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No Contract – No Tort Claim – My Article in the August Edition of “Building Baltimore

Please see the August edition of Building Baltimore Magazine for my article on the Maryland Court of Appeals decision in Balfour Beatty Infrastructure, Inc. v. Rummel Klepper & Kalh, LLP.  The case established that the economic loss doctrine precludes claims for alleged negligent design by a contractor against a design professional where there is no contract between them.   Building Baltimore Magazine is a publication of Associated Builders & Contractors, Inc. – Baltimore.  You can also read the entire article here by clicking the “more” button.

A Maryland appellate court has held that a design professional, who provides documents to be used by bidders on a public construction project, is protected from liability to a successful bidder for damages allegedly caused by the design professional’s negligence in preparing the design documents. In a dispute arising in the context of a public construction project involving a “design-bid-build” delivery method, the Maryland Court of Special Appeal determined that the “economic loss doctrine” absolutely precludes tort claims by contractors against design professionals on such projects where there is no direct contract between them.

Under the “economic loss doctrine,” a party cannot recover against another for negligence where there is no contract between them and the resulting harm is purely economic – that is, where there is no property damage, personal injury or the risk of personal injury.  Parties with no “contractual privity” generally owe no duties to each other in tort, such as a duty to comply with a recognized standard of care.   There is an exception, however, where the relationship between the parties is such that there is an “intimate nexus” that constitutes the equivalent of contractual privity.  In such cases, a party may owe duties to the other in tort despite the absence of a contract.

In Balfour Beatty Infrastructure, Inc. v. Rummel Klepper & Kahl, LLP,[1] the Court of Special Appeals affirmed the dismissal of a contractor’s complaint against a design engineering firm, holding that the economic loss doctrine bars tort claims against a design professional in the absence of contractual privity, where the claims involve only economic loss.  The “privity equivalent” exception to the economic loss doctrine’s requirement of contractual privity – where an “intimate nexus” exists between the parties despite the absence of a contract — does not apply to cases involving design professionals in public construction projects.

Baltimore City contracted with a design engineering firm, Rummel Klepper & Kahl, LLP (“RK&K”) to provide design services with respect to the construction of improvements to a wastewater treatment plant.  Included within RK&K’s contract was the responsibility to produce construction drawings and other design documents for use by contractors in submitting bids for the project.   Balfour Beatty Infrastructure, Inc. (“BBI”), through its predecessor entity, was the successful bidder, and entered into a contract with the City.  Included within BBI”s responsibilities was the construction of denitrification filter cells – concrete tubs that hold wastewater that is to be treated – and related pipes and pipe support systems.

When the denitrification filter cells were tested, they were found to leak as a result of cracking in the expansion and contraction joints.  BBI claimed that the cracking resulted from alleged deficiencies in RK&K’s design.  Additionally, BBI claimed that RK&K’s design for the pipe support systems also suffered from alleged defects, and that these problems resulted in additional costs in excess of $10 million for work associated with correcting the deficiencies.

BBI sued RK&K in the Circuit Court for Baltimore City.  The Complaint contained three counts.  First it alleged professional negligence in breaching a duty to act with a reasonable degree of care, knowledge, diligence and skill ordinarily exercised by similarly situated design professionals.  Second it alleged a separate tort claim under Section 552 of the Restatement (Second) of Torts for failing to exercise reasonable care in preparing, supplying and communicating the design plans and specifications.  Finally, it alleged negligent misrepresentation, claiming that RK&K knew that the design was insufficient, but failed to warn BBI.

The Circuit Court granted RK&K’s motion to dismiss, and the Court of Special Appeals affirmed.  With regard to professional negligence, the economic loss doctrine was held to preclude BBI’s claim.  BBI argued that RK&K knew that contractors would rely on their design, and that this brought the case within the exception to the economic loss rule where the relationship between the parties involves an “intimate nexus” and thereby constitutes the equivalent of contractual privity.  However, the Court of Special Appeals declared that this exception does not apply in an action against a design professional by a contractor seeking purely economic damages on a public construction project.

With regard to BBI’s claim under Section 552 of the Restatement, the Court noted that this Section has been adopted in Maryland as satisfying the intimate nexus exception.  However, the Court determined that Section 552 did not apply in this case.  In particular, the Court emphasized that there was no pre-determined set of bidders for the project that would have identified contractors that would rely on the design documents.

As to the negligent misrepresentation claim, the Court again held the “extra-contractual concepts of duty” did not apply. There must be contractual obligations that give rise to a duty of care, or there must be damages other than purely economic loss.

Accordingly, in a public construction contract case, where a contractor asserts a claim against a design profession for negligence, Maryland law recognizes no exception to the requirement that the parties have a contractual relationship.

[1] 226 Md. App. 420, 130 A. 3d 1024 (2016).