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Nevada’s Economic Loss Doctrine Prevents Negligence Claims Against Design Professionals Where Only Economic Loss Has Occurred.

March 21, 2014 by
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Economic Loss DoctrineNevada courts and judges spend lots of time dealing with construction defect disputes.  During the economic boom, Nevada designers and builders put up many residential and commercial buildings.  Some were well designed and built.  Others?  Not so much!  The case of Terracon Consultants Western, Inc. v. Mandalay Resort Gp., 125 Nev. 66, 206 P.3d 81 (2009) was just one of those construction defect suits.

What often happens in a construction defect suits is that the owners who find construction problems sue the general contractor and a few subs who may have caused the problems.  Then the general sues others who they think might be at fault.  Then in turn they sue other subs who then sue others with plenty of cross-claims and counterclaims to go around.  Construction defect defense lawyers often joke that the only reason they are in the suit is because their contractor simply walked on the project. 

The Terracon case involved the construction of the Mandalay Resort and Casino.  Terracon provided geotechnical engineering services.  It made calculations about how much weight the soil could bear.  On the other hand, Lochsa and Klai-Juba provided architectural and engineering services in designing the building.   When construction began, the building settled more than anticipated.  That raised the ultimate price for Mandalay.  Mandalay sued Terracon alleging breach of contract, breach of covenant of good faith and fair dealing and professional negligence arguing that the soil wasn’t sturdy enough.  Terracon in turn sued Lochsa and Klai-Juba saying the building was too heavy.  Terracon also alleged professional negligence.

However, there was one thing that all three could agree on.  None of them knew whether Nevada law allowed professional negligence claims against design and engineer professionals where only economic loss occurred.

When these three turned to the court, the U.S. District Court, District of Nevada for the answer, that court didn’t know either.  So the U.S. District Court certified a question to the Nevada Supreme Court under Nevada Rule of Appellate Procedure 5.  The question to the Nevada Supreme court was:

Does the economic loss doctrine apply to preclude negligence-based claims against design professionals, such as engineers and architects, who provide services in the commercial property development or improvement process, when the plaintiffs seek to recover purely economic losses?

The court explained the economic loss doctrine as follows:

Applying the economic loss doctrine to accomplish its general purpose, this court has concluded that the doctrine bars unintentional tort actions when the plaintiff seeks to recover “purely economic losses.” See Local Joint Exec. Bd. v. Stern, 98 Nev. 409, 411, 651 P.2d 637, 638 (1982). Nevertheless, as set forth below, exceptions to the doctrine apply in certain categories of cases when strong countervailing considerations weigh in favor of imposing liability. See generally Barber Lines A/S v. M/V Donau Maru, 764 F.2d 50 (1st Cir.1985).

The court went on to list some of those exceptions to the general rule.  The court said the exceptions included:

certain categories of cases, such as negligent misrepresentation and professional negligence actions against attorneys, accountants, real estate professionals, and insurance brokers. See, e.g., Goodrich & Pennington v. J.R. Woolard, 120 Nev. 777, 101 P.3d 792 (2004); Hewitt v. Allen, 118 Nev. 216, 43 P.3d 345 (2002); Choi v. Chase Manhattan Mortg. Co., 63 F.Supp.2d 874, 883-85 (N.D.Ill.1999); 2314 Lincoln Park West Condo. v. Mann, 136 Ill.2d 302, 144 Ill.Dec. 227, 555 N.E.2d 346, 353 (1990).

The court ultimately decided that the economic loss doctrine should prevented tort claims against engineers and architects.  The court found that economic losses in construction projects were best addressed by contract and not tort law.  The court said that Mandalay suffered only economic losses with no personal injury or property damage.  Without actually deciding the issue, the court said that Mandalay’s professional negligence claims against Terracon andTerracon’s third-party claims against the architect should be dismissed.

If you have questions about Nevada’s economic loss doctrine, don’t hesitate to call Mike Mills at Mills & Associates.  He will gladly speak to you about whether the economic loss doctrine can be used to your benefit.  Mike can be reached at 702-240-6060×114 or you can email him at mike@mcmillslaw.com.

Filed Under: Construction Defect Litigation, Design Professional Malpractice, Economic Loss Doctrine, Professional Liability
About Michael Mills

Mr. Mills practices in the area of civil litigation and appeals, with particular experience in matters involving trucking liability, insurance defense, insurance coverage, premises liability, products liability and defense of personal injury. Mr. Mills is a member of the Trucking Insurance Defense Association, the Defense Research Institute Trucking Committee and the Nevada Motor Transport Association. Mr. Mills is licensed to practice before the Nevada Supreme Court and the Utah Supreme Court. He is also licensed to appear before the United States Supreme Court, the U.S. District Courts for the Districts of Nevada and Utah, as well as the U.S. Court of Appeals for the Ninth Circuit. Mr. Mills has created 3 Blogs for the benefit of the insurance industry. He serves as editor and publisher of the Nevada Insurance Law Blog, the Nevada Coverage and Bad Faith Blog and the Nevada Trucking Law Blog.

 
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