Daily Development for Thursday, October 31, 2002

 

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

 

CONSTRUCTION LAW; ARCHITECT'S LIABILITY; ECONOMIC LOSS RULE:   The "economic loss rule," which limits tort claims where contract damages are available, does not apply to a claim for negligent design against an architect where there is physical damages to property resulting from the alleged negligence.  Plaintiff's pleadings and affidavits alleging physical harm to the common areas of a condominium that necessitated the expenditure of substantial sums of money to repair were sufficient to state a cause of action for tortious negligence that survives the economic loss rule.

 

Aldrich v. Add Inc. 770 N.E.2d 447 (Mass.2002).

 

The condominium at issue, located in Winthrop, Massachusetts, is a ten- story building containing 117 residential units and approximately 153 parking spaces in an underground garage.  The developer of the building retained the services of ADD Inc., an architectural firm (the "architect"), to provide design services in connection with the construction of the condominium.  Starting from the time of completion, there were structural problems in the condominium.  During rainstorms, water would enter through the windows, sliding glass doors, walls, and ceilings.  Water also penetrated the underground garage, damaging the roof deck and the cars parked within the garage.

 

The plaintiffs, the trustees of the Seal Harbor III Condominium Trust (the "trust") had to expend substantial sums of money to repair the water- damaged areas.  On July 29, 1993, the plaintiffs filed a complaint against the architect alleging that it had been negligent in designing or selecting materials for use in the construction of the condominium and sought to recover damages for the defective portions.  The trial court denied the architect's summary judgment motion and concluded that the plaintiffs' claim was not barred by the economic loss rule because the architect's alleged negligence had caused physical harm to the condominium, and the plaintiffs had a right to recover.

 

The Appeals Court affirmed the order denying the architect summary judgment on the basis of the economic loss rule.  The economic loss rule in Massachusetts states that 'purely economic losses are unrecoverable in tort and strict liability actions in the absence of personal injury or property damage.'  Where the monetary losses sustained by a plaintiff, however, are caused by physical harm to property proximately caused by a defendant's negligence, such plaintiff has a right to recovery.  The negligence alleged by the trust caused physical damage to the common areas of the condominium that required the expenditure of a significant amount of money to repair the damage.  The plaintiffs' pleading and affidavits allege physical property damage sufficient to state a cause of action for negligence against the architect, and accordingly summary judgment could not enter in the architect's favor on the ground that the plaintiff's claim was barred by the economic loss rule.

 

Comment: The economic loss rule is finding a pretty good footing around the country, barring tort claims in a variety of circumstances.  The editor is not expert enough in this area to know whether the "physical injury to a structure" exception to the rule is widespread, but felt that if he wasn't aware of the issue, others on the list might find a little explication of it useful.

 

Expert Commentator Comment: Since the Editor lacked even his normal "saddleback expertise" here, he called upon construction law authority Carl Circco, of the Kansas Bar.  Carl provided this commentary:

 

The case seems to apply the rule in accordance with its most common formulation: no recovery in tort for purely economic loss, but if the plaintiff suffered physical damage or injury the rule does not apply.

 

In construction cases, the economic loss rule often comes into play when one participant involved in the construction process suffers pecuniary loss allegedly caused by the acts or omissions of another participant and no contractual relationship exists between the two participants.  For example, the general contractor may sue the owner's architect for negligent preparation of plans that create costly delays.  The key question in these cases is whether tort law should intervene when all of the participants operate under contracts that at least theoretically should allocate the risks on a commercial basis.  When the plaintiff is the project owner, it is not clear whether the rule should prevent recovery for physical injury to the project because it is not clear whether a court should view damage only to the project as purely an economic loss to the owner (i.e., the owner suffered damage because it received a product worth less than it bargained for in the contract).

 

In this case, the plaintiff was neither the project owner nor otherwise a participant in the construction process and could not (directly) have protected itself through contract negotiations in connection with that process.  The plaintiff was, as I understand it, the equivalent of a condominium owners' association established by the developer that had contracted with the architect for the design.  An unusual feature of the case is that by denying application of the economic loss rule, the court apparently allowed the plaintiff (arguably the alter ego of the developer) to pursue a claim in tort that the developer could no longer bring as a contractual claim because the statute of limitations, "as contractually refined" by the AIA agreement, had already run.

 

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