No contract? Negligent architects, engineers not obligated to reimburse project owner for losses

That opinion does not mean that negligent design professionals get off scot-free. (“Donnelly's demise does not insulate design professionals from legal consequence for their negligence,” the opinion stated.) If a project owner has been damaged by design flaws, the owner’s primary remedy is to sue the general contractor who did contract with the design professional. The general contractor would then, presumably, file cross-claims against the design professional for indemnity.

Background. In 2014, Cal-Am Properties contracted with VB Nickle to design and build a clubhouse at a Yuma RV park. Nickle contracted with Edais Engineering to survey the property and place construction stakes to mark the building’s permitted site.

Edais erred in placing the stakes, causing the clubhouse to be built 10 feet north of the correct location and depriving Cal-Am of eight planned revenue-producing RV spaces.

Cal-Am sued Edais for negligence, among other claims. The trial court dismissed the negligence claim on the grounds that, because no contract existed between Cal-Am and Edais, Cal-Am could not recover its economic damages from Edais.

Cal-Am appealed, and the Arizona Court of Appeals upheld the dismissal, as did the Arizona Supreme Court.

In the wake of the Supreme Court’s opinion, Cal-Am Properties was left with the remedy of suing VB Nickle for breach of contract and Edais Engineering as third-party beneficiary.

Donnelly Undone. For more than three decades, the Donnelly opinion influenced multiple court rulings in which project owners, despite the lack of contractual privity, were allowed to sue negligent design professionals to recover economic losses. Donnelly held that a design professional’s liability extends to “foreseeable injuries to foreseeable victims.”

Donnelly took an initial hit with the Arizona Supreme Court’s 2007 opinion in a non-construction case, Gipson v. Kasey, in which the Court ruled that “foreseeability is not a factor to be considered by courts when making determinations of duty.”

The Court apparently had Donnelly and Gipson in mind when it decided to hear the Cal-Am case: “We granted review to reexamine our holdings in Donnelly,” the Cal-Am opinion stated, “under Arizona’s current duty framework.”

Takeaways for Contractors. Cal-Am put the final nail in Donnelly’s coffin, officially eliminating the foreseeability test to evaluate claims against design professionals.

Moving forward, only parties that have a direct contract with the design professional can sue for damages stemming from faulty design.

General contractors should consider this when deciding whether to offer design as part of their contract with an owner. If they do, and there are design problems, the law now requires the owner to sue its contractor, leaving the contractor to, in turn, sue the design professional.

More about: Lang Thal King & Hanson's Construction Law practice