TENTH CIRCUIT COURT OF APPEALS APPLIES ECONOMIC LOSS RULE TO AFFIRM DISMISSAL OF PROFESSIONAL LIABILITY CLAIMS AGAINST ENGINEER

TENTH CIRCUIT COURT OF APPEALS APPLIES ECONOMIC LOSS RULE TO AFFIRM DISMISSAL
OF PROFESSIONAL LIABILITY CLAIMS AGAINST ENGINEER

In Standard Bank, v. Runge, Inc., 2000 U.S. App. LEXIS 20480 (10th Cir., Oct. 6, 2011), Bronco Hazleton, Co., (“Bronco”) retained Runge, Inc. (“Runge”) to provide an engineering evaluation of a mine Bronco intended to purchase. Standard had agreed to finance the transaction. Runge entered into a contract with Bronco, which specified the professional duty of care Runge owed and limited Runge’s liability to the amount of the contract. Runge evaluated the mine and issued a report. The transaction closed and Runge was paid out of the funds Standard loaned to Bronco.

Several months after the closing, serious problems with the mine became evident. According to Standard, Runge miscalculated the mine’s reserves of Clean Air Act compliant coal, which meant Bronco could not extract enough coal to satisfy its loan repayment obligations. Standard sued Runge for negligent representation and professional negligence, seeking damages in excess of Runge’s contract sum.

The Tenth Circuit Court of Appeals affirmed summary judgment in Runge’s favor. The Tenth Circuit held the Economic Loss Rule prevents a party suffering only economic loss from the breach of an express or implied contract from asserting a tort claim. The Tenth Circuit held the scope of the Economic Loss Rule includes third-party beneficiaries who may have a cause of action for breach of contract, as long as the contracts are interrelated. The Tenth Circuit held a licensed engineer does not owe an independent duty of care to other parties to the interrelated contracts.

Architects and engineers often enter into contracts with project owners and design professionals which may be interrelated with other contracts involving financing, design, or construction. In such contracts, design professionals are advised to particularly specify their duties and limit their liability for any breach of those duties, especially in Circuits and States that do not recognize the Economic Loss Rule’s limitations.