Consulting-Specifying Engineer - September 2007 - (Page 39)

Engineers find themselves in situations where reliance by third parties could be foreseeable with some frequency. In Craig v. Everett M. Brooks Co. 2, a Massachusetts court allowed a contractor to recover against a civil engineer. The engineer had made a mistake in preparing plans and laying out stakes for a road. As a result, the contractor had to rebuild two catch basins and relocate a road by eight feet. The court held the engineer liable because the contractor was reasonable in relying on the engineer’s plans and specifications. The court said the engineer should have foreseen that reliance. The court allowed recovery because both the contractor and the engineer were under contract with the same owner, and the contractor’s contract contemplated that the contractor would rely on the engineer’s services. The court noted that the defendant engineer knew the only possible plaintiff and the extent of his reliance. In addition, damages were not remote. Under those circumstances, the court felt that imposing liability in the absence of a contractual relationship was reasonable. The Craig case has been cited favorably more than 40 times. The underlying reasoning follows §552 of the RESTATEMENT (SECOND) OF TORTS (see p. 40), which provides: “One who, in the course of his business, profession or employment … supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information…” 3 Many cases that apply §552 deal with accountants, not engineers. Accountants often provide information to their clients with the knowledge, and perhaps even the expectation, that others will rely on it. Similarly, engineers prepare plans and specifications with not just knowledge but the expectation that contractors will rely on those documents to price the job and build the project. Many courts are uncomfortable with the prospect of imposing “liability in an indeterminate amount for an indeterminate time to an indeterminate class.” 4 For them, §552 is attractive because it “recognizes commercial realities by avoiding both unlimited and uncertain liability for economic losses in cases of professional mistake.” 5 Claims by people who rely on information from engineers and urge courts to adopt §552 appear to be the current danger for expanding engineers’ liability to third parties. Avoiding §552 liability The key to avoiding liability under the RESTATEMENT §552 view is avoiding “justifiable reliance.” The RESTATEMENT itself limits liability to “the person or one of a limited group of persons for whose benefit and guidance” the information is supplied. To take advantage of that limitation, engineers can state in their reports and opinions that the document is being provided for a certain party and that and exclusive benefit of Owner and Engineer and not for the benefit of any other party. 3. Owner agrees that the substance of the provisions of this paragraph 6.07.C shall appear in the Contract Documents.” American Institute of Architects (AIA) standard contract forms can accommodate modifications with the same purpose. But will it work? Courts tend to uphold risk allocation agreements in contracts. “[A] party may, by agreement, allocate risk and exempt itself from liability that it might subsequently incur as a result of its own negligence.” 6 On that basis, “One who, in the course of his business supplies false information is subject to liability.” others who rely on it do so at their own peril. The RESTATEMENT contains comments and examples from actual cases to illustrate how that limitation can work. Engineers also can limit the class of people who justifiably rely on the information that they prepare by using appropriate language in their contract for services. A precise definition of the scope of services might undercut thirdparty claims on the theory that the engineer was not retained to perform services for the third party. Engineers can include a provision in their contracts and in their deliverables that their deliverables are for the sole use of the client and not for any other individuals. Section 6.07.C of the Engineers Joint Contract Document Committee’s (EJCDC) Document E-500, Standard Form of Agreement Between Owner and Engineer for Professional Services (2002 edition), is an example of an attempt to bar claims by third parties: “C. Unless expressly provided otherwise in this Agreement: 1. Nothing in this Agreement shall be construed to create, impose, or give rise to any duty owed by Owner or Engineer to any Contractor, Contractor’s subcontractor, supplier, other individual or entity, or to any surety for or employee of any of them. 2. All duties and responsibilities undertaken pursuant to this Agreement will be for the sole contractual provisions that seek to insulate engineers from claims by third parties should effectively make reliance without the engineer’s permission not “justifiable” and therefore not actionable. The technique might or might not work in states that apply tort-based reasoning to impose liability to third parties on a public policy basis. Contractors and subcontractors Contractors and subcontractors are the main class of third parties who bring claims against engineers. The most common claims are for extra costs incurred as a result of alleged design deficiencies, often as a result of the engineer’s refusal to approve a requested change. Contractors might also bring claims against engineers if the contractor suffers delays on the project and the contract for construction has a “no damage for delay” clause. The case of Lundgren v. Freeman7 illustrates contractor claims against engineers. In Lundgren, the owner terminated the contractor on advice from the architect. The contractor sued the owner and the architect claiming: • Unpaid balance due on the contract (a certificate of final acceptance had been issued) • Losses due to defects in plans and specifications A C E F H L P Consulting-Specifying Engineer • SEPTEMBER, 2007 39

Table of Contents Feed for the Digital Edition of Consulting-Specifying Engineer - September 2007

Contents M/E Roundtable Cover Story: Airborne Superbugs Third-Party Liability Back to School Product Spotlight Codes & Standards Professional Practices How To New Products Jobs/Cliassifieds Specifier’s Notebook Pure Power Supplement New Technologies, Same Old Transmission Problems Wireless Battery Recharging Solar Concentration Renewables Tracking System A Mighty Wind The Importance of Load Bank Testing Quality Power for Security Systems

Consulting-Specifying Engineer - September 2007

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