Article by: Joseph M. Fenech, Esq.
A homeowners association, on behalf of its members, sued a condominium developer and various other parties for construction design defects that allegedly made their homes unsafe and uninhabitable for a significant portion of the year. Two defendants were architectural firms that allegedly designed the homes in a negligent manner but did not make final decisions regarding how the homes would be built. Applying the Supreme Court’s decision in Bily v. Arthur Young & Company (1992) 3 Cal.4th 390, and relying on the Weseloh Family LTD. Partnership v. K. L. Weseloh Construction Company, Inc. (2004) 125 Cal.App.4th 152, the trial court sustained a demurrer in favor of the defendant architectural firms, reasoning that an architect who makes recommendations but not final decisions on construction has no duty of care to future homeowners with whom he has no contractual relationship. The Court of Appeal reversed, concluding that the architect owes a duty to homeowners in these circumstances, both under common law and under the Right to Repair Act (Civil Code Section 895 et seq.) The Supreme Court agreed and held that the homeowner may state a cause of action against a design professional for negligence.
Skidmore, Owings & Merrill LLP (SOM) and HKS, Inc., (HKS) were architectural firms (“defendants”) who provided architectural and engineering services to the Beacon Residential Condominiums (“the Project”), a residential community in San Francisco.
The Beacon Residential Community Association (BRCA) sued SOM and HKS. BRCA alleged numerous construction defects as a result of negligent architectural and engineering design and observation. BRCA also complained of “solar heat gain,” excessively high temperatures resulting from the defendants’ approval of inexpensive and nonfunctional windows, and a design lacking adequate ventilation within the residential units. The defendants were named in three causes of action: Civil Code Title 7 – Violation of Statutory Building Standards for Original Construction; Negligence Per Se in Violation of Statute; and Negligence of Design Professionals and Contractors.
The defendants demurred to the complaint, arguing that under Bily v. Arthur Young & Co.(1992) 3 Cal.4th 370 and Weseloh Family Ltd. Partnership v. K.L. Wessell Construction Co., Inc. (2004) 125 Cal.App.4th 152, they owed no duty of care to BRCA or its members. The trial court sustained the demurrers and dismissed the case. The trial court reasoned that liability could not be premised on negligent design because without privity of contract, BRCA was required to show that the design professionals had “control” in the construction process and assumed a role beyond that of providing design recommendations to the owner. The court believed that BRCA failed to meet its burden.
The Court of Appeal reversed, holding that BRCA could state a claim based on design liability that was recognized both under common law and statutory law. The Court distinguishedWeseloh, in which judgment was affirmed in favor of design engineers who were sued after a retaining wall failed. There, the outcome was premised on the evidentiary record before the court and was of limited guidance. The Court said that no California court has yet extendedWeseloh to categorically eliminate negligence liability of design professionals to foreseeable purchasers of residential construction. The Court also observed that in Cooper v. Jevne(1976) 56 Cal.App.3d 860, an architect’s duty of reasonable care is logically owed to those who purchase an allegedly defectively designed and built condominium.
The Supreme Court granted review. It began its discussion by pointing out that although liability for the supply of goods and services historically requires privity of contract between the supplier and the injured party, the significance of privity has been greatly eroded over the past century. The declining significance of privity had found its way into construction law. The Court noted that it had previously found that manufacturers of defective ladders, elevators, and tires could be liable to persons who were not in contractual privity with them but foreseeably injured by their products. Courts usually apply the same rule to someone responsible for part of a house; e.g., a defective railing.
In addition, the Court said that these third party liability principles had always been applied to architects where the architect plans and supervises the construction work and provides protection to any person who is foreseeably harmed. Generally, liability for deficient goods and services hinges on whether there is a relationship between the buyer and seller. However, the Supreme Court recognized that in certain circumstances a contractual relationship is not necessarily required. In this ruling, it relied on 50-year old precedents in Biankanja v. Irving(1958) 49 Cal.2nd 647. In Biankanja, the California Supreme Court outlined several factors which determine whether a duty of care is owed to non-contracted third parties. Biankanjaanalyzed many factors, including whether the declared harm was foreseeable from a defendant’s conduct and how close of a connection there was between the conduct and the injuries.
The Court recognized that even though the design firms did not actually build the project, they conducted weekly inspections, monitored contract compliance, monitored design elements when issues arose, and advised the owners of any non-conforming work. In applying theBiankanja factors to these circumstances, the Supreme Court determined the homeowners were intended beneficiaries of the design work, and the design in the project bore a close connection to the alleged injuries. As a result, the Supreme Court held that the allegations in the complaint were sufficient, and if proven, established that the defendants owed a duty of care to the homeowners association.
COMMENT AND EVALUATION
This case will affect how design professionals allocate risk of future residential projects, perhaps requiring their principals to insure them. However, design professionals are now larger targets in construction defect lawsuits, especially where there is a large design issue and a developer withdraws insurance coverage.
Undoubtedly, plaintiffs will attempt to expand architect/design liability in situations involving general contractors, subcontractors, and materials suppliers. This would have the greatest affect in situations involving a single family home where the architect is in privity of contract with the owner.
We expect that architects will now require that they be listed on the developer’s insurance policy(ies) and be contractually indemnified by the developers. As construction cases are getting increasingly more difficult to settle due to the lack of or exhaustion of insurance, expanding the liability of design professionals will give an added source of funding to settle cases. We expect a great deal of activity in this matter both in terms of litigation and in terms of insurance products being available to developers, contractors, design professionals and owners.