Ind.Polis-marion County Pub. Library v. Linard

• Decision Date: 29 June 2010
• Docket Number: No. 06S05-0907-CV-332.,06S05-0907-CV-332.
• Citation: 929 N.E.2d 722
• Parties: INDIANAPOLIS-MARION COUNTY PUBLIC LIBRARY, Appellant (Plaintiff below),v.CHARLIER CLARK & LINARD, P.C., Thornton Tomasetti Engineers and Joseph G. Burns, Appellees (Defendants below).
• Court: Indiana Supreme Court

929 N.E.2d 722

INDIANAPOLIS-MARION COUNTY PUBLIC LIBRARY, Appellant (Plaintiff below),v.CHARLIER CLARK & LINARD, P.C., Thornton Tomasetti Engineers and Joseph G. Burns, Appellees (Defendants below).

No. 06S05-0907-CV-332.

Supreme Court of Indiana.

June 29, 2010.

COPYRIGHT MATERIAL OMITTED

Gregory F. Hahn, Robert S. Daniels, Charles R. Whybrew, Kevin M. Quinn, Indianapolis, IN, Attorneys for Appellant.

Thomas D. Collignon, Patrick J. Dietrick, Indianapolis, IN, Attorneys for Appellee, Charlier Clark & Linard, P.C.

Gerard L. Gregerson, Karl L. Mulvaney, Brad A. Wilt, Indianapolis, IN Timothy R. Moorhead, Lana L. Dean, Orlando, FL, Attorneys for Appellees, Thornton Tomasetti Engineers and Joseph G. Burns.

Gregory P. Cafouros, Andrew R. Falk, Indianapolis, IN, Attorneys for Amicus Curiae, American Council of Engineering Companies.

On Petition to Transfer from the Indiana Court of Appeals, No. 06A05-0804-CV-239

SULLIVAN, Justice.

The Indianapolis-Marion County Public Library (“Library”) seeks to hold two subcontractors and an engineer responsible for negligence in rendering their respective services during the renovation and expansion of its downtown Indianapolis library facility. In accord with the analysis of the trial court and Court of Appeals, we affirm the trial court's dismissal of the Library's claims of negligence against the defendants. Primarily because the Library is connected with the defendants through a network or chain of contracts in which the parties allocated their respective risks, duties, and remedies, those contracts, and not negligence law, govern the outcome of the Library's claims.

Background

The Library hired Woollen Molzan and Partners, Inc. (“WMP”) to serve as the architect for the renovation and expansion of many structures contained in the Library's downtown Indianapolis facility, including its parking garage. WMP then subcontracted with Thornton Tomasetti Engineers (“TTE”) and Charlier Clark and Linard, P.C. (“CCL”) to perform architectural and engineering services. Joseph G. Burns (“Burns”), a managing principal of TTE, served as “engineer of record” for the library project. Specifically, TTE performed structural engineering services and CCL administered various services for the project including reviewing and inspecting the construction plans and construction progress to determine if construction was in general compliance with the construction documents. The Library never contracted directly with TTE, CCL, or Burns for any services during the renovation and expansion project, but each was a party to one or more contracts with WMP or other entities involved in the project.¹ We will refer to TTE, CCL, and Burns collectively as the “Defendants” in this opinion.

According to the Library, after construction of the project had progressed significantly, it became concerned about the structural integrity of the accompanying parking garage, which was to serve as the foundation for the rest of the library structure. The Library hired an expert who confirmed that there were several construction and design defects in the Library parking garage. The expert advised that the garage would be at serious risk for structural failure if construction were to continue. The Library suspended construction and took steps to mitigate the effects of the negligent design. The Library maintains that curing the defects and their effects caused it to sustain damages of approximately $40 to $50 million, as follows:

(1) costs for materials and equipment related to repair work;

(2) costs of labor for construction repairs (3) sums dedicated to the settlement of numerous delay claims caused by the sixteen month suspension of construction;

(4) architect and engineering fees incurred as a result of the repair process;

(5) fees incurred as a result of expert analysis;

(6) imposition of additional general conditions;

(7) increased insurance premiums;

(8) cost of utilities;

(9) protracted rental fees for the interim Central Library; and

(10) costs associated with obtaining additional public funding.

(Appellant's Br. at 22-23.)

The Library brought a lawsuit against WMP, TTE, Burns, CCL, and Shook, LLC (the general contractor), an insurance company, and other contractors working on the project alleging negligent failure to perform engineering, administrative, and design work in a skillful, careful, workmanlike manner along with breach of contract claims with the parties with whom the Library had a contractual relationship. The Library sought to recover damages for repair costs, project delay settlements, expert fees, utilities, rental fees, increased insurance premiums, and costs associated with seeking additional public funding. The Library eventually settled with WMP and Shook, the two parties with whom it had a contractual relationship, for an undisclosed amount.

The Defendants then moved for partial summary judgment, arguing that the negligence claims against them were barred by the so-called “economic loss rule.” The trial court agreed and granted the Defendants' motions for partial summary judgment. The Court of Appeals affirmed Indianapolis-Marion County Public Library v. Charlier Clark & Linard, P.C., 900 N.E.2d 801 (Ind.Ct.App.2009). Judge Brown dissented as to one Defendant, believing that partial summary judgment should not have been entered in favor of TTE. Id. at 817-19 (Brown, J., dissenting). The Library sought, and we granted, transfer, thereby vacating the opinion of the Court Appeals. Ind. Appellate Rule 58(A).

Discussion

Under long-standing Indiana law, a defendant is liable to a plaintiff for the tort of negligence if (1) the defendant has a duty to conform its conduct to a standard of care arising from its relationship with the plaintiff, (2) the defendant failed to conform its conduct to that standard of care, and (3) an injury to the plaintiff was proximately caused by the breach. Estate of Heck ex rel. Heck v. Stoffer, 786 N.E.2d 265, 268 (Ind.2003).² Consistent with this principle, where the injury to the plaintiff is from a defective product or service (as the Library alleges here), the defendant is liable under a tort theory if the defect causes personal injury or damage to property other than the product or service itself. Gunkel v. Renovations, Inc., 822 N.E.2d 150, 153 (Ind.2005).³ However, Indiana cases go on to hold that the defendant is not liable under a tort theory for any purely economic loss caused by its negligence (including, in the case of a defective product or service, damage to the product or service itself). Id.⁴ This rule precluding tort liability for purely economic loss-that is, pecuniary loss unaccompanied by any property damage or personal injury (other than damage to the product or service itself)-has become known as the “economic loss rule” and its applicability is the central issue in this appeal.

In this opinion, we will first examine the history of the economic loss rule in Indiana and its rationale. We will then turn to the Library's contentions that the economic loss rule does not apply in this case because the Defendants' alleged negligence caused (A) damage to what is called in this context “other property” and (B) imminent risk of personal injury. Third, we will address the Library's policy arguments that the economic loss rule should not be applied here because (A) the Defendants are professionals, (B) they allegedly negligently misrepresented facts to the Library, and (C) they provided solely services and not tangible products.

I

A

A recent project of the American Law Institute (“ALI”) focusing on the economic loss rule has produced some detailed and highly illuminating materials on this subject.⁵ In discussing the history of the rule, Professor Mark P. Gergen of the University of Texas School of Law, the project's reporter, wrote that the “economic loss rule emerged alongside the modern negligence action” as courts wrestled with whether plaintiffs could bring “negligence claims for solely pecuniary harm.” Restatement (Third) of Economic Torts and Related Wrongs § 8, Reporter's Note a (Council Draft No. 2, 2007) [hereinafter Gergen Restatement Draft ⁶].

Gergen Restatement Draft § 8, cmt. a, reports that explicit references to the “economic loss rule” began to appear in case law in the early 1980s. Consistent with this trend, the first decision under Indiana law holding that a defendant could not be held liable under a tort theory for any purely economic loss caused by its negligence came in 1984. A plaintiff had sought to recover lost profits allegedly caused when it was unable to use in its business defective trucks manufactured by defendant. Sanco, Inc. v. Ford Motor Co., 579 F.Supp. 893 (S.D.Ind.1984) aff'd, 771 F.2d 1081 (7th Cir.1985). Judge Dillin concluded that Indiana would not permit the recovery of economic loss in a negligence action. Id. at 896-99.

Soon thereafter, the Court of Appeals followed suit in a decision written by Judge Robertson. The plaintiff in Prairie Production, Inc. v. Agchem Division-Pennwalt Corp. had sought damages for lost profits allegedly caused by the defendant's negligence in manufacturing a pesticide that had failed to protect the plaintiff's crop from infestation. 514 N.E.2d 1299, 1304 (Ind.Ct.App.1987). Employing an analysis similar to Sanco, the court held that a plaintiff could not recover economic losses in the form of lost profits when the alleged economic loss flows from the failure of a product to perform as expected. Id. at 1304.

In two decisions-one responding to a negligence claim and the other to a products liability claim-written by Justice Krahulik, this Court recognized the economic loss rule as well. In Martin Rispens & Son v. Hall Farms, Inc., the plaintiff's negligence claim alleged defendant had marketed infected seeds that failed to perform as expected, leaving plaintiff with a damaged crop that resulted in lost profits. 621 N.E.2d 1078 (Ind.1993). Citing Prairie Production, we held that “[t]he general rule in...