Design professionals doing business in Kentucky beware: the Kentucky Court of Appeals recently held that a contractor may pursue a negligent misrepresentation claim against an architect for delays to a project resulting from allegedly defective plans and specifications. The Court permitted the contractor’s tort claim despite the absence of a contractual agreement between the parties and the fact that the contractor signed documents that waived its claims.
The case, D.W. Wilburn, Inc. v. K. Norman Berry Assocs., Architects, PLLC, No. 2015-CA-001254-MR, 2016 WL 7405774 (Ky. Ct. App. Dec. 22, 2016), involved construction work on a school owned by the Oldham County Board of Education (“the Board”). The Board hired D.W. Wilburn, Inc. (“Wilburn”) as the general contractor and K. Norman Berry Associates (“KNBA”) as the architect on the project. Throughout the course of the project, Wilburn executed 21 change orders that contained waiver and release language. Wilburn submitted a final payment application and signed closeout forms that also contained waiver language.
At the conclusion of the project, Wilburn’s electrical subcontractor brought a claim against Wilburn for delay to the project. In turn, Wilburn sued KNBA under a negligent misrepresentation theory, alleging that the project’s delay was caused by KNBA’s failure to properly prepare plans and specifications.
KNBA sought to have Wilburn’s claim dismissed, arguing that: (1) there was no contract between Wilburn and KNBA that would give rise to a claim; (2) Wilburn’s claims were barred by the economic loss rule, and; (3) waiver language in the change orders and final payment application barred Wilburn from asserting its claims against KNBA. The Circuit Court agreed with KNBA, and Wilburn appealed.
In addressing KNBA’s lack of contract argument, the Court of Appeals found that KNBA owed a duty to Wilburn independent of Wilburn’s contract with the Board. Therefore, Wilburn could maintain a claim that KNBA breached that duty by negligently issuing allegedly defective plans and specifications.
The Court likewise rejected KNBA’s reliance on the economic loss rule, which historically operates to prevent a party from seeking to recover under a tort claim for purely economic damages that should be recovered in a contract claim. In doing so, the Court reasoned that it is the very purpose of the claim to compensate for purely economic losses when there is no contractual remedy available but there is a breach of duty.
Finally, with respect to KNBA’s waiver argument, the Court held that the waivers executed by Wilburn released only claims against the Board and not against KNBA. The Court found that KNBA was not a party to the general contract, that the change orders themselves did not create a contractual relationship between KNBA and Wilburn, and that nothing in the change orders or final payment application waived or released a negligent misrepresentation claim against KNBA.
The Court of Appeals, therefore, reversed the lower court’s dismissal of Wilburn’s claim against KBNA and remanded the case for further proceedings. We will continue to track this case and its application in future cases. For now, the Court’s decision confirms that contractors can bring claims against design professionals for negligent misrepresentation notwithstanding the lack of a contractual agreement.
Lori Wisniewski Azzara is a Partner at Cohen Seglias and Co-Editor of Construction Law Now. She practices in the areas of construction and commercial litigation and has experience in contract negotiation, claims for delay and inefficiency, mechanics’ liens, and all types of contractual dispute.
James P. McGraw is an Associate in the Firm’s Pittsburgh office. Jim counsels clients on a variety of construction-related issues with an emphasis on projects involving public entities.