This month, we begin with a case from the Supreme Court of Ohio. The Court was asked to determine whether the failure to present evidence of the diminution in value of property is fatal to an award of damages for temporary injury to property. Our second case comes from the Court of Appeals for Franklin County, where a school district and the OSFC sued a design professional for allegedly failing to follow an Ohio School Design Manual requirement in the design of an HVAC system.

Ohio Supreme Court Modifies Elements of Claim for Temporary Damage to Non-Commercial Real Estate

In its first decision of 2009, the Ohio Supreme Court issued a unanimous opinion in Martin v. Design Construction Services, 2009-Ohio-1, confirming that the failure to present evidence of diminution in value of property is not fatal to an award of damages for temporary injury to property (i.e. damage capable of being repaired).

In 1998, Design Construction Services constructed a home owned by Michael and Jennifer Martin. During the construction of the home, the builder caused two concrete walls in the garage to crack and flex outward. The builder temporarily repaired the garage by filling the block walls with grout prior to its sale to the Martins in the summer of 2000.

Unfortunately, the builder’s attempted repairs did not hold. When the cracks began to widen in 2004, the Martins hired a professional engineer and several contractors who revealed that the problems in the garage were structural (i.e. the subjacent footers were not buried far enough below the frost line). After the Martins were forced to replace the two garage walls and repair the footers at their own cost, they filed a lawsuit against the builder alleging breach of warranty and negligent construction.

At trial, the jury awarded the Martins $11,770 as the reasonable cost of repairing the defects in the garage walls. The jury interrogatories indicated that the builder was found to have been negligent, but that the Martins had not proved the diminution in the value of their home as a result of the construction defects.

The builder appealed on the ground that the Martins failed to prove an essential element of their claims – specifically, the difference in the market value of the property with and without the defect (also know as diminution in value). The appellate court agreed, concluding that a claim of temporary damage to property requires proof of diminution in value. Because the appellate court’s decision was in conflict with other Ohio appellate court decisions, the Ohio Supreme Court accepted the case for review.

The simple issue addressed by the Supreme Court involved whether proof of diminution in the market value of property is necessary to recover damages for temporary injury to property. The Supreme Court answered in the negative. But, the Court did note that “either party may offer evidence of diminution of the market value of property as a factor bearing on the reasonableness of the cost of restoration.”

In order to reach this conclusion, the Court acknowledged its longstanding rule established in Ohio Collieries v. Cocke, 107 Ohio St. 238, that when there has been temporary damage to property, the measure of damages equals the cost of repair unless the cost of repair exceeds the diminution in value. In that case, the diminution in value becomes the measure of damages.

The Court then explained that this principle had been modified by two subsequent decisions in which the Court shifted from a “diminution-of-market-value approach to a reasonable-cost-of-repair approach for temporary damage” to property. As a result, the Court confirmed that the failure to present evidence of diminution in value is not fatal to a claim for damages resulting from a temporary injury to property.

Appellate Court Affirms Dismissal of Engineer’s Contribution and Indemnification Claims Against School District and OSFC

Architects and engineers frequently work together during the design process. An architect may hire an engineer for the design of the structural or mechanical portions of a building. In Waverly City School District Board of Education et al., v. Triad Architects, Inc., v. National Engineering, Ltd., v. A.J. Stockmeister, Inc., 2008 Ohio App. LEXIS 5770, the architect hired an engineering design firm for the design of the HVAC systems. Problems eventually arose with the HVAC system resulting in numerous claims.

In Waverly, a school district, in conjunction with the Ohio Schools Facilities Commission (OSFC), undertook a construction project that involved the demolition of multiple buildings and the construction of four new school buildings. The school district hired an architecture firm to design the buildings. The architecture firm in turn hired an engineering design firm to design the heating, ventilation, and air conditioning systems. There was neither a written contract between the architect and the engineer nor a contract between the engineer and the district or OSFC.

The four school buildings opened for classes in December. Soon after, the freezer coils for the HVAC system froze and caused damage. The school district filed claims against the architect who, in turn, filed claims against the engineer. The school district and the OSFC apparently alleged that “in contrast to an Ohio School Design Manual requirement for the inclusion of a variable flow cooling system in the HVAC systems, [the architect] designed systems, in part, for constant flow piping.” The engineer responded by filing claims against the school district, the OSFC, and the contractor that installed the HVAC system.

The engineer claimed that the school district, the OSFC, and the contractor were jointly responsible for the damages and were liable to the engineer for contribution under the Ohio Revised Code sections 2307.22 through 2307.25.

The trial court ruled that the engineer’s claims against the district, the OSFC, and the contractor for contribution were barred by the economic loss doctrine and that there were no claims in the engineer’s complaint that would support a claim for indemnity.

The Ohio Supreme Court, in Corporex Dev. & Constr. Mgt., Inc. v. Shook, Inc., 106 Ohio St. 3d 412, previously held that the economic loss doctrine prevents recovery in tort for purely economic damages. For one to recovery for purely economic damages, there needs to be privity of contract. Where there is no privity of contract, or a sufficient nexus to take the place of privity of contract, there can be no recovery for purely economic loss where a party sues another in tort.

In Floor Craft Floor Covering, Inc. v. Parma Community Gen. Hosp. Assn. (1990), 54 Ohio St. 3d 1, the Ohio Supreme Court previously held that the economic loss doctrine is based on the general principle that where there is no privity of contract, there is no duty to exercise reasonable care to avoid “intangible economic loss or losses to others that do not arise from tangible physical harm to persons and tangible things.”

The appellate court, however, indicated that the statutory code section for contribution referred to by the engineer applies when the party claiming contribution is a joint tortfeasor stating a claim against another joint tortfeasor. The court then indicated that the engineer had not been found liable for a tort, and none of the other parties have claimed that the engineer is responsible in tort. In fact, the claim against the engineer was one in contract brought by the architect. The court dismissed the engineer’s claim.

The engineer also claimed there was an implied contract of indemnity between it and the district, the OSFC, and the contractor that installed the equipment. The argument offered by the engineer was based on a theory that the engineer was secondarily liable for the damage, and the school district, the OSFC, and the contractor were primarily liable. The idea being that the engineer, being secondarily liable, should be able to recoup its losses from those primarily liable for the damages.

The court indicated that this argument exists where there is a special relationship between parties allegedly responsible for the damage. Courts have found that relationships such as wholesaler/retailer, abutting property owner/municipality, independent contractor/ employer, and master/servant meet this standard.

Here, the engineer’s only relationship was with the architect, and that relationship was as the architect’s subcontractor. There was no relationship between the engineer and the school district, the OSFC, or the contractor. Since the required relationship did not exist, the engineer could not claim that there was an implied contract of indemnity between the engineer and the school district, the OSFC, or the contractor.