Texas Court of Appeals Holds Property Owner’s Negligence Claim Against Design Professional Barred by Economic Loss Rule

Traub Lieberman Straus & Shrewsberry LLP | February 7, 2016

In A&H Properties Partnerships v. GPM Engineering [(2015) No. 03-13-00805-CV], the Texas Court of Appeals decided whether a property owner could maintain a direct action for negligence against a project designer hired by the general contractor, with whom it had no contract.  The Court of Appeals determined the property owner could not maintain such an action under the economic loss rule.

A&H Properties Partnership (A&H), the owner of a warehouse and office building, contracted Bell Industry, Inc. (Bell) to design and install energy-efficient improvements, including a geothermal loop. Bell contracted GPM Engineering (GPM), an engineering firm, to design the geothermal loop.  A&H did not have a contract with GPM.

After filing a lawsuit against Bell for fraud and breach of contract, which settled, A&H sued GPM for negligence, alleging GPM’s design of the geothermal loop caused financial loss. GPM filed a motion for summary judgment, arguing that the economic loss rule barred A&H’s negligence claim because A&H’s alleged injuries consisted only of economic loss associated with installation of the geothermal loop, which is the subject of the contract between GPM and Bell. The trial court granted the motion, and A&H appealed.

On appeal, A&H argued the trial court incorrectly applied the economic loss rule because A&H and GPM are contractual strangers, and GPM, as a design professional, owed independent statutory duties based on its profession. The Court of Appeals disagreed.

As the Court explained, in actions for negligence the economic loss rule limits the recovery of purely economic damages that are unaccompanied by injury to the plaintiff or its property. Indeed, the Court noted that the economic loss rule generally precludes recovery in tort for purely economic losses in actions for negligent performance of contractual services. When deciding whether the economic loss rule applies, the court must examine both the source of the defendant’s duty (considering whether the duty arose from contract or was imposed by law, independent of the contract) and the nature of the injury (considering whether the economic loss was only to the subject of a contract itself).  Where the only duty arises from contract, a breach will usually sound only in contract, not in tort.

In analyzing the source of GPM’s duty, the Court of Appeals found GPM, as a subcontractor, was performing services as part of the overall construction project based on its subcontract with Bell, the general contractor. GPM did not have a separate contract with A&H.  Thus, GPM’s duty to perform arose out of the subcontract, and no other duty or relationship between GPM and A&H.  In response, A&H argued Texas Civil Practice and Remedies Code, Section 150.002(a)-(b), requiring a certificate of merit and affidavit for maintenance of a lawsuit for negligence against a professional engineer would be rendered meaningless if the economic loss rule were applied where a contract existed for design services, as here.  The court disagreed, finding that application of the economic loss rule in this case would not except a plaintiff suing a professional engineer for personal injuries or property damages from complying with Section 150.002’s requirements, even if the professional provided services under a contract.

With regard to the nature of the injury…

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