2012 saw another reported decision interpreting the economic loss doctrine in Massachusetts. In Meridian at Windchime v. Earth Tech, a municipality retained Earth Tech to perform a peer review of engineering plans prepared by DiPrete Engineering Associates for a residential subdivision project, as well as perform certain inspection services during construction. The town’s contract with Earth Tech made clear that Earth Tech was not responsible for the means and methods of construction and, at the outset of the project, Earth Tech issued a memorandum to the developer setting forth Earth Tech's role on the project.
Earth Tech completed its peer review of the engineering plans and conducted numerous on-site inspections during the course of construction that were documented in reports to its client. As it turned out, the developer’s construction contractor improperly installed various waterlines, hydrants, curbing, manholes, and other elements of the work that had to be repaired at great expense to the developer. Meridian sued asserting that Earth Tech, an engineering firm with whom it did not have a contract, failed to identify the deficiencies in the contractor’s work. Meridian argued that, had Earth Tech timely done so, Meridian would have been able to cure the defects for significantly less cost.
Courts across the country wrestle with the degree to which design professionals should be liable to third parties for purely economic losses arising from their negligence. While numerous states take the view that such economic losses are barred, most states allow exceptions of various degrees that permit plaintiffs to recover against negligent design professionals. In Massachusetts, courts will find design professionals liable to a third party plaintiff if: (1) the consequences of their negligence are foreseeable when measured by an objective standard; (2) the injured party’s reliance on the defective services was reasonable; and (3) the design professional had actual knowledge of such reliance.
In this case, Earth Tech had informed the developer at the outset of the work that any deviations from the approved subdivision plans required Earth Tech’s prior approval. Further, the developer had retained its own engineering consultant to whom Meridian should have looked for adequate inspection of the contractor’s work during construction. In the end, the court concluded that Earth Tech owed no duty of care to the developer or its contractor with whom it had no contractual relationship because the developer did not act reasonably when it expected to rely on Earth Tech’s inspection services performed for the municipality. Given the terms of its contract and information it provided to the developer at the outset of the project, Earth Tech demonstrated it had no knowledge of Meridian’s reliance on its professional services.