- Pennsylvania Supreme Court Holds That a Contractor May Sue an Architect for Economic Losses Caused By Defective Design, Notwithstanding Lack of Contractual Relationship Between The Architect and Contractor
- June 15, 2005
- Law Firm: Pepper Hamilton LLP - Philadelphia Office
Bilt-Rite Contractors, Inc. v. The Architectural Studio 2005 Pa. LEXIS 99 (Pa. January 19, 2005)
The East Penn School District entered into a contract with The Architectural Studio ("TAS"), pursuant to which TAS agreed to prepare plans, drawings and specifications (collectively, "Design Documents") for the construction of a new school. The Design Documents were submitted to contractors for the purpose of preparing bids to perform the general construction of the school. Bilt-Rite submitted a bid for the general construction work, and was awarded the contract as the lowest responsive, responsible bidder. The contract between Bilt-Rite and the School District specifically referred to and incorporated by reference, TAS's Design Documents.
The Design Documents represented that Bilt-Rite could construct certain systems using normal and reasonable construction means and methods. However, when Bilt-Rite commenced work, it discovered that the systems could not be built using such techniques; but rather, required special construction means and methods. Bilt-Rite incurred substantial additional costs as a result of this design error.
In response, Bilt-Rite filed an action for negligent misrepresentation against TAS. It cited to section 522 of the Restatement (Second) of Torts, which provides that a party who is in the business of supplying information that it intends or knows would be relied upon by others owes a duty to those parties who use that information in their business activities. Bilt-Rite argued that it met those requirements: TAS supplied information that it knew contractors would rely upon; Bilt-Rite reasonably relied on the Design Documents in preparing its bid; and it was damaged as a result. Bilt-Rite's claim sought purely economic losses. It had no claims for personal injury or property damage. The trial court and appellate court both dismissed the claim, holding that a party seeking to recover purely economic losses cannot maintain a claim against a party absent a written agreement between the parties.
Reversing these decisions, the Supreme Court concluded that Bilt-Rite's cause of action against TAS was viable under Pennsylvania law, and in doing so, adopted section 522 of the Restatement (Second) of Torts. According to the Court, and by adopting section 522, a defendant architect owes a duty of care to a plaintiff contractor because an architect could reasonably foresee that a contractor submitting a bid for work would rely upon the design documents to prepare its bid. The Supreme Court also recognized that the economic loss doctrine, which normally precludes a party from recovering pure economic losses in a tort action, did not apply in this instance. A tort action under section 522 is an exception to the economic loss doctrine. As a consequence, in limited circumstances, architects and engineers developing plans and specifications for use by bidders on projects may be exposed to potential tort claims from aggrieved contractors.