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Ever since the establishment of California's judicial system in 1850, it has been the law in this state that an architect owes a legal duty to any party with whom he or she is in contract. However, despite the passage of more than century and a half, California law is still unclear on the questions of (1) whether architects owe legal duties to non-contracting parties and under what circumstances; (2) which precise duties are owed; and (3) to whom. A recent series of cases from the California courts of appeal have attempted to clarify the landscape in this area, but many questions remain unanswered. This article will briefly review some of the significant decisions reported in this area over the past few years and will offer a few suggested legal protections for architects given the uncertainty of the law at the present time.
Ratcliff Architects v. Vanir Construction Management, Inc.
Although the Ratcliff decision addressed the question of whether an architect not in contract with a construction manager could sue the CM for indemnification, the reasoning in this case is equally applicable if the parties' roles are reversed. In Ratcliff, a school district retained an architect and a construction manager for a school construction project. The district and the CM executed a contract providing for the manager's indemnification of the district and its agents for economic loss arising from the project.
The district subsequently brought an action against the architect and the CM arising from cost overruns on the project. The CM settled with the district and the court found that the settlement was made in "good faith" thus shielding the CM from further indemnity claims not based upon contract. After the architect attempted to cross-complain against the CM, the CM successfully moved to dismiss.
On appeal, the court affirmed the trial court's decision. The court began by explaining that the district's contract with the CM did not provide the architect with any indemnification rights since it was not a "third party beneficiary" to this agreement. As for the architect's non contract-based claims, the court held that the CM owed no legal duty to the architect but that its duties were owed solely to the district thus barring any negligence liability on the part of the CM. Further, to the extent that the architect's claims were indemnity-based, they were independently barred by the "good faith" settlement determination.
BFGC Architects Planners, Inc. v. Forcum/Mackey Construction, Inc.
BFGC also involved an indemnity claim by, as opposed to against, an architect. However, as in Ratcliff, the court's holding will be applicable to indemnity claims against architects. In BFGC a school district entered into a contract with an architect to design and supervise the construction of a high school. The district entered into separate contracts with general contractors for the site phase and construction phase. Ultimately, the district sued the architect for breach of contract and professional negligence arising from delay costs claimed by one of the general contractors due to alleged design defects. The architect then sued the general contractors on negligence and indemnity theories.
The trial court's dismissal of the architect's action was affirmed on appeal. With regard to the architect's indemnity claims, the court decided that absent some wrongful act beyond a mere a breach of the contractor's agreement with the owner, the architect and the contractor would not be considered jointly liable and thus had no indemnity rights against one another. (The negligence claim had been dismissed at the trial court level on the ground that since only economic injuries were alleged, no duty existed on the part of the contractor towards the architect)1.
Weseloh v. K.L. Wessel Construction
In this recent decision, an engineering firm was able to secure dismissal of a general contractor's indemnity claim based on the absence of a contractual relationship between the parties. The facts of Weseloh are as follows. The plaintiff property owner retained a general contractor to construct an auto dealership. The GC in turn hired a subcontractor (Sierra Pacific) to build retaining walls for the project. Defendant engineer Charles Randle, an employee of Owen Engineering, was hired by Sierra to design the retaining walls and to perform a limited inspection of the walls following construction.
After a portion of a retaining wall failed, the owner filed suit against several parties, including Randle, Owen, Sierra and the general contractor. For its part, the general contractor filed a cross-complaint against Randle and Owen which contained claims for professional negligence and indemnity. Eventually Randle and Owen filed successful motions to dismiss the claims against them on the ground that they were not involved with physically constructing the walls and had no contractual relationship with either the owner or general contractor.
On appeal, in a highly fact-specific decision, the court upheld the trial court's dismissal and concluded that, in the absence of a contractual relationship, a party seeking to recover from a design engineer must set forth sufficient facts to establish the existence of a duty of care on the engineer's part.
Here, the court found it significant that the engineer had only rendered professional design services on behalf of the retaining wall subcontractor and did not actually participate in the actual construction of the walls. Further, insufficient evidence existed which would have established a connection between the design defects and any resulting damage in the retaining wall. For these and other related reasons, the court concluded that, for reasons of public policy, the engineer did not owe any duty of care to either the owner or general contractor with whom it was not in contract.
Discussion
Although the trio of cases discussed above are fact-specific in nature and leave a number of questions unanswered, a few conclusions can be derived from their holdings which will help limit an architect's potential liability to non-contracting parties.
- Architects should attempt to ensure that their contracts clearly spell out the scope of their responsibilities and associated limitations on their scope of work. Language should also be inserted negating the rights of any purported "third party beneficiaries" under the agreement2 and restricting any assignments of the contract rights to third parties.
- Architects should also make every effort to direct their project-related communications through the proper channels to avoid the potential of undertaking or creating legal duties to any non-contracting parties.
- Any reports, written inspections, certifications, etc. prepared by architects should be clearly addressed to the appropriate recipients and should contain language providing that no other person or entity is entitled to rely on such documentation.
- Indemnity language from the architect should be as restrictive as possible so as to avoid creating responsibilities to third parties. Conversely, architects (especially those acting in a prime capacity) should ensure that their sub consultants' and sub-sub consultants' agreements contain indemnity and third-party beneficiary provisions in favor of the architect.
- Although not discussed in the cases referenced above, it is always worth remembering that properly worded limitation of liability clauses are valid and enforceable in California and can materially reduce the amount of risk taken on by an architect, especially in instances involving the performance of limited services.
In conclusion, liability to non-contracting parties in the context of construction litigation is certain to remain a rapidly evolving area, and the last word on this subject has surely not yet been written. Be sure to look for future updates in this publication.
1 One significant legal issue which the courts have yet to clarify involves the question of if and to what extent indemnity obligations, joint liability and the duty of care depend upon whether the underlying claims involve strictly economic losses as opposed to property damage/personal injury.
2 One suggested clause to this effect reads as follows:
Nothing contained in this agreement shall create a contractual relationship with or a cause of action in favor of a third party against the Architect. The Architect's services under this Agreement are being performed solely for the Client's benefit, and no other party or entity shall have any claim against the Architect because of this Agreement or the performance or nonperformance of services hereunder. The Client and Architect agree to require a similar provision in all contracts with contractors, subcontractors, subconsultants, vendors and other entities involved in this Project to carry out the intent of this provision.
The information contained in this article is general in nature and for informational purposes only, and should not be construed as legal advice or legal opinion on specific facts or circumstances nor as a solicitation of legal business. Please contact an attorney should you require specific legal advice of any kind or nature.
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