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(A version of this article appears in the California
Construction Law Reporter, published by the West Group.)
By James E. Acret
An
elementary school renovation project suffered cost overruns
of $1,934,000. The school district sued the architect and
the construction manager. The construction manager settled
for $215,000 plus a $75,000 credit for future construction
management services. The trial court, over objections of
the architect, found that the settlement was made in good
faith. (California Code Civil Procedure §877.6) The
architect filed a cross-complaint against construction manager
for indemnity, negligence, breach of contract, declaratory
relief, contribution and comparative equitable indemnity.
The trial court sustained demurrers without leave to amend.
AFFIRMED. The Ratcliff Architects v. Vanir Construction
Management, Inc., ___ Cal.App.4th ___, ___ Cal.Rptr.2d
___, 2001 DJDAR 3845 (2001)
Indemnity
An
indemnity clause in the contract provided that the construction
manager would indemnify the school district and its agents
against claims for economic loss. The architect contended
that because it was an agent of the school district [see
Barron Estate Co. v. Woodruff Co., 163 Cal. 561 (1912)],
it was entitled to indemnity. But the contract also provided
that it did not create any rights that could be enforced
by third parties, including third party beneficiaries. The
court held: 1) The provisions of the contract are
not ambiguous: They clearly limit rights under the contract
to the parties to the contract, including rights under the
indemnity provision. 2) A contract must be construed
by giving effect, if possible, to every provision. The provision
that third parties have no rights under the contract does
not conflict with the indemnity provision, and it must be
given effect. 3) It is not reasonable to believe
that the construction manager should provide indemnity against
claims brought by the school district.
Negligence
The
architect asserted that the negligence of the construction
manager increased the architect's costs. The court noted
that an action for negligence requires a showing that the
defendant owed the plaintiff a legal duty, that the defendant
breached the duty and that the breach was a proximate cause
of injuries. Duty is a legal issue that must be determined
by the court. 1) Recognition of a duty to manage
affairs so as to prevent purely economic loss to third parties
is the exception, not the rule, in negligence law. 2)
Courts are reluctant to impose duties to prevent economic
harm to third parties because third parties should be encouraged
to rely on their own prudence, diligence and contracting
power to protect themselves. 3) Duty is a question
of public policy to be determined by an application of the
Biakanja factors [Biakanja v. Irving, 49 Cal.2d
647 (1958)].
A)
Foreseeability. The court placed little importance
on the factor of foreseeability. Foreseeability is endless
because, like light, it travels indefinitely in a vacuum.
The foreseeability factor provides virtually no limit on
liability for economic loss. B) Conflict of interest.
Courts refuse to impose a duty when it would result
in a conflict of interest. The duty of a construction manager
is to the owner. To also impose a duty to protect the architect
against loss would create a conflict in loyalties. C)
Moral blame. The architect was free to contract
with construction manager and failed to do so. Therefore,
the "moral blame" is too remote to justify imposition
of a duty under tort law. The architect also could have
protected itself in its contract with the school district
against losses caused by the actions of the construction
manager. 4) Good faith settlement. Section
877.6 provides that a good faith settlement determination
shall bar claims for contribution or indemnity based on
comparative fault. Here, the architect's claim of negligence
essentially is an attempt to avoid the consequences of the
good faith settlement. To find that the construction manager
had a duty to protect the architect against economic loss
would subvert California's public policy of encouraging
good faith settlement.
We
refuse to expand tort liability to include a duty of care
from the construction manager to the project architect.
The policy considerations overwhelmingly weigh against
creating such a duty. We therefore conclude the trial
court properly sustained the demurrers to the negligence
claim.
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To learn more about Howrey's Construction Practice Group, click here. For more information about books and other legal materials written by James Acret, click here and enter "Acret" in the site search engine. To learn more about topics covered in this article, contact Paul Berning at 415-848-4996 or at paulberning@howrey.com.
©2001 Howrey LLP
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