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Pennsylvania Appellate Court Interprets Applicability Of Often-Misunderstood Economic Loss Doctrine


Posted on September 17, 2015

Of all the doctrines and theories that have developed in the law, both courts and attorneys alike have struggled for years with one which seems to baffle even the most experienced of them – the economic loss doctrine. In its simplest terms, the economic loss doctrine states that a party who has suffered only economic harm may recover damages based only upon a contract claim and not on a tort theory, such as negligence.

The doctrine was originally developed to enforce the limitations that contract law placed on the recovery of damages, i.e. those which the parties to the agreement could reasonably expect to flow from a breach. Conversely, tort law allows the recovery of any damages that are proximately caused by another’s tortious conduct, without the limitations imposed under contract. The problem with the economic loss doctrine is not only that it is difficult to understand, but that that its application is not uniform across jurisdictions. A recent decision by The Pennsylvania Superior Court demonstrates how the application of the economic loss doctrine can be inconsistent.

In Gongloff Contracting, L.L.C. v. L. Robert Kimball & Associates, Architects & Engineers, Inc., 2015 PA Super 149, (2015), the Court held that subcontract may recover on a claim of negligent misrepresentation against an architect based on the provision of a faulty design, even if there was no express misrepresentation by the architect. In Gongloff, Gongloff Contracting, L.L.C., (“Gongloff”) was hired as a second-tier subcontractor to provide labor, materials, and equipment to erect the structural steel for the construction of the California University of Pennsylvania convocation center. Robert Kimball & Associates, Architects and Engineers, Inc.’s (“Kimball”) was hired to designed the project.

Due to errors in Kimball’s design, Gongloff experienced a myriad of problems in the performance of its work that substantially increased Gongloff’s costs. Gongloff submitted eighty-one change orders for the amount of additional work, but was only paid on some of them. Eventually, Gongloff terminated its work after not being paid. Gongloff sued Kimball for negligent misrepresentation, alleging that Kimball had misrepresented that the structure could safely sustain all required construction, that normal construction methods could be employed to erect the structure and supplied false information, in the form of its structural design of the project. Based on the economic loss doctrine, the trial court decided that Gongloff could not pursue its negligent misrepresentation claim.

On appeal, The Superior Court reversed, holding that architects have liability under a narrow exception to the economic loss doctrine created by Section 552 of the Restatement (Second) of Torts entitled, “Information Negligently Supplied for the Guidance of Others.” Specifically, the Court opined, “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. If, however, construction in accordance with the design is either impossible or increases the contractor’s costs beyond those anticipated because of defects or false information included in the design, the specter of liability is raised against the design professional.”  Gongloff, 2015 WL 4112446, at *6. The Court recognized that an architect’s design may construed as a representation that the design, if followed, will result in a successful project.

As demonstrated by the Gongloff case, the choice as to which claims may be brought, and effectively prosecuted, to successfully recover for economic injuries suffered by a contractor or subcontractor is an undertaking that should be discussed with experienced legal counsel. For questions regarding the economic loss doctrine, or any other aspect of Pennsylvania or Ohio construction or business law, please contact Todd Harpst or Nick Horrigan, at Harpst Ross, Ltd. – Business Lawyers for the Construction Industry®, at (330) 983-9971 or tharpst@harpstross.com or nhorrigan@harpstross.com.

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