When Contractor filed suit against residential property owner/client for failure to pay amounts due, the homeowner counterclaimed for construction defects. The Contractor then filed third-party claims against the client’s architect and against the geotechnical engineer – alleging negligence, implied indemnity, breach of implied warranties, and right to contribution. Applying Nevada law applicable to claims for purely economic losses, the court granted the motions by the design professionals to dismiss the Contractor claims. The economic loss doctrine applied to all claims, including claims for contributions and claims for implied indemnity – which the court stated arose out of the alleged negligence. Because professionals make no implied warranty of workmanship, the court also dismissed that count. Pulver v. Kane, 2022 WL 17327 182 (Nev. 2022).
The Architect moved to dismiss all claims against it – arguing that such claims were all barred by the economic loss doctrine, and also arguing that as a design professional, it makes no implied warranties concerning the quality of workmanship.
In Nevada, “economic losses are not recoverable in negligence absent personal injury or damage to property other than the defective entity itself.” The plaintiff argued that this Nevada doctrine applied only to commercial construction projects and not to a residential project such as the one involved in this case. In rejecting that argument, the court stated that it believed the economic loss doctrine also applies to design professionals in residential construction defect cases.
“Pulver alleges only that, “if the Subject Property is defectively constructed,” Design Defendants “are responsible for such defects” and their “acts or omissions … are the direct and proximate cause of any and all damages.” (Id.) Because it is undisputed that Pulver does not allege damage to property “other than the defective entity itself” … Pulver fails to state a claim upon which relief can be granted.”
Applying the Economic Loss Doctrine to Implied Indemnity and Contribution Claims
Because implied indemnity and contribution are tort-based claims, the economic loss doctrine also bars those claims from being made against the design professionals.
“Pulver’s implied indemnity claim arises from its contractual relationship with RTGA but is ultimately based on RTGA’s allegedly negligent “conduct … in constructing the portions of the Subject Property which are allegedly defective,” not on an alleged breach of contract (citation omitted) And Pulver’s contribution claim is similarly based on “the amount of negligence and/or fault attributable to [Design Defendants].” (Id. at 8.) Because Pulver’s negligence claim is barred by the economic loss doctrine, as already discussed, Pulver has not alleged a valid underlying tort claim to support its implied indemnity and contribution claims.”
Breach of Implied Warranties Claim
The Nevada court concluded that design professional “do not warrant their services and therefore cannot be held liable under claims of implied warranty.”
“In any case, the implied warranty of workmanship has historically applied to builders and contractors in American jurisprudence. See 3 Philip Lane Bruner & Patrick J. O’Connor, Bruner & O’Connor on Construction Law § 9:77 n.2 (2022) (collecting cases). Moreover, “a claim for breach of the implied warranty of workmanship requires privity of contract” (citation omitted). Therefore, as to A & E, such a claim also fails because Pulver itself admits that it did not contract with A & E and does not allege any privity of contract with A & E in its pleadings (citation omitted).”
In this case the court explained that where Nevada lacks case law on a particular issue the courts often look to California law where the Nevada law is silent.
“The majority of jurisdictions that have addressed this issue, including California, have rejected the application of implied warranties to the services of design professionals. See 5 Bruner & O’Connor on Construction Law § 17:24 nn.16-18 (collecting cases). “[T]he well settled rule in California is that where the primary objective of a transaction is to obtain services, the doctrines of implied warranty and strict liability do not apply.” (citation omitted). Stated differently, “those who sell their services for the guidance of others in their economic, financial, and personal affairs are not liable in the absence of negligence or intentional misconduct.” (citation omitted). The rationale is that “[t]hose who hire [experts for their services] are not justified in expecting infallibility, but can expect only reasonable care and competence.”
Contract Risk Management Comment
Unless the design professional contract expressly creates a duty beyond the normal professional standard of care, courts around the country typically follow the principles explained in this decision and hold that design professionals are not liability for warranties but are only required to perform with reasonable care and competence. When our firm reviews a design professional agreement, we often see wording that seems to attempt to create a greater responsibility than this. We therefore, often advise our clients to add a clause to the contract such as the following:
“Consultant shall perform its services consistent with the professional skill and care ordinarily provided by firms practicing in the same or similar locality under the same or similar circumstances (hereinafter the “Standard of Care”). Notwithstanding any clause in this Agreement or any other Agreement to the contrary, nothing shall be construed as imposing on the Consultant any greater obligation than to exercise the Standard of Care.”
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 Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk Report, Vol. 25, No. 6 (August 2023).
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