all adults and are arguably at least as

sophisticated as the design professional in business matters. The only reason

these people want reliance letters is to make sure they qualify to bring suit under

RESTATEMENT §552 and similar bases for liability for negligent

misrepresentation. Design professionals receive no benefit from issuing these

reliance letters, and the failure or refusal to issue a reliance letter does not change

anything in the lender, insurance company, or surety’s decision making process.

In the case of Aliberti, LaRochelle & Hodson Eng. v. F.D.I.C.,25 an engineer and

a construction manager provided information they knew a lender would use to

evaluate the viability of a project and to help it decide whether to grant

financing. The engineer and construction manager even attended a meeting

with the lender to discuss the projected cost of the project. The court held that

the engineer and construction manager had a duty to be “honest when making

representations to the Bank regarding the accuracy of the construction

budget.”26 The court found this duty even though the bank had retained its own

expert to evaluate the project and advise it, and the bank’s own expert had told

the bank that “in his opinion ‘there [was] some risk.’”27

The defense that the design professional’s statements are only expressions of

opinion will not always succeed. In the view of the court, “[T]he relationship of

the parties or the opportunity afforded for investigation and the reliance, which

one is thereby justified in placing on the statement of the other, may transform

into an averment of fact that which under ordinary circumstances would be

merely an expression of opinion.”28 And additionally, “[I]f one knows an

opinion to be erroneous, the matter is as to him, not an opinion but a subsisting

fact; and, if he makes a statement contrary to what he knows to be the fact, he

should not be allowed to escape the consequences on the theory that his

statement concerns a matter of opinion.”29

The Aliberti, LaRochelle case was an extreme case where the engineer had

direct dealings with the lender and participated in an unscrupulous developer’s

misrepresentations to the bank.30 In many cases, lenders and sureties who want

to rely on design professionals’ judgments and certifications like approvals on

payment requisitions are simply looking for free professional advice. Lenders

and sureties argue that they need that information to do their jobs, and the


designers of record are in the best position to provide it. That might be true, and

the anticipation that they will be able to obtain information from design

professionals at no cost might be built into their pricing structure. However,

those are the sureties and lenders’ problems, not the design professionals’

problems. Design professionals are ordinarily under no obligation to create a

situation where lenders and sureties justifiably rely on the design professionals’

representations. However, as in the Aliberti, LaRochelle case, if design

professionals are aware of and consent to that reliance, they have a duty to

adhere to the same standard of care that applies to their other clients.

LIABILITY TO CONTRACTORS’ AND SUBCONTRACTORS’ EMPLOYEES

The most likely claims from contractors’ and subcontractors’ employees are

claims for bodily injury or property damage.31 These claims are outside the

economic loss doctrine and RESTATEMENT §552.

Common Law

There is a long history of liability for those whose negligence injures another

person, regardless of any contractual relationship between the parties. For

example, in Devlin v. Smith,32 cited in MacPherson, a contractor owed a duty to

his subcontractor’s employees:

The defendant, a contractor, built a scaffold for a painter. The painter’sservants were injured. The contractor was held liable. He knew that thescaffold, if improperly constructed, was a most dangerous trap. He knewthat it was to be used by the workmen. He was building it for that verypurpose. Building it for their use, he owed them a duty, irrespective of hiscontract with their master, to build it with care.

Contracts for Services and Site Activities

Unlike a design professional, the contractor in Devlin v. Smith controlled the

construction of the faulty scaffold that caused the workers’ injury. Today’s AIA

and EJCDC form contracts recognize that design professionals do not control

the construction site and therefore do not have the means to manage site safety.

These form contracts also specifically assign responsibility for site safety to the

contractor, satisfying public policy considerations that someone has to accept

responsibility for construction site safety. The distinction between the architect’s

contract, that “contained no undertaking by [the architect] to assume any duty

of supervision and control with regard to the actual construction of the

building,” and the contractor’s contract, that “had the duty to protect the

workers from the hazards on the construction site,” seemed important to the

court in Young v. Eastern Engineering & Elevator Company, Inc.33 The Young

court held that, “Absent an undertaking by an architect, by contract or conduct,

of the responsibilities of the supervision of construction and the maintenance

of safe conditions on a construction project, an architect is not under a duty to

notify workers or employees of the contractor or subcontractors of hazardous

conditions on the construction site.”34

Favorable contract language will not protect design professionals from

liability for site safety under all circumstances. In Carvalho v. Toll Brothers,35 the

owner hired an engineer to provide inspection services during construction. A


worker died when a trench collapsed on him. The engineer was aware of the

dangerous condition and witnessed the accident. The New Jersey Superior

Court, Appellate Division found that the engineer has a duty to warn workers if

he becomes aware of a condition that presents a risk to serious bodily injury to

the workers. The New Jersey Supreme Court concluded that, “It would be unfair

to exonerate [the engineer] from its liability to decedent on the basis of its

exculpatory agreement with the [owner]. Their financial arrangements and

understanding do not overcome the public policy that imposes a duty of care

and ascribes liability to the engineer in these circumstances.”36 The court relied

on the “foreseeability of harm” and “considerations of fairness and policy” to

decide to that the engineer should be liable.

Submittal Review

While most worker claims against design professionals for bodily injury arise

out of design professionals’ activities at the construction site, plaintiffs have

tried to hold design professionals liable for bodily injury arising out of more

traditional “design” activities like shop drawing and submittal review.

The case of Day v. National U.S. Radiator Corporation37 involved a

subcontractor’s employee who died when a boiler for heating domestic hot

water exploded after the employee lit off the boiler to test its operation. The

subcontractor had installed the boiler without the thermostatic control or the

pressure and temperature relief valve that the plans and specifications required.

The contractor had submitted two successive sets of shop drawings for the

boiler. On advice from his engineer, the architect rejected each of these shop

drawings for reasons unrelated to the explosion. When the contractor submitted

a third shop drawing, the architect approved it without referring it to the

engineer. The shop drawing, which had been prepared by the subcontractor’s

supplier, showed only the components the supplier was going to provide. It did

not show the required pressure relief valve.

After a trial finding the architect liable to the deceased worker’s family, the

Louisiana Court of Appeal affirmed.38 The Court of Appeal stated, “The

negligence of the architects in approving the plumbing subcontractor’s shop

drawings was responsible for the absence of a pressure relief valve upon the

domestic hot water system, and that such negligence was thus a proximate cause

of the explosion.”39

The Supreme Court of Louisiana found that the architect was not liable to

the plaintiff for the explosion and reversed the Court of Appeal. The Supreme

Court acknowledged that the architect’s contract required the architect to

provide “adequate supervision of the execution of the work to reasonably insure

strict conformity with the working drawings, specifications and other contract

documents.”40 However, the Court explained that, “The primary object of this

provision was to impose the duty or obligation on the architects to insure to the

owner that before final acceptance of the work the building would be completed

in accordance with the plans and specifications.”41 The architect was not

responsible for the contractor’s method of doing the work so was not liable for

the contractor’s failure to install a pressure relief valve before lighting off the

boiler. The court also explained that, “The architects’ approval of the [submittal]


was only an approval for [the subcontractor] to place the order with [the

supplier] for the purchase of the items listed in it, and the [submittal] was not

intended as a shop plan for fabrication or a plan showing construction details.”42

Design professionals can use the Day case to take comfort that their approval of

shop drawings and submittals extends only to the information presented and

not to information that could or perhaps even should be presented to illustrate

the details of how the equipment will be installed.

OSHA

Responsibility under the Occupational Safety and Health Act is separate from

potential common law liability for site safety. The Occupational Health and

Safety Administration (OSHA) has tried to make design professionals liable for

site safety, regardless of whether design professionals have the means to enforce

safety requirements. In the 1977 case of Secretary of Labor v. Skidmore, Owings

& Merrill (SOM), the Occupational Safety and Health Review Commission

agreed with the design professional community that contractors, not architects

and engineers, are solely in a position to control workplace safety.43

Then in 1988, the collapse of a concrete floor under construction prompted

OSHA to try again to make an engineer responsible for site safety. The engineer

appealed OSHA’s ruling to an administrative law judge, who sided with the

engineer, citing the 1977 SOM case. OSHA appealed to the Review Commission

and lost. OSHA then appealed to the First Circuit Court of Appeals. In Reich v.

Simpson, Gumpertz & Heger, Inc.,44 the First Circuit held for the engineer, but

applied different reasoning from the 1977 SOM decision. The First Circuit said

the engineer was not responsible for site safety because the site was not the

engineer’s “place of employment” at the time of the accident.

While design professionals acclaimed the Simpson case because it overruled

OSHA’s attempt to hold a structural engineer liable for site safety, the decision

does not absolve design professionals of all responsibility for site safety. It left

the door open for OSHA to come back in another case to test what constitutes

an engineer’s “place of employment” and how much of a presence a design

professional can have at a construction site before that site becomes the design

professional’s “place of employment.” If a design professional has sufficient

presence at a construction site to make the site the professional’s “place of

employment,” does that make the design professional responsible for site safety

under the OSHA statute that requires employers to furnish a place of

employment that is “free from recognized hazards that are causing or are likely

to cause death or serious physical harm?”45

The Occupational Safety and Health Review Commission addressed that

question in its 1997 case, Secretary of Labor v. Foit-Albert Associates, Architects &

Engineers, PC.46 Foit-Albert was a consultant to the project architect and had

responsibilities much like those of a municipal building inspector. Foit-Albert

had full-time employees on the site. The shoring system for concrete forms

collapsed, injuring three people, including two of Foit-Albert’s employees. There

was no question that the construction site was a “place of employment” for Foit-

Albert’s employees. Nevertheless, the Administrative Law Judge vacated the

OSHA citations against Foit-Albert because Foit-Albert was not engaged in


construction work. The OSHA Review Commission affirmed, noting that Foit-

Albert’s inspection responsibility “did not rise to the level of supervisory

responsibility for the implementation of safety measures and safety precautions

at the site.”47 Therefore, design professionals appear to be insulated from OSHA

liability even if they have employees at construction sites, so long as those

employees are not engaged in “construction work.” Perhaps a future case will

determine what activities at the construction site constitute “construction

work.”

LIABILITY UNDER FEDERAL STATUTES

Americans with Disabilities Act

The Americans with Disabilities Act (ADA) (42 USC §§12101 et seq.) was

signed into law in July 1990. It prohibits discrimination against persons with

disabilities in various forms of public accommodation and employment.

Liability under the act is statutory—negligence standards do not apply.

Private groups have sued design professionals under the ADA48 as has the

United States Department of Justice.49 These cases center on the meaning of the

language in §12183(a)(1) that failure to “design and construct” facilities that are

readily accessible to and usable by individuals with disabilities constitutes

discrimination. Design professionals argue that they design but do not construct

so the provision does not apply to them. The Justice Department argues that

failure to “design and construct” means “failure to design” and “failure to

construct” so either failure creates liability under the act.

Cases have gone both ways, but revised “ADA Accessibility Guidelines for

Buildings and Facilities” (ADAAG) are now available to help to design

professionals. These guidelines provide much of the technical information that

design professionals need to prepare designs that comply with ADA. The latest

edition resolves many of the conflicts with other applicable codes that existed

previously.

Once a legal analysis has confirmed that the design professional and the

claimed violation are within the scope of the statute, a technical analysis is

needed to determine whether the design satisfies the ADAAG requirements. To

the extent that the ADAAG requirements are unclear or the question of

compliance is open to interpretation, the case calls for skillful advocacy to argue

that design professionals are good at solving problems, but they need to know

what those problems are in order to craft a workable solution. Penalizing a

design professional for failing to have enough insight to anticipate what the

plaintiffs’ problems might be is likely to be much less effective at meeting the

goals of the statutes than working with design professionals to develop design

guidelines and solutions that can avoid these problems on future projects.

Fair Housing Act

The Fair Housing Act (42 USC §§3601 et seq.), requires buildings with four

or more housing units to have minimum handicap accessibility features. The

United States Department of Justice, Civil Rights Division, enforces these

provisions. Liability under the act is statutory. Therefore, instead of the typical

“duty-breach-causation” inquiry for professional liability claims, the inquiry is


whether the claimed offense falls within the activity the statute addresses by a

person the statute covers in connection with a property the statute covers. Once

a legal analysis answers those questions, HUD’s Fair Housing Act Design

Manual50 can be a useful tool for evaluating the technical merits of the claim.

False Claims Act

The federal False Claims Act (31 USC §§3729 et. seq.) became law in response

to widespread procurement fraud during the Civil War. The False Claims Act

makes liable any person who “knowingly presents, or causes to be presented, to

an officer or employee of the United States Government or a member of the

Armed Forces of the United States a false or fraudulent claim for payment or

approval.”51

While “knowingly” does not require actual knowledge, acting in “deliberate

ignorance of the truth or falsity of the information” or “in reckless disregard of

the truth or falsity of the information” creates liability under the act. Proof of

specific intent to defraud is not required.52

Contractors have long been the target of False Claims Act litigation. Design

professionals could similarly be liable for overstating their fees or submitting

unjustified or inflated claims for additional services. The more interesting

question is whether design professionals could be liable under the False Claims

Act for their role in reviewing and approving contractors’ RFIs, change order

requests, and payment requisitions.

The “False Claims Act statute does not anywhere state that False Claims Act

liability depends upon a defendant’s status as a recipient or beneficiary of the

fraudulently induced contract. All that is required is the submission of a false

claim.”53 Therefore, approving a contractor’s claim for an extra that is not

justified, or perhaps even approving a contractor’s payment requisition that

claims more money than the value of the work in place, might subject a design

professional to False Claims Act liability.

Although expressions of opinion cannot be the basis of a claim under the Act,

“an opinion or estimate carries with it ‘an implied assertion, not only that the

speaker knows no facts which would preclude such an opinion, but that he does

know facts which justify it.’”54 Therefore, characterizing a statement as an

expression of professional judgment, as design professionals are so often urged

to do, does not preclude liability under the act if the design professional’s

standard of care would call for the professional to review and analyze available

documents.

Design professionals do have some defenses to these claims. Claims of poor

management are not actionable under the False Claims Act.55 Innocent

mistakes56 and mere negligence57 do not create False Claims Act liability.

However, failure to review available records to determine the accuracy of a claim

constitutes “deliberate ignorance.”58

CLAIMS BY BUILDING OCCUPANTS AND VISITORS

Indoor air quality, sick building syndrome, and multiple chemical sensitivity

have given way to mold as a popular “new business opportunity” for plaintiffs.

Other cases could involve tenants who sue an engineer for inadequate


mechanical and electrical systems or other problems that delay the tenants’

ability to occupy the space. “Trip and fall” cases are an old standby. Plaintiffs in

search of a deep pocket might attribute any of these problems to design defects.

The “accepted work doctrine” offers something of a shield against claims by

third parties. Under the accepted work doctrine, a contractor is not liable for

injuries or damages a plaintiff suffers after the work is complete. The doctrine

makes sense, because a contractor should not be liable for a completed project

once it is under someone else’s control. Design professionals have had some

success using the accepted work doctrine as a defense. In Easterday v. Masiello,59

the plaintiff sued the architect and engineer who designed a jail cell because the

design did not provide for a guard grille over the air conditioning duct in the

cell, giving the decedent access to a “yard arm” that he used to hang himself. The

Florida court extended its statement of the accepted work doctrine to architects

and engineers. As the court stated in Slavin v. Kay,60 “A contractor is relieved of

liability caused by a patent defect after control of the completed premises has

been turned over to the owner.”

Other states have abandoned the accepted work doctrine.61 Some of these

courts reason that statutes of limitation make the accepted work doctrine

unnecessary.62

The accepted work doctrine does not apply where the defect is hidden or

involves an inherently dangerous element. Claims against design professionals

based on Legionella, mold, indoor air quality, and sick building syndrome could

easily fall into the “hidden” and maybe “inherently dangerous element”

categories, so the accepted work doctrine is no help against these types of claims

by building occupants.

Claims from occupants and visitors generally involve bodily injury or

property damage and tend to follow normal tort liability rules for ordinary

negligence cases. Proximate cause seems to be the operative inquiry. However, as

the case of MacPherson v. Buick Motor Co.63 established, the danger must be

probable, not just possible.

Foreseeability of injury to third parties increases if a building is open to the

public. As a result, design professionals can be liable for claims by a member of

the public injured in a building that is open to the public. Presumably, the

injured person must show some connection between a design defect and the

injury to impose liability on the design professional. For example, an engineer

might be able to defend a Legionella claim by showing that the problem was

poor operating and maintenance practices as opposed to a design defect. On the

other hand, if the engineer located the cooling tower so close to an outside air

intake that cooling tower effluent would be expected to enter the occupied space

through the HVAC system, the design professional might have a harder time

defending the claim.

LIABILITY TO OTHER CONSULTANTS PROVIDING SERVICES ON THE PROJECT

Members of the design team are not immune from squabbling with each

other. These are not vicarious liability cases, where the architect has to defend a

claim that arises out of a system designed by the architect’s subconsultant. The

architect has a contract with the subconsultant, so that would not be a third-

party claim.


This type of claim could arise where one consultant’s error on a project

causes another consultant to expend additional design effort upon discovering

the first consultant’s error. For example, if the mechanical engineer gives the

electrical engineer incomplete or incorrect electrical characteristics for the

HVAC equipment, the electrical engineer might have to redesign his systems

upon receiving the correct or complete information. As another example, the

structural engineer might have to redesign if the weights, dimensions, and

locations of rooftop HVAC equipment change.

If a client or outsider brings a claim on the project, one subconsultant could

get dragged into the fray because of another subconsultant’s actions or

inactions. Out of pocket costs can be considerable, even for someone just caught

in the cross fire. An “innocent” subconsultant might even want to bring a claim

against another subconsultant for damage to reputation if that subconsultant’s

performance on a project was so poor that anyone associated with the failed

project became “tainted.”

The disputing subconsultants do not have contracts with each other, so there

would be no cause of action in contract. There could be a claim for negligence,

but proving a duty of professional care from one subconsultant to another

might be difficult. While the subconsultants must cooperate and coordinate

their efforts (under the direction of the architect), the object of their contracts

is to produce a unified design for the project, not to benefit one another.

Perhaps a claim would lie for common law or equitable indemnification.

Indemnity can be based on express contract, vicarious liability, or breach of

independent duty of the indemnitor to the indemnitee.64 There is no express

contract, and there is no vicarious liability because the claiming subconsultant

is not called to answer to another party because of the actions of the offending

subconsultant. However, the claiming subconsultant might be able to prevail on

a claim that the offending subconsultant (the common law indemnitor in this

example) breached a duty inherent in the performance of the contract but owed

to the claiming subconsultant (the indemnitee in this example) to perform its

duty in a professional and competent manner. This duty is much like the

“implied covenant of good faith and fair dealing” that exists in every contract.65

LIABILITY TO PURCHASERS OF THE PROPERTY

Persons or entities purchasing the property after construction are potential

claimants against design professionals for construction defects. These claimants

might be purchasers of a commercial building or buyers of individual

condominium units from the developer who retained the design professional to

design the building.

In jurisdictions that enforce the economic loss doctrine, that defense might

provide some protection for design professionals against claims for cost to

repair or claims that the plaintiff did not receive the full “benefit of the bargain.”

Where claims allege property damage (perhaps including loss of value) or

personal injury due to an alleged defect in the design or construction of the

property, design professionals will likely have some exposure. “In following the

modern trend, we hold that privity is not an absolute prerequisite to the

existence of a tort duty. The duty of the architects and the builders in this case,

to use due care in the design, inspection, and construction of this condominium


extended to those persons foreseeably subjected to the risk of personal injury

created, as here, by a latent and unreasonably dangerous condition resulting

from their negligence.”66

OTHER THEORIES OF LIABILITY

Even with the economic loss doctrine and the accepted work doctrine out of

their way, plaintiffs need a legal theory for their claims. Someone injured in a

building might rely on professional registration statutes. Registration statutes

often state as their purpose “to safeguard life, health, and property, and to

promote the public welfare.” Like building codes, registration statutes are

intended to protect the public as a whole by establishing minimum

qualifications for people engaged in certain activities. They are not intended to

benefit individual plaintiffs. Just because your barber is licensed, you are not

entitled to compensation for a bad haircut.

That analysis might or might not be an effective defense. In the 1963 case of

Greenman v. Yuba Power Products, Inc.,67 California’s Justice Traynor held a

manufacturer liable to consumers who are “powerless to protect themselves.”

That case began the expansion of strict liability from its historical grounding in

food products to consumer goods and eventually to all products. Product

liability is based in part on balancing equities (one poor, severely injured person

vs. a manufacturer who can spread the risk over its entire business) and the

availability of insurance. It would not be a very big leap to extend Justice

Traynor’s logic to liability for injuries associated with buildings.

The product liability philosophy raises a few unanswered questions for design

professionals and their counsel to ponder:

� Following Justice Traynor’s logic about balancing equities andmechanisms for spreading risk, does the availability of professionalliability insurance create a duty from the insured to the injured, regardlessof the nature of the injury?

� The theory behind statutes of repose is to bring some measure ofcertainty and finality by cutting off unknown and unknowable liability tounidentified persons. If design professionals can limit their duty to thirdparties and define the classes of potential plaintiffs who can bring claimsagainst them, why have statutes of repose? Does the existence of statutes ofrepose suggest or imply a tradeoff that in exchange for cutting off liabilityafter a period of time, design professionals must accept that they have aduty and therefore potential liability to people unrelated to theircontracting group for the construction project?

� Without duty, there is no negligence. If design professionals cansuccessfully use some of the analysis and techniques presented here toestablish that they have no duty to certain classes of third parties, is therestill insurance coverage (defense or indemnity) for these claims?

PRACTICE MANAGEMENT TIPS

Undermining Reliance (RESTATEMENT §552) Claims

Design Professionals must be careful not to induce reliance by

accommodating requests for information from non-clients. “Status inquiries”


and other requests by lenders and sureties for information about a project are

among the most insidious risks. Unless the design professional’s contract for

services requires the design professional to provide this information, the design

professional has no obligation to provide it. Accommodating this type of

request, even with a disclaimer, creates a large, uncompensated risk of a claim

based on reliance. These form letters can even be ignored unless that service is

required in the design professional’s contract for services.

Merely furnishing copies (with the client’s permission) should not create

justifiable reliance. If lenders, sureties, or others requesting the documents are

going to get them anyway, there is no need to inconvenience them by making

them jump through unnecessary hoops. Making copies is a clerical or

ministerial act that should not create justifiable reliance. For safety, the

transmittal can state that the copies are being furnished at the client’s request.

Documentation and Commissioning

Design professionals need to think about how they can thwart, or at least

mitigate, claims by outsiders, especially when those claims are for personal

injury or property damage. To be liable, a design professional must make some

type of mistake or error in judgment, and the plaintiff must show that the injury

was a natural consequence of that mistake.

To prove the design professional was at fault, the plaintiff should have to

show that the defect which caused the injury was inherent in the design and

existed when the design professional left the job. Good records of what a system

was supposed to do and how it performed at startup can go a long way toward

preventing the plaintiff from demonstrating that.

Here are some ideas that design professionals can implement to help thwart

claims for personal injury from third parties:

� Include some type of commissioning or performance evaluation at theend of each job to document that the system operated in accordance withthe design when the design professional left. If the system was notoperating correctly at the time of the accident, the design professional canargue that the deficiency was not a function of the design.

� Design systems with operation and maintenance in mind so buildingowners have the means to operate systems in accordance with the designfor years to come. Document how the systems are supposed to operate andwhat performance should be expected.

� Review the owners’ manuals to see if they have the information ownersneed to maintain proper system operation. �


1 Flattery v. Gregory, 397 Mass. 143, 489 N.E.2d 1257 (1986).2 Craig v. Everett M. Brooks Co., 351 Mass. 497, 222 N.E.2d 752 (1967).3 Priority Finishing v. LAL Construction, 40 Mass. App. Ct. 719 (1996).4 RESTATEMENT (SECOND) OF TORTS §552 (1977):

Information Negligently Supplied for the Guidance of Others

(1) One who, in the course of his business, profession or employment, orin any other transaction in which he has a pecuniary interest, suppliesfalse information for the guidance of others in their businesstransactions, is subject to liability for pecuniary loss caused to them bytheir justifiable reliance upon the information, if he fails to exercisereasonable care or, competence in obtaining or communicating theinformation.

(2) Except as stated in Subsection (3), the liability stated in Subsection (1)is limited to loss suffered

(a) by the person or one of a limited group of persons for whosebenefit and guidance he intends to supply the information orknows that the recipient intends to supply it; and

(b) through reliance upon it in a transaction that he intends theinformation to influence or knows that the recipient so intends orin a substantially similar transaction.

(3) The liability of one who is under a public duty to give the informationextends to loss suffered by any of the class of persons for whose benefitthe duty is created, in any of the transactions in which it is intended toprotect them.

Comment h:

Under this section, as in the case of the fraudulent misrepresentation (see§531), it is not necessary that the maker should have any particular personin mind as the intended, or even the probable, recipient of theinformation. In other words, it is not required that the person who is tobecome the plaintiff be identified or known to the defendant as anindividual when the information is supplied. It is enough that the makerof the representation intends it to reach and influence either a particularperson or persons, known to him, or a group or class of persons, distinctfrom the much larger class who might reasonably be expected sooner orlater to have access to the information and foreseeably to take some actionin reliance upon it. It is enough, likewise, that the maker of therepresentation knows that his recipient intends to transmit theinformation to a similar person, persons or group. It is sufficient, in otherwords, insofar as the plaintiff ’s identity is concerned, that the makersupplies the information for repetition to a certain group or class ofpersons and that the plaintiff proves to be one of them, even though themaker never had heard of him by name when the information was given.It is not enough that the maker merely knows of the ever-presentpossibility of repetition to anyone, and the possibility of action in relianceupon it on the par of anyone to whom it may be repeated.

ENDNOTES


Illustration 9 to Comment h:

The City of A is about to ask for bids for work on a sewer tunnel. It hiresB Company, a firm of engineers, to make boring tests and provide a reportshowing the rock and soil conditions to be encountered. It notifies BCompany that the report will be made available to bidders as a basis fortheir bids and that it is expected to be used by the successful bidder indoing the work. Without knowing the identity of any of the contractorsbidding on the work, B Company negligently prepares and delivers to theCity an inaccurate report, containing false and misleading information.On the basis of the report C makes a successful bid, and also on the basisof the report D, a subcontractor, contracts with C to do a part of the work.By reason of the inaccuracy of the report, C and D suffer pecuniary lossin performing their contracts. B Company is subject to liability to C andto D. [Illustration is based on M. Miller Co. v. Central Contra CostaSanitary District, 198 Cal.App.2d 308, 18 CalRptr 13 (1961)]

5 In a later case involving accountants, the Massachusetts court sidestepped anopportunity to adopt RESTATEMENT §552 but stated that the RESTATEMENT test“comports most closely with the liability standard we have applied in otherprofessional contexts. Nycal Corp. v. KPMG Peat Marwick LLP., 688 N.E.2d1368, 426 Mass. 491 at 495-496 (Mass., 1998)6 Bily v. Arthur Young & Co., 3 Cal.4th 370 at 408, 11 Cal.Rptr.2d 51, 834, P.2d745 (1992)7 Ibid.8 Ultramares Corp. v. Touch, Niven & Co., 255 NY 170 at 179, 174 NE 441 at444, 74 ALR 1139.9 See, for example, cases from Georgia, Kentucky, Pennsylvania cited in theAppendix.10 EJCDC Document E-500, Standard Form of Agreement Between Owner andEngineer for Professional Services, 2002 edition, section 6.07 includes thisparagraph C:

C. Unless expressly provided otherwise in this Agreement:

1. Nothing in this Agreement shall be construed to create, impose, orgive rise to any duty owed by Owner or Engineer to anyContractor, Contractor’s subcontractor, supplier, other individualor entity, or to any surety for or employee of any of them.

2. All duties and responsibilities undertaken pursuant to thisAgreement will be for the sole and exclusive benefit of Owner andEngineer and not for the benefit of any other party.

3. Owner agrees that the substance of the provisions of thisparagraph 6.07.C shall appear in the Contract Documents

11 One recent project made the following amendments to AIA form B151-1997. Strikethrough language was deleted from the standard form; underlinedlanguage was added. Bold underlined language would seem to block claims bythird parties.

2.6.5 The Architect, as a representative of the Owner, shall visit the site atintervals as often as necessary and appropriate to the stage of theContractor’s operations, construction (with particular emphasis onstructural work and in any case whenever required by law or anygovernmental authority with jurisdiction over the Project) or as otherwiseagreed by the Owner and the Architect in Article 12, (1) to observe the siteand work and become generally familiar with and to keep the Ownerinformed about the progress and quality of the portion of the Work


completed and to determine for the Owner’s benefit and protection, (2) toendeavor to guard the Owner against defects and deficiencies in the Work,and (3) to determine in general if the Work is proceeding in accordancewith the intent of the Contract Documents and Construction Schedule. isbeing performed in a manner indicating that the Work, when fullycompleted, will be in accordance with the Contract Documents. However,the Architect shall not be required to make exhaustive or continuous on-site inspections to check the quality or quantity of the Work. ...

2.6.6 The Architect shall report to the Owner known deviations from theContract documents and from the most recent construction schedulesubmitted by the Contractor. However, the Architect shall not beresponsible for the Contractor’s failure to perform the Work in accordancewith the requirements of the Contract Documents. The Architect shall beresponsible for the Architect’s negligent acts or omissions, but shall nothave control over or charge of and shall not be responsible for constructionmeans, methods, techniques, sequences or procedures, or for safetyprecautions and programs in connection with the Work, since these aresolely the Contractor’s responsibility. Except as provided in this Agreement,the Architect shall not be responsible for the Contractor’s schedules orfailure to carryout the work in accordance with the Contract documentsand shall not have control over or charge of acts or omissions of thecontractor, Subcontractors, or their agents or employees, or of any otherpersons or entities performing portions of the Work.

12 Donovan-Hatem of Boston has suggested adding the following paragraph tothe General Conditions:

The Contractor, or any successor, assign or subrogee of the Contractor,agrees not to bring any civil suit, action or other proceeding in law, equityor arbitration against the Architect, or the officers, employees, agents orconsultants, of the Architect, for the enforcement of any action which theContractor may have arising out of or in any manner connected with theWork. The Contractor shall assure that this covenant not to sue iscontained in all subcontractors and subcontractors of every tier, and shallassure its enforcement. The Architect, its officers, employees, agents, andconsultants are intended third-party beneficiaries of this covenant not tosue, who are entitled to enforce this covenant in law or equity.

13 Sharon v. City of Newton, 437 Mass. 105, 769 N.E.2d 738 (2002).14 City of Everett v. Barletta Engineering Corp. et al., 19 Mass. L. Rptr. No. 18,406 (Mass. 5/20/2005).15 Fleet National Bank v. The Gloucester Corp. Civil Action No. 92 11812,Federal District Court D. Mass.16 Lundgren v. Freeman, 307 F.2d 104 (9th Cir., 1962).17 Lundgren v. Freeman, 307 F.2d 104 at 116 (9th Cir., 1962).18 Lundgren v. Freeman, 307 F.2d 104 at 117 (9th Cir., 1962).19 Lundgren v. Freeman, 307 F.2d 104 at 119 (9th Cir., 1962).20 Craviolini v. Scholer & Fuller Associated Architects, 357 P.2d 611, 89 Ariz. 24(Ariz., 1960).21 Vojak v. Jensen, 161 N.W.2d 100 (Iowa, 1968).22 Blecick v. School Dist. No. 18 of Cochise County, 406 P.2d 750, 2 Ariz.App. 115(Ariz. App., 1965).23 AIA form B151-1997 §2.6.5.24 McNally & Nimergood v. Neumann-Kiewit Constructors, Inc., 2002 IA 753 atfn 2, 648 N.W.2d 564 (IA, 2002).25 Aliberti, LaRochelle & Hodson Eng. v. F.D.I.C., 844 F.Supp. 832 (Me., 1994).


26 Aliberti, LaRochelle at 845.27 Aliberti, LaRochelle at 837.28 Aliberti, LaRochelle at 844 citing Wildes v. Pens Unlimited Co., 389 A.2d 837(Me., 1978) and Shine v. Dodge, 130 Me. 440, 444, 157 A. 318, 319 (1931).29 Aliberti, LaRochelle at 844 citing Herrick v. State, 159 Me. 499, 503, 196 A.2d101 (1963).30 The developer owed the engineer $76,000 in fees that would only be paidonce the developer secured financing for the project. This situation might havemade the engineer feel trapped into supporting the developer’s efforts tosecure the loan. Aliberti, LaRochelle at 838.31 For a longer discussion of this topic, see Hubert, TJ, “Job Site Safety and theDesign Professional; How Actual Knowledge of a Dangerous Condition isBecoming the Polestar of Liability,” presented at the 36th Annual Meeting ofInvited Attorneys, 1997.32 Devlin v. Smith, 89 NY 470 (1882).33 Young v. Eastern Engineering & Elevator Company, Inc., 554 A.2d 77 at 79,381 Pa.Super. 428 (1989), appeal denied 569 A.2d 1369, 524 Pa. 611 (1989).34 Ibid. at 80, 381 Pa.Super. 428 at 437.35 Carvalho v. Toll Brothers and Developers, 651 A.2d 492 (NJ Super. AD 1995),affirmed 143 N.J. 565, 675 A.2d 209 (N.J., 1996).36 143 N.J. 565 at 579, 675 A.2d 209 at 215.37 Day v. National U.S. Radiator Corporation, 128 So.2d 660, 241 La. 288(1961).38 Day v. National U.S. Radiator Corporation, 117 So.2d 104.39 128 So.2d 660 at 664, 241 La. 288 at 299 quoting the holding of the Court ofAppeals.40 128 So.2d 660 at 666, 241 La. 288 at 304 quoting from the architect’scontract.41 Ibid. AIA Document A201-1997, section 2.6.5 makes a similar distinction:The Architect, as a representative of the Owner, shall visit the site at intervalsappropriate to the stage of the Contractor’s operations, or as otherwise agreedby the Owner and the Architect in Article 12, ... (3) to determine in general ifthe Work is being performed in a manner indicating that the Work, when fullycompleted, will be in accordance with the Contract Documents. (emphasisadded)42 128 So.2d 660 at 668, 241 La. 288 at 308-309.43 Secretary of Labor v. Skidmore, Owings & Merrill (SOM), 5 OSHC 1762.44 Reich v. Simpson, Gumpertz & Heger, Inc., 3 F.3d 1 (1st Circuit 1993).45 29 USC 654(a)(1).46 Secretary of Labor v. Foit-Albert Associates, Architects & Engineers, PC.,OSHRC Docket No. 92-0654, (1997). 47 Secretary of Labor v. Foit-Albert Associates, Architects & Engineers, PC. 1997OSHRC No. 22.48 For example, Paralyzed Veterans of America v. Ellerbe Becket Architects &Engineers, 945 F.Supp. 1 (D.DC 1996) and Johanson v. Huizenga Holdings, 963F.Supp. 1175 (S.D Fla. 1997).49 United States v. Ellerbe Becket, Inc., 976 F.Supp. 1262 (D. Minn. 1997) andUnited States v. Days Inn of America, Inc. 997 F.Supp. 1080 (C.D. Ill. 1998) 151F.3d 822 (8th Cir. 1998) cert. denied 526 US 1016, 119 S.Ct. 1249, 143 L.Ed.2d346 (1999).50 Available for download atwww.huduser.org/publications/destech/fairhousing.html and for purchase fromwww.huduser.org.


51 31 USC §3729(a)(1).52 31 USC §3729(b).53 Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 at 792 (4th Cir.(S.C.) 1999).54 Harrison v. Westinghouse Savannah River Co., 176 F.3d 776 at 792 (4th Cir.(S.C.) 1999) citing W. Page Keeton, et al., Prosser & Keeton on the Law of Torts§ 109, at 760 (5th ed.1984).55 Harrison v. Westinghouse at 789.56 United States, ex rel. Lamers v. City of Green Bay, 168 F.3d 1013 at 1018 (7th

Cir. 1999).57 United States, ex rel. Wang v. FMC Corp., 975 F.2d 1412 at 1420-1421 (9th Cir.1992).58 UMC Electronics Co. v. United States, 43 Fed.Cl. 776 at 792-793 (Ct.Clms.1999).59 Easterday v. Masiello, 518 So.2d 260, 13 Fla. L. Weekly 15 (Fla., 1988).60 Slavin v. Kay, 108 So.2d 462 (Fla.1958).61 For example, Totten v. Gruzen, 52 N.J. 202, 245 A.2d 1 (N.J., 1968) andSuneson v. Holloway Const. Co., 992 S.W.2d 79, 337 Ark. 571 (Ark., 1999).62 Greczyn v. Colgate-Palmolive, No. A-5033-02T1 (N.J. Super 3/10/2004)(N.J.Super, 2004).63 MacPherson v. Buick Motor Co., 217 NY 382, 111 N.E. 1050 (1916).64 Daniels v. Hi-Way Truck Equipment, Inc., 505 N.W.2d 485 at 490 (Iowa,1993).65 Clark v. State St. Trust Co., 270 Mass. 140, 152-153, 169 N.E. 897 (1930). 9N.E. 897 (1930).66 Village of Cross Keys, Inc. v. U.S. Gypsum Co., 556 A.2d 1126, 315 Md. 741 at753 (Md., 1987) quoting Council of Co-Owners Atlantis Condominium, Inc. v.Whiting-Turner Contracting Co., 517 A.2d 336 at 338, 308 Md. 18 at 21 (Md.,1986)67 Greenman v. Yuba Power Products, Inc., 59 Cal.2d 57, 27 Cal. Rptr. 697, 377P.2d 897 (1963).


BACKGROUND

Years ago, business people were liable for negligent acts and omissions in theconduct of their business only if the plaintiff had a contract with the business.In 1916, Justice Benjamin Cardozo shook the legal world with the case ofMacPherson v. Buick Motor Co. [217 NY 382, 111 N.E. 1050 (1916)]. That caseinvolved a manufacturer of an automobile with a defective wheel. Cardozofound the manufacturer liable to the ultimate purchaser, who bought the carfrom a dealer, not from the manufacturer. Cardozo reasoned that lack of acontractual relationship (privity) was no reason to allow a negligent actor toescape liability. The case substantially broadened the class of plaintiffs whocould sue for negligence. As more and more states adopted the MacPhersonrule, defense lawyers lamented that “the wall of privity was crumbling.”

Then, in the 1928 case of Palsgraff v. Long Island RR Co. [248 NY 339, 162 N.E.99 (1928)], Cardozo limited defendants’ liability. In that case, a man carrying apackage of fireworks accidentally dropped it as he scrambled onto a train thathad started out of the station. The fireworks exploded, causing a scale totopple. The scale struck and injured Mrs. Palsgraf, who was on the platformbuying a ticket. Mrs. Palsgraf sued the railroad and lost. Justice Cardozo heldthat plaintiffs like Mrs. Palsfraf, who were not within the reasonably expectedzone of danger, could not recover for another person’s negligence. JusticeAndrews wrote a strong and persuasive dissent. Andrews argued that Mrs.Palsgraf should recover because railroad employees had given the man whodropped the fireworks a boost to help him onto the train. The fireworks werethe proximate cause of Mrs. Palsgraf ’s injuries, the injuries were foreseeable,and the railroad (through its employees) contributed to the accident. Many, ifnot most, states now follow Andrews’s view. These courts allow plaintiffs torecover for bodily injury or property damage proximately caused by adefendant’s negligence. They do not require contractual privity or the zone ofdanger. Judges who allow that expanded liability reason that defendants canprotect themselves with insurance. Accordingly, they feel, injured plaintiffsshould not have to bear the risk of defendants’ negligence.

The economic loss doctrine, which applies only to economic (monetary)losses, never applied and never required privity to recover for personal injuryor property damage. In that regard, the economic loss doctrine is consistentwith the Palsgraff dissent.

The following cases present the status of the economic loss doctrine in the 50states.

� 18 states apply the economic loss doctrine to bar claims for pure economicloss if the plaintiff is not in privity with the defendant.

� 8 states reject the economic loss doctrine outright.

APPENDIX: SURVEY OF ECONOMIC LOSS

DOCTRINE AND NEGLIGENT

MISREPRESENTATION CASES AFFECTING

DESIGN PROFESSIONALS


� 15 states follow the doctrine but apply some type of exception.

� 9 states have no stated position so could go either way.

FEDERAL

East River Steamship Corp. et al. v. Transamerica Delaval Inc., 476 U.S. 858, 106S.Ct. 2295 (1986)

The Court found that damages cause by a product failing to perform orinjuring only itself (economic losses) are recoverable only under a contractcause of action, not one in tort. The Court reasoned that these economic losseshave little effect on public safety and are best understood as warranty claims.Holding manufacturers liable for all foreseeable purely economic losses wouldexpose them to large, unquantifiable risk.

ALABAMA

E.C. Ernst, Inc. v. Manhattan Constr. Co., 551 F.2d 1026, 1032 (5th Cir. 1977),cert. denied, 434 U.S. 1067 (1978) (applying Alabama law)

Contractual privity is not necessary for a subcontractor to recover based on aclaim that the architect was negligent in preparing plans because thesubcontractor falls within the scope of the risk the architect created.

ALASKA

State of Alaska v. Transamerica Premier Ins. Co., 856 P.2d 766 (Alaska 1993)

A contractor not in privity with the designer could not sue for economic loss.

ARIZONA

Donnelly Constr. Co. v. Oberg/Hunt/Gilleland, 139 Ariz. 184, 677 P.2d 1292,1295-96 (1984).

“Insofar as Blecick [v. School District No. 18 of Cochise County, 2 Ariz.App. 115,406 P.2d 750 (1965)] stands for the proposition that an architect cannot besued in tort by a contractor for negligent preparation of plans andspecifications, it must be overruled.”

ARKANSAS

CALIFORNIA

Seely v. White Motor Company, 63 Cal. 2d 9; 403 P.2d 145 (CA 1965)

A customer could not recover profits lost because a truck was repeatedly out ofservice for repairs.


Aas v. Superior Court, 24 Cal.4th 627, 12 P.3d 1125, 101 Cal.Rptr.2d 718 (2000)

The economic loss doctrine provides a full defense against claims forconstruction defects if they are not accompanied by personal injury orproperty damage.

COLORADO

Terrones v. Tapia, 967 P.2d 216 (Colo.App. 1998)

A summary judgment upheld the application of the economic loss doctrine.

Town of Alma v. Azco Construction Inc., 10 P.3d 1256, 1264 (Colo. 2000)

A party suffering only economic loss from the breach of an express or impliedcontractual duty may not assert a tort claim for such a breach absent anindependent duty of care under tort law.

BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66 (Colo. 2004)

The Colorado Supreme Court reversed a decision by the Appeals court thatforeseeability of reliance imposed a duty on an engineer to the contractor andheld that the economic loss doctrine barred claims of negligence and negligentmisrepresentation that a subcontractor brought against an engineer.

CONNECTICUT

Carolina Casualty v. 60 Gregory Boulevard, Docket No. CV 98 0169383, 26Conn. L. Rprt. 685, Conn.Super. LEXIS 739 (Conn.Super. 2000)

In the context of a construction project where reliance is reasonablyforeseeable, lack of privity does not bar a negligence action for economic loss.

RAC Construction Co., Inc. v. HARP, 2003 WL 22234645 (Conn.Super)

A Connecticut trial court refused to apply the economic loss doctrine andallowed a contractor’s claim against an architect to go forward even thoughthere was no contractual privity, and the contractor had not suffered personalinjury or property damage.

Best Friends Pet Care, Inc. v. Design Learned, Inc., 2003 WL 22962147(Conn.Super)

A Connecticut trial court refused to apply the economic loss doctrine andallowed a building owner’s claim against an engineer to go forward eventhough there was no contractual privity. The court reasoned that the engineerknew the building owner would rely on the engineer’s design.


DELAWARE

Danforth v. Acorn Structures, Inc., 608 A.2d 1194 (Del. 1992)

The court applied the economic loss doctrine to bar a claim by a homeowneragainst a company that provided a “custom design” along with a package ofbuilding materials. The court specifically stated that this decision did notaddress the question of whether the economic loss doctrine would barrecovery of economic loss caused by professional malpractice. An earlier casehad rejected the economic loss doctrine as a defense against a claim ofnegligent engineering design.

FLORIDA

Casa Clara Condominium Association v. Charley Toppino & Sons, Inc., 620So.2d 1244 (Fla. 1993)

The economic loss rule applies to the purchase of homes.

City of Tampa v. Thornton-Tomasetti, P.C., 646 So.2d 279 (Fla.Dist.Ct.App.1994)

The Florida court held that lack of contractual privity barred an owner’s claimagainst an engineer who was a subcontractor of the architect.

Florida State Board of Admin. v. Law Engineering and Environmental Services,Inc., 262 F.Supp.2d 1004 (D.Minn. 2003)

The Minnesota District Court (applying Florida law) granted the engineer’smotion for summary judgment on a negligence claim because Florida appliesthe economic loss rule. However, the court allowed the negligentmisrepresentation claim to proceed.

Indemnity Ins. Co. of N. Am. v. American Aviation, Inc., 2004 WL 2973861 (Fla.,Dec. 23, 2004)

In response to questions certified to it by the 11th Circuit Court of Appeals, theFlorida Supreme Court held that the economic loss doctrine bars a claimbased on negligence for pure economic losses only when there is contractualprivity.

GEORGIA

Hardaway Co. v. Parsons, Brinckerhoff, Quade & Douglas, Inc., 267 Ga. 424, 479S.E.2d 727 (1997)

The court allowed a contractor’s claim for negligent misrepresentation toproceed even without contractual privity, adopting the reasoning of §552 ofthe RESTATEMENT (SECOND) OF TORTS.

R.H. Macy & Co. v. Williams Tile & Terrazzo, 585 F.Supp. 175 (N.D. Ga. 1984)


Applying Georgia law, the architect owes no tort duty to a subcontractor ifthere is “no indication that any type of professional relationship existedbetween [the architect and the subcontractor] or that their relationship‘approaches that of privity.’”

HAWAII

IDAHO

ILLINOIS

Moorman Mfg. Co. v. National Tank Co., 91 Ill. 2d 69, 435 N.E.2d 443 (1982)

Illinois adopted the economic loss doctrine.

2314 Lincoln Park West Condominium Association v. Mann, Gin, Ebel & Frazier,Ltd., 555 N.E.2d 346 (Ill. 1990)

Illinois extended the economic loss doctrine to architects.

Tolan and Son, Inc. v. KLLM architects, Inc., 308 Ill.App.3d 18, 719 N.E.2d 288(1999)

The court followed the economic loss doctrine as outlined in the Moormancase and did not find enough facts to support a claim for negligentmisrepresentation.

INDIANA

Thomas v. Lewis Engineering, Inc., 848 N.E.2d 758 (Ind. App., 2006)

“Indiana has not adopted Restatement Section 552 without limitation. Indeed,the condition of Indiana law regarding the tort of negligent misrepresentationhas been aptly described as one of ‘relative chaos.’“ [citations omitted] ...“Instead, we have held that a professional owes no duty to one with whom hehas no contractual relationship unless the professional has actual knowledgethat such third person will rely on his professional opinion.” ... “We believe theprivity requirement, subject to an actual knowledge exception, properlybalances the competing interests of consumer and professional in a cause suchas the one before us.”

IOWA

Peter Kiewitt Sons’ Co. v. Iowa S. Util. Co., 355 F.Supp. 376 (S.D. Iowa 1973)

The court found in favor of the engineer on the contractor’s negligence claim.However, citing Ryan v. Kanne, 170 N.W.2d 395 (Iowa, 1969), the court notedthat “the Engineer had the duty of care and competence commensurate withthe standards of his profession in obtaining and communicating informationfor the guidance of [the contractor] with respect to its business transactionsrelating to the [] project.” (page 394).


KANSAS

Prendiville v. Contemporary Homes, Inc., No. 88,395 (Kan. App. 2/13/2004)(Kan. App., 2004), 32 Kan.App.2d 435, 83 P.3d 1257

The economic loss doctrine, recognized in Kansas in Koss Construction v.Caterpillar, Inc., 25 Kan. App. 2d 200, 960 P.2d 255, rev. denied 265 Kan. 885(1998), applies to a claim against a contractor in residential constructiondefect cases.

KENTUCKY

E.H. Construction v. Delor Design Group, No. 1998-CA-001476-MR, 2000Ky.App.Lexis 29 (Ky.App.2000)

The court followed the RESTATEMENT (SECOND) OF TORTS §552 and allowed aclaim for misrepresentation even when contractual privity did not exist.

LOUISIANA

M.J. Womack, Inc. v. House of Representatives, 509 So.2d 62 (La. App. 1 Cir.,1987), writ denied, 513 So.2d 1208 (La.), writ denied, 513 So.2d 1211 (La. 1987)

An architect owed the plaintiff contractor a duty to use reasonable skill andcare in the preparation of plans on which the plaintiff would base his bid anddo his work.

MAINE

Maine Rubber Internatn’l v. Environmental Mgmt. Group, 324 F.Supp.2d 32,2004 WL 32761 (D.Me. 2004)

The Federal District Court rejected the claim because Maine applies theeconomic loss rule to service contracts.

In Chapman v. Rideout, 568 A.2d 829 (Me., 1990), Maine adopted “theRestatement formulation as it applies to this case.” The case upheld an awardof damages to a plaintiff who had to install a more expensive septic systembecause the defendant seller (who was not an engineer or surveyor) hadincorrectly marked the boundaries of the property. In Aliberti, LaRochelle &Hodson Eng. v. F.D.I.C., 844 F.Supp. 832 at 838 (Me., 1994), the Federal DistrictCourt cited Chapman v. Rideout for the proposition that Maine followsRESTATEMENT §552.

The Maine Rubber case, which seems more applicable to design professionalsthan Chapman, does not cite either Chapman or Aliberti, LaRochelle, so Maineseems to be an economic loss doctrine jurisdiction.

MARYLAND

Council of Co-Owners v. Whiting-Turner, 308 Md. 18, 517 A.2d 336 (MD 1986)


Maryland allowed an exception to the economic loss rule where there was“serious risk of death or personal injury.” The case left unclear how farMaryland would go in allowing exceptions to the economic loss doctrine.

Morris v. Osmose Wood Preserving, 340 Md. 519, 667 A.2d 624 (1995)

A Maryland court upheld the economic loss doctrine and deniedcondominium owners recovery against plywood manufacturers. The courtdetermined that the owners did not establish that the defects created the typeof “serious and unreasonable risk of death or personal injury” it found in the1986 case. The 1995 case confirmed that Maryland requires a risk of death orpersonal injury to make an exception to the economic loss rule and allowrecovery where no contractual relationship exists.

MASSACHUSETTS

Craig v. Everett M. Brooks Co., 351 Mass. 497, 222 N.E.2d 752 (1967)

The Massachusetts court allowed a contractor to recover against a civilengineer who had made a mistake in preparing plans and laying out stakes fora road. The court held the engineer liable because the contractor wasreasonable in relying on the engineer’s plans and specifications, and theengineer should have foreseen that reliance. The court allowed recoverybecause both the contractor and the engineer were under contract with thesame owner, and the contractor’s contract contemplated that the contractorwould rely on the engineer’s services. The court noted that the defendantengineer knew the only possible plaintiff and the extent of his reliance. Inaddition, damages were not remote.

Priority Finishing v. LAL Construction, 40 Mass. App. Ct. 719, 667 N.E.2d 290(1996)

The Massachusetts Appeals Court affirmed that it follows the “traditional rulethat purely economic losses are unrecoverable in tort and strict liability actionsin the absence of personal injury or property damage.”

Nota Construction v. Keyes Associates, Inc., 45 Mass.App.Ct. 15, 694 N.E.2d 401(Mass.App.Ct. 1998)

The court allowed a claim for negligent misrepresentation when there was nocontractual privity.

MICHIGAN

Bacco Constr. Co. v. American Celloid Co., 384 N.W.2d 427 (Mich. App. 1986)

The court adopted the reasoning of the Arizona case, Donnelly Construction:“It is certainly foreseeable that an engineer’s failure to make propercalculations and specifications for a construction job may create a risk of harmto the third-party contractor who is responsible for applying thosespecifications to the job itself. The risk of harm would include the financialhardship created by having to cure the defects which may very well not becaused by the contractor.”


MINNESOTA

McCarthy Well Co. v. St. Peter Creamery, 410 N.W.2d 312 (Minn. 1987)

“Where the ‘predominant factor’ in an agreement is the performance ofservices rather than the sale of goods, Superwood v. Siempelkamp, 311 N.W.2d159 (Minn.1981), does not preclude the recovery of economic losses undertort theory of negligence, or products liability.”

MISSISSIPPI

Owen v. Dodd, 431 F.Supp. 1239, 1242 (N.D. Miss. 1977) (applying Mississippilaw)

An architect owes a tort duty to a contractor who relies on the design.

MISSOURI

Fleischer v. Hellmuth, Obata & Kassabaum, Inc., 870 S.W.2d 832 (Mo. App.E.D., 1993)

The court adopted the reasoning of Floor Craft Covering, Inc. v. ParmaCommunity Hospital, 560 N.E.2d 206 (Ohio 1990) and found no duty withoutprivity because parties can allocate these risks in their contracts.

MONTANA

Jim’s Excavating Service, Inc. v. HKM Associates, 878 P. 2d 248 (Mont. 1994)

A professional firm has a duty to exercise care and be competent. Because it isforeseeable that professional negligence could cause a contractor who isresponsible for implementing that design to incur economic loss, theeconomic loss doctrine does not provide a defense.

NEBRASKA

NEVADA

Calloway v. City of Reno, 116 Nev. 250, 993 P.2d 1259 (2000)

The economic loss rule bars claims for negligence if the only damage is to thebuilding and its components.

NEW HAMPSHIRE

NEW JERSEY

Santor v. A & M Karagheusian, Inc., 44 N.J. 52, 207 A.2d 305 (N.J. 1965)


The New Jersey Supreme Court found that privity of contract was notnecessary for a consumer to recover against a manufacturer for defectivecarpet.

Conforti & Eistele v. John C. Morris Association, 175 N.J. Super. 341, 418 A.2d1290 (Law Div. 1980) (aff ‘d, 199 N.J. Super. 498, 489 A.2d 1233 (App. Div.1985)

New Jersey extended its rejection of the economic loss doctrine to claims by acontractor against a design professional for losses the contractor incurred as aresult of “negligently prepared plans.”

NEW MEXICO

NEW YORK

Strategem Dev. Corp. v. Heron International N.V., 153 F.R.D. 535 (S.D.N.Y.1994)

The court found that even though a construction manager did not have acontract with the architect, the construction manager could sue the architectfor economic loss because the overall relationship of the project imposed aduty on the architect to the construction manager.

Travelers Casualty & Surety Co. v. The Dormitory Authority of the State of NewYork, 2005 U.S. Dist. LEXIS 9415 (NY)

Applying the New York Court of Appeals’ standard for defining privity as wasidentified in Ossining Union Free School Dist. v. Anderson LaRocca Anderson, 73NY.2d 417, 424 (NY. 1989), the court reaffirmed and reapplied the definitionof privity, which can be found to exist if the plaintiff can demonstrate:

(1) awareness that the reports were to be used for a particular purpose;

(2) reliance by a known party or parties in furtherance of that purpose;and

(3) some conduct by the defendants linking them to the party or partiesevidencing the defendants’ understanding of the reliance.

NORTH CAROLINA

Ellis-Don Construction, Inc. v. HKS, Inc., 2004 WL 3094819 (M.D.N.C. 2004)

The US District Court for the Middle District of North Carolina affirmed thatunder North Carolina law, the economic loss rule does not prevent acontractor’s negligence action against an architect for pure economic loss. “InNorth Carolina, ‘in the absence of privity of contract an architect may be heldliable to a general contractor and his subcontractors for economic lossresulting from breach of a common law duty of care.’ Davidson & Jones, Inc., v.County of New Hanover, 41 N.C.App. 661, 666, 255 S.E.2d 580 (1979). Suchduty of care ‘flow[s] from the parties’ working relationship.’ Id. at 667, 255S.E.2d 580.”


NORTH DAKOTA

OHIO

Floor Craft Covering, Inc. v. Parma Community Hospital, 560 N.E.2d 206 (Ohio1990)

In the absence of privity of contract, no cause of action exists in tort to recovereconomic damages against design professionals involved in drafting plans andspecifications. The dissent made a strong argument to allow claims fornegligent misrepresentation.

OKLAHOMA

Boren v. Thompson & Associates, 2000 OK 3 (OK, 2000)

“A supervising architect, in the performance of its contract with the owner, isrequired to exercise the ability, skill and care customarily exercised byarchitects in similar circumstances. This duty of care extends to contractorswho share an economic relationship and community of interest on aconstruction project. The duty is based on circumstances establishing a directand reasonable reliance by the contractor on the contractual performance ofthe architect when the architect knows or should know, of that reliance.”(citing Forte Bros., Inc. v. National Amusements, Inc. (R.I.1987), 525 A.2d 1301)

OREGON

PENNSYLVANIA

REM Coal Company, Inc. v. Clark Equipment Company, 386 Pa.Super, 401, 563A.2d 128 (Pa. Super. 1989)

A Pennsylvania court followed the reasoning of Seely and East River Steamshipthat economic loss claims that resemble warranty claims are recoverable onlyin contract.

Linde Enterprises, Inc. v. Hazelton City Authority, 412 Pa.Super. 67, 602 A.2d897 (Pa.Super. 1991)

A Pennsylvania court extended the economic loss doctrine to deny acontractor’s claim against an architect.

Borough of Lansdowne v. Sevenson Environmental Services, No. CIV.A.99-3781,2000 U.S.Dist.Lexis 18732, 2000 WL 1100866, (E.D.Pa. Aug. 2, 2000)

The federal court in Pennsylvania relied on the RESTATEMENT (SECOND) OF

TORTS §552 to allow the claim to proceed.

David Pflumm Paving & Excavating, Inc. v. Foundation Services Co., 816 A.2d1164 (Pa.Super. 2003)


A Pennsylvania trial court adhered to the economic loss doctrine and refusedto apply § 552 of the RESTATEMENT (SECOND) OF TORTS to make an exception tothe economic loss doctrine for negligent misrepresentation suits against designprofessionals. The court stated that Pennsylvania law has permitted recoveryunder § 552 only when the plaintiff has suffered losses in addition toeconomic loss.

Bilt-Rite Contractors, Inc. v. The Architectural Studio, 866 A.2d 270, 2005 WL120794 (Pa. 2005)

The Pennsylvania Supreme Court held that the economic loss doctrine did notbar a contractor’s claim for negligent misrepresentation against an architecteven though there was no privity between the contractor and the architect.The Court applied §552 of the RESTATEMENT (SECOND) OF TORTS.

RHODE ISLAND

Forte Bros., Inc. v. National Amusements, Inc. (R.I.1987), 525 A.2d 1301

(contractor may recover against architect)

“A supervising architect, in the performance of its contract with the owner, isrequired to exercise the ability, skill and care customarily exercised byarchitects in similar circumstances. Davidson & Jones, Inc. v. County of NewHanover, 41 N.C.App. 661, 255 S.E.2d 580, 584 (1979); see also DonnellyConstruction Co. v. Oberg/Hunt/Gilleland, 139 Ariz. 184, 187, 677 P.2d 1292,1295 (1984). This duty of care extends to contractors who share an economicrelationship and community of interest with the architect on a constructionproject.”

Rousseau v. K. N. Construction, 727 A.2d 190 (R.I. 1999)

The economic loss doctrine and absence of privity did not bar a claim byconsumers.

SOUTH CAROLINA

Tommy L. Griffin Plumbing & Heating Company v. Jordan, Jones & Goulding,463 S.E.2d 85 (S.C. 1995)

South Carolina allowed a contractor to recover against an engineer eventhough the engineer had no contract with the contractor. The court said itjoined “a growing number of states [that] have refused to apply the ‘economicloss’ rule to actions against design professionals when there is a ‘specialrelationship’ between the design professional and the contractor.” In addition,the court said the engineer owed the contractor a “professional duty” that was“separate and distinct from any contractual duties between the parties or withthird parties.”

SOUTH DAKOTA

Mid-Western Electric, Inc. v. DeWild Grant Reckert & Associates Co., 500 N.W.2d250 (S.D. 1993)


The court rejected the economic loss doctrine and allowed a subcontractor notin privity with the design firm to pursue a claim for negligent rejection ofequipment the subcontractor had installed.

TENNESSEE

John Martin Co., Inc. v. Morse/Diesel/Inc., 819 S.W.2d 428 (Tenn. 1991)

The court rejects the economic loss doctrine.

TEXAS

Housing Authority of the City of Dallas v. Post, Buckley, Schuh & Jernigan, Inc.,No. 05-00-01375-CV, 2001 Tex. App. LEXIS 8503 (Tx. Ct. App. 2001)

A professional in the business of providing information that others areexpected to rely on will be liable for negligent misrepresentation even whenthere is no privity of contract.

UTAH

SME Industries, Inc. v. Thompson, Ventulett, Stainback, and Associates, Inc., 2001UT 54 (2001), 28 P.3d 669

The economic loss rule bars recovery of economic damages in the absence ofbodily injury or property damage.

VERMONT

VIRGINIA

Blake Construction Company, Inc. v. Milton M. Alley, 233 Va. 31, 353 S.E.2d 724(VA 1987)

The court concluded that a contractor could not recover pure economics lossesagainst a design professional in the absence of contractual privity. The courtrecognized that on construction projects, rights and duties are defined bycontract. A contractor who wanted the right to recover economic losses fromthe architect could include that provision in its contract.

Sensenbrenner v. Rust, Orling & Neale, 236 Va. 419, 374 S.E.2d 55 (VA 1988)

The Virginia court affirmed the requirement of contractual privity outlined inBlake.

Gerald M. Moore & Son, Inc. v. Drewry, 467 S.E.2d 811 (VA 1996)

In a strict application of the economic loss doctrine, Virginia denied recoveryto an owner who sued the president of a design firm. The contract was only


with the firm, so the plaintiff sued the wrong entity. The court held thatwithout privity, a person cannot be held liable for negligent performance of acontract.

WASHINGTON

Bershauer/Phillips Construction Co. v. Seattle School District, 881 P.2d 986 (WA1994)

The State of Washington reaffirmed the economic loss doctrine in a case wherea general contractor sued an architect and an engineer for cost overruns anddelay on a school project. The court noted that parties can allocate risk incontracts. Upholding the economic loss doctrine respects the right to contractand makes liability under contracts more predictable.

Carlson v. Sharp, 99 Wn. App. 324, 994 P.2d 851 (1999)

The court adhered to the economic loss rule as a means to maintain thedistinction between contract law, which enforces expectations created byagreement, and tort law, which protects people and property by imposing aduty of reasonable care.

WEST VIRGINIA

Eastern Steel Constructors, Inc. v. City of Salem, 209 W.Va. 329 (2001), 549S.E.2d 266

A design professional may be liable to a contractor for pure economic loss,even in the absence of a contract, if a “special relationship” exists.

WISCONSIN

Selzer v. Brunsell Brothers, Ltd., 2002 WI 904 (WICA, 2002)

The economic loss doctrine barred the plaintiff homeowner’smisrepresentation claims against a window manufacturer because the risk ofloss was allocated by the manufacturer’s warranty.

WYOMING

Rissler & McMorray Co. v. Sheridan Area Water Board, 929 P.2d 1228 (Wyo.1996)

The court cited decisions in Virginia and Washington and allowed theeconomic loss doctrine as a defense because the parties could have includedlanguage to allocate this risk in their contracts.

Schinnerer’s 46th Annual Meeting of Invited Attorneys

Documents

Transcript of Schinnerer’s 46th Annual Meeting of Invited Attorneys