Construction Practice Group - Case Law Alert:
Professional Engineer Found to Have No Duty to Property Owner
or Contractor
By David A. Ericksen
December 27, 2004
The California Court of Appeal last week confirmed a
holiday gift to one very fortunate California engineer.
In Weseloh Family Limited Partnership v. K.L. Wessel Construction
Co., Inc., et al. , 2004 DJDAR 15150, an engineer escaped a
$6 million property damage claim on the grounds that it did
not owe either the owner or general contractor a duty of care.
The Court's rationale for this "free pass" provides design professionals
with a guide that is both instructive and cautionary.
The underlying facts of the case are relatively simple.
The project involved the design and construction of a large
Southern California auto dealership, including the retaining
walls that stood adjacent to the dealership. The property
owner hired a general contractor to construct the dealership
facility, and the general contractor hired a specialty retaining
wall subcontractor to construct two Keystone retaining walls.
In turn, the subcontractor retained an engineer to design the
walls. While the engineer did no construction work, it
did provide design services and calculations that it signed
and stamped on the subcontractor's behalf. It also inspected
and approved the completed walls.
Ultimately, a portion of the retaining walls failed, causing
severe damage to the dealership. The failure was allegedly
caused by the engineer's erroneous calculations. As a
result, both the property owner and the general contractor sued
the engineer for professional negligence and other claims.
Following an extensive analysis, the Court found that the engineer
did not owe a duty of care to either the property owner or general
contractor, and dismissed all of the claims. The Court
noted that the engineer's contract was solely with the subcontractor
and not with the owner or general contractor, and neither the
contract nor the services manifested an intention to benefit
either the property owner or the general contractor. The
Court made this finding even though the design was expected
to be implemented on the property owner's land and was a part
of the general contractor's contractual obligations.
The Court's discussion identifies many possible loopholes for
future claimants, but it also makes clear that professional
service agreements, and how they are performed, can make a true
difference. The difference for the lucky engineer here
may have been as much as $6 million. Some of the key lessons
for design professionals from the Weseloh decision are as follows:
* Statements
of intended beneficiaries in the design professionals' contracts
and work product make a difference. Their breadth should
be as limited as possible. Such clauses are standard in
many design professionals' service agreements. We have
had little trouble negotiating them into our clients' agreements.
* The
purpose and recipients of construction observation reports should
be clearly documented and their distribution should be limited.
The Court found that the engineer's observations in this case
were intended solely for the benefit of the subcontractor in
order to confirm that it had completed its work and they were
not intended to provide a similar assurance to the owner or
general contractor.
* Indemnity
provisions are also critical. Prime consultants should
make certain that they receive appropriate indemnity obligations
from all subconsultants and, if applicable, from sub - subconsultants.
Absent such indemnity agreements, prime consultants might have
no recourse against the sub-subconsultants. Similarly,
subconsultants should limit their indemnity obligations to their
direct clients. Had the engineer in Weseloh included the
owner or general contractor as indemnitees or as additional
insureds, the outcome of the case would have been very different.
* Documenting
construction deviations from the design drawings is critical.
The mere possibility that such deviations existed here was enough
to break the causal chain from the errant calculation to the
failure of the wall.
The clear message of the case is that under the right circumstances
and with the appropriate contractual preparation and performance,
a design professional may limit its liability exposure to a
very small group. While liability turns on a complex analysis
of the relationship between the parties and the professional
services provided, it is a message of hope and encouragement
to those who take risk management seriously.
If you have any questions about this decision or its impact
on your contracts or practice, or if you would like to discuss
other risk management issues that are relevant to your practice,
please contact David Ericksen ( (415) 677-5637
or dae@severson.com
) or any of Severson & Werson's fifteen construction attorneys
who can all be reached by telephone at (415) 398-3344
or through the firm's website at www.severson.com.
|
