Indiana Supreme Court Holds Economic Loss Doctrine Bars Owner’s Claims for Design Deficiencies Against Engineering Firms Not in Privity

Indianapolis – Marion County Public Library v. Charlier Clark & Linard, P.C
2010 Ind. LEXIS 397 (Indiana, June 29, 2010)

The Indianapolis-Marion County Public Library entered into contracts with Woollen Molzan and Partners, Inc. (“Architect”) for the design for the renovation and expansion of the Library’s facility including its parking garage. The Architect entered into subcontracts with Thornton Tomasetti Engineers (“TTE”) and Charlier Clark and Linard, P.C. (“CCL”) to perform architectural and engineering services. TTE performed structural engineering services and CCL administered various services for the Project, including reviewing and inspecting the construction plans and construction progress to determine if construction was in general compliance with the construction documents. The Library never consulted directly with TTE or CCL.

The Library became concerned about the structural integrity of the accompanying parking garage which was to serve as the foundation for the test of the library structure. The Library hired an expert who confirmed there were several construction and design defects in the garage and that the garage would be at serous risk for structural failure if construction were to continue. The Library suspended construction and took steps to mitigate effects of the negligent design. The library maintains that curing the defects and design effects caused it to sustain damages of approximately $40-$50 million.

The Library sued, among others, TTE, CCL, and Shock, LLC, the general contractor, and other contractors working on the Project for negligent failure to perform engineering, administrative, and design work in a skillful, careful, workmanlike manner along with breach of contract claims against the parties with whom the Library had a contractual relationship. The Library eventually settled with the parties with whom it was in direct contractual privity. The remaining defendants moved for partial summary judgment arguing that the negligence claims against them were barred by the economic loss rule. The economic loss rule precludes tort liability for purely economic loss unaccompanied by any property damage or personal injury. The trial court granted and the Court of Appeals affirmed dismissal of the negligence based claims. The case then went to the Supreme Court of Indiana for review.

The Library argued that the economic loss rule does not apply because the defendants’ alleged negligence caused damage to what is called in this context “other property” and caused imminent risk of personal injury. The Court found that the product or service purchased from the defendants was an integral part of the entire library construction project, not independent from it and that any damages alleged to have resulted from the Defendants’ negligence was to the “product” the Library purchased not to “other property.” The Court also relied on Indiana precedent set in Progressive Ins. Co. V. General Motors, Corp., 749 N.E.2d 484 (Ind. 2001), which precludes a strict tort products liability action where there the absence of personal injury was concededly fortuitous. The Court in this instant matter applied the reasoning from Progressive and held that the economic loss rule applied to the Library’s negligence claim despite the claimed presence of imminent risk of physical danger.

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