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O P I N I O N
In states that adhere to the ELD, design professionals have a strong defense against third-party claims for economic damages. Know the law in your project state. Is there a doctrine in the house?
L aw books are full of various “doctrines” that have been created and accepted by the courts over the years. One that applies most often to design professionals is known as the Economic Loss Doctrine, or ELD. In states that have adopted the ELD, it stands generally for the proposition that a party seeking purely “economic damages,” as opposed to personal injury, death or property damages, must seek relief through contract remedies in order to recover, and the injured party cannot sue in “tort.”
William Quatman GENERAL COUNSEL
For example, under the ELD, a contractor who suffers delay costs due to a design error cannot sue the architect directly (because those two have no direct contract). Instead, the contractor must pursue the owner under their contract, and the owner may have a contract claim back against the architect. If there is personal injury or property damage, however – as in an auto accident or slip and fall – there is no need for a contract between the parties. Tort law applies to those “non- economic” claims and allows a suit for damages regardless of any contract. The intent of this rule is to protect the parties’ expectations when they negotiate contracts
in commercial transactions. So, for example, a design professional may negotiate a lower fee in exchange for a limitation of liability with the project owner, or provide some contingency for anticipated design errors or omissions. Lawyers call this the “benefit of the bargain.” It would seem unfair, then, if a contractor could bypass those bargained-for limitations and sue the architect for unlimited liability. Courts talk of people who “are in privity of contract” when referring to parties who have a written contract. The ELD bars those “not in privity” from suing in tort (i.e. negligence) for purely economic losses. But, as with most legal
See WILLIAM QUATMAN, page 12
THE ZWEIG LETTER January 22, 2018, ISSUE 1232
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