Utah Appellate Court: Homeowners’ Claim for Defective Construction Against Geotechnical Engineer Dismissed Due to Lack of Contract and the Economic Loss Rule

Patrick Johnson | Construction Industry Counselor | July 8, 2019

A recent Utah Appellate Court upheld the dismissal of a homeowners’ claims against a geotechnical engineer because the homeowners did not have a contract with the geotechnical engineer and therefore their claims were barred by the economic loss rule. See Hayes v. Intermountain Geoenvironmental Services, Inc., 2019 UT App 112, 2019 WL 2621931.  In Utah, the economic loss rule only allows lawsuits for defective design or construction to be based on a breach of contract.  Such a claim cannot be brought under a general negligence or tort theory where there is no contract.  Many states have a similar, but often not identical, economic loss rule.

In this case, the plaintiff homeowners purchased land from a developer and constructed a home.   The defendant geotechnical engineer prepared a report for the developer  concluding that the parcel of land was stable and suitable for development.  Fourteen months after construction had concluded, cracks were observed in the foundation of the home and the home began to settle rendering it unlivable.  Because the homeowners did not have a contract with the geotechnical engineer, they could not file a breach of contract claim against the geotechnical engineer. As a result, the homeowners tried to bring a claim under a general negligence theory against the geotechnical engineer for their damages.  The trial court and appellate court agreed that the homeowners were barred from asserting a negligence claim due to the economic loss rule. 

This case serves as a reminder that, in many states, recovery of purely economic losses based on theories of tort are generally not recoverable. Developers and parties to a construction project should  document their agreements in writing.  Likewise, a purchaser of a construction project should receive assignments of the developer’s and/or seller’s written contracts with third-parties involved in the development.   

Utah’s Portable Classrooms Put Kids at Risk, Engineering Experts Say

Benjamin Wood | Salt Lake Tribune | January 24, 2018

Civil engineering and architectural groups urge tougher building standards on 100s of units, saying Utah lacks clear rules for anchoring modular classrooms to the ground, potentially putting thousands of students in danger.

Each school day, tens of thousands of Utah children make their way into stand-alone classrooms a stone’s throw from the main campus buildings where their peers study.

Commonly known as “portables,” these modular structures occasionally get moved around, or they remain in place for decades as a low-cost alternative to constructing newer and bigger schools to relieve overcrowding.

But what, beyond gravity, secures these buildings to the ground?

That question lacks a clear answer in Utah, with a decentralized network of boards for 132 school districts and 127 charter schools in charge of overseeing structural planning.

And while most of the hundreds of portable school buildings in use in Utah are similar in construction, minimum architectural and engineering requirements that cover them are loosely defined, beyond rules that seismic and soil conditions where they are located be studied.

“They’re not required to be on a permanent foundation,” said Natalie Grange, an assistant state superintendent for the Utah Board of Education. “When they’re installed, they are hooked to the ground in some way that satisfies safety and seismic requirements.”

On Wednesday, leaders of Utah civil and structural engineering groups issued a joint statement urging new, more stringent standards on modular buildings, including portable classrooms and offices.

(Trent Nelson | Tribune file photo) Students at recess at Butterfield Canyon Elementary in Herriman, which has 14 portable classrooms. On Wednesday, several Utah civil and architectural engineering groups called for more stringent building standards on the hundreds of portable classrooms in use across the state, saying current rules may be putting students at risk.
(Trent Nelson | Tribune file photo) Students at recess at Butterfield Canyon Elementary in Herriman, which has 14 portable classrooms. On Wednesday, several Utah civil and architectural engineering groups called for more stringent building standards on the hundreds of portable classrooms in use across the state, saying current rules may be putting students at risk.

When these modulars are used for more than 180 days — virtually all portable classrooms in Utah are used beyond that timeline — they should be considered “permanent” structures and subject to more rigorous structural codes, the professional groups said.

“Unanchored and/or unbraced structures intended for occupancy do not meet the provisions of the building code and present a risk to the health and safety of the occupants,” said the statement.

Issued Wednesday, the statement is signed by Anthony Schmid, president of the American Society of Civil Engineers Utah Section; Conrad Guymon, chairman of the Utah Section’s Structural Engineering Institute; and Troy Dye, president of the Structural Engineers Association of Utah.

Matt Roblez, a past president of the the American Society of Civil Engineers Utah Section, said he became concerned about the regulatory ambiguity surrounding construction of portables after inspecting a series of modular units intended for use at Utah schools.

Building codes did not appear to be enforced, Roblez said, but unlike some states, Utah does not have clearly defined requirements or guidance for prefabricated classrooms.

“At the minimum, Utah schools should adhere to the code more strictly by securing portable classrooms to the ground with use of a permanent footing and foundational system,” Roblez said. “Until this code can be properly enforced, Utah should write an adopted standard for schools to follow.”

Supply and demand

Salt Lake County’s five school districts operate a combined 604 portable classrooms, according to district spokespeople. The numbers range from a high of 250 portables in the fast-growing Jordan School District to six portables in the comparably small Murray City School District.

Utah’s two largest school districts, Alpine and Davis, operate 363 and 347 portable classrooms, respectively.

The state’s average student-to-teacher ratio is 21.8, according to the most recent data from the state Board of Education. By that math, portable classrooms in north-Utah County, Davis County and Salt Lake County house roughly 30,000 children.

Davis School District spokesman Chris Williams described the modular units as a necessary evil. School construction often lags behind swings in student population trends, and modular classrooms allow districts to adjust more quickly to those trends.

When the Davis district last sought voter approval for a bond, written materials on the measure noted that if all the district’s portables were stacked vertically, they would form the tallest building on Earth.

“We wish we could get away from them, but as you see from the numbers, 347 of them, we use them quite a bit,” Williams said. “We definitely make sure that it’s safe for people to occupy them.”

For its portables, Davis relies on a typical system of placing the buildings on rails and tying them to bars that extend 2 to 3 feet into the soil beneath. That setup, Williams said, allows portables to absorb wind or seismic activity without sustaining damage.

In case of a major disaster, classrooms anchored in this way might be shaken off their base rails, Williams said, but would likely remain otherwise intact.

“They’re made so that they can kind of sway back and forth,” he said. “If they fall, they’re going to fall a few feet.”

He said Davis School District’s portables are all on top of soil, without a foundation or hard surface beneath them.

“Our portables are placed on the grass or on dirt,” Williams said. “We do not lay a cement pad down or asphalt to go underneath them.”

Roblez said Davis School District’s approach — while typical for districts across the state — fall short of safety standards.

“Ground stakes, the tool that many modular units use for stability, do not meet the provisions of the current code for permanent foundations,” he said. “Per the code for a permanent structure, buildings require a footing and foundational system that is required to withstand gravity loads, wind and seismic events and be placed at frost depth.”

Quick fix for overcrowding

In Granite School District, all portables installed within the past six years have been placed on hard surfaces, spokesman Ben Horsley said.

“It’s more secure, clearly, having it on concrete or asphalt,” Horsley said. “You will find some [on soil], even within Granite District. That’s not to say they’re not safe and secure.”

Like portables in the Davis district, Granite’s classrooms are tied to pairs of stakes that extend into the ground. The district has also moved to using steel frames, instead of wood, over the past decade and bolts the portables’ base siding into the asphalt or concrete beneath them, adding an extra level of anchoring, according to Steve Hogan, the district’s director of planning and boundaries.

Hogan said the district chooses flat areas to place portables — to avoid issues such as rain erosion or shifting soil — and keeps the buildings as low to the ground as possible for accessibility and to lessen the distance a building would drop if it fell off its footings.

(Trent Nelson | The Salt Lake Tribune) The footing under a portable classroom at Stansbury Elementary in West Valley City, Friday December 8, 2017.
(Trent Nelson | The Salt Lake Tribune) The footing under a portable classroom at Stansbury Elementary in West Valley City, Friday December 8, 2017.

Because building codes for portable classrooms are not spelled out in detail, Horsley said the district looks to residential mobile homes as a standard for its modular buildings. He declined to comment on the design and anchoring of other districts’ portables, but noted that he’s unaware of any safety incident in Utah related to the structural integrity of modular buildings.

“We’ve tried to go above and beyond what those [mobile home] requirements are,” Horsley said. “I think we’re about as prepared as we can be and we’ll continue to upgrade. If we see other logical, reasonable ways that we can make these safe, we’re happy to look into that.”

Ross Wentworth, an architect with the Salt Lake City-based firm Naylor Wentworth Lund, has designed portable classrooms for several school districts, most recently Jordan School District.

Wentworth said most districts use a standard design plan for modular buildings, which is then tailored to specific conditions. And because portables are lightweight, detached from and typically newer than other district structures, Wentworth said they’re preferable to other buildings children could find themselves in during an earthquake.

“If I had to choose a place for a son or daughter to be, with respect to seismic activity, it would be in a relocatable,” he said.

(Trent Nelson | The Salt Lake Tribune) Portable classrooms at Stansbury Elementary in West Valley City, Friday December 8, 2017.
(Trent Nelson | The Salt Lake Tribune) Portable classrooms at Stansbury Elementary in West Valley City, Friday December 8, 2017.

Jenefer Youngfield, school construction and safety specialist for the state Board of Education, also referred to residential mobile-home design standards as a guide for the structural requirements of portable classrooms. Like mobile homes, she said, portables do not need be secured to a fixed foundation — unless the designing architect decides that site conditions require it.

Building plans for portable classrooms must approved by a certified examiner, she noted, and public concerns regarding safety can be submitted to the state Board of Education for review.

“The long and short of it,” Youngfield said, “is it’s up to the architect or engineer.”

‘Good, durable facilities’

Wentworth said if there is a regulatory gap in standards for portables, it rests with how they are connected to the ground. Like Williams and Horsley, the school architect speculated that a worst-case scenario could shake these classrooms loose of their footings, causing them to fall 1 or 2 feet to the ground.

But Wentworth emphasized that the structures remain safe when adequate attention goes into their design and installation. And while many spend their useful life at a single location, the buildings are built to be moved, he said, helping administrators respond to shifting enrollment.

“Our experience is that they’ve been pretty good, durable facilities,” Wentworth said. “They certainly solve a unique problem for the number of students we deal with in Utah.”

But Roblez said the lack of clear regulations and minimum standards is only adding to the potential for structural damage.

He urged that more be done to mitigate the risks, with sufficient foundations being the first line of defense against earthquakes and major weather events. Roblez also called for wider public awareness on the issue.

“Parents should ask questions of school facilities managers to understand how schools are adhering to the building code,” he said.

Horsley said Granite School District welcomes feedback from community groups on structural safety, acknowledging that modular classrooms are “the next best option” to a traditional schoolhouse.

“Our preference,” he said, “would obviously be a seismically sound, permanent facility.”

Understanding the Details: Suing Architects and Engineers Can Get Technical

Steven M. Cvitanovic | Haight Brown & Bonesteel | October 27, 2017

Before suing an architect or engineer for professional negligence, a plaintiff must obtain a “certificate of merit” (“Certificate”) under Code of Civil Procedure section 411.35. Boiled down to the basics, the Certificate declares that the attorney consulted with and received an opinion from an expert that a reasonable and meritorious case exists against said design professional. The Certificate must be filed before serving the complaint on any defendant, but can be filed within 60 days under certain circumstances. This rule was recently analyzed against another long-standing rule in California, known as the “relation-back doctrine.” Under the relation-back doctrine, a court will deem a later-filed pleading, such as an amended complaint, to be deemed filed at the time of an earlier complaint.

In Curtis Engineering Corp. v. Superior Court of San Diego County, No. D072046, (Cal. Ct. App. 10/23/17), the Fourth Appellate Court considered the interplay between section 411.35 and the relation-back doctrine, holding that a Certificate filed more than 60 days after filing the original pleading does not relate back to the filing of the original pleading.

On May 5, 2014, Plaintiff George R. Sutherland (“Sutherland”), a crane operator, was injured when his crane tipped over. On May 3, 2016, Sutherland filed his complaint for negligence against Curtis Engineering Corporation (“Curtis”), a provider of engineering services. Sutherland’s original complaint did not include a Certificate. On December 1, 2016, Sutherland filed and served a first amended complaint which included a Certificate. The only change to the amended complaint was the addition of two paragraphs stating that: (1) a Certificate is attached as an exhibit and incorporated by reference; and (2) a claim was sent to the defendant Oregon State University.

Curtis demurred to the amended complaint, arguing, among other things, that Sutherland failed to file the required Certificate within the two-year statute of limitations time period. The trial court overruled the demurrer. Curtis filed a petition seeking an immediate stay of all proceedings and a peremptory writ of mandate directing the trial court to set aside and vacate its order overruling the demurrer and to enter a new order sustaining the demurrer.

On appeal, the Fourth Appellate District parsed the plain language of section 411.35 to determine whether Sutherland’s failure to timely file the Certificate mandated by section 411.35 required the demurrer to be sustained as a matter of law. In rejecting Sutherland’s argument that the relation-back doctrine should apply, the Court of Appeal determined that permitting the relation-back doctrine to apply in this situation would render meaningless the statutory requirement that the Certificate be filed on or before the date of service or within 60 days in some circumstances. The Court of Appeal found that permitting the relation-back doctrine to apply, would render section 411.35 meaningless, a result the Legislature likely did not intend.

This opinion is important for parties considering legal actions against design professionals because it makes clear that the relation-back doctrine does not permit an end-run around the requirements of section 411.35. The moral of the story is that claims covered by section 411.35 require utmost diligence at the front end and cannot be saved by a late-filed Certificate.

This document is intended to provide you with information about construction law related developments. The contents of this document are not intended to provide specific legal advice.  This communication may be considered advertising in some jurisdictions.

“Professional Best Efforts” Part 2– Reservation of Rights for Engineers who Agree to “Best” Efforts?

Melissa Dewey Brumback | Construction Law in North Carolina | April 13, 2017

Recently, a reader reached out to me to ask about case examples of an engineer losing his insurance coverage because he agreed to a “heightened” or “best” standard of care. The reader stated that he was an insurance adviser who handled various construction professional coverages, and that in his experience it was very unusual to deny or limit damages because of a heightened standard of care.

This comment led me to an informal survey of several insurance brokers that I deal with, and the general consensus is that instead of outright denying a claim, most E&O insurers will issue a “reservation of rights” letter. What that means is that the insurance company will defend the claim (i.e., pay for your lawyer to defend you and your Firm), but with the understanding that they are (potentially) denying any liability for any adverse money judgment against you.

Inevitably, most such cases settle, but if they do not, the question then is whether the heightened duty created part of the damages. The insurer may ask to intervene in the lawsuit to ask the jury that question, in an effort to limit its share of the damages.

The reader commented that he could see two related insurance limitations: (1) where the professional agreed to be liable, and (2) where the professional refused to consent to settle a claim. In such cases, many policies contain a “hammer clause” which limits the insurer’s liability and defense costs to that which would have resulted had the insured accepted the settlement.

While these are interesting fact situations to the insurance and/or law geeks among us, for those of you who would rather spend your days designing and engineering instead of in court,  the best practice still remains the same:  avoid agreeing to the highest professional standards. Being the “test case” for a novel legal issue is not in your best interest.

 

 

Dear Engineer: Has your Insurer Issued a “Reservation of Rights” Letter?

Melissa Dewey Brumback | Construction Law in North Carolina | April 17, 2017

In my previous post, I made reference to getting a  “Reservation of Rights” letter.   I noted that the carrier may decide to defend you under a Reservation of Rights (i.e., hire your lawyer) but may not, necessarily, accept the responsibility for paying the claim.  Does this mean that the insurance company has denied your claim, or will never pay?  No.

Reservation of Rights (ROR) letters are sent for a variety of reasons- most notably, when some portion of the construction lawsuit against you is not covered under your E&O policy.  The letter must state the reason(s) that the ROR is being issued.

With the ROR, the insurance company is telling you that it reserves the right to withdraw from your defense and/or deny payment of damages at a later date, depending upon how facts in the case develop.  The notice is intended to let you know that there *may* be issues later, and to put you notice that  you have the right to hire your own lawyer (at your own expense) to protect yourself from that future potential risk.

How should you react to getting a ROR letter?  You should review it with your own lawyer, and consider retaining your lawyer to work with the lawyer the insurance carrier retains to protect your rights.

Is this required?  No.  Your insurance-retained lawyer still owes you the duty to protect your interests.  If the insurance company decides to later withdraw from defense, or seek a court ruling that they do not owe you a defense, your insurance-provided lawyer cannot represent the insurance company against you.  The insurance company would need to hire a different lawyer/law firm to make that argument.

It is never pleasant to get a ROR letter, but it is not unusual, depending on the particular facts in your case.  And it doesn’t mean that you won’t have a vigorous defense, or that the insurance-retained lawyer is not working for you.  They are, and they will.  However, it is never bad advise to have your own personal lawyer weigh in on the ROR letter and its ramifications for your Firm.

Have you ever gotten a ROR letter from your insurance carrier?  If so, share in the comment section, below.  And, be sure to get your White Paper on 7 Critical Mistakes that Architects & Engineers make, by filling out the form on the right hand side of the blog page.