Schinnerer's 46th Annual Meeting of Invited Attorneys

Schinnerer’s 46th Annual Meeting of Invited Attorneys
DESIGN PROFESSIONALS’ LIABILITY TO

THIRD PARTIES
by Kenneth M. Elovitz, Esquire, PE
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.
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.
Kenneth M. Elovitz is an engineer and in-house counsel with Energy Economics, Inc. in
Foxboro, MA. He received a BS in Metallurgy and Materials Science from Lehigh University
and a JD from Suffolk University Law School. He is registered as a professional engineer in
mechanical and electrical disciplines. Before joining Energy Economics, Elovitz worked at
Bethlehem Steel’s Burns Harbor Plant and at Texas Instruments in Attleboro, MA. Energy
Economics provides engineering services for HVAC, refrigeration, and electrical systems in
buildings.
Copyright 2007 by Victor O. Schinnerer & Company, Inc. 1

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 business
transactions, is subject to liability for pecuniary loss caused to them by
their justifiable reliance upon the information ...4
2 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

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
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THE 46 ANNUAL MEETING OF INVITED ATTORNEYS 3
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 and
Engineer for Professional Services, (2002 edition), includes language in
section 6.07 that attempts to bar claims by third parties.10
AIA standard contract forms can accommodate modifications with the
same purpose.11
One law firm has developed similar contract language that limits
liability to third parties and has been successful in having its language
incorporated into the general conditions of the contract for
construction.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 had
been 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 the
contract
The contractor included a claim against the architect for:
Willfully and maliciously interfering with his performance of the
contract
Inducing the owner to breach the contract
Damage to the contractor’s reputation because of the architect’s claim
that the contractor failed to substantially perform
Damage to credit standing with subcontractors, materialmen, and
bonding 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
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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 general
contractors saying that a particular roofing subcontractor’s work was
unsatisfactory, so the architect would not approve that subcontractor on
any future projects until the subcontractor could prove to the architect’s
satisfaction 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’s
schedule.
Arbitrarily withholding funds or approving less than the requested
amount on payment requisitions. In Blecick v. School Dist. No. 18 of
Cochise County,22 a contractor sued the architect, claiming that the
architect arbitrarily refused to issue a final certificate certifying to full
performance of the contract without just excuse and for the sole purpose
of hindering and delaying the contractor. The claim against the architect
was 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
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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’s
servants were injured. The contractor was held liable. He knew that the
scaffold, if improperly constructed, was a most dangerous trap. He knew
that it was to be used by the workmen. He was building it for that very
purpose. Building it for their use, he owed them a duty, irrespective of his
contract 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
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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
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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
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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
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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 and
mechanisms for spreading risk, does the availability of professional
liability insurance create a duty from the insured to the injured, regardless
of the nature of the injury?
The theory behind statutes of repose is to bring some measure of
certainty and finality by cutting off unknown and unknowable liability to
unidentified persons. If design professionals can limit their duty to third
parties and define the classes of potential plaintiffs who can bring claims
against them, why have statutes of repose? Does the existence of statutes of
repose suggest or imply a tradeoff that in exchange for cutting off liability
after a period of time, design professionals must accept that they have a
duty and therefore potential liability to people unrelated to their
contracting group for the construction project?
Without duty, there is no negligence. If design professionals can
successfully use some of the analysis and techniques presented here to
establish that they have no duty to certain classes of third parties, is there
still 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 the
end of each job to document that the system operated in accordance with
the design when the design professional left. If the system was not
operating correctly at the time of the accident, the design professional can
argue that the deficiency was not a function of the design.
Design systems with operation and maintenance in mind so building
owners have the means to operate systems in accordance with the design
for years to come. Document how the systems are supposed to operate and
what performance should be expected.
Review the owners’ manuals to see if they have the information owners
need to maintain proper system operation.
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ENDNOTES
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, or
in any other transaction in which he has a pecuniary interest, supplies
false information for the guidance of others in their business
transactions, is subject to liability for pecuniary loss caused to them by
their justifiable reliance upon the information, if he fails to exercise
reasonable care or, competence in obtaining or communicating the
information.
(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 whose
benefit and guidance he intends to supply the information or
knows that the recipient intends to supply it; and
(b) through reliance upon it in a transaction that he intends the
information to influence or knows that the recipient so intends or
in a substantially similar transaction.
(3) The liability of one who is under a public duty to give the information
extends to loss suffered by any of the class of persons for whose benefit
the duty is created, in any of the transactions in which it is intended to
protect 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 person
in mind as the intended, or even the probable, recipient of the
information. In other words, it is not required that the person who is to
become the plaintiff be identified or known to the defendant as an
individual when the information is supplied. It is enough that the maker
of the representation intends it to reach and influence either a particular
person or persons, known to him, or a group or class of persons, distinct
from the much larger class who might reasonably be expected sooner or
later to have access to the information and foreseeably to take some action
in reliance upon it. It is enough, likewise, that the maker of the
representation knows that his recipient intends to transmit the
information to a similar person, persons or group. It is sufficient, in other
words, insofar as the plaintiff ’s identity is concerned, that the maker
supplies the information for repetition to a certain group or class of
persons and that the plaintiff proves to be one of them, even though the
maker never had heard of him by name when the information was given.
It is not enough that the maker merely knows of the ever-present
possibility of repetition to anyone, and the possibility of action in reliance
upon it on the par of anyone to whom it may be repeated.

Illustration 9 to Comment h:
The City of A is about to ask for bids for work on a sewer tunnel. It hires
B Company, a firm of engineers, to make boring tests and provide a report
showing the rock and soil conditions to be encountered. It notifies B
Company that the report will be made available to bidders as a basis for
their bids and that it is expected to be used by the successful bidder in
doing the work. Without knowing the identity of any of the contractors
bidding on the work, B Company negligently prepares and delivers to the
City an inaccurate report, containing false and misleading information.
On the basis of the report C makes a successful bid, and also on the basis
of 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 loss
in performing their contracts. B Company is subject to liability to C and
to D. [Illustration is based on M. Miller Co. v. Central Contra Costa
Sanitary District, 198 Cal.App.2d 308, 18 CalRptr 13 (1961)]
5
In a later case involving accountants, the Massachusetts court sidestepped an
opportunity to adopt RESTATEMENT §552 but stated that the RESTATEMENT test
“comports most closely with the liability standard we have applied in other
professional contexts. Nycal Corp. v. KPMG Peat Marwick LLP., 688 N.E.2d
1368, 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.2d
745 (1992)
7
Ibid.
8
Ultramares Corp. v. Touch, Niven & Co., 255 NY 170 at 179, 174 NE 441 at
444, 74 ALR 1139.
9
See, for example, cases from Georgia, Kentucky, Pennsylvania cited in the
Appendix.
10
EJCDC Document E-500, Standard Form of Agreement Between Owner and
Engineer for Professional Services, 2002 edition, section 6.07 includes this
paragraph C:
C. Unless expressly provided otherwise in this Agreement:
1. Nothing in this Agreement shall be construed to create, impose, or
give rise to any duty owed by Owner or Engineer to any
Contractor, Contractor’s subcontractor, supplier, other individual
or entity, or to any surety for or employee of any of them.
2. All duties and responsibilities undertaken pursuant to this
Agreement will be for the sole and exclusive benefit of Owner and
Engineer and not for the benefit of any other party.
3. Owner agrees that the substance of the provisions of this
paragraph 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; underlined
language was added. Bold underlined language would seem to block claims by
third parties.
2.6.5 The Architect, as a representative of the Owner, shall visit the site at
intervals as often as necessary and appropriate to the stage of the
Contractor’s operations, construction (with particular emphasis on
structural work and in any case whenever required by law or any
governmental authority with jurisdiction over the Project) or as otherwise
agreed by the Owner and the Architect in Article 12, (1) to observe the site
and work and become generally familiar with and to keep the Owner
informed about the progress and quality of the portion of the Work
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completed and to determine for the Owner’s benefit and protection, (2) to
endeavor to guard the Owner against defects and deficiencies in the Work,
and (3) to determine in general if the Work is proceeding in accordance
with the intent of the Contract Documents and Construction Schedule. is
being performed in a manner indicating that the Work, when fully
completed, 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 the
Contract documents and from the most recent construction schedule
submitted by the Contractor. However, the Architect shall not be
responsible for the Contractor’s failure to perform the Work in accordance
with the requirements of the Contract Documents. The Architect shall be
responsible for the Architect’s negligent acts or omissions, but shall not
have control over or charge of and shall not be responsible for construction
means, methods, techniques, sequences or procedures, or for safety
precautions and programs in connection with the Work, since these are
solely the Contractor’s responsibility. Except as provided in this Agreement,
the Architect shall not be responsible for the Contractor’s schedules or
failure to carryout the work in accordance with the Contract documents
and shall not have control over or charge of acts or omissions of the
contractor, Subcontractors, or their agents or employees, or of any other
persons or entities performing portions of the Work.
12
Donovan-Hatem of Boston has suggested adding the following paragraph to
the 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, equity
or arbitration against the Architect, or the officers, employees, agents or
consultants, of the Architect, for the enforcement of any action which the
Contractor may have arising out of or in any manner connected with the
Work. The Contractor shall assure that this covenant not to sue is
contained in all subcontractors and subcontractors of every tier, and shall
assure its enforcement. The Architect, its officers, employees, agents, and
consultants are intended third-party beneficiaries of this covenant not to
sue, 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
19
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 at
fn 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.2d
101 (1963).
30
The developer owed the engineer $76,000 in fees that would only be paid
once the developer secured financing for the project. This situation might have
made the engineer feel trapped into supporting the developer’s efforts to
secure the loan. Aliberti, LaRochelle at 838.
31
For a longer discussion of this topic, see Hubert, TJ, “Job Site Safety and the
Design Professional; How Actual Knowledge of a Dangerous Condition is
Becoming the Polestar of Liability,” presented at the 36th Annual Meeting of
Invited 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 of
Appeals.
40
128 So.2d 660 at 666, 241 La. 288 at 304 quoting from the architect’s
contract.
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 intervals
appropriate to the stage of the Contractor’s operations, or as otherwise agreed
by the Owner and the Architect in Article 12, ... (3) to determine in general if
the Work is being performed in a manner indicating that the Work, when fully
completed, will be in accordance with the Contract Documents. (emphasis
added)
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. 1997
OSHRC 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, 963
F.Supp. 1175 (S.D Fla. 1997).
49
United States v. Ellerbe Becket, Inc., 976 F.Supp. 1262 (D. Minn. 1997) and
United States v. Days Inn of America, Inc. 997 F.Supp. 1080 (C.D. Ill. 1998) 151
F.3d 822 (8th Cir. 1998) cert. denied 526 US 1016, 119 S.Ct. 1249, 143 L.Ed.2d
346 (1999).
50
Available for download at
www.huduser.org/publications/destech/fairhousing.html and for purchase from
www.huduser.org.
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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) and
Suneson 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). 9
N.E. 897 (1930).
66
Village of Cross Keys, Inc. v. U.S. Gypsum Co., 556 A.2d 1126, 315 Md. 741 at
753 (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, 377
P.2d 897 (1963).

APPENDIX: SURVEY OF ECONOMIC LOSS
DOCTRINE AND NEGLIGENT
MISREPRESENTATION CASES AFFECTING
DESIGN PROFESSIONALS
BACKGROUND
Years ago, business people were liable for negligent acts and omissions in the
conduct 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 of
MacPherson v. Buick Motor Co. [217 NY 382, 111 N.E. 1050 (1916)]. That case
involved a manufacturer of an automobile with a defective wheel. Cardozo
found the manufacturer liable to the ultimate purchaser, who bought the car
from a dealer, not from the manufacturer. Cardozo reasoned that lack of a
contractual relationship (privity) was no reason to allow a negligent actor to
escape liability. The case substantially broadened the class of plaintiffs who
could sue for negligence. As more and more states adopted the MacPherson
rule, 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 a
package of fireworks accidentally dropped it as he scrambled onto a train that
had started out of the station. The fireworks exploded, causing a scale to
topple. The scale struck and injured Mrs. Palsgraf, who was on the platform
buying a ticket. Mrs. Palsgraf sued the railroad and lost. Justice Cardozo held
that plaintiffs like Mrs. Palsfraf, who were not within the reasonably expected
zone of danger, could not recover for another person’s negligence. Justice
Andrews wrote a strong and persuasive dissent. Andrews argued that Mrs.
Palsgraf should recover because railroad employees had given the man who
dropped the fireworks a boost to help him onto the train. The fireworks were
the proximate cause of Mrs. Palsgraf ’s injuries, the injuries were foreseeable,
and the railroad (through its employees) contributed to the accident. Many, if
not most, states now follow Andrews’s view. These courts allow plaintiffs to
recover for bodily injury or property damage proximately caused by a
defendant’s negligence. They do not require contractual privity or the zone of
danger. Judges who allow that expanded liability reason that defendants can
protect themselves with insurance. Accordingly, they feel, injured plaintiffs
should 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 injury
or property damage. In that regard, the economic loss doctrine is consistent
with the Palsgraff dissent.
The following cases present the status of the economic loss doctrine in the 50
states.
18 states apply the economic loss doctrine to bar claims for pure economic
loss if the plaintiff is not in privity with the defendant.
8 states reject the economic loss doctrine outright.
th
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, 106
S.Ct. 2295 (1986)
The Court found that damages cause by a product failing to perform or

injuring only itself (economic losses) are recoverable only under a contract
cause of action, not one in tort. The Court reasoned that these economic losses
have little effect on public safety and are best understood as warranty claims.
Holding manufacturers liable for all foreseeable purely economic losses would
expose 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 a

claim that the architect was negligent in preparing plans because the
subcontractor 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 be
sued in tort by a contractor for negligent preparation of plans and
specifications, 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 of
service 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 for
construction defects if they are not accompanied by personal injury or
property 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 implied
contractual duty may not assert a tort claim for such a breach absent an
independent 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 that
foreseeability of reliance imposed a duty on an engineer to the contractor and
held that the economic loss doctrine barred claims of negligence and negligent
misrepresentation that a subcontractor brought against an engineer.
CONNECTICUT
Carolina Casualty v. 60 Gregory Boulevard, Docket No. CV 98 0169383, 26
Conn. L. Rprt. 685, Conn.Super. LEXIS 739 (Conn.Super. 2000)
In the context of a construction project where reliance is reasonably

foreseeable, 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 and
allowed a contractor’s claim against an architect to go forward even though
there was no contractual privity, and the contractor had not suffered personal
injury 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 and
allowed a building owner’s claim against an engineer to go forward even
though there was no contractual privity. The court reasoned that the engineer
knew the building owner would rely on the engineer’s design.
th
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 homeowner
against a company that provided a “custom design” along with a package of
building materials. The court specifically stated that this decision did not
address the question of whether the economic loss doctrine would bar
recovery of economic loss caused by professional malpractice. An earlier case
had rejected the economic loss doctrine as a defense against a claim of
negligent engineering design.
FLORIDA
Casa Clara Condominium Association v. Charley Toppino & Sons, Inc., 620
So.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 claim
against 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’s
motion for summary judgment on a negligence claim because Florida applies
the economic loss rule. However, the court allowed the negligent
misrepresentation 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, the

Florida Supreme Court held that the economic loss doctrine bars a claim
based on negligence for pure economic losses only when there is contractual
privity.
GEORGIA
Hardaway Co. v. Parsons, Brinckerhoff, Quade & Douglas, Inc., 267 Ga. 424, 479
S.E.2d 727 (1997)
The court allowed a contractor’s claim for negligent misrepresentation to

proceed even without contractual privity, adopting the reasoning of §552 of
the 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 if
there is “no indication that any type of professional relationship existed
between [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 Moorman
case and did not find enough facts to support a claim for negligent
misrepresentation.
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 misrepresentation
has been aptly described as one of ‘relative chaos.’“ [citations omitted] ...
“Instead, we have held that a professional owes no duty to one with whom he
has no contractual relationship unless the professional has actual knowledge
that such third person will rely on his professional opinion.” ... “We believe the
privity requirement, subject to an actual knowledge exception, properly
balances the competing interests of consumer and professional in a cause such
as 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 noted
that “the Engineer had the duty of care and competence commensurate with
the standards of his profession in obtaining and communicating information
for the guidance of [the contractor] with respect to its business transactions
relating to the [] project.” (page 394).
th
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 construction
defect cases.
KENTUCKY
E.H. Construction v. Delor Design Group, No. 1998-CA-001476-MR, 2000
Ky.App.Lexis 29 (Ky.App.2000)
The court followed the RESTATEMENT (SECOND) OF TORTS §552 and allowed a
claim 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 and
care in the preparation of plans on which the plaintiff would base his bid and
do 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 the
economic loss rule to service contracts.
In Chapman v. Rideout, 568 A.2d 829 (Me., 1990), Maine adopted “the
Restatement formulation as it applies to this case.” The case upheld an award
of damages to a plaintiff who had to install a more expensive septic system
because the defendant seller (who was not an engineer or surveyor) had
incorrectly 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 District
Court cited Chapman v. Rideout for the proposition that Maine follows
RESTATEMENT §552.
The Maine Rubber case, which seems more applicable to design professionals
than Chapman, does not cite either Chapman or Aliberti, LaRochelle, so Maine
seems 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 far
Maryland 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 denied

condominium owners recovery against plywood manufacturers. The court
determined that the owners did not establish that the defects created the type
of “serious and unreasonable risk of death or personal injury” it found in the
1986 case. The 1995 case confirmed that Maryland requires a risk of death or
personal injury to make an exception to the economic loss rule and allow
recovery 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 civil

engineer who had made a mistake in preparing plans and laying out stakes for
a road. The court held the engineer liable because the contractor was
reasonable in relying on the engineer’s plans and specifications, and 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.
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 rule
that purely economic losses are unrecoverable in tort and strict liability actions
in 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 no
contractual 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 proper
calculations and specifications for a construction job may create a risk of harm
to the third-party contractor who is responsible for applying those
specifications to the job itself. The risk of harm would include the financial
hardship created by having to cure the defects which may very well not be
caused by the contractor.”
th
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 of

services rather than the sale of goods, Superwood v. Siempelkamp, 311 N.W.2d
159 (Minn.1981), does not preclude the recovery of economic losses under
tort theory of negligence, or products liability.”
MISSISSIPPI
Owen v. Dodd, 431 F.Supp. 1239, 1242 (N.D. Miss. 1977) (applying Mississippi
law)
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. Parma
Community Hospital, 560 N.E.2d 206 (Ohio 1990) and found no duty without
privity 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 is

foreseeable that professional negligence could cause a contractor who is
responsible for implementing that design to incur economic loss, the
economic 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 the
building 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 not
necessary for a consumer to recover against a manufacturer for defective
carpet.
Conforti & Eistele v. John C. Morris Association, 175 N.J. Super. 341, 418 A.2d
1290 (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 a
contractor against a design professional for losses the contractor incurred as a
result 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 a
contract with the architect, the construction manager could sue the architect
for economic loss because the overall relationship of the project imposed a
duty on the architect to the construction manager.
Travelers Casualty & Surety Co. v. The Dormitory Authority of the State of New
York, 2005 U.S. Dist. LEXIS 9415 (NY)
Applying the New York Court of Appeals’ standard for defining privity as was
identified in Ossining Union Free School Dist. v. Anderson LaRocca Anderson, 73
NY.2d 417, 424 (NY. 1989), the court reaffirmed and reapplied the definition
of 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 parties
evidencing 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 that
under North Carolina law, the economic loss rule does not prevent a
contractor’s negligence action against an architect for pure economic loss. “In
North Carolina, ‘in the absence of privity of contract an architect may be held
liable to a general contractor and his subcontractors for economic loss
resulting 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). Such
duty of care ‘flow[s] from the parties’ working relationship.’ Id. at 667, 255
S.E.2d 580.”
th
NORTH DAKOTA
OHIO
Floor Craft Covering, Inc. v. Parma Community Hospital, 560 N.E.2d 206 (Ohio
1990)
In the absence of privity of contract, no cause of action exists in tort to recover

economic damages against design professionals involved in drafting plans and
specifications. The dissent made a strong argument to allow claims for
negligent misrepresentation.
OKLAHOMA
Boren v. Thompson & Associates, 2000 OK 3 (OK, 2000)
“A supervising architect, in the performance of its contract with the owner, is

required to exercise the ability, skill and care customarily exercised by
architects in similar circumstances. This duty of care extends to contractors
who share an economic relationship and community of interest on a
construction project. The duty is based on circumstances establishing a direct
and reasonable reliance by the contractor on the contractual performance of
the 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, 563
A.2d 128 (Pa. Super. 1989)
A Pennsylvania court followed the reasoning of Seely and East River Steamship
that economic loss claims that resemble warranty claims are recoverable only
in contract.
Linde Enterprises, Inc. v. Hazelton City Authority, 412 Pa.Super. 67, 602 A.2d
897 (Pa.Super. 1991)
A Pennsylvania court extended the economic loss doctrine to deny a

contractor’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.2d
1164 (Pa.Super. 2003)

A Pennsylvania trial court adhered to the economic loss doctrine and refused
to apply § 552 of the RESTATEMENT (SECOND) OF TORTS to make an exception to
the economic loss doctrine for negligent misrepresentation suits against design
professionals. The court stated that Pennsylvania law has permitted recovery
under § 552 only when the plaintiff has suffered losses in addition to
economic loss.
Bilt-Rite Contractors, Inc. v. The Architectural Studio, 866 A.2d 270, 2005 WL
120794 (Pa. 2005)
The Pennsylvania Supreme Court held that the economic loss doctrine did not
bar a contractor’s claim for negligent misrepresentation against an architect
even 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, is

required to exercise the ability, skill and care customarily exercised by
architects in similar circumstances. Davidson & Jones, Inc. v. County of New
Hanover, 41 N.C.App. 661, 255 S.E.2d 580, 584 (1979); see also Donnelly
Construction 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 economic
relationship and community of interest with the architect on a construction
project.”
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 by
consumers.
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 even

though the engineer had no contract with the contractor. The court said it
joined “a growing number of states [that] have refused to apply the ‘economic
loss’ rule to actions against design professionals when there is a ‘special
relationship’ 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 with
third parties.”
SOUTH DAKOTA
Mid-Western Electric, Inc. v. DeWild Grant Reckert & Associates Co., 500 N.W.2d
250 (S.D. 1993)
th
The court rejected the economic loss doctrine and allowed a subcontractor not
in privity with the design firm to pursue a claim for negligent rejection of
equipment 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 are

expected to rely on will be liable for negligent misrepresentation even when
there is no privity of contract.
UTAH
SME Industries, Inc. v. Thompson, Ventulett, Stainback, and Associates, Inc., 2001
UT 54 (2001), 28 P.3d 669
The economic loss rule bars recovery of economic damages in the absence of
bodily 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 losses
against a design professional in the absence of contractual privity. The court
recognized that on construction projects, rights and duties are defined by
contract. A contractor who wanted the right to recover economic losses from
the 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 in

Blake.
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 recovery

to 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 that
without privity, a person cannot be held liable for negligent performance of a
contract.
WASHINGTON
Bershauer/Phillips Construction Co. v. Seattle School District, 881 P.2d 986 (WA
1994)
The State of Washington reaffirmed the economic loss doctrine in a case where
a general contractor sued an architect and an engineer for cost overruns and
delay on a school project. The court noted that parties can allocate risk in
contracts. Upholding the economic loss doctrine respects the right to contract
and 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 the
distinction between contract law, which enforces expectations created by
agreement, and tort law, which protects people and property by imposing a
duty of reasonable care.
WEST VIRGINIA
Eastern Steel Constructors, Inc. v. City of Salem, 209 W.Va. 329 (2001), 549
S.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’s

misrepresentation claims against a window manufacturer because the risk of
loss 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 the
economic loss doctrine as a defense because the parties could have included
language to allocate this risk in their contracts.
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DESIGN PROFESSIONALS’ LIABILITY TO

UNDERSTOOD, AND DEFENDED.

THE TUMBLING TOWER OF PRIVITY

Copyright 2007 by Victor O. Schinnerer & Company, Inc. 1

The Restatement View

2 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

Avoiding §552 Liability

4 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

6 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

LIABILITY TO LENDERS, INSURANCE COMPANIES, AND SURETIES

8 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

LIABILITY TO CONTRACTORS’ AND SUBCONTRACTORS’ EMPLOYEES

Contracts for Services and Site Activities

10 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

LIABILITY UNDER FEDERAL STATUTES

Americans with Disabilities Act

Fair Housing Act

12 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

False Claims Act

CLAIMS BY BUILDING OCCUPANTS AND VISITORS

LIABILITY TO OTHER CONSULTANTS PROVIDING SERVICES ON THE PROJECT

14 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

LIABILITY TO PURCHASERS OF THE PROPERTY

OTHER THEORIES OF LIABILITY

PRACTICE MANAGEMENT TIPS

Undermining Reliance (RESTATEMENT §552) Claims

16 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

Documentation and Commissioning

18 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

20 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

22 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

The economic loss doctrine, which applies only to economic (monetary)

8 states reject the economic loss doctrine outright.

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

The Court found that damages cause by a product failing to perform or

Contractual privity is not necessary for a subcontractor to recover based on a

24 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

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

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

In the context of a construction project where reliance is reasonably

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

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.

Florida State Board of Admin. v. Law Engineering and Environmental Services,

In response to questions certified to it by the 11th Circuit Court of Appeals, the

The court allowed a contractor’s claim for negligent misrepresentation to

26 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

Illinois adopted the economic loss doctrine.

Illinois extended the economic loss doctrine to architects.

The economic loss doctrine, recognized in Kansas in Koss Construction v.

28 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

A Maryland court upheld the economic loss doctrine and denied

The Massachusetts court allowed a contractor to recover against a civil

“Where the ‘predominant factor’ in an agreement is the performance of

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

A professional firm has a duty to exercise care and be competent. Because it is

30 DESIGN PROFESSIONALS’ LIABILITY TO THIRD PARTIES

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

In the absence of privity of contract, no cause of action exists in tort to recover

“A supervising architect, in the performance of its contract with the owner, is

A Pennsylvania court extended the economic loss doctrine to deny a