Revisiting Foreseeability

Recent decision delivers consistency to design professionals for economic harm

October 11, 2022 Photo

Foreseeability is an issue that has been litigated repeatedly in Arizona, especially in the arena of tort litigation. In 1984, the Arizona Supreme Court, in Donnelly Const. Co. v. Oberg/Hunt/Gilleland, held that “[d]esign professionals have a duty to use ordinary skill, care, and diligence in rendering their professional services,” and confirmed that such liability extends to “foreseeable injuries to foreseeable victims which proximately result from…negligent performance of their professional services.”

Specifically, in Donnelly, Donnelly Construction Company was the contractor for site improvements for a school. The school hired an independent firm of architects, Oberg/Hunt/Gilleland (OHG). It was later discovered that the architectural plans and specifications prepared by OHG were in substantial error, which caused Donnelly increased costs to the project. Donnelly sued OHG for negligence, negligent misrepresentation, and breach of implied warranty regarding the inaccurate plans and specifications.

OHG argued there was no privity of contract and, therefore, it owed no duty of care to Donnelly. The Donnelly court disagreed with OHG and found that it was foreseeable that Donnelly was hired to follow OHG’s plans and specifications, and that any error in those plans and specifications would cause Donnelly to incur increased construction costs, i.e., economic damages, which it did. Accordingly, under Donnelly, a design professional’s duty of care extended to both persons in privity with the professional as well as those foreseeable victims affected by the breach of duty.

Over 20 years later, the issue of foreseeability was discussed again in Gipson v. Kasey, where the Arizona Supreme Court held that foreseeability is not a factor to be considered by courts when making determinations of duty in negligence actions. While Gipson is a personal injury case, the court was concerned with the fact that foreseeability involves a factual inquiry that “is more properly applied to the factual determinations of breach and causation than to the legal determination of duty.”

Thus, the Gipson court “enacted a sea change in Arizona tort law by removing foreseeability from our duty framework.” [see Quiroz v. ALCOA, Inc., 243 Ariz. 560, 565, 416 P.3d 824, 829 (2018)].

In 2018, the Arizona Supreme Court, in a lengthy asbestos opinion in Quiroz, again addressed the issue of foreseeability in tort litigation. The court discussed the different ways foreseeability could be used in tort litigation, from “foreseeable plaintiffs” in the zone of danger; to duty, breach of the relevant standard of care, and causation of injury.

The court clarified that “post-Gipson, to the extent our prior cases relied on foreseeability to determine duty, they are no longer valid.” Accordingly, the court stated that duty was based on special relationships and public policy only. The court held that an “employer owed no duty to the public regarding secondary asbestos exposure. No common law special relationship existed requiring the employer to protect the public from secondary asbestos exposure. Additionally, plaintiffs/appellants have identified no public policy giving rise to such a duty. Further, because we reject the duty framework contained in the ‘Restatement (Third) of Torts: Liability for Physical and Emotional Harm’ (Third Restatement), we hold that no duty exists on that basis.” 

So, where are we now? Recently, considering Gipson, the Arizona Supreme Court reexamined its holding in Donnelly that design professionals may be liable to third parties who suffer purely economic damages resulting from the design professional’s negligence.

In Cal-Am Properties Inc. v. Edais Eng’g Inc. No. 1 CA-CV 20-0279 (Ariz. Ct. App. Apr. 15, 2021), Cal-Am hired a contractor, VB Nickle, to survey a property and place construction stakes to mark the location of a building, and VB Nickle contracted with Edais Engineering for this work. Cal-Am discovered that Edais’ placement of the stakes for the building were in the wrong place, which meant that Cal-Am was unable to use a portion of the property. Accordingly, Cal-Am sued Edais for damages resulting from the negligent staking of the building. Edais conceded that it had improperly staked the location of the building. 

Unfortunately for Cal-Am, the court did not find in its favor. The Cal-Am court stated that “[w]hether a duty arises here or in any other context [it] must be analyzed under the post-Gipson duty framework.” The court specifically said that “[i]n Arizona, duties are based on either special relationships or on public policy.” 

Special relationships include those formed from contracts, joint undertakings, and family relationships, as well as landowner-invitee, employer-employee, tavern owner-patron, school-student, etc. The court stated, “Arizona has yet to recognize the relationship between a design professional and an owner as a categorical, special relationship. We decline to do so now.” Interestingly, the court left the door open for “the possibility that a duty may exist between design professionals and those not in privity with them,” however that duty still must be analyzed under Gipson.

Since there was no contractual relationship between Cal-Am and Edais, Cal-Am attempted to argue that “statutes and administrative regulations governing qualification and minimum standards for design professionals established a duty.”

The court, however, rejected this argument since the purpose of the statutes governing the work of architects, engineers, geologists, home inspectors, landscape architects, and surveyors is to provide for the safety, health, and welfare of the public; not the economic welfare for the wellbeing of others. Interpreting “welfare” to exclude economic welfare is also consistent with the general reluctance of courts to recognize tort duties “to exercise reasonable care for the purely economic wellbeing of others.”

Holding Edais owed no duty of care to Cal-Am “under Arizona’s post-Gipson framework—which repudiated foreseeability as a basis for duty—design professionals lacking privity of contract with project owners do not owe a duty to those owners to reimburse them for purely economic damages.” However, as noted by the court, “Donnelly’s demise does not insulate design professionals from legal consequence for their negligence.” Rather, absent public policy, liability for a design professional for its negligence now arises from contract in Arizona. 

Interestingly, the Arizona Supreme Court has now leveled the field between design professionals and subcontractors.  Previously, in Yanni v. Tucker Plumbing, Inc., 233 Ariz. 364, 312 P.3d 1130 (App. 2013), the Arizona Supreme Court held that lack of privity precluded homeowners from asserting direct claims against subcontractors for construction defects, albeit based on a duty of implied warranty of workmanship and habitability. The net effect, however, is the same. Privity of contract (or third-party beneficiary status) is necessary for an owner to sue a design professional or subcontractor for economic harm relating to design and construction defects in Arizona.

About The Authors
Multiple Contributors
Jill Ann Herman

Jill Ann Herman is a partner at Wood Smith Henning & Berman LLP.

Iulia Taranu

Iulia Taranu is an attorney with Christian Dichter & Sluga.

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