THEORIES OF LIABILITY
AGAINST DESIGN PROFESSIONALS
Cynthia A. Holub, Esq.
PORTER & HEDGES, L.L.P.
1000 Main Street, 36th Floor
Houston, Texas 77002
713-226-6607
cholub@porterhedges.com
THEORIES OF LIABILITY AGAINST DESIGN
PROFESSIONALS
I.
INTRODUCTION
Dealing with the threat of litigation has become a major distraction for design
professionals. Design professionals must appreciate the boundaries of professional liability;
boundaries that if taken into account while performing services might have avoided the claims,
or at least might have minimized their effect.
Design professionals must understand the legal basis for claims that may apply to them
and the likely sources of this liability, in order to avoid or minimize an environment that fosters
claims.
We will discuss the basic elements of the most common legal theories found in claims
against design professionals that a claimant must establish with admissible proof. Some of the
causes of action discussed include:

Breach of contract

Negligence

Breach of warranty
These and other causes of action are then explored in terms of who may, and may not, properly
assert them against design professionals. Defenses will also be discussed. Design professionals,
being part of the “time learned professions,” can take advantage of certain special laws.
This paper also discusses exceptions to, and periodic changes in, the ability to sue design
professionals, or “Disturbances in the Force.” The concepts discussed include:

Enforceability of certain indemnities

Implied warranties

Claims under the Texas Deceptive Trade-Deceptive Practices Act (DTPA)

Site Safety

Proof of the Standard of Care
II.
A.
COMMON CLAIMS AGAINST DESIGN PROFESSIONALS AND THEIR
REQUIRED ELEMENTS OF PROOF
Claims against Design Professionals are Governed by a Distinct Body
of Law.
A distinct body of law governs the services of design professionals because they are
considered “true professionals” (sometimes called “learned professionals”). Despite the broad
application of the term “professional” in common parlance, the law recognizes only a handful of
“true” or “learned” professions: (1) physicians, (2) lawyers, (3) architects and engineers, and (4)
accountants. These true professions are characterized by higher educational requirements for
their members, governmental regulation of minimum practice standards, and continuing
education requirements.
Another critical distinction from other bodies of law is in what a professional provides:
services with the goal of achieving a desired result, but not a guaranteed result. For example,
most understand the reliance placed upon a physician to evaluate an illness and prescribe the
correct treatment, but a physician cannot guarantee anyone he will be cured.
Similarly,
architects and engineers must provide competent and accurately documented design solutions,
although they lack the control necessary to guarantee that a building of particular qualities will,
in fact, be properly built.1
The distinct body of law governing design (and other “learned”) professionals recognizes
these realities, and thus, focuses on: (1) whether or not the professional provided the services
promised, and (2) the quality of the professional’s services, rather than a certain outcome
1
Design (and other true or learned) professionals are certainly allowed to, and frequently do, give express
warranties about the outcome of their services, and will be held accountable for them. The point is, though, that
these professionals lack the control necessary to assure that they can guarantee the outcome of their services. This
concept is discussed in more detail below.
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resulting from these services. For example, the “standard of care” is the standard against which
the quality of professional services at issue will be judged when the services are alleged to have
been negligently provided. This body of law is in contrast to, say, the Uniform Commercial
Code which regulates the sale and delivery of tangible, moveable goods. The law governing
material suppliers focuses on whether the tangible goods supplied have particular characteristics.
The work of a contractor is viewed primarily as services, even though goods are also provided,
but construction services are amenable to a particularly pre-defined outcome, and a warranty of
this outcome can be provided. A design professional does not have the control necessary to
guarantee the final construction of that which it designed and documented.
B.
Breach of Contract
To recover for breach of contract, one must show:
(1) the existence of a valid contract;
(2) performance or tendered performance by the plaintiff;
(3) breach of the contract by the defendant; and
(4) damages to the plaintiff resulting from the breach. Palmer v. Espey Huston &
Assoc., Inc. 84 S.W.3d 345, 353 (Tex.App.—Corpus Christi 2002, pet. denied). For a breach of
contract claim, there must be an enforceable contract. Wright v. Christian & Smith, 950 S.W.2d
411, 412 (Tex.App.—Houston [1st Dist.] 1997, no writ). A contract exists when the parties are in
agreement on the various terms and obligations, provided that these agreements are supported by
“consideration,” or something of value. Frady v. May, 23 S.W.3d 558, 565 (Tex.App.—Fort
Worth 2000, pet. denied). Consideration can be almost anything of value, often a mutual
promise: “If you perform the services, then I will pay you a certain amount.” See, e.g., Texas
Gas Util. Co. v. Barnett, 460 S.W.2d 409, 412 (Tex. 1970) (contracts require a mutuality of
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obligations).
A written contract memorializes the parties’ agreement, and absent fraud or
ambiguities, the parties’ rights and obligations will be enforced according to the writing.
A written contract is the design professional’s single most effective defense against most
claims. The law places very few limits on what parties can agree to, including, for example,
things for which the parties will and will not be held responsible. Professional services contracts
can be oral or written, but oral contracts turn every claim into a “swearing match” about what the
contract terms were. As a practical matter of proof, oral design contracts can seldom have many
provable terms other than the scope of work and the amount of compensation. The safeguards of
a written contract can provide significant protections, which are lost with an oral contract.
A breach of contract occurs when a party fails to perform according to the contract and
does not have a legal excuse for doing so (e.g., the other party’s prior breach). DeSantis v.
Wackenhut Corp., 732 S.W.2d 29, 34 (Tex.App.—Houston [14th Dist.] 1987), rev’d in part on
other grounds, 793 S.W.2d 670 (Tex. 1990). Compensatory damages are awarded for the
economic harm caused by the other party’s breach. Lefarge Corp. v. Wolff, Inc., 977 S.W. 2d
181, 187 (Tex. App.—Austin 1998, pet. denied). Texas also allows the recovery of attorneys’
fees to a claimant who prevails on a breach of contract claim. TEX. CIV. PRAC & REM. CODE §
38.001, et seq.
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C.
Negligence
Negligence is broadly defined as “the failure to use such care as a reasonably prudent and
careful person would use under similar circumstances.” BLACK’S LAW DICTIONARY (5th ed.) at
930. In Texas, the elements of a cause of action for negligence are: (1) the defendant owed a
legal duty to the plaintiff; (2) the defendant breached the duty; and (3) the breach proximately
caused the plaintiff’s injury. Praesel v. Johnson, 967 S.W.2d 391, 394 (Tex. 1998).
Negligence claims against design professionals require expert proof of the applicable
standard of care and the breach of that standard. The basis of a negligence claim is that the party
being sued had a duty to practice within the applicable standard of care and breached the
standard of care. Texas courts have stated the following rule in regards to standard of care:
“Professional negligence in the context of engineering services means doing
that which an engineer of ordinary prudence in the exercise of ordinary care
would not have done under the same or similar circumstances, or failing to do
that which an engineer or ordinary prudence in the exercise of ordinary care
would have done under the same or similar circumstances.”
Parkway Company v. Woodruff, 857 S.W.2d 903, 919 (Tex.App.—Houston [1st Dist.] 1993),
aff’d as modified, 901 S.W. 2d 434 (Tex. 1995).
Monetary damages are awarded to compensate the claimant for harm the negligence
caused. Robertson Cty. v. Wymola, 17 S.W.3d 334, 343-44 (Tex.App.—Austin 2000, pet.
denied).
D.
Breach of Warranty
A warranty can best be described as an agreement that accompanies a sale of goods or
procurement of services, by which the seller [or provider] undertakes to vouch for the condition
or quality of the goods sold or the services provided. Glockzin v. Rhea, 760 S.W.2d 665, 669
(Tex.App.—Houston [1st Dist.] 1988, writ denied). Even though a warranty is a part of a
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contract, it is an independent promise apart from the contractual obligations, and its breach gives
rise to a separate action for damages. Id. Warranties can be distinguished by two general
characteristics: (1) they can be created either by statute or under the common law, and (2) they
can be either expressed or implied. Implied warranties, as applied to design professionals, are
discussed in greater detail in §IV.8 below.
Suffice it to say at this point that a design
professional can certainly give an express warranty, but almost never possesses the control over
the outcome of construction to deliver on such an assurance.
III.
PARTIES WHO MAY AND MAY NOT ASSERT THESE CAUSES OF ACTION
A.
Owner versus Architect/Engineer
1.
Breach of Contract Claims and Privity
Owners, or owner parties, may certainly sue their design professionals with whom they
contracted, for breach of the contract. To prove an action for breach of contract against an
architect or engineer, the plaintiff must establish it was in privity with the design professional.
Canon v. ICO Tubular Servs., 905 S.W.2d 380, 393 (Tex.App.—Houston [1st Dist.] 1995, no
writ). A party can establish privity by proving he/she/it was (1) in direct privity with the
defendant, or (2) a third-party beneficiary under the contract. Id. Direct privity is established by
proof that the plaintiff and the design professional were parties to the enforceable contract and
had obligated themselves under it. C&C Partners v Sun Exploration & Prod., 783 S.W.2d 707,
721 (Tex.App.—Dallas 1989, writ denied).
2.
Breach of Contract Claims by a Third-Party Beneficiary
Generally speaking, only parties to a contract have the right to complain of its breach.
See, e.g., Merrimack Mut. Fire Ins. Co. v. Allied Fairbanks Bank, 678 S.W.2d 574, 577
(Tex.App.—Houston [14th Dist.] 1984, writ ref'd n.r.e.). However, an exception exists when
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one who is not a party to the contract shows that the contract was at least, in part, made for his or
her benefit and that the contracting parties intended that he or she benefit by it. In such a case,
the party becomes a third-party beneficiary also entitled to sue for breach of contract. Stine v.
Stewart, 80 S.W.3d 586, 589 (Tex. 2002); Temple EasTex, Inc. v. Old Orchard Creek Partners,
Ltd., 848 S.W.2d 724, 730 (Tex.App.—Dallas 1992, writ denied).
There is a dearth of Texas case law on third-party beneficiary claims asserted against
design professionals, but this may change over time as the use of newer project delivery methods
vary from the traditional. Consider these examples:

Owner v. Architect on Architect’s contract with the Contractor on a design-build
project, or similarly, on a project with a Project Manager.

Owners may require that it be named as a third-party beneficiary to the
Architect’s contracts with engineering consultants.
3.
Negligence Claims
There are limitations on the ability of an owner, or owner party, to sue a design
professional they hired for negligence. Since a design professional virtually always has a
contract with the client, the dividing line for allowing negligence claims in a contracted setting
most often turns on the type of damages sought. If the design professional’s client is suing for
economic loss from the contract, then the client will be allowed to sue for breach of contract but
not for negligence. CBI NA-CON, Inc. v. UOP, Inc., 961 S.W.2d 336, 339-340 (Tex.App.—
Houston [1st Dist.] 1998, pet. denied) (citing Southwestern Bell v. Delaney, 809 S.W.2d 493,
494-495 (Tex. 1991)). When the basis of the suit is personal injury or property damage, a
negligence claim is usually allowed notwithstanding the parties’ contract. See generally TEX.
CIV. PRAC. & REM. CODE ANN., Chapter 33.
A time-honored case provides guidance on when negligence claims may be brought
between parties to a contract. See Montgomery Ward & Co. v. Scharrenbeck, 204 S.W.2d 508
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(Tex. 1947). Montgomery Ward installed a kerosene water heater which set fire to and burned
Scharrenbeck’s house. Id. at 509-510. Scharrenbeck could have sued for breach of contract to
recover the cost of the water heater that did not work. Scharrenbeck was also permitted to sue in
negligence to recover the property damage of the house that burned. Id. at 157.
4.
DTPA claims
The current, but often revised, Deceptive Trade-Deceptive Practices Act (“DTPA”) will
most likely not be applicable to design professionals, but exceptions exists. A detailed analysis
of how the DTPA is construed in reference to design professionals is provided in a § IV.C,
below.
5.
Breach of Warranty Claims
As indicated in §II.D, a design professional may, but should never, give an express
warranty concerning its services. Some plaintiffs assert claims based upon an implied warranty,
which are discussed in detail in §IV.B.
B.
Contractor versus Architect/Engineer
Claims made by contractors against design professionals usually arise when the
contractor contends that the plans and specifications supplied are inadequate or defective. The
contractor will seek to recover damages directly from the design professional rather than from
the Owner with whom the contractor had a contract.
1.
Breach of Contract Claims
A seminal case on the subject of whether a contractor can maintain a breach of contract
claim against the architect is Bernard Johnson v. Continental Constructors, Inc., 630 S.W.2d
365 (Tex.Civ.App.—Austin 1982, writ ref’d n.r.e.). In that case, the Austin Court of Appeals
held: “[a]s a general rule a suit for breach of contract may not be maintained against a person
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who is not a party to the contract, particularly a non-party who is assigned duties by the terms of
the contract.” Id. at 369. Because the contractor did not have a contract with the architect, he
could not state a claim against him. See also, Cox Texas Newspapers, L.P. v. Wootten, 59
S.W.3d 717, 723 (Tex.App.—Austin 2001, pet. denied) (“As a general rule, contract damages
may not be obtained from a person who was not a party to the contract”); Merrimack Mut. Fire
Ins. Co. v. Allied Fairbanks Bank, 678 S.W.2d 574, 577 (Tex.App.—Houston [14th Dist.]
1984, writ ref'd n.r.e.) (same general rule).
2.
Third-Party Beneficiaries Claims
Although a contractor cannot generally sue a design professional for breach of the
contract between the owner and design professional, the third-party beneficiary theory may offer
the contractor relief. The contractor will have to show that the contract between the owner and
design professional was actually made for the contractor’s benefit and that the contracting parties
intended that the contractor benefit by it. Temple EasTex, Inc. v. Old Orchard Creek Partners, Ltd.,
848 S.W.2d 724, 730 (Tex.App.—Dallas 1992, writ denied). This type of claim is, generally,
easily cut off. For example, the 1997 edition of the AIA B141 form contract expressly states that
“nothing contained in this agreement shall create a contractual relationship with or a cause of
action in favor of a third party against either the owner or architect.”
3.
Negligence Claims
A contractor’s suit for negligence to recover economic loss against a design professional
will most likely involve an allegation of negligence relating to the preparation of plans and
specifications. Texas law does not generally uphold an explicit duty running from the design
professional to the contractor, the breach of which could render the design professional liable to
the contractor in negligence. As a practical matter, however, some Texas courts have implicitly
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held that a contractor can sue a design professional for negligence. See, e.g., Ray Ferguson
Interests, Inc. v. Harris Cty. Sports & Convention Corp., 169 S.W.3d 18 (Tex.App.—Houston
[1st Dist.] 2004, no pet.). In Ray Ferguson, a contractor sued the Harris County Sports and
Convention Corporation and the design team hired by Harris County for negligence in the
designs and specifications of a parking lot. Although this opinion concerned only a challenge to
the jurisdiction, the court did not indicate that the contractor’s suit for negligence against the
design professionals was impermissible.
Similarly, in Turner, Collie & Braden, Inc. v.
Brookhollow, Inc., 624 S.W.2d 203 (Tex.Civ.App.—Houston [1st Dist.] 1981), rev’d on other
grounds, 642 S.W.2d 160 (Tex. 1982), the First Court of Appeals held that “a cause of action
exists in favor of a contractor against an owner or architect who furnishes defective plans and
specifications.” (emphasis added). The more widely recognized rule, is that a contractor cannot
recover economic loss in negligence from a design professional.
4.
Negligent Misrepresentation Claims
A Texas court could imply a duty concerning negligently false information from the
design professional to the contractor, thus allowing recovery for negligent misrepresentation.
The tort of negligent misrepresentation is discussed in Section V, below.
C.
Third-Party versus Architect/Engineer
These claims can be divided into two categories: (1) claims which arise during the design
professional’s performance of its duties during the contract administration phase; and (2) claims
which arise after construction is completed, but which relate to services performed by the design
professional during the performance of its services. A third-party may sue a design professional
claiming negligence to recover for personal injury or injury to property. Similar lawsuits to
recover for economic loss (e.g., delay damages) generally fail.
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1.
Claims Arising During Construction
a.
Claims by an Injured Worker
An injured construction worker may certainly bring suit against a design professional
claiming negligence for personal injuries, contending that the design professional was
responsible for the worker’s safety.
Damages for these suits may be avoided by careful
contracting practices that establish that no duty by the design professional exists in favor of the
worker.
Texas courts have refused to impose an obligation on the design professional for site
safety in the absence of a contractual provision making the design professional responsible for
site safety or the design professional taking on this duty by his or her acts.
A design
professional’s duties for site safety, if any, generally depend upon the provisions for safety in the
contracts. Romero v. Parkhill, Smith & Cooper, Inc., 881 S.W.2d 522 (Tex.App.—El Paso
1994, writ denied). An illustrative case is Graham v. Freese & Nichols, Inc., 927 S.W.2d 294
(Tex.App.—Eastland 1996, writ denied). In that case, a worker was seriously injured in a fall
from a catwalk which was attached to a dam. No safety nets or other safety features were
provided to prevent someone from falling off of a conveyor which ran next to the catwalk. The
worker claimed that the engineer retained sufficient control over safety and the premises to owe
him a duty of care.
In rejecting the worker’s contentions, the Court determined that the
engineer’s contract imposed no duty regarding site safety on the engineer, and the summary
judgment evidence established that the engineer did not exercise control over the premises. Id.
at 294-95.
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AIA contract forms very clearly state that the contractor retains control of and
responsibility for site safety and that designers do not. It is very important to include such
language in all of the project contracts regardless of whether AIA forms are used.
b.
Claims for Damage to Property
When property is damaged during a construction project, a design professional may be
named as a defendant. Examples of such property damage include building collapses and sinkholes. The same rationale that insulates the design professional from liability for injured workers
applies with equal force to property damage cases. The key is whether the design professional
contractually had, or by conduct took on, a duty to prevent the loss.
2.
Claims Arising After Construction
a.
Claims for Injury to Persons or Property
Design professionals owe a duty of care to innocent third parties (members of the public
using the building) for the design professional’s negligence if it proximately causes physical
injuries to a third party. See, e.g., Columbia Engineering International, Ltd. v. Dorman, 602
S.W.2d 72 (Tex.Civ.App.—Beaumont 1980), overruled on other grounds, 640 S.W.2d 860 (Tex.
1982). The same is true for property damage (e.g., an adjacent land owner). Thus, design
professionals may be sued by third parties claiming negligence for personal injury (or death) and
for property damage.
b.
Economic Injury Claims
There have been claims by third parties asserting claims for purely economic injuries, but
generally, economic injuries or loss cannot be recovered in negligence, unless the economic
injury is accompanied by some personal injury or property damage. Coastal Conduit and
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Ditching, Inc. v. Noran Energy Group, 29 S.W.3d 292, 286-287 (Tex.App.—Houston [14th
Dist.] 200, no pet.).
c.
Negligent Misrepresentation Claims
Negligent misrepresentation, which is regarded as a species of negligence, has at least the
potential to be applicable to professional design services even for economic loss. This topic is
discussed in detail in §V, below.
An illustration of this potential liability is shown in Cook Consultants, Inc. v. Larson,
700 S.W.2d 231 (Tex.App.—Dallas 1985, writ ref’d n.r.e.). In this case, the purchaser of a home
sued the surveyor who was working for the homebuilder that built the house. The purchaser
alleged that the surveyor negligently surveyed the lot, with the result that the house straddled the
lot line. Recovery was allowed against the surveyor for negligent misrepresentation,
notwithstanding the absence of a contract with the surveyor.
d.
Claims for Breach of Contract by Third-Party Beneficiary and
Breach of Ancillary Agreement
The owner’s lender on a project often requires the owner to hire the design professional
to certify that the project has been completed in accordance with the plans and specifications,
and that the applicable building codes have been satisfied. If the design professional makes a
mistake, the lender will be able to sue for breach of the design professional’s contract with the
owner if the lender is a third-party beneficiary. See § III.A.2, above.
An ancillary agreement, such as those an owner’s lender asks the design professional to
sign, can lead to loss of defenses otherwise provided in the law for design professionals or in the
design professional’s contract with the owner. Many contracts, including AIA form contracts,
contain an express requirement for the design professional to make certification about the project
to lenders. Even when there is no such obligation, practical business concerns will often lead
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design professionals to enter into such ancillary agreements. The design professional should: (1)
include in its contract with its client a qualification that any such ancillary agreement it will be
asked to sign will not require duties or knowledge beyond that required in the main agreement;
and (2) carefully review, and if necessary, modify these ancillary (lender) agreements to be
consistent with the duties and required knowledge the design professional is willing to accept.
Experience shows that most lender agreements go far beyond this point, and that many lenders
will accept reasonable modifications.
IV. DISTURBANCES IN THE FORCE
As members of the “true professions,” architects and engineers enjoy significant, wellreasoned immunity from many types of claims. However, the boundaries of this protection are
not static.
Exceptions to and periodic changes in the ability to sue design professionals
sometimes surface. The exceptions, or Disturbances in the Force, of long-standing and wellreasoned law, discussed include:

Limitations on the enforceability of certain indemnities

Implied warranties

Claims under the DTPA

Site safety

Proof of the Standard of Care
A.
Limitations on the Enforceability of Certain Indemnities
The Texas legislature has passed statutes that override the common law governing the
enforceability of some indemnities.
For example, design professionals cannot require the
contractor to indemnify them for the consequences of their own negligence in certain
circumstances. This statute can be found at TEX. CIV. PRAC. & REM. CODE ANN. § 130.002 (a):
(a) A covenant or promise in, in connection with, or collateral to a construction
contract is void and unenforceable if the covenant or promise provides for a
contractor who is to perform the work that is the subject of the construction
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contract to indemnify or hold harmless a registered architect, licensed engineer or
an agent, servant, or employee of a registered architect or licensed engineer from
liability for damage that:
(1) is caused by or results from:
(A) defects in plans, designs, or specifications prepared, approved, or used by the
architect or engineer; or
(B) negligence of the architect or engineer in the rendition or conduct of
professional duties called for or arising out of the construction contract and the
plans, designs, or specifications that are a part of the construction contract; and
(2) arises from:
(A) personal injury or death;
(B) property injury; or
(C) any other expense that arises from personal injury, death, or property injury.
Id.
A corollary of this provision in reference to design professionals and owners appears at
TEX. CIV. PRAC. & REM. CODE ANN. § 130.002 (b):
(b) A covenant or promise in, in connection with, or collateral to a construction
contract other than a contract for a single family or multifamily residence is void
and unenforceable if the covenant or promise provides for a registered architect or
licensed engineer whose engineering or architectural design services are the
subject of the construction contract to indemnify or hold harmless an owner or
owner’s agent or employee from liability for damage that is caused by or results
from the negligence of an owner or an owner’s agent or employee.
Id. Notice that this statute runs in favor of the design professional.
Another statute limits the indemnity a government agency can require of a design
professional:
(a) A covenant or promise in, in connection with, or collateral to a contract for
engineering or architectural services to which a governmental agency is a party is
void and unenforceable if the covenant or promise provides that a licensed
engineer or registered architect whose work product is the subject of the contract
must indemnify or hold harmless the governmental agency against liability for
damage that is caused by or results from the negligence of the governmental
agency or its agent or employee.
Tex. Local Govt. Code § 271.904.
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B.
Implied Warranty Claims
Texas courts have consistently refused to hold providers of professional services liable
under implied warranty claims. See, e.g., Murphy v. Campbell, 964 S.W.2d 265, 269 (Tex.
1997); Dennis v. Allison, 698 S.W.2d 94, 96 (Tex. 1985); Rhodes v. Sorokolit, 846 S.W.2d 618,
620 (Tex.App.—Fort Worth 1993), aff’d on other grounds, 889 S.W.2d 239 (Tex. 1994);
Chapman v. Wilson, 826 S.W.2d 214, 217 (Tex. App.—Austin 1992, writ denied); Kubinsky v.
Van Zandt Realtors, 811 S.W.2d 711, 715-16 (Tex.App.—Fort Worth 1991, writ denied); Eoff
v. Hal & Charlie Peterson Foundation, 811 S.W.2d 187, 195-96 (Tex.App.—San Antonio
1991, no writ); Wisenbarger v. Gonzales Warm Springs Rehab. Hosp., Inc., 789 S.W.2d 688,
691 (Tex.App.—Corpus Christi 1990, writ denied).
Exceptions to this widely held rule exist, however. See, e.g., White Budd Van Ness
Partnership v. Major-Gladys Drive Joint Venture, 798 S.W.2d 805 (Tex. App.—Beaumont
1990), writ dism’d, 811 S.W.2d 541 (Tex. 1991), cert. denied, 502 U.S. 861 (1991). The White
Budd case involved an architecture firm which provided design services for the construction of a
shopping center. After reviewing the construction estimates, the owner decided to accept certain
“value engineering” suggestions in order to reduce costs. One of these suggestions was to
substitute the specified material in the exterior walkways with a product called “C-Tile.” After
investigating the product data, the architect recommended the owner to approve the use of the
“C-Tile” on the project. The “C-Tile” subsequently developed problems and the owner had to
replace it. The owner then filed suit against the architect. At trial, the jury found that the
architects breached an implied warranty to perform its services in a good and workmanlike
manner.
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On appeal, the architect claimed that the “implied warranty of good and workmanlike
performance” was not applicable to architectural services. The White Budd court disagreed,
although it admitted that the Texas Supreme Court has not squarely decided this issue. Id. at
813. The Texas Supreme Court subsequently dismissed the appeal.
C.
Claims under the Deceptive Trade Practices Act
A plaintiff cannot prevail on a claim against a professional under the DTPA when the
basis of the claim against the professional is the professional’s advice, judgment, opinion, or
similar professional skill. TEX. BUS. & COM. CODE § 17.49; Underkofler v. Vanasek, 53
S.W.3d 343, 346 n. 1 (Tex. 2001). However, a plaintiff is permitted to recover against a
professional for the following under the DTPA:
(1)
An express misrepresentation of a material fact that cannot be characterized as
advice, judgment, or opinion;
(2)
A failure to disclose information in violation of Section 17.46(b)(23);
(3)
An unconscionable action or course of action that cannot be characterized as
advice, judgment, or opinion; or
(4)
Breach of an express warranty that cannot be characterized as advice, judgment,
or opinion.
Id.
An amendment to the DTPA also clarifies that §17.49, above, applies not only to a cause
of action against the professional who provided the service, but also to any cause of action
against an entity that could be found to be vicariously liable for the professional’s conduct. TEX.
BUS. & COMM. CODE § 17.49(d).
Generally speaking, architects and engineers will not be susceptible to DTPA actions
absent fraud, unconscionable conduct (i.e., taking unfair advantage of a client) or an express
warranty.
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D.
Site Safety Claims
Design professionals should always make certain that the project contracts address site
safety responsibility. Safety is usually the contractor’s sole duty because the contractor controls
the site. A design professional may also be liable for the site safety by conduct through taking
control of site safety. See, e.g., Lee Lewis Construction, Inc. v. Harrison, 70 S.W.3d 778, 784785 (Tex. 2002). While design professionals usually know not to insert themselves into safety
issues, once a clear hazard is observed (e.g., an unprotected floor penetration), the design
professional should: (1) immediately express his or her concern to the contractor, but (2) allow
the contractor to fix the problem without designer involvement.
E.
Proof of Standard of Care in Negligence Claims
Proving the standard of care applicable to design professionals will most likely require a
particular type of expert testimony. Currently under Texas law, though, there is disagreement
over whether an expert providing testimony on professional designer standards of care must be a
licensed professional in the profession under consideration.
The “majority” rule in Texas states that an expert providing testimony on the standard of
care expected of a professional must be licensed in that same profession. See, e.g., Parkway Co.
v. Woodruff, 857 S.W.2d 903, 919 (Tex.App.—Houston [1st Dist.] 1993), aff’d as modified, 901
S.W.2d 434 (Tex. 1995) (“To qualify as an expert able to set the standard of care for a given
profession, the witness must be licensed in the same profession”); Shook v. Herman, 759
S.W.2d 743, 747 (Tex.App.—Dallas 1988, writ denied) (same); Tijerina v. Wennermark, 700
S.W.2d 342, 347 (Tex.App.—San Antonio 1985, no writ) (same). For example, a licensed
architect will most likely need to provide testimony on the standard of care expected of an
architect.
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See Prelwitz v. Cromwell Truemper, Levy, Parker and Woodsmale, Inc., 802
18
S.W.2d 316, 317-18 (Tex. App.--Dallas 1990, no writ) (holding that because witnesses were not
licensed architects or mechanical engineers, “they [were] not competent to testify either as
experts in the architectural or mechanical engineering professions”).
There are some cases, however, to the contrary. See, e.g., Harnett v. State, 38 S.W.3d
650, 659 (Tex.App.—Austin 2000, pet. ref’d.) (noting that “licensure or certification in the
particular discipline is not a per se requirement”); Southland Lloyd's Ins. Co. v. Tomberlain,
919 S.W.2d 822, 827-28 (Tex.App.—Texarkana 1996, writ denied) (holding that expert need not
be licensed in pertinent area to be qualified); White Budd Van Ness Partnership v. MajorGladys Joint Venture, 798 S.W.2d 805 (Tex.App.—Beaumont 1990, writ dism’d), cert. denied,
502 U.S. 861 (1991) (permitting a civil engineering graduate with related practical experience to
testify against an architect, on the theory that engineering was closely enough related to
architecture to render his testimony helpful to the finder of fact). While this latter group of cases
may be distinguished on their unique facts, in the end, the admissibility of an expert’s testimony
is left to the discretion of the trial court judge, and the judge’s decision will not be easily
overruled.
V. Negligent Misrepresentation and the Economic Loss Rule
One particular area of liability that needs separate treatment is negligent
misrepresentation and how it intersects with the economic loss rule. This topic is important
because although Texas courts generally use contract principles to resolve disputes involving the
performance of contracts, the tort of negligent misrepresentation may operate to reintroduce tort
law into what are essentially contract disputes.
A.
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The Economic Loss Rule
19
Texas courts have long recognized that a contract may create duties recognized under
both contract law and tort law. Montgomery Ward & Company v. Scharrenbeck, 204 S.W.2d
508 (Tex. 1947). Texas courts, in determining whether an action is based in tort, on the contract,
or both will make an inquiry into the substance of the cause of action and the nature of the injury.
Southwestern Bell Tele. Co. v. DeLanney, 809 S.W.2d 493 (Tex. App.—Texarkana 1988, writ
granted). The economic loss rule, however, provides: “When the only loss or damage is to the
subject matter of the contract, the plaintiff’s action is ordinarily on the contract.” Southwestern
Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex. 1991). Stated differently, the rule
provides that economic damages are not ordinarily recoverable in negligence actions when
unaccompanied by physical property damage or bodily injury. Coastal Conduit & Ditching,
Inc. v. Noram Ener. Group, 29 S.W.3d 282, 286-87 (Tex.App.—Houston [14th Dist.] 2000, no
pet.). As a result, when a claimant complains of economic losses due to the actions of a design
professional, the claimant may be limited to contract actions.
The DeLanney and Coastal Conduit cases provide excellent examples of the economic
loss rule. In DeLanney, a business owner had been advertising his real estate business in the
Galveston Yellow Pages for several years. Once again, the business owner contracted with
Southwestern Bell for a Yellow Pages advertisement. At this time, the business owner had two
business phones: (1) a rotary line, and (2) a single line. Prior to the publication of the new
directory, the business owner’s wife asked Southwestern Bell to cancel the single line and add a
third number to their existing rotary line. The Yellow Pages advertisement was billed to the
business’ single line. When the line was canceled, the real estate business’ Yellow Pages
advertisement was automatically deleted from the directory due to Southwestern Bell's internal
procedures.
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When the advertisement was not published as promised, the business owner sued
Southwestern Bell for negligence. At trial, the jury found that Bell was negligent in omitting the
advertisement from the Yellow Pages, and that such negligence was a proximate cause of
damages to the business owner. Southwestern Bell appealed.
The Texas Supreme Court held that Southwestern Bell's duty to publish the
advertisement arose solely from the contract. Id. Therefore, the business owner’s damages, in
the form of lost profits, were only for the economic loss caused by Southwestern Bell's failure to
perform. Id. Although the business owner pleaded his action as one in negligence, he clearly
sought to recover under contract. Id. Because Southwestern Bell’s actions could only have been
a breach of contract, as opposed to a tort, the DeLanney Court ruled that the business owner
could not recover any damages. Id.
In Coastal Conduit, a trenching company provided services for the cutting of ditches near
residential lots for the purpose of installing electrical connections to the lots. The company’s
trenching activities required the company to excavate in the vicinity of gas lines, which were
operated by Entex. The trenching company brought suit against Entex because it claimed that
Entex’s gas lines were placed in improper locations, which required the company to make
changes in creating the ditches. The trenching company brought a negligence suit against Entex,
seeking increased costs in the performance of its work. The Fourteenth Court of Appeals held
that Texas law precluded the recovery of such economic damages in a negligence case where the
parties had no contract and there was no accompanying claim for damages to a person or
property. Id.
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B.
Negligent Misrepresentation
The tort of negligent misrepresentation has diluted the strength of the economic loss rule.
Negligent misrepresentation most prominently appears as Section 552 of the Restatement
(Second) of Torts:
One who, in the course of his business, profession, or employment, or in any other
transaction in which he has a pecuniary interest, supplies false information for the
guidance of others in their business transactions, is subject to liability for
pecuniary loss caused to them by their justifiable reliance upon the information, if
he fails to exercise reasonable care or competence in obtaining or communicating
the information.
Texas courts have adopted Section 552 of the Restatement. Federal Land Bank v. Sloane, 825
S.W.2d 439, 442 (Tex. 1991).
Under Texas law, negligent misrepresentation has five elements:
(5)
the defendant made a representation to the plaintiff in the course of the
defendant’s business or in a transaction in which the defendant had an interest;
(6)
the defendant supplied false information for the guidance of others;
(7)
the defendant did not exercise reasonable care or competence in obtaining or
communicating the information;
(8)
the plaintiff justifiably relied on the representation; and
(9)
the defendant’s negligent misrepresentation proximately caused the plaintiff’s
injury.
See, e.g., McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787,
791 (Tex. 1999); Lyda Constructors, Inc. v. Butler Mfg. Co., 103 S.W.3d 632, 638 (Tex.App.—
San Antonio 2003, no pet.)
The McCamish case provides a good example of how Texas courts construe the tort of
negligent misrepresentation. In McCamish, a general partnership comprising four family trusts
was the managing partner of “Boca Chica,” a joint venture formed to develop recreational
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22
property. Boca Chica obtained a loan and line of credit from VSA to finance a real estate
project. Boca Chica accepted the loan based on VSA's oral representation that VSA would later
expand the line of credit, provided that Boca Chica's lot sales justified completing the
development. However, VSA later decided not to extend the additional credit, despite the
continued viability of the project. Boca Chica subsequently went bankrupt, and brought a lender
liability claim against VSA.
With the trial pending, Boca Chica feared that the Federal Savings & Loan Insurance
Corporation (“FSLIC”) would declare VSA insolvent and take it over before a judgment could
be obtained. Therefore, Boca Chica pushed for a settlement and was successful. Once the
parties agreed on the terms of the settlement agreement, Boca Chica wanted to ensure that the
settlement agreement would be enforceable against the FSLIC. Boca Chica agreed to sign the
agreement only if VSA's lawyers would affirm that the agreement was, in fact, enforceable
against the FSLIC. VSA’s lawyers stated that the agreement was enforceable against the FSLIC.
After the settlement agreement was executed, VSA was declared insolvent, and the
FSLIC was appointed receiver. The settlement agreement was later declared to be unenforceable
against the FSLIC. In response, the general partnership filed suit on behalf of Boca Chica
against the law firm that had represented VSA, claiming negligent misrepresentation.
The Texas Supreme Court held that the tort of negligent misrepresentation applied to
attorneys.
The McCamish court made its ruling based on two primary reasons: (1) negligent
misrepresentation had been applied to many different types of professionals, and there was no
cogent reason why there should be an exception for attorneys; and (2) liability for negligent
misrepresentation is not based on the breach of duty a professional owes his or her clients or
others in privity, but on an independent duty to the non-client based on the professional’s
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manifest awareness of the non-client's reliance on the misrepresentation, and the professional’s
intention that the non-client so rely. Id.
As seen in McCamish, negligent misrepresentation is not based on a breach of duty of a
professional to a client, but instead on an independent duty owed to non-clients arising when a
professional knows a non-client will rely on the representation and the professional intends for
the non-client to rely on the representation. McCamish, 991 S.W.2d at 792-93. Thus, negligent
misrepresentation permits plaintiffs who are not parties to a contract for professional services to
recover from the contracting professionals for economic loss. Id. Professionals who have been
liable for negligent misrepresentation include, but are not limited to, the following:
(1)
Accountants. Blue Bell v. Peat, Marwick, Mitchell & Co., 715 S.W.2d 408, 41112 (Tex.App.—Dallas 1986, writ ref’d n.r.e.) (Trade creditor sued accounting
firm that its debtor had hired to audit its financial records before going bankrupt.
Held: Accounting firm could be liable to creditor on theory of negligent
misrepresentation, since it knew or should have known that creditor was included
in limited class of persons who would rely on its statements and firm had failed to
establish as matter of law that it had not provided false or misleading information
in the preparation of those statements);
(2)
Auditors. Steiner v. Southmark Corp., 734 F.Supp. 269, 279-80 (N.D. Tex.
1990) (A class of purchasers of securities brought suit against a company’s
auditor for making misrepresentations about the financial condition of the
company. Held: Investors could foreseeably have been expected to rely on the
auditor’s statements concerning the financial condition of the company for which
securities were being sold);
(3)
Attorneys. McCamish, 991 S.W.2d at 791. (Borrower that had previously entered
into settlement of its lender liability claims against savings association, which was
subsequently placed in federal receivership, sued association's attorneys for
alleged fraud and negligence in representing that settlement agreement would be
enforceable against the Federal Savings and Loan Insurance Corporation. Held:
A nonclient could sue attorney for negligent misrepresentation without regard to
nonclient's lack of privity with attorney);
(4)
Banks. Federal Land Bank Ass’n v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991)
(Prospective borrowers sued lender for negligently misrepresenting that loan
application had been approved. Held: Negligent misrepresentation applies to
banks);
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(5)
Doctors. Smith v. Sneed, 938 S.W.2d 181, 185 (Tex.App.—Austin 1997, no
writ) (Patient, who was arrested for attempting to obtain drugs by fraud after
physician inaccurately informed pharmacist that prescription was for 36 tablets
rather than 360 tablets, sued physician for negligence, negligent
misrepresentation, and false imprisonment. In this case, the doctor was not found
liable for negligent misrepresentation; however, the court indicated that doctors
could be liable for negligent misrepresentation);
(6)
Insurance Agents. Nast v. State Farm Fire & Cas. Co., 82 S.W.3d 114, 124
(Tex.App.—San Antonio 2002, no pet.) (Insureds told their insurance agent of
eighteen years that they wanted to purchase flood insurance for their home. The
insurance agent misrepresented that they were not eligible for flood insurance, but
then when asked why their neighbors were eligible, the agent responded that those
neighbors had purchased "fake" insurance from a "shyster." Held: These alleged
misrepresentations state a claim for negligent misrepresentation);
(7)
Real Estate Brokers. Hagans v. Woodruff, 830 S.W.2d 732, 736 (Tex.App.—
Houston [14th Dist.] 1992, no writ); (Homeowners claimed real estate broker was
negligent in his marketing and selling of their home because he failed to
investigate the subdivision for fault lines that might effect the house. Held: Court
implicitly acknowledges that real estate brokers are subject to negligent
misrepresentation claims, although real estate broker was not liable for negligent
misrepresentation in failing to investigate the existence of possible fault lines);
(8)
Securities Agents. Lutheran Bhd. v. Kidder Peabody & Co., 829 S.W.2d 300,
309 (Tex.App.—Texarkana 1992), vacated due to settlement, 840 S.W.2d 384
(Tex. 1992) (Investors in corporate bonds brought securities action against
corporation's placement agent because the agent’s information as supplied in an
investment memorandum was false and because agent knew or should have
known that the information was false and misleading. Held: securities agents can
be held liable for negligent misrepresentation).
Notice that design professionals are not on this list. Design professionals are not immune
to negligent misrepresentation claims.
The tort of negligent misrepresentation, by its very elements, implies that causes of action
can be maintained for economic losses suffered by a limited class of injured persons, even when
the damages are solely economic.
There are two factual scenarios which may implicate the tort of negligent
misrepresentation for design professionals:
(1) inadequate plans; and (2) improper
evaluations/reports.
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In the case of inadequate plans, imagine the following scenario. The owner hires an
architect directly. The architect prepares drawings which, when the contractor attempts to
execute the work, prove to be inadequate for construction. The contractor, relying on the
drawings, suffers economic losses due to the inadequacy of the drawings. In the following
scenario, would the architect be liable to either the owner or the contractor for these economic
damages?
In regard to the owner, who hires the architect, negligent misrepresentation may not work
because “negligent misrepresentation is a cause of action recognized in lieu of a breach of
contract claim, not usually available where a contract is actually in force between the parties.”
Airborne Freight Corp. v. C.R. Lee Enterprises, Inc., 847 S.W.2d 289, 295 (Tex. App.—El
Paso 1992, writ denied). Now, this does not mean that an owner could never have a cause of
action for negligent misrepresentation. For example, according to the definition of negligent
misrepresentation, one who supplies false information for the guidance of others is subject to
liability for pecuniary loss caused to them by their justifiable reliance upon the information. If
the owner can satisfy this definition, it may have a claim for negligent representation.
Although there is no Texas case precisely on point, the tort of negligent misrepresentation
could most likely be used by the contractor against the design professional. Remember, Texas
Courts have applied negligent misrepresentation to many professionals, and there is no cogent
reason why design professionals should not be included. In fact, the clear import of the decision
in McCamish is that an action for negligent misrepresentation can be maintained for economic
losses suffered by a limited class of injured persons, even when their damages are solely
economic. Notice also that the architect’s relation to the contractor would seem to satisfy the
elements of negligent misrepresentation. First, an architect is in the business or profession of
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26
supplying information to contractors. Second, an architect could supply false information for the
guidance of the contractor.2 Third, the contractor who relies on inadequate plans will suffer
pecuniary losses caused by the plans themselves. Finally, the contractor could also claim that it
justifiably relied on the architect’s information.
While the designer certainly is preparing drawings that it intends to be used for
construction, he is doing so pursuant to a contract with the owner, to whom his duty primarily is
owed. Should a contractor be entitled to make a cause of action against the designer on the basis
of his “reliance” on drawings, when his contract with the owner has been based upon an arm's
length transaction?
In regard to this argument, the Texas Supreme Court suggested that a defendant could
“avoid or minimize the risk of liability to a non-client by setting forth (1) limitations as to whom
the representation is directed and who should rely on it, or (2) disclaimers as to the scope and
accuracy of the factual investigation or assumptions forming the basis of the representation or the
representation itself.” McCamish, 991 S.W.2d at 795. Whether disclaimers contained in the
designer's contract with the owner would be effective in limiting the designer's liability to the
contractor is an open question.
In regards to improper evaluations/reports, there are two separate issues: (1) evaluations
of performance, and (2) soil reports.
In Texas, a contractor cannot assert a negligence or negligent misrepresentation claim
against the architect or engineer based upon a faulty evaluation of performance. Bernard
Johnson, Inc. v. Continental Contractors, Inc., 630 S.W.2d 365 (Tex.App.—Austin 1982, writ
ref’d n.r.e.).
2
Please note that in the tort of negligent misrepresentation, Texas Courts contemplate that the false information is a
misstatement of existing facts. It could be argued that architectural drawings would not fit under the definition of
“existing facts.”
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Soil reports and other evaluations of existing conditions are, however, directly within the
ambit of the Restatement's view of the tort of negligent misrepresentation. In fact, Illustration 9
to Restatement § 552 expressly references a cause of action for faulty soil reports:
The City of A is about to ask for bids for work on a sewer tunnel. It hires
B Company, a firm of engineers, to make boring tests and provide a
report showing the rock and soil conditions to be encountered. It notifies
B Company that the report will be made available for bidders as a basis
for their bids and that it is expected to be used by the successful bidder in
doing the work. Without knowing the identity of any of the contractors
bidding on the work, B Company negligently prepares and delivers to the
city an inaccurate report, containing false and misleading information.
On the basis of the report, C makes a successful bid, and also on the
basis of the report, D, a subcontractor, contracts with C to do a part of
the work. By reason of the inaccuracy of the report, C and D suffer
pecuniary loss in performing their contracts. B Company is subject to
liability to C and to D.
A Texas court will likely follow the Restatement of Torts, as it has done in the past.
Therefore, design professionals must remain vigilant in this area.
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