Third-party Claims Against Construction Professionals

Across the country, 29 states now permit claims by third parties against construction professionals, making it increasingly commonplace for general contractors and sub-contractors to sue the engineers and architects involved with construction projects after problems arise.

One case that illustrates this is Bilt-Rite Constructors, Inc. v. Architectural Studio in Pennsylvania. In this precedent-setting case, the Pennsylvania Supreme Court held that contractors could bring actions for money damages against architects, engineers and other construction professionals for negligent misrepresentations, including those made in plans and specifications. In addition, these actions could be brought even in the absence of any contractual relationship.

Prior to this case, most of the lower courts in Pennsylvania had held that contractors could not bring direct actions against architects or engineers for two reasons.

  1. They did not have a contract with the engineers or architects; and
  2. The "economic loss doctrine" holds that a plaintiff may not recover damages for a claim of negligence if it suffered no personal injury or property damage.

The Bilt-Rite Case Bilt-Rite Constructors, the general contractor, had a $16 million contract with a school district that incorporated the designs of Architectural Studio, which was hired to design a school building. Architectural Studio, for its part, had prepared the contract documents, which specified that normal construction methods be used for the installation of an aluminum curtain wall system, sloped glazing system and metal support system, all of which the architect represented could be installed using normal and reasonable construction means and methods.

Once the contractor started work, however, Bilt-Rite found that it had to use extraordinary methods, which substantially increased construction costs. The contractor discovered that the project specifics required special and more costly construction means, methods and deign tables.

Bilt-Rite contractor then brought a claim for its additional costs against the architect, alleging that the specifications were false and misleading.

Reversing the decision of the trial court, the Pennsylvania Supreme Court ruled that Bilt-Rite was permitted to pursue a claim directly against the school's architect for negligent misrepresentation even though the two organizations did not have a contractual relationship. The court's stance was that its ruling was consistent with Pennsylvania's traditional "common law formulations of the tort of negligent misrepresentation."

It was then that Pennsylvania joined the ranks of states that permit such claims, which are: Alabama; Arizona; Arkansas; California; Delaware; Florida; Georgia; Iowa; Kentucky; Louisiana; Maine; Maryland; Massachusetts; Michigan; Minnesota; Mississippi; Montana; Nevada; New Jersey; New York; North Carolina; Oklahoma; Oregon; Rhode Island; South Carolina; South Dakota; Tennessee; West Virginia; and Wisconsin.

There are ten states that do not permit such claims and they are: Colorado; Hawaii; Idaho; Illinois; Missouri; Ohio; Texas; Utah; Virginia; and Washington.

The law is unresolved in the remaining 11 states.

The Pennsylvania Ruling and Implications Much has happened since the Bilt-Rite ruling was handed down in early 2005. One of the initial implications was that not only design professionals are covered by the law. Individuals in the business of building and selling homes, accountants, attorneys and even utilities may all be affected.

Owners can be drawn into litigation, as designers may point to owners as the independent cause of contractors' damages. And owners can be affected in another way, by paying increased design costs because of increased insurance costs to design professionals.

Architects, for their part, have lost their most powerful defense against negligence suits by contractors. And as mentioned, their own insurance costs most certainly will increase.

As expected, in light of the Bilt-Rite case, it has almost become the norm for contractors to name architects and engineers as defendants in lawsuits, in addition to naming the owner.

This has led to a number of interesting issues as Pennsylvania trial courts have wrestled with the import of the Bilt-Rite, ruling including:

  • Does the Bilt-Rite case mean that a contractor may now sue a design professional for negligence/malpractice, as opposed only to negligent misrepresentation as permitted in Bilt-Rite? No, according to a federal court in Harrisburg, Pennsylvania.
  • Can one contractor now sue another contractor for misrepresentation on a project? No, according to a Philadelphia trial court, dismissing a plumber's claim against a concrete supplier.
  • Does the contractor need an expert to prove its claim of misrepresentation against an architect? No, according to a Lancaster trial court.

For their part, construction professionals -- architects, engineers and construction managers -- in conjunction with their insurance carriers, have been increasing coverages and, most notably, working to attempt to limit exposure by way of express disclaimers and other contractual language included in the contract documents.

The only thing that is for sure in the wake of the Bilt-Rite case, however, is that the nature of the relationship between contractors and construction professionals will continue to change as the law develops, and the stakeholders in the construction process take steps to meet these changes and protect their interests.

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