Supreme Court of Wyoming Declines to Modify Precedent Barring Claims by Contractor Against Design Professional Under the Economic Loss Rule

Excel Construction, Inc. v. HKM Engineering, Inc.
2010 WY 34 (Wyo. Mar. 23, 2010)

The Supreme Court of Wyoming recently reexamined its prior ruling barring a contractor’s assertion of negligence claims against design professionals economic loss rule.

The case pertained to a construction project for the replacement and improvement of water and sewer lines in the Town of Lovell, Wyoming. The Town of Lovell entered into an engineering services agreement with HKM Engineering, Inc. The Town also entered into a construction agreement with Excel Construction, Inc. No contract existed between HKM and Excel.

Excel initially filed suit against the Owner for alleged unpaid contract amounts and extra work. The Owner counterclaimed for damages arising from Excel’s alleged breaches. Excel later joined HKM, asserting tort claims of misrepresentation, breach of a duty of good faith and fair dealing, intentional interference with contractual relationship, and negligence.

Excel alleged that it raised concerns to HKM during the Project that the amount of backfill called for in the specifications was insufficient. HKM directed Excel to purchase the additional backfill and bill for the same at the end of the month rather than wait for a change order. Excel was not paid for the additional backfill. Excel further alleged that HKM released Excel from the Project pending completion of minor remaining work, but then attempted to assess liquidated damages for the period of time between Excel’s release and the time Excel returned to complete some minor work. Excel further claimed that HKM improperly withheld certification of substantial completion which resulted in Excel’s retainage being withheld.

HKM filed a motion to dismiss Excel’s claims. HKM argued that Excel’s claims were barred by the economic loss rule as set forth in Rissler & McMurry Co. v. Sheridan Area Water Supply Joint Power Bd., 929 P.2d 1228 (Wyo. 1996). The trial court converted the motion to dismiss to one for summary judgment and, relying on Rissler & McMurry, granted the motion in HKM’s favor.Excel appealed the decision to the Supreme Court of Wyoming.

On appeal, Excel argued that the Rissler & McMurry ruling should be modified to permit a general contractor to assert negligence and negligent misrepresentation claims against a design professional. Excel pointed out that such claims have been permitted in other jurisdictions. The Court explained that the Rissler & McMurry case stood for the proposition that the economic loss rule bars recovery of claims in tort where the damages are purely economic and are not accompanied by personal or property damage and that the purpose was to keep a distinction between contract and tort claims. The Supreme Court noted that the Rissler & McMurry court reasoned that, based upon the contract at issue, the contractor had a right of action against the owner based in contract for recovery of economic damages arising from the design professional’s negligence.

In declining to modifiy the Rissler & McMurry ruling, the Court observed that general contractors have the right to allocate economic risk associated with the work during contract negotiation. The Supreme Court further opined that general contractors do not fall within a special class needing tort protections. The Court noted that several jurisdictions such as Colorado, Utah, Virginia and Washington follow the same principle. Accordingly, the Supreme Court affirmed the dismissal of the negligence claims against HKM because they involved HKM’s performance of contractual duties.

The Supreme Court next examined whether Excel’s claims for tortuous interference with contractual relationships and intentional misrepresentation could survive the economic loss rule on the basis that those claims arise from a duty independent of contractual obligations. With respect to the tortuous interference claim, the Court concluded that Excel did not allege actions by HKM outside its contractual obligations.Relying on the principle that one cannot be liable for contractual interference if the allegations are against it as an agent for a contracting party, the Court upheld the dismissal of the claims for intentional interference with contract.

With respect to the misrepresentation claim, the Court acknowledged that claims for intentional misrepresentation are not on-their-face barred by the economic loss rule. However, the Court concluded that Excel’s claim was really one for negligent, as opposed to intentional, misrepresentation, and was barred by the economic loss rule.

With respect to Excel’s claim of breach of the implied covenant of good faith and fair dealing, the Court first held that no duty existed between Excel and HKM based upon the fact that there was no direct contract between them.

Click here to view full text of decision courtesy of LexisNexis.

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