Commonwealth Court of Pennsylvania Holds Owner’s Professional Malpractice Claim Against Design Professional Outside Scope of Arbitration Agreement Covering Claims Arising Out of Agreement

Hazleton Area School District v. Bosak,
671 A.2d 277 (Pa. Cmwlth. 1996).

In this case, neither of the arbitration provisions provided in the 1988 and 1989 agreements specifically stated that an action in tort for negligence should be arbitrated. The Commonwealth Court affirmed the decision of the trial court and held that the complaint alleged professional negligence and not breach of agreement and thus was not subject to arbitration provisions of agreements with the school district. 

In September 1988, a written agreement (“1988 agreement”) was entered into between the School District and RBA (sole proprietorship owned by Robert A. Busak) for the design, engineering and construction of a new high school. Subsequent to this, the School District entered into another agreement (“1989 agreement”) covering the same services but including a third party. Both agreements included arbitration provisions.

The School District began occupying the completed high school in September 1993, and in January 1994, the roof of the new school collapsed under the weight of snow. In July 1994, the School District filed a complaint with the trial court seeking damages for the collapsed roof.

In its complaint, the School District sought non-contract damages from the defendants (the architect and engineer individually and his sole proprietorship). In August 1994, Bosak filed preliminary objections stating that he never undertook to perform services in his individual capacity, and RBA filed a petition to compel arbitration pursuant to Section 501(a) Uniform Arbitration Act. Both of these objections were denied by the trial court and subsequently the defendants appealed to the Commonwealth Court.

The court held that a tort claim for professional negligence was not included in the terms of the 1988 or 1989 agreements and did not constitute the basis of consideration for either agreement.

The Pennsylvania Supreme Court has stated that judicial inquiry as to whether arbitration is appropriate is limited to the following questions; (1) whether an agreement to arbitrate was entered into; and (2) whether the involved dispute comes within the ambit of an arbitration provision.

In this case, the arbitration provision in the 1988 agreement stated that claims or disputes arising out of, or relating to, the agreement, or its breach, shall be decided by arbitration. Similarly, the arbitration provision in the 1989 agreement stated that any dispute concerning the subject matter of the agreement shall be referred to the American Arbitration Association (AAA). The School District in its complaint did not assert claims concerning the agreement or their breach, and, RBA did not file any request for arbitration with the AAA.

When construing arbitration provisions the Supreme Court states that because arbitration is a matter of contract, the courts must resort to the rules of contractual construction with the intent of the parties being of paramount importance. The Supreme Court also states that care must be taken not to extend an arbitration agreement by implication beyond the clear, express and unequivocal intent of the parties as manifested by the writing itself.

The policy consideration underlying contract law is protection of expectations which had been bargained for by the parties to a contract. It is necessary to determine whether losses incurred by a party were contemplated by the parties at the time that the contract was executed. It does not appear that any of the parties contemplated the possibility of repairs to the new roof. In contrast tort claims must show that losses resulted from injury to persons or property and damages are recoverable if harm is shown above and beyond disappointed expectations. The School District alleged harm above and beyond disappointed expectations and accordingly their claims constituted a tort action rather than one for breach of contract.

In some situations, arbitration provisions in a contract may, in fact, cover tort actions for negligence where the contract provides that “should either party to this Contract suffer damage in any manner because of the wrongful act or neglect of the other party … claims … shall be adjusted by agreement or arbitration.” The Supreme Court has ruled that this language is completely inclusive and means all claims.

In this present case, the arbitration provisions in the agreements specify that disputes concerning the agreements are to be resolved through arbitration. However, the arbitration provisions do not encompass tort claims, therefore, the trial court’s decision is affirmed.

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