By: Kevin D. Koons

Suppose you are an architect or engineer who designs a new building or road, or maybe part of a building or road. You work months on the project, and the day finally comes when you turn over the project to the owner.  A year later, a crack develops in an overhang, and as a result, the overhang falls and injures a passerby.  That’s not your problem, because you’ve long been done with the project and turned it over to the owner, right?  Wrong.  This brief memo discusses the scope of liability that an architect, contractor, or design professional can have to injured third parties like the example above.  This information is important to know to properly allocate your risk in your contracts and in your pricing schedules.

A.           Building Construction and Other Real Estate Improvements

This section addresses professional tort liability when a person is injured as a result of faulty design or construction of a building or other improvement.  Until fairly recently, “a builder or architect’s responsibility to [injured] third parties terminated upon completion of the structure and acceptance by the owner.”[1] This rule was known as the “acceptance rule,” and was based on the idea that the builder or architect should be liable only to the person with whom he or she had a contract, but no one else. Under this rule, if a building collapsed and injured a member of the general public after a project was completed and turned over to the owner, the injured person could sue only the owner—not the contractor or architect.

In 1983, the Indiana Court of Appeals recognized that courts had gradually started moving away from the “acceptance rule.”[2] In 1985, the Indiana Supreme Court further retreated from the rule, deciding that an design professional could be liable to an injured person with whom he had no contract if his work “present[ed] imminent danger to the health and safety of not only the party he contracts with but to other members of the public” for personal injuries.[3] The Court indicated that its holding was limited to personal injuries based on “humanitarian principles” and did not extend the rule to cover property damage, stating that “[n]o such humanitarian principle exists for the recovery of loss of property.”[4]

In 2004, the Indiana Supreme Court retreated entirely from the “acceptance rule,” holding instead that even after an owner has accepted the design professional’s work, an architect or contractor “has a duty to use reasonable care both in his or her work and in the course of performance of the work.”[5] Moreover, that duty is owed to anyone “who might be reasonably be foreseen as being subject to injury by the breach of the duty,”[6] regardless of whether the architect or contractor had a contract with the injured party.

Thus, since 2004, Indiana law provides that contractors, architects, and engineers owe duties of careful design and construction to anyone from the general public who might be reasonably be foreseen as being subject to personal injuries from a defect in the design or construction of a building.

B.           Design or Engineering Services Relating to Non-Construction Activities

Indiana courts apply a different set of standards when the design professional is engaged in services other than construction-related activities. For example, in the case of inspection services, when is the inspecting professional liable for failing to warn of defects in a building or structure? As a general rule, the mere fact that a person should realize that action on his part is necessary for another’s aid or protection (e.g., to warn of a dangerous condition) does not of itself impose upon him a duty to take such action.[7] For example, if a design professional is simply patronizing a local coffee shop as a customer and notices a serious and dangerous building design defect, he is under no legal duty to warn others of that defect, and if another customer is injured, he is not liable.

However, the law recognizes that a design professional can assume a duty to protect others from harm, and in some instances the law will hold the design professional responsible for the resulting personal injuries of others.  Under the Section 324A of the Restatement of Torts (which Indiana has adopted),[8]

One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of a third person or his things, is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to protect his undertaking, if

(a)  his failure to exercise reasonable care increases the risk of such harm, or

(b)  he has undertaken to perform a duty owed by the other to the third person, or

(c)  the harm is suffered because of reliance of the other or the third person upon the undertaking.[9]

 

Under this rule, if a design professional has undertaken to render professional services to his local coffee shop to inspect for building defects and report them, he could be held liable for personal injuries if he should recognize that his services are necessary for the protection of others, such as the shop’s customers and vendors, and one of the following applies: (a) he has increased the risk of injury to customers (e.g., in the course of performing his inspection, he made the defective condition even worse), (b) he has undertaken a duty that the coffee shop owner owes to his customers (e.g., he contractually agreed to perform a business owner’s legal duty to inspect the premises for latent defects), or (c) the coffee shop owner or its customers has relied on the design professional’s services.

Thus, while a design professional does not generally owe a duty to warn others of building defects that he sees, he can contractually or even gratuitously assume those duties in such a way as to be liable to members of the general public who are injured as a result of his failing to warn them.