The construction industry extensively relies upon the use of written contracts to establish duties and to allocate risk. When defects occur on a project, a party's ability to recover is governed by the existence of its contractual relationships, as well as the type of damages it seeks to collect. In Indiana, where the aggrieved party’s losses are solely economic in nature, it may look to recover only from those with whom it has contracted. Indianapolis-Marion County Public Library v. Charlier Clark & Linard, P.C., 929 N.E.2d 722 (Ind. 2010).
In IMCPL, the Indiana Supreme Court emphatically reaffirmed the application of the economic loss doctrine to construction disputes in Indiana. The owner engaged the services of an architect ("WMP") on its massive expansion and renovation project. WMP later subcontracted a portion of its design, engineering and consulting obligations to Thornton Thomasetti Engineers (“TTE”) and Charlier Clark & Linard, P.C. (“CCL”). There was no direct contract between the owner and either TTE or CCL. After significant construction and design defects were discovered, the owner sued (amongst others) TTE and CCL and sought from both the recovery of (a) material, equipment and labor costs for repairs, (b) expert and consulting fees incurred during the repair process, (c) increased insurance premiums and costs of utilities, and (d) extended rental fees. Critically, the owner did not incur any personal injury, nor did it sustain any damage to property other than the defectively designed and constructed library. The trial court dismissed the owner’s negligence claims against TTE and CCL and the Supreme Court affirmed, relying upon the economic loss doctrine.
The owner argued that the economic loss doctrine should not bar its negligence claims against TTE and CCL. First, the owner asserted that TTE’s and CCL’s negligence contributed to the unstable condition of the structure. The owner claimed that, although no personal injuries had been suffered, there was an imminent risk of danger and safety concerns to the public resulting from the instability and that this condition should trump the application of the doctrine. The Supreme Court disagreed and held that the economic loss doctrine applies notwithstanding the presence of an imminent risk of danger. This is an important pronouncement from the Court. An owner would literally have to wait for its unstable structure to fall to the ground and potentially injure or kill its employees or members of the public at large before it could sue certain contractors or design professionals in negligence for construction or design flaws. Second, the owner argued that it should be permitted to seek recovery from TTE and CCL because both entities were professionals who provided services (rather than tangible products). Again the Supreme Court disagreed, holding that the economic loss doctrine applies to claims against design professionals who provide only professional services.
The Court ultimately held that “there is no liability in tort to the owner of a major construction project for pure economic loss caused unintentionally by contractors, subcontractors, engineers, design professionals, or others engaged in the project with whom the project owner, whether or not technically in privity of contract, is connected through a network or chain of contracts.” Id. at 740. While the owner in IMCPL may have had recourse for certain of its losses and claims, its remedies were against only those with whom it had directly contracted. Contractors and design professionals in Indiana are clearly insulated from potential tort liability when the owner (or another contractor) seeks recovery for economic losses (i.e. costs of repair or replacement, diminution in value, lost profits, etc.).