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Architect Held Liable to Contractor for Allegedly Defective Plans Despite Lack of Privity
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October 24, 2005
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By Laura Kent
Thelen Reid Brown Raysman & Steiner LLP
The Pennsylvania Supreme Court has held that architects owe a duty of reasonable care to all who might foreseeably rely on their drawings and plans, even when they are not in contractual privity with the architect. Bilt-Rite Contractors, Inc. v. The Architectural Studio, 866 A.2d 270 (Pa. 2005).
Defendant The Architectural Studio (TAS) designed a new public school. Plaintiff Bilt-Rite Contractors, Inc. bid to build the school, and the school district entered into a contract with Bilt-Rite that referred to and incorporated the plans, drawings and specifications provided by TAS.
Bilt-Rite encountered problems on the project and sued TAS for negligent misrepresentation. Bilt-Rite alleged that it reasonably relied on TAS's plans when bidding and that the plans and specifications were false and/or misleading. The plans represented that an aluminum curtain wall system, sloped glazing system and metal support system could be installed and constructed "through the use of normal and reasonable construction means and methods, using standard construction design tables." This representation was false and/or misleading, and Bilt-Rite's construction costs increased substantially as a result, according to the lawsuit.
Bilt-Rite argued that the school district hired TAS to prepare the plans, drawings and specifications with the intention of conveying those documents to contractors for purposes of bidding. TAS knew that contractors would rely on its design and specifications in bidding.
TAS demurred to (or challenged the legal basis of) the lawsuit on the grounds that: (1) TAS owed no duty to Bilt-Rite because there was no contract between TAS and Bilt-Rite; and (2) Bilt-Rite's suit was barred by the economic loss rule. The trial court held that Bilt-Rite could not recover because it did not have a contractual relationship with TAS, and the appellate court affirmed.
The Supreme Court of Pennsylvania reversed and formally adopted §552 of the Restatement (Second) of Torts, holding that it applied to architects and other design professionals. The Supreme Court found there was no requirement of contractual privity in order to recover under §552. The Court explained that §552 delineates the duty owed when one party, for pecuniary gain, supplies information to others and when the party knows that the information will be used and relied upon by others in the course of their own business activities. With these conditions, the court found that the tort was narrowly tailored and appropriately applied to architects because "a duty to foreseeable third parties flows from the architect's contractual duties to the party retaining the architect."
The court found that public policy also supported adopting §552 because people engaged in business increasingly rely upon experts, and often the people relying upon the experts' advice do not have contracts with them. Further, this duty is not overly burdensome for design professionals because it imposes only a duty to act with reasonable care to a known class of users of its information. Finally, the requirement of foreseeability provides reasonable limits on liability. Section 552 will extend only to those whose reliance on the design professional's work is foreseeable. The court found it was reasonable to hold professionals to a traditional duty of care for foreseeable harm.
The Court next addressed the economic loss rule and whether it barred Bilt-Rite's claim against TAS. Under the economic loss rule, actions for purely economic loss are barred when the parties are not in privity of contract. But here, the court held that the economic loss rule did not hinge upon the existence of a contract but on whether the defendant owed the plaintiff a duty of care. Further, in Pennsylvania, purely economic losses are recoverable in other tort actions, notably for legal and medical malpractice. Finally, to find a cause of action under §552 in these circumstances and then to refuse to allow the plaintiff to prove its damages would be inconsistent.
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For more information about the issues covered in this report, please contact Laura Kent in our San Francisco office at 415-369-7756 or at lkent@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2005 Thelen Reid Brown Raysman & Steiner LLP
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