Economic Loss Doctrine Does Not Apply to Designers

FACTS: A corporation managing the construction of a Nevada resort and casino hired various subcontractors, including a professional design company, to provide geotechnical engineering advice about the subsurface soil conditions and recommend a foundation design for the property. Two other firms also had a verbal arrangement with the corporation to design parts of the resort’s structure.

The corporation found that the soil setting exceeded the design company’s expectations, and that it needed to repair and reinforce the foundation before proceeding with the construction. The corporation sued the design firm for negligence and damages in state court, alleging that deficient engineering advice caused the resort’s foundation problems. The design firm argued that the claim was barred under Nevada’s economic loss doctrine. The corporation, however, argued that the economic loss doctrine does not apply to negligence claims against design professionals or contractors who solely provide services.

PRACTICAL POINTER: The economic loss doctrine is a judicially created rule that primarily emanates from product liability cases. It bars unintentional tort actions when the plaintiff seeks to recover “purely economic losses.”

The design firm filed a third-party complaint against its subcontractors for negligence. However, the subcontractors argued that the economic loss doctrine applied and moved for dismissal.

DECISION: The court said that that any losses the corporation suffered were purely economical, but those losses were without any personal injury or property damages, which would prohibit the corporation from proceeding with its negligence claims against the design company.

REASONING: The court concluded that in a commercial property construction defect action in which the corporation wants to recover purely economic losses through negligence-based claims, the economic loss doctrine applies to prohibit such claims against design professionals in the commercial property development or improvement process.

n Terracon Consultants Western, Inc. v. Mandalay Corporation, March 2009