Design Professionals May Be Subjected To A Contractor’s Claim For Economic Damages

On behalf of Kaplin Stewart Meloff Reiter & Stein, P.C. posted in on Oct 28, 2016.

Until recently, design professionals did not have a concern about being subjected to a lawsuit by contractors seeking economic damages based on the theory of negligent misrepresentation of design plans and specifications. The Pennsylvania Supreme Court’s decision in Bilt-Rite Contractors, Inc. v. The Architectural Studio, filed on January 19, 2005, should create a concern amongst all design professionals. Prior to the Bilt-Rite Supreme Court Decision, Pennsylvania Courts applied the Economic Loss Doctrine in barring a contractor from seeking a claim for economic damages against a design professional based on a theory of negligent misrepresentation where there is an absence of privity of contract between the contractor and design professional. The Economic Loss Doctrine, simply put, bars a person or entity from seeking a claim for economic damages where the action is based in tort.

In Bilt-Rite Contractors, Inc. v. The Architectural Studio, the contractor, Bilt-Rite, sued the architect, The Architectural Studio (“TAS”), on a theory of negligent misrepresentation under Section 552 of the Restatement (second) of Torts, claiming that TAS’s specifications were false and/or misleading, and seeking economic damages for its increased construction costs. The trial court ruled that Bilt-Rite did not have a viable Section 552 cause of action against TAS. On appeal, the Superior Court (the intermediate appellate court) affirmed the trial court’s decision, but noted that the essence of privity is not an absolute bar to recovery for economic damages in tort. The Superior Court also noted that the tort of negligent misrepresentation requires the existence of a duty owed to by one party to another — architect to the contractor in this instance. The Superior Court concluded that because Bilt-Rite did not have privity of contract with TAS, TAS owed it no duty, and Bilt-Rite cannot proceed on a negligent misrepresentation claim.

The Supreme Court granted further review since the issue was one of first impression with the court. The Supreme Court formally adopted Section 552 of the Restatement (second) of Torts as law in Pennsylvania where a design professional negligently supplied information, and it was “foreseeable that the information would be used and relied upon by third parties, even if the third parties had no direct contractual relationship” with the design professional. The Supreme Court held that the Economic Loss Doctrine did not apply to claims of negligent misrepresentation under Section 552 of the Restatement (second) of Torts. The Supreme Court ruled that since Bilt-Rate stated a viable claim for negligent misrepresentation under Section 552, Bilt-Rite should not be barred from recovering the damages from TAS that it incurred, if proven.

William D. Auxer, Esq.

Article appeared in The News Philadelphia Section , American Society of Civil Engineers, March 2005 issue.