By J. Kent Holland, Jr.
Where a surety sued a project architect for alleged failure to adequately inspect and supervise a contractor who was default terminated due to defective work, the court dismissed the suit for failure to state a negligence claim upon which relief could be granted. Although the surety had no contractual relationship with the architect, it argued that based on the totality of the circumstances, the architect had a legal duty to protect the surety against contractor’s defective work and that the surety was entitled to rely on the architect to conduct proper inspection and properly supervise that work. In dismissing the case, the court stated that courts in Maryland apply the economic loss doctrine and that in the absence of a contract, the surety has no basis to recover economic losses. The duty of an architect to exercise due care in its inspection services, said the court, extends only “to those persons foreseeably subjected to the risk of personal injury created.” Even if the architect had a duty to its client, Towson University , for costs of correcting a dangerous condition created by the contractor, that duty did not create a separate duty to the surety of the contractor. RLI Insurance Company v. John H. Hampshire, 461 F.Supp.2d 364 (D. Md. 2006).
In this case, RLI Insurance Company issued a performance bond for a construction subcontractor, Architectural Facades Incorporated (AFI) to provide indemnity on behalf of AFI for the benefit of Towson University , the project owner. The subcontractor fell behind in the performance of installing wall panels. Eventually, the general contractor declared the sub in default. AFI then abandoned its work and a default termination was issued. The subcontractor’s work was completed by another subcontractor (Hampshire). That work was inspected by the architect and accepted by the general contractor and University.
Subsequent to acceptance, however, the University found that six percent of the panels were not properly installed and some panels were falling off the building. All panels had to be removed from the building. The surety agreed to arrange for this the removal and repair, and engaged another contractor to perform the work because Hampshire refused to do it. The surety then sought in this litigation against the architect to recover its loss on the performance bond. It argued it was entitled to contribution and common-law indemnity from the architect. In reviewing the defense motion to dismiss, the court explained that in addition to considering the facts in the complaint, it was proper for the trial court to consider all documents referred to in the complaint and relied upon by the plaintiff in bringing the action. (This is significant because it enables the moving party to include with its motion copies of relevant contract documents as well as relevant reports that may have been cited in the complaint.)
In Maryland , the existence of a legal duty is a question of law to be decided by the court. There can be no liability in negligence if there is no legal duty owed by the defendant to the plaintiff. Moreover, the court explains, “If the risk created by negligent conduct is no greater than one of economic loss, generally no tort duty will be found absent a showing of privity or its equivalent.” (citing Jacques v. First National Bank, 307 Md. 527, 537, 515 A.2d 756 (1986). In this case, since the surety suffered only economic loss and alleged neither contractual nor third party beneficiary relationship with the architect, a tort duty could only exist if the court found there to be “an equivalent of privity.” The court here found that the surety failed to plead an “intimate nexus” between the architect and itself. For these reasons, the court granted the motion to dismiss as negligence. In addition, on the question of contribution and common-law indemnity, the court dismissed the complaint as being premature because that is predicated upon a future event which may never occur.
Comment: I am currently defending a design professional in a suit in Maryland in which the above-discussed case will be cited in our motion to dismiss for the same reasons successfully argued by the architect in the case discussed. In our litigation, the plaintiff asserts it had a contract with the consultant but it sued for negligence as well as breach of contract. Since the complaint fails, in our opinion, to plead sufficient facts to demonstrate that the consultant owed the plaintiff a duty of care independent of the contract, we will ask the court to dismiss the negligence count, and other counts, as lacking an independent basis and really being nothing more than a transparent effort to get around the limitation of liability clause contained in the contract.
As with the case discussed, because the plaintiff cited the contract and the consultant’s reports in its complaint, we will be able to reference terms from those documents in our motion to dismiss – without thereby causing our motion to be treated as a motion for summary judgment due to relying on evidence that was not made part of the pleadings. This is important to us because our typical defense strategy is to seek to knock out as much of a plaintiff’s complaint as possible on a motion to dismiss without using anything outside the pleadings or documents referenced in the pleadings. Whatever remains, if anything, after the court rules on the motion to dismiss, we then proceed to flesh out through discovery, and finally file a subsequent motion for summary judgment using evidence obtained during discovery – including expert witness affidavits and deposition testimony.
It never ceases to surprise me how often plaintiffs fail to comprehend the magnitude of their burden of proof in professional liability cases. Plaintiffs must present expert testimony to prove that the consultant failed to meet the applicable standard of care. Merely proving that the consultant made errors, omissions or mistakes is not good enough. Only those acts, errors and omissions that are negligent can be the basis of professional liability.
I think too many plaintiffs believe that all mistakes and errors of a consultant entitle the client to damages. That, however, is certainly not the law. With good expert affidavits and testimony for the defense, the court can grant summary judgment when the plaintiff has not adequately demonstrated with its own experts that there is evidence that the standard of care has been violated.
About the author: Kent Holland is a construction lawyer located in Tysons Corner , Virginia , with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects – including assistance with contract drafting, review and negotiation; change order and claims analysis (preparation or defense); risk management advice concerning insurance coverage – including assistance with negotiating and drafting the terms and conditions of policies and endorsements; advice to insurance underwriters; guidance to those procuring insurance; change order and claim preparation, analysis and defense; contract preparation; contract review and contract negotiation. Mr. Holland is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 9, No. 8.