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Negligent misrepresentation can lead to actionable claims from contractors

Gavel and law booksRecently, a decision by the Superior Court of Pennsylvania expands a contractor’s ability to plead negligent misrepresentation claims directly against a design professional to evade application of the economic loss rule. This ruling increases the risk of claims against design professionals performing services in Pennsylvania. Courts in many states continue to erode the doctrine that only a client of a design professional can claim economic losses. This would seem to be part of a trend that increases the risk of design firms to claims from multiple parties.

Although Pennsylvania law generally bars negligence claims when the injured party has suffered only economic losses—a principle commonly referred to as the economic loss doctrine—the Pennsylvania Supreme Court adopted an exception applicable in cases where information is negligently supplied by a design professional under circumstances where it is foreseeable that others will rely upon that information.

In Gongloff Contracting, L.L.C. v. L. Robert Kimball & Assocs., Architects and Eng’rs, Inc., the Pennsylvania court basically adopted an exception to the economic loss doctrine that is found in the Restatement of Torts, Second, which provides that “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, if he fails to exercise reasonable care or competence in obtaining or communicating the information.” (The Restatement of Torts, Second is an influential treatise issued by the American Law Institute that summarizes the general principles of common law United States tort law.)

In its ruling, the court expanded on Bilt-Rite Contractors, Inc. v. Architectural Studio, a 2005 case that established an exception to the restrictions of the economic loss doctrine. In Gongloff, the court, interpreting Bilt-Rite, held that the Bilt-Rite exception can be triggered when a design professional negligently includes faulty information in its design documents.  The Gongloff court rejected the argument that, under Bilt-Rite, an injured party is required to identify an “express” misrepresentation in a particular communication or document in order to support a claim of negligent misrepresentation.

The Gongloff case arose out of a dispute between an architect-engineer and a sub-subcontractor on a project involving the design and construction of a convocation center at the California University of Pennsylvania.  The sub-subcontractor entered into a contract with a subcontractor on the project, pursuant to which the sub-subcontractor was to provide all labor, materials, and equipment to erect the structural steel for the project.  The architect-engineer provided the design for the project, including a “never-before-utilized” design of the roof system.  The sub-subcontractor asserted that the architect-engineer’s roof design was faulty and defective, and that attempts to redesign the roof led to project shutdowns and extra work to be performed by the sub-subcontractor, all of which substantially increased costs on the project.  When the subcontractor with whom the sub-subcontractor contracted with ceased making payments for these additional costs, the sub-subcontractor initiated an action against the architect-engineer for negligent misrepresentation.

After the close of pleadings, the architect-engineer filed a motion for judgment on the pleadings, asserting that the sub-subcontractor’s claim was barred by the economic loss doctrine.  The sub-subcontractor disputed that the economic loss doctrine was applicable and asserted that its claim was governed by the Bilt-Rite exception.  The trial court granted the architect-engineer’s motion, finding that the sub-subcontractor’s claim was barred by the economic loss doctrine  because it could not “point to negligent misrepresentation that led to the loss.”  The trial court rejected the sub-subcontractor’s argument that the architect-engineer had “impliedly represented that normal construction measures could be employed to erect the structural steel,” stating that “there is no express representation [by Kimball] concerning the means and methods of construction.”  The sub-subcontractor appealed the decision.  On appeal, the Superior Court considered, among other things, whether the exception carved out by Section 552 of the Restatement of Torts, Second requires a design professional to make an explicit negligent misrepresentation of a specific fact in order for a third party to recover damages.  The Superior Court determined that it did not.

In arriving at its conclusion, the court decided that exception does not supplant common law, but rather clarifies its contours as it applies to “those in the business of providing information to others,” and noted that design professionals, which regularly provide information to be used by contractors, subcontractors, and others, have a common law duty to exercise the ability, skill, and care customarily used by others in their industry when providing such information. The court decided that if the plans and specifications prove to be erroneous, contractors and others relying on the plans and specifications are at risk of suffering economic harm, and the design professional may be liable for economic damages resulting from its breach of the common law duty of care. The court further concluded that “the design itself can be construed as a representation by the architect that the plans and specifications, if followed, will result in a successful project.”  Accordingly, the court concluded that the trial court’s decision granting judgment on the pleadings was legally erroneous.

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