Pennsylvania Superior Court Holds that Economic Loss Doctrine Does Not Shield Design Professionals from Liability for Faulty Information Implicitly Represented in Design Documents

By Michael P. Cotton, K&L Gates, Pittsburgh

In its July 8, 2015 opinion, the Superior Court of Pennsylvania held that design professionals are potentially subject to liability for negligent misrepresentation claims when it is alleged that their design documents negligently included false information via implicit representations.  Gongloff Contracting, L.L.C. v. L. Robert Kimball & Associates, Architects & Engineers, Inc., 119 A.3d 1070 (Pa. Super. 2015).  In so doing, the Superior Court clarified the scope of Section 552 of the Restatement (Second) of Torts and found that the Section does not require a design professional to make an explicit negligent misrepresentation of a specific fact for a third party to recover economic damages.

Background
In 2009, California University of Pennsylvania hired L. Robert Kimball & Associates, Architects and Engineers, Inc. (“Kimball”) as the architect-engineer for the construction of a convocation center.  After Kimball completed the design, Gongloff Contracting, LLC (“Gongloff”) was hired as a sub-subcontractor by the structural steel subcontractor to provide labor, materials, and equipment to erect the structural steel for $990,230.

During preconstruction meetings, a professional engineer assisting in the structural steel design and the subcontractor for steel truss fabrication both raised concerns that Kimball’s roof design was faulty due to undersized roof trusses.  Kimball denied the roof was undersized, and Gongloff began construction in March 2010.  Approximately five weeks into the project, Gongloff began experiencing complications, and Kimball acknowledged that the as-designed trusses could not accommodate the construction loads.  Subsequent attempts to redesign the structure greatly increased Gongloff’s costs.  Gongloff submitted eighty-one change order requests, many of which were not paid.  Unable to pay its vendors, Gongloff left the job site and sued Kimball for negligent misrepresentation.

In its opinion, the trial court explained, “The economic loss rule is that tort law is not intended to compensate parties for losses suffered as a result of a breach of duties assumed only by agreement.  To recover in negligence there must be a showing of harm above and beyond disappointed expectations evolving solely from a prior agreement.”  However, the trial court noted that Section 552 of the Restatement (Second) of Torts provides a narrow exception to this general rule where “the design professional make[s] a negligent misrepresentation that is relied upon by the third party and causes the third party economic harm.”  Although Gongloff alleged that Kimball either expressly or impliedly represented that the structure could safely sustain all required loads, the trial court granted Kimball’s motion for judgment on the pleadings, stating, “[Gongloff] may have suffered economic loss but cannot point to the negligent misrepresentation by Kimball that led to the loss.  The fact that the design was complex and required further engineering and design by the contractor cannot be attributed to any representation by Kimball.”  Gongloff appealed.

The Superior Court’s Decision
On appeal, the Superior Court focused its discussion on the Pennsylvania Supreme Court’s rationale for adopting Section 552 in Bilt-Rite Contractors, Inc. v. The Architectural Studio, 866 A.2d 270 (2005).  In Bilt-Rite, the Pennsylvania Supreme Court explained that liability to third parties in these instances is tied to “the common law duty of care flowing from the parties’ working relationship.”  Pursuant to this duty, an architect “is required to exercise the ability, skill, and care customarily used by architects upon such projects” when performing his contract with his employer.  The Court also cited the decisions of other courts holding architects liable “[w]here breach of such contract results in foreseeable injury, economic or otherwise, to persons so situated by their economic relations, and community of interests as to impose a duty of due care.”

In consideration of this rationale, the Superior Court reaffirmed the elements necessary to establish liability under Section 552(1): “the defendant is in the business of supplying information for the guidance of others and the information provider must have a pecuniary interest in the transaction; the information is false; the information was justifiably relied upon; and the defendant failed to exercise reasonable care in obtaining or communicating the information.”  The court also acknowledged the limiting effect of Section 552(2), which limits the scope of such liability to those persons the information provider knows exist, who are contemplating a specific commercial transaction the information provider knows about, and whom the information provider intends to influence in that transaction by using the provider’s information.

The Superior Court found that the forgoing rationale and requirements directly apply to cases like Gongloff’s, in which a subcontractor pleads justifiable reliance upon faulty information negligently, albeit implicitly, included in an architect’s design documents.  The court noted that the Pennsylvania Supreme Court’s interpretation of Section 552 “requires only that information, a rather general term, be negligently supplied by the design professional.”  Although Kimball argued that binding precedent required the plaintiff to expressly identify an “actual misrepresentation” in order to state a negligent misrepresentation claim, the Superior Court distinguished actual misrepresentations from express misrepresentations and rejected Kimball’s argument.  Defining “actual” as the “opposite meaning as assumed,” the court found that the “actual misrepresentation alleged by Gongloff here was Kimball’s roof design, composed of tangible documents which exist in fact.”  The court held, “The design itself can be construed as a representation by the architect that the plans and specifications, if followed, will result in a successful project.”

Upon acknowledging the trial court’s mistake of law, the Superior Court then concluded that Gongloff alleged sufficient facts to satisfy the necessary elements for a negligent misrepresentation claim.  Specifically, the court noted: (1) Gongloff alleged that Kimball supplied its design to the parties working on the project in order to provide guidance as to how the structure was to be built, which taken as true, sufficiently alleged that Kimball understood it was foreseeable that the information would be relied upon by third persons; (2) Kimball qualified as a design professional in the business of supplying information; and (3) Gongloff alleged numerous instances where the constructability of the structure’s roof in accordance with Kimball’s design was either called into question or determined to be impossible, thereby permitting an inference that the design included false information.

Conclusion
The Superior Court’s ruling in Gongloff enhances the ability of contractors and subcontractors to recover economic losses from negligent design professionals.  Now, errors in plans and specifications, even if by omission or silence, can result in the finding of an actual misrepresentation.  Similar to an owner’s implied warranty of constructability, a design can be interpreted as a representation by the designer that the design, if followed, will result in a successful project.  Architects, engineers, and others engaged in construction project design need to be aware of their exposure to liability for negligent misrepresentation, even where the misrepresentation was not expressly made.