In a case of first impression decided January 15, 2005, the Pennsylvania Supreme Court in Bilt-Rite Contractors, Inc. v. The Architectural Studio held that a contractor may maintain an action for negligent misrepresentation to recover economic damages against an architect, even though there is no direct contract between the two parties.

In Bilt-Rite, the school district entered into a contract with the defendant Architect to provide design services, including plans and specifications that were to be submitted to contractors in the bid process. Plaintiff Contractor relied on Architect’s plans, drawings and specifications, submitted a bid and was awarded the general construction contract by the district. Upon commencement of the work, Contractor found that certain work required special construction methods and not the normal methods proffered by Architect. This resulted in increased construction costs.

Contractor filed an action against Architect under a theory of negligent misrepresentation asserting that Architect’s information was false and/or misleading and seeking damages for the increased costs incurred. Architect filed preliminary objections arguing that (1) the action was barred by the “economic loss doctrine[1]” in that Contractor’s tort action cannot recover for purely economic losses and (2) because there was no contract between Contractor and Architect, Architect owed no duty to the Contractor.

Contractor then argued that the Supreme Court recognizes the theory of negligent misrepresentation, citing Section 552 of the Restatement (Second) of Torts, which provides that in certain situations a defendant can be held liable for negligent misrepresentation for information negligently supplied for the guidance of others. Contractor further argues that the Court has not included privity of contract in its elements of negligent misrepresentation; rather, the Court has focused on foreseeability of reliance. Architect, on the other hand, relies on the concept of privity and maintains that design professionals cannot be held liable for Contractor’s economic losses if there is no contractual relationship.

The Court, after an exhaustive review of the case law of this Commonwealth and of other states, found that Section 552 should apply to architects and other design professionals. The Court set forth that Section 552 provided sufficient limitations as follows:

The defendant is liable only to those, whether in contractual privity or not, for whose benefit and guidance the information is supplied. The information may be either direct or indirect. In that regard, the foreseeability of use is critical to liability.
Because the information is negligently rather than intentionally supplied, courts have been careful to limit liability to only those whose use of the information is reasonably foreseeable.
By limiting the liability for negligence to cases in which a defendant manifests intent to supply the information for the sort of use in which the plaintiff’s loss occurs, the law promotes the important social policy of encouraging the flow of commercial information upon which the operation of the economy rests.

The Court agreed with Contractor’s argument that privity is unnecessary, noting that Section 552 imposed a duty of care upon design professionals to those individuals who rely upon the professional information, and this duty eliminated any need for a direct contract between the parties. Furthermore, the Court held that Contractor is not barred from recovering purely economic losses simply because the lawsuit was a tort action and not a contract action.

Design professionals who, to date, have enjoyed protection from liability because of a lack of a contract with contractors and/or a lack of a “duty” to contractors are now subject to possible lawsuits and payment of damages. Conversely, contractors and others who do rely upon the work of design professionals are permitted to seek recovery for monies lost in reliance upon negligent information provided by the design professional.

Regardless of whether you are the owner, design professional or the contractor, the impact of the Court’s decision in Bilt-Rite will be substantial.

[1] The Economic Loss Doctrine provides that no cause of action exists for negligence that results solely in economic damages unaccompanied by physical injury or property damage.

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Alfred C. Maiello
Alfred Maiello

Alfred C. Maiello is the founding member of MBM and has represented area school districts as solicitor for 50 years. He counsels school districts and educational institutions on leading developments in school law and guiding them through their day-to-day and long-term challenges.