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Maryland’s Economic Loss Rule Affirmed by Maryland Court of Special Appeals

March 2, 2016 By Steven R. Migdal

In the recent case of Balfour Beatty Infrastructure v Rummel Klepper & Kahl, No. 496, September Term 2014, decided on January 28, 2016, the Maryland Court of Special Appeals affirmed the principle known as the “economic loss rule” in Maryland. This rule of law holds that in the construction industry, in the absence of contractual privity, death, injury or the genuine risk of death or serious personal injury or property damage, there can be no recovery of purely economic damages in a negligence case.
This case involved a lawsuit brought by a contractor against an engineering firm both of whom were working on a project for the City of Baltimore. The contractor claimed that the engineer’s defective designs and mistaken timeline projections resulted in delays and complications that cost the contractor millions of dollars in added time and expenses to remediate the problems that arose on the job. There was no contractual relationship between the contractor and the engineering firm. Nevertheless, the contractor argued that because it heavily relied on the engineer’s designs and project schedules, that an “intimate nexus” and “contractual privity equivalent” existed to allow it to bring its claims for negligence, professional negligence, and negligent misrepresentation against the engineer.
The lower court rejected the contractor’s claims and dismissed the case and that ruling was affirmed on appeal. The court held that there was no privity between the parties giving rise to a tort duty under Maryland law. The court relied on longstanding Maryland case law that holds that there can be no negligence where no duty exists. Since the damages alleged by the contractor were purely economic in nature, the engineering firm owed no duty to the contractor under the circumstances here. The court noted that the lawsuit did not allege any facts to suggest there was a risk of serious injury, death or property damage to overcome the privity requirement. The court also noted that no Maryland appellate court has ever applied the “privity equivalent” test in a construction case claiming economic damages against a design professional and no exception was going to be made in this case.
The court also reasoned that a contractor performing work on a government design-bid-building contract is typically covered by its contract with the government against the risk of loss arising from defective engineering designs. Therefore, the court was not going to extend the economic loss rule to allow a contractor to sue the design professional directly absent a contract between them. The lesson to be learned here for contractors is to make sure you are financially protected in your contract with the project owner/developer because that may be your only recourse if you end up with unexpected costs and expenses caused by delays and defective work done by others working on that same job.