Economic Loss Rule and the Design Professional

Several years ago, Colorado courts adopted a version of the economic loss rule. As articulated through court decisions, when a party is injured due to a duty that arises from contract, the injured party’s remedies are limited to contractual damages. A claim for negligence or other tort can be asserted only if 1) the defendant owes a duty under law that is independent from the contract and 2) breach of that duty would not also be a breach of contract.  As many design and construction professionals perform their services under contract, a clearer articulation of the applicability of the economic loss rule to design professionals was needed. In Stan Clauson Assocs. v. Coleman Bros. Constr., LLC, the Court of Appeals provided parties with rules as to its applicability in design settings. It held that design professionals are held to duties and standards of care set forth in the contract, and that where no such standard of performance is contained in the contract, the professional owes an independent duty to fulfill performance in a manner consistent with members of the profession in good standing. This duty is independent of the services agreement, and provides a basis for tort relief. However, the Court went on, where the contract incorporates a standard of care, the economic loss rule will bar the independent claim of tort.  The practical implication of having the economic loss rule apply is that remedies provided for by tort law, which are more expansive than those available under contract, can be minimized by a negotiated contract. Risk allocation under contract can limit the exposure of a design professional for errors and omissions, particularly for economic losses. Thus, when effectively drafted, the design contract can be an important defense in defending a design professional on a claim for errors and omissions.  The Court of Appeals also addressed an open question of which professions had the independent duty under Colorado law. It limited imposing the independent duty to those professions identified and regulated by Colorado statute. In Clauson, the Court held that since land planning was not a profession regulated under any Colorado statute, and since there was no duty or standard at common law owed by a land planner in Colorado, there was no claim of tort available to the injured party. It specifically rejected the argument that a trade association’s standards [the American Institute of Certified Planners] established a legally enforceable standard of care.  Besides a clear articulation of the law of the economic loss rule as applied to design professionals, however, the decision had an additional benefit to design professionals. The Court held that an expert’s opinion as to the best practices of a type of service does not necessarily establish a legally enforceable duty of care independent of the applicable service agreement. It also affirmed an eighty year old case that distinguished between a violation of professional ethics and a breach of a legal duty, meaning that the ethics of a given profession do not necessarily establish duties owed to the general public. This holding provides invaluable assistance in arguing what is the appropriate standard of care. Counsel now has legal support for arguing that “design choice” and “alternate design” do not automatically establish a breach of the duty or create an issue of facts concerning the standards expected of a design professional.