Fireman's Fund Ins. Co. v. SEC Donohue, Inc., 81439

• Decision Date: 17 April 1997
• Docket Number: No. 81439,81439
• Citation: 223 Ill.Dec. 424,176 Ill.2d 160,679 N.E.2d 1197
• Court: Illinois Supreme Court
• Parties: , 223 Ill.Dec. 424 FIREMAN'S FUND INSURANCE COMPANY, as Subrogee of Neptune Construction Company, Inc., Appellant, v. SEC DONOHUE, INC., f/k/a Donohue & Associates, Inc., Appellee.

Page 1197

679 N.E.2d 1197

176 Ill.2d 160, 223 Ill.Dec. 424

FIREMAN'S FUND INSURANCE COMPANY, as Subrogee of Neptune Construction Company, Inc., Appellant, v. SEC DONOHUE, INC., f/k/a Donohue & Associates, Inc., Appellee.

No. 81439.

Supreme Court of Illinois.

April 17, 1997.

Mark A. Schramm of Esposito, Heuel & Schramm, Chicago, for appellant.

Paul F. Conarty, Wheaton, for appellee.

Justice FREEMAN delivered the opinion of the court:

The question presented for review is whether the economic loss doctrine, as enunciated by this court in Moorman Manufacturing Co. v. National Tank Co., 91 Ill.2d 69, 61 Ill.Dec. 746, 435 N.E.2d 443 (1982), bars a tort action against an engineer for purely economic losses. We hold that it does.

BACKGROUND

This cause is before us following a motion to dismiss pursuant to section 2-619(a)(9) of the Code of Civil Procedure (735 ILCS 5/2-619(a)(9) (West 1994)). The motion admits all well-pled allegations in the complaint and reasonable inferences to be drawn from the facts. Mayfield v. ACME Barrel Co., 258 Ill.App.3d 32, 34, 196 Ill.Dec. 145, 629 N.E.2d 690 (1994); Chicago Title & Trust Co. v. Weiss, 238 Ill.App.3d 921, 924, 179 Ill.Dec. 78, 605 N.E.2d 1092 (1992).

The complaint alleges as follows. Plaintiff, Fireman's Fund Insurance Company (Fireman's), is the subrogee of Neptune Construction Company (Neptune). Neptune is a contractor in the business of constructing underground water service. Defendant, SEC Donohue, Inc., formerly known as Donohue and Associates, Inc. (Donohue), is a professional engineering firm.

In April 1989, Neptune entered into a subcontract agreement with Artfield Builders to install underground water service for an apartment complex located on East River Road between Golf and Central Roads in Des Plaines. Neptune was to tunnel horizontally from the complex, under a state tollway, and connect with water supply lines on the opposite side of the tollway. Neptune was to perform its work "in accordance with the engineering plans, specifications and general conditions prepared by: DONOHUE & ASSOCIATES, INC."

Donohue was the project engineer. Under Donohue's contract with Artfield, Donohue was to provide engineering plans for improvements that included water supply lines. In anticipation of Neptune's work, Donohue supplied drawings and plans that specified where Neptune should dig the tunnel and use an auger to bore into the water supply lines.

Donohue's drawings and plans erroneously located the site for digging and boring at a spot approximately 73 yards south of the correct location. Relying on Donohue's plans, Neptune worked at the wrong location, thereby damaging the shoulder of the tollway. The Illinois State Toll Highway Authority required Neptune to repair the tollway at a cost of $57,754.02. Neptune made a claim to its insurer, Fireman's, for this amount. Fireman's paid the claim, becoming subrogated to Neptune's claim against Donohue.

Fireman's brought a negligence action against Donohue in the circuit court of Cook County. The complaint alleged that Donohue had the duty to provide accurate information to those who would rely on it, such as Neptune; that Donohue breached that duty by "carelessly and mistakenly" locating the site for digging and boring 73 yards south of the correct location; and that Neptune's damages were proximately caused by its reliance on Donohue's erroneous work.

The trial court denied defendant's motion to dismiss pursuant to section 2-619(a)(9) of the Code of Civil Procedure (735 ILCS 5/2-619(a)(9) (West 1994)). The trial court subsequently certified the following question for interlocutory review (see 134 Ill.2d R. 308):

"Is a professional engineer who prepares plans and specifications for a construction project in the business of supplying information to others for the guidance of the recipient in its business dealings with third parties and liable in tort for negligent misrepresentations under Moorman Manufacturing Co. v. National Tank Co., [citation][?]"

The appellate court answered the question in the negative, reversing the trial court. 281 Ill.App.3d 789, 217 Ill.Dec. 212, 666 N.E.2d 881. The appellate court concluded that the economic loss doctrine applies to engineers in general. 281 Ill.App.3d at 796, 217 Ill.Dec. 212, 666 N.E.2d 881. The appellate court also concluded that Moorman 's negligent misrepresentation exception to the economic loss doctrine (Moorman, 91 Ill.2d at 89, 61 Ill.Dec. 746, 435 N.E.2d 443) did not

                [223 Ill.Dec. 426] apply in this case.  281 Ill.  App.3d at 798, 217 Ill.Dec. 212, 666 N.E.2d 881.   We allowed Fireman's petition for leave to appeal (155 Ill.2d R. 315), and now affirm the appellate court
                

DISCUSSION

The question certified for interlocutory review presents two issues. The first issue regards the form of the question itself; the second issue regards an exception to the economic loss doctrine. Before addressing these issues, some background is in order.

At common law, purely economic losses are generally not recoverable in tort actions. In re Illinois Bell Switching Station Litigation, 161 Ill.2d 233, 240, 204 Ill.Dec. 216, 641 N.E.2d 440 (1994). In Moorman Manufacturing Co. v. National Tank Co., 91 Ill.2d 69, 61 Ill.Dec. 746, 435 N.E.2d 443 (1982), this court enunciated the economic loss rule, and held that a products liability plaintiff cannot recover purely economic loss under the tort theories of strict liability, negligence, and innocent misrepresentation. Moorman, 91 Ill.2d at 91, 61 Ill.Dec. 746, 435 N.E.2d 443.

This court has explained the rationale of the economic loss doctrine as follows:

"In Moorman, this court [reasoned] that tort law would, if allowed to develop unchecked, eventually envelop contract law. Contract law serves a vital commercial function by providing sellers and buyers with the ability to define the terms of their agreements with certainty prior to a transaction. Where the duty of a seller has traditionally been defined by contract, therefore, Moorman dictates that the theory of recovery should be limited to contract although recovery in tort would be available under traditional tort theories." Congregation of the Passion, Holy Cross Province v. Touche Ross & Co., 159 Ill.2d 137, 159-60, 201 Ill.Dec. 71, 636 N.E.2d 503 (1994).

In Anderson Electric, Inc. v. Ledbetter Erection Corp., 115 Ill.2d 146, 104 Ill.Dec. 689, 503 N.E.2d 246 (1986), this court applied the economic loss rule to claims that services were performed negligently. This court also held that "[a] plaintiff seeking to recover purely economic losses due to defeated expectations of a commercial bargain cannot recover in tort, regardless of the plaintiff's inability to recover under an action in contract." Anderson, 115 Ill.2d at 153, 104 Ill.Dec. 689, 503 N.E.2d 246.

In the present case, Fireman's does not dispute that its losses are purely economic. With this background in mind, we now address the issues presented for review.

I. Certified Question

Both Fireman's and Donohue urged the appellate court to modify the certified question on appeal. The certified question, previously quoted, asks whether a professional engineer who prepares plans and specifications for a construction project is "in the business of supplying information to others for the guidance of the recipient in its business dealings with third parties and liable in tort for negligent misrepresentations under Moorman." (Emphasis added.) The parties contend that the reference to "third parties" is erroneous. We agree with the appellate court that "with or without a third-party requirement, our answer to the certified question would be the same." 281 Ill.App.3d at 798, 217 Ill.Dec. 212, 666 N.E.2d 881. However, pursuant to our responsibility to maintain a sound and uniform body of precedent (Hux v. Raben, 38 Ill.2d 223, 224-25, 230 N.E.2d 831 (1967)), we will address this issue. See 134 Ill.2d R. 366(a)(5); Schrock v. Shoemaker, 159 Ill.2d 533, 537, 203 Ill.Dec. 787, 640 N.E.2d 937 (1994).

In Moorman, this court articulated three exceptions to the economic loss rule: (1) where the plaintiff sustained personal injury or property damage resulting from a tortious event, i.e., a sudden or dangerous occurrence (Moorman, 91 Ill.2d at 86, 61 Ill.Dec. 746, 435 N.E.2d 443); (2) where the plaintiff's damages are proximately caused by a defendant's intentional, false representation, i.e., fraud (Moorman, 91 Ill.2d at 88-89, 61 Ill.Dec. 746, 435 N.E.2d 443); and (3) where the plaintiff's damages are proximately caused by a negligent misrepresentation by a defendant in the business of supplying information for the guidance of others in their business transactions (Moorman, 91 Ill.2d at 89, 61 Ill.Dec. 746, 435 N.E.2d 443). See In re Chicago Flood Litigation, 176 Ill.2d 179, 199, 223 Ill.Dec. 532, 680 N.E.2d 265 (1997); In re Illinois Bell Switching Station Litigation, 161 Ill.2d at 240-41, 204 Ill.Dec. 216, 641 N.E.2d 440. In each of these three situations, the plaintiff may recover in tort against the defendant.

In several subsequent decisions, this court has discussed the Moorman exception of a negligent misrepresentation by a defendant in the business of supplying information for the guidance of others in their business transactions. This court has never included an additional requirement that those business transactions must be made specifically with third parties. See, e.g., 2314 Lincoln Park West Condominium Ass'n v. Mann, Gin, Ebel & Frazier, Ltd., 136 Ill.2d 302, 309, 144 Ill.Dec. 227, 555 N.E.2d 346 (1990); Anderson, 115 Ill.2d at 153-54, 104 Ill.Dec. 689, 503 N.E.2d 246.

However, several appellate court decisions refer to an additional third-party requirement. See N. Rifkind, Negligent Misrepresentation in Illinois: The Third Party (Non)requirement, 82 Ill.B.J. 668 (1994). Appellate court decisions that refer to an additional third-party requirement (e.g., Grass v. Homann, 130 Ill.App.3d 874, 878-79, 85...