United States: Design Professionals May Be Liable For Economic Loss Caused to Residential Homeowners Under California's SB 800 Law

United States: Design Professionals May Be Liable For Economic Loss Caused to Residential Homeowners Under California's SB 800 Law

Source: http://www.mondaq.com, October 25, 2013
By: Scott Hennigh, Sheppard Mullin Richter & Hampton

Typically an architect is liable under its contract to the owner if it negligently creates a defective design. But whether an architect is liable for the effects of a defective design on parties with whom it has no contract has traditionally been a more complicated legal question. That liability question becomes further complicated when defective design does not cause property damage, but rather a diminished value of the property which is known in the law as strict “economic loss”. Usually economic loss is not recoverable unless the parties are in “privity” (meaning that they have a contract with one another). But a California Appellate Court recently held that in residential construction, design professionals can be responsible for economic loss that their defective design causes to parties that never contracted to hire them.

The Appellate Court told a trial court to reinstate a complaint brought by an association of condominium owners who sued the architect that had originally designed their condominiums for a developer. The trial court adopted the architect’s argument that it had no liability without a contract with the condominium owners. But the appellate court based its ruling on two things. First, it determined that under a line of cases dating back 50 years, design professionals may have a duty of care to third parties if a certain checklist of factors is met concerning the foreseeability of impact to the third parties such that it creates a special relationship. Second, it determined that California’s SB 800 was intended to create responsibility for design professionals. SB 800 was State legislation passed in response to a California Supreme Court case in 2000 named Aas v. Superior Court that prevented homeowner lawsuits for buildings not built to code, but which had not suffered any property damage. The court held that SB 800 was passed with the legislature interpreting then-existing law as creating such liability for design professionals, and that the statute’s language reiterated such liability. Thus, the court held that that condominium owners could directly sue the original architect for the diminished value or cost of repair of their defectively designed condominiums. The case is Beacon Residential Community Assn. v. Skidmore, Owings & Merrill LLP (2012) 211 Cal. App. 4th 1301.

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