Construction Risk

Economic Loss Doctrine Enforced in Arizona to Bar Negligence Action by Project Owner against Engineering Subcontractor

Project Owner sued the engineering subcontractor of its general construction contractor alleging damages from negligently surveying property and putting stakes in wrong location.  The engineer admitted it erred in the survey and this caused damages. Summary judgment was granted for the engineer because the economic loss doctrine prohibited the suit against the engineer.  This was affirmed on appeal, with the court finding the engineer owed no duty to the Owner.  This court decision reexamined a 1984 Arizona decision in the case of Donnelly Construction and stated “we clarify that it is no longer good law.” Arizona does not recognize design professionals as parties to any special relationship with project owners.  Cal-Am Properties Inc. v. Edais Engineering Inc., 253 Ariz. 78 (Ariz. Supreme Ct., 2022)

Rather than explain the courts reasoning it is easier to just quote the decision as done below:

In Donnelly, we held that “[d]esign professionals have a duty to use ordinary skill, care, and diligence in rendering their professional services” and confirmed that such liability extends to “foreseeable injuries to foreseeable victims which proximately result from … negligent performance of their professional services.”139 Ariz. at 187–88, 677 P.2d at 1295–96. In other words, the potential liability of design professionals, such as land surveyors, for negligence extended not only to the entity who contracted them, but to other foreseeable plaintiffs which may include property or project owners.

Donnelly’s holding controlled on the existence of such a duty until our decision in Gipson. There, we heldthat “foreseeability is not a factor to be considered by courts when making determinations of duty” and we “reject[ed] any contrary suggestion in prior opinions.” Gipson, 214 Ariz. at 144 ¶ 15, 150 P.3d at 231. We have since clarified that “[p]ost-Gipson, to the extent our prior cases relied on foreseeability to determineduty, they are no longer valid.” Quiroz, 243 Ariz. at 565 ¶ 12, 416 P.3d at 829. Indeed, we have notedrepeatedly that Donnelly employed the now-rejected foreseeability framework. See id. at 564 ¶ 10, 416 P.3d at 828 (citing Donnelly as an example of a prior case that relied on foreseeability); Gipson, 214 Ariz. at 144 ¶ 14, 150 P.3d at 231 (same); Flagstaff Affordable Hous. Ltd. v. Design All., Inc., 223 Ariz. 320, 327 ¶35 n.4, 223 P.3d 664, 671 (2010) (stating that we have “rejected Donnelly’s reliance on foreseeability to determine the existence of a duty of care for purposes of tort law”). To the extent that Donnelly’s viability remains in question today, we clarify that it is no longer good law.

But, despite Cal-Am’s contention that Donnelly created a special relationship between design professionals and project owners and that other jurisdictions have followed suit, Arizona does not recognize design professionals as parties to any such relationship…. Arizona has yet to recognize the relationship between a design professional and an owner as a categorical, special relationship. We decline to do so now.

The statutes and regulations governing surveyors and similar professionals were not designed to protect plaintiffs like Cal-Am—project owners—from purely economic harm. Instead, their purpose is to protect the safety, health, and welfare of individuals who enter the buildings and structures, which regulatedprofessionals construct and maintain, from injury resulting from poor workmanship.

The court also rejected the Owner’s argument that Restatement (Second) of Torts and Restatement (Third) of Torts applied to the case.  Restatement Second was not applicable because the misplaced staking didn’t physically harm the land itself.  And Restatement Third was not applicable because the Owner didn’t rely on the Engineer’s defective staking.  The staking was done by the Engineer for the Contractor.  The Owner could sue the Contractor to recover its damages.


About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk 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.  He is publisher of ConstructionRisk Report and may be reached at or by calling 703-623-1932.  This article is published in ConstructionRisk Report, Vol. 24, No. 9 (November 2022).

Copyright 2022, ConstructionRisk, LLC

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