Professional negligence and negligent misrepresentation against design professionals are significantly different. With the exception of having to prove conduct that deviated from the professional’s standard of care, these tort theories require different proof and do not overlap. However, the line of demarcation between the two is becoming increasingly blurred. More and more, when plaintiffs are faced with the Pennsylvania Economic Loss Doctrine defense to a professional negligence claim because of a lack of contractual privity, they attempt to reclassify their claim to one of negligent misrepresentation without properly amending their allegations.
This reclassification without amendment has wide-reaching impacts ranging from the statute of limitations defense to inefficient discovery, including second depositions of witnesses who have already testified. The absence of privity demonstrates the lack of a professional relationship, suggesting that the pleaded claim is one for ordinary negligence. Unpredictability and inefficiency are the inevitable result of the blurred lines of demarcation between professional negligence and negligent misrepresentation. Further, litigants and courts appear to be grappling with the applicability of the certificate of merit rules relative to each tort theory.
In order to understand the problem, one must first understand the difference between professional negligence and ordinary negligence. As stated by the Pennsylvania Superior Court, “two questions are involved in determining whether a claim alleges ordinary negligence as opposed to professional negligence: ‘(1) whether the claim pertains to an action that occurred within the course of a professional relationship; and (2) whether the claim raises questions of professional judgment beyond the realm of common knowledge and experience,’” which the court held in Sabella v. Estate of Milides , 992 A.2d 180, 187 (Pa.Super. 2010). The differences between professional and ordinary negligence are: (1) the need for a professional relationship (i.e., contractual privity); and (2) expert testimony relative to the breach of the standard of care and the clarification of complex issues, as in Merlini v. Gallitzin Water Authority , 602 Pa. 346, 354-55, 980 A.2d 502, 506-07.
A closer reading of the cases may reveal that a professional negligence claim is one that focuses on the professional services provided versus some conduct incidental to the professional services rendered. The Superior Court has determined that a certificate of merit is not required for ordinary negligence claims. However, it would seem that claims where a design professional’s services deviated from the standard of care should be subject to the certificate of merit rule. Otherwise, a party without a professional relationship has easier access to pleading a valid claim than the person who actually hired the professional.
As mentioned previously, a cause of action for professional negligence against a design professional for purely economic losses (i.e., no property damage or personal injuries) requires contractual privity. Conversely, a claim for negligent misrepresentation against a design professional, as detailed in Bilt-Rite Contractors. v. The Architectural Studio , 581 Pa. 454, 866 A.2d 270 (2005), is based on false information supplied by a design professional to a third party that is reasonably relied on by that third party to its detriment. In Bilt-Rite , the Pennsylvania Supreme Court determined that a third party’s claim for negligent misrepresentation is not barred by the economic loss doctrine. Here, the Supreme Court also noted the necessity to plead and prove false information that is justifiably relied upon to the third party’s detriment.
Consequently, there are critical distinctions between the tort actions of professional negligence and negligent misrepresentation, which should prevent reclassification without significant amendment to the asserted claim. In a professional negligence case, a plaintiff must plead: (1) a professional relationship creating a duty by the defendant to the plaintiff; (2) a breach of the standard of care in the performance of that duty; and (3) the breach of the standard of care caused damages to the plaintiff, as in Sabella . In Pennsylvania, there is no exception to the economic loss doctrine for professional negligence actions where there is no privity of contract. See Rapidigm Inc. v. ATM Management Services , 2003 WL 23146480, 63 Pa.D. & C.4th 234, 240 (Allegheny County, J. Wettick 2003). Pennsylvania courts have determined that economic losses by a party, absent privity of contract, are too remote to be considered foreseeable. See Moore v. Pavex Inc ., 356 Pa. Super. 50, 55, 514 A.2d 137, 139 (1986); Aikens v. Baltimore & Ohio R. Co ., 348 Pa. Super. 17, 21, 501 A. 2d 277, 279. Therefore, absent contractual privity, a claim for professional negligence against a design professional for purely economic losses should be subject to summary dismissal.
In a negligent misrepresentation case, a plaintiff must plead (1) a misrepresentation of material fact; (2) that the misrepresentation of material fact was made under circumstances in which the misrepresenter ought to have known of its falsity; (3) the misrepresenter had an intent to induce another party to act on the representation; and (4) an injury to a party acting in justifiable reliance on the misrepresentation. As against design professionals, the Pennsylvania Supreme Court adopted slightly different elements as stated under the Restatement (Second) of Torts , Section 552, but still requires false information to be asserted and justifiably relied upon. Section 552 states:
“One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.”
The Bilt-Rite court went on to explain that under Section 552, “the tort is narrowly tailored, as it applies only to those businesses which provide services and/or information that they know will be relied upon by third parties in their business endeavors.” Therefore, in Pennsylvania, the tort of negligent misrepresentation as applicable to design professionals is limited to foreseeable third parties that enjoyed a right to be guided by the information that the design professional provided. As discussed earlier, ordinary negligence and professional negligence are distinguished by this lack of a professional relationship. Therefore, in pursuit of a negligent misrepresentation, a third party must prove more than negligence to recover damages. Negligent misrepresentation requires additional proof of (1) a false statement and (2) justifiable detrimental reliance. If these two elements did not exist, then claims alleged by third parties could proceed based upon negligent design without the necessity of meeting the requirements of a certificate of merit. As such, a third party would have easier access to the courts than a client of the design professional — an illogical result.
A post- Bilt-Rite decision that sometimes raises confusion is the Pennsylvania Superior Court’s opinion in Excavation Technologies v. Columbia Gas Co. of Pennsylvania , 936 A.2d 111, 2007 Pa. Super 327 (Pa. Super 2007), where the court discussed the concept of foreseeability in negligent misrepresentation claims without involving a professional or professional negligence. Although the ensuing dictum in the case failed to extend the tort of negligent misrepresentation, the requirements to plead a prima facie claim should not be interpreted to mean that people lacking privity of contract with a design professional can recover economic damages under a negligence theory.
In Excavation Technologies , a contractor sued a utility company under a negligent misrepresentation theory for the alleged failure to properly mark underground utilities, which caused damages to the contractor. The court detailed the elements of a negligent misrepresentation claim as set out in Bilt-Rite ; however, the court also explained that the tort of negligent misrepresentation was limited in scope to apply to: (1) people the information provider knows exist; (2) people who are contemplating a specific commercial transaction that the information provider knows about; and (3) people whom the information provider intends to influence in that transaction by using the provider’s information.
The Supreme Court affirmed the Superior Court’s decision and did not expand the tort of negligent misrepresentation beyond the specific exception to the economic loss doctrine adopted in Bilt-Rite . To succeed on a cause of action for negligent misrepresentation for detrimentally relying on negligently supplied false information, a claimant would have to be a foreseeable third party who had the right to be guided by the information the design professional provided. Absent this specific circumstance, which fits both the test set forth in Bilt-Rite and the Restatement (Second) of Torts , a party is barred from suing a design professional for purely economic losses.
To retain a more balanced court system, it is important these common tort claims against design professionals be kept within their defined boundaries. Otherwise, we will soon be faced with design professionals who are defending claims brought by nonclients that their own clients could not file for failure to meet the certificate of merit requirements. This is an illogical but inevitable result if the courts do not require plaintiffs to plead and prove false information and justifiable detrimental reliance when pursuing a negligent misrepresentation claim. •
Michael J. Cremonese is co-chair of the construction group at Burns White, where he represents architects, engineers and design-builders throughout all phases of the design and building process. He can be reached at email@example.com.
Andrew J. Fuga concentrates his practice in construction law and litigation, representing design professionals in matters involving claims for delay, design-related claims, contractual disputes and payment claims. He can be reached at firstname.lastname@example.org.