Construction Law Today : Construction Lawyer & Attorney : Joshua Glazov : Design Build Contracts, Construction Bankruptcy

The Arizona Supreme Court applied the economic loss rule (the "ELR") to bar a construction related claim for the first time last week. 

Overly simplified, the ELR is a judge-made rule that bars many extra-contractual claims for design and construction defects when those claims seek only damages for the cost to repair or replace defective work, not damages for death, personal injury, or damage to other property.

In Flagstaff Affordable Housing Limited Partnership v. Design Alliance, Inc.  the Justices applied the ELR to deny an owner's claim against their architect for negligent design of an affordable housing project in Flagstaff, Arizona.

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According to the article Minnesota Sues Engineering Firm, Alleges Faulty Analysis of I-35W Bridge by Bill Salisbury at TwinCities.com, the State of Minnesota is suing for defective inspection and analysis of the I-35W bridge that collapsed two years ago.  The state is suing URS Corp., the engineering firm the state hired to inspect and report on the condition of the bridge.


This past Wednesday the State filed a Complaint Complaint against the engineer in Hennepin County District Court alleging claims for:

• Breach of contract - failure to adequately inspect, analyze, and evaluate the structural condition of the bridge under contracts with the State to provide those services

 

• Negligence - failure to comply with the engineering standard of care in inspecting, analyzing, and evaluating the structural condition of the bridge that, in part, caused the bridge collapse

• Statutory Reimbursement - seeking reimbursement of money the State has paid to collapse survivors out of a special fund established by the Minnesota Legislature

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In recent post, Florida Court Says Limitation of Liability In Consultant's Contract Is Unenforceable Against Individual Consultant Part -1, we talked about the recent Florida case on limitations of liability in a consultant's professional services contract - Witt v. La Gorce Country Club, Inc.   In that case, Florida's Third District Court of Appeal held that an individual consultant can't enforce the limitation of liability in his design firm's design services contract against the negligence claims of a dissatisfied client.  Today we'll talk about how that case could affect you if you're:

• An engineer, architect, other design professional, one of their insurers, or one of their lenders
  
• A prime contractor or subcontractor
• An owner
• A construction lender lending money to an owner
  

How Could This Case Affect You?

• If you're an engineer, architect, or other design professional.  This case is bad for you.  It re-affirms and expands the Florida Supreme Court's 1999 decision in Moransais v. Heathman.  That case says, among other things, that your professional firm can't contractually limit its liability for professional malpractice.  Under this new case, you can't limit your individual liability either.
  
  
Your insurers aren't going to like this case either.  If your firm has professional errors and omission liability insurance, the policy probably also covers you individually as an insured too.  This is one more liability you won't be able to contractually limit.  That increases your insurer's risk.  And that usually prompts your insurance underwriters to raise your premiums.

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Yesterday, Florida's Third District Court of Appeals sitting in Miami issued their opinion in Witt v. La Gorce Country Club, Inc. holding that a limitation of liability in a consultant's professional services contract is unenforceable.

The Backstory

La Gorce Country Club, Inc. (the "owner") wanted to improve the irrigation of their golf course using reverse osmosis.  They hired the geology firm of Gerhardt M. Witt and Associates, Inc. (the "consulting firm") to consult on designing and installing a reverse osmosis system.  Consulting firm principal, Gerhardt Witt (the "individual consultant"), personally provided the consulting firm's services to the owner.


The consulting contract between the consulting firm and the owner included a limitation of liability clause limiting the consulting firm's liability, not just for breach of the consulting contract, but for other, non-contractual claims as well (e.g., professional malpractice, a/k/a negligently providing professional services.  Here's the entire limitation of liability:

In recognition of the relative risks and benefits of the project to both the owner and the consulting firm, the risks have been allocated such that the owner agrees, to the fullest extent permitted by law, to limit the liability of the consulting firm and its subconsultants to the total dollar amount of the approved portions of the scope for the project for any and all claims, losses, costs, damages of any nature whatsoever or claims expenses from any cause or causes, so that the total aggregate liability of the consulting firm and its subconsultants to all those named shall not exceed the total dollar amount of the approved portions of the Scope or the consultant's total fee for services rendered on this project, whichever is greater. Such claims and causes include, but are not limited to, negligence, professional errors or omissions, strict liability, breach of contract or warranty.

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In the last post we talked about the recent trial of the the the Indianapolis-Marion County Public Library's (the "owner") fraud claims against against New York based Thornton Tomasetti Engineering, Inc. (the "structural engineer").  Those claims stemmed from $50 Million in cost overruns to build the underground garage foundation of an addition to the Indianapolis Central Library.

The owner also sued the structural engineer on a litany of other claims, including negligence in providing structural design services.  But the trial didn't include the owner's negligence claims because they were dismissed before the trial started.  The owner appealed.  In this post we'll talk about the Court of Appeals's decision because it has important effects on the liability of architects, engineers, and other design professionals. 

Background

Recall from the last post that when hiring designers for the project, the owner contracted with architects Woolen Molzan and Partners, Inc. (the "architect") to be the project's prime designer.  The architect then sub-contracted with the structural engineer to serve as the project's structural engineering sub-designer.  The Owner never had a contract with the structural engineer. 

Recall also that the only damages the owner claimed were for repair, retrofitting, and delay costs.  The owner never claimed any damages for:

• Death or personal injury to anyone.
  
• Damage to the owner's property other than problems with the foundation and garage the structural engineer designed.  They did not claim damages for things like broken computers in the existing parts of the library or broken light poles in the library parking lot.
• Damage to the property of anyone else (e.g., damage to neighboring buildings or cars of library customers).

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