In the case of Baker v. Reese Bros. (decided October 19, 2012), the Commonwealth Court of Pennsylvania upheld a decision by the Court of Common Pleas of Somerset County to not apply the Economic Loss Doctrine to bar the homeowner’s claim for negligence against a third-party code inspector.
Baker, a homeowner in Somerset County, entered into a contract with Reese Bros. and Knieriem Construction to perform construction related services to the Baker residence. Somerset County Building Inspection, LLC (“SCBI”) was engaged by the local municipality to, inter alia, review plans, issue a building permit and inspect the construction to ensure that the construction conformed with code. SCBI, a private, for-profit limited liability company, was a certified third-party agency under the Pennsylvania Construction Code Act (“PCCA”) to perform plan review of construction documents, inspect construction, and enforce codes and regulations under Pennsylvania law.
Baker directly paid SCBI a total of $4,226.00 for the building permit and inspections. After construction, Baker noticed structural deficiencies relating to the timber framing and confirmed through a design professional that the structure did not conform to the applicable building code and was inhabitable.
Baker brought a cause of action against Reese Bros. and Knieriem Construction, the general contractors, as wells as against SCBI. Baker’s claim against SCBI was under the theory of negligence. SCBI filed a motion for summary judgment against Baker seeking to have the court apply the Economic Loss Doctrine to bar Baker’s claim for negligence against SCBI. The court refused to apply the Economic Loss Doctrine because the court found that (1) although not contractual, SCBI did have a direct relationship with Baker, and (2) SCBI had a statutory duty under the regulations promulgated under the PCCA to notify a permit holder, like Baker, whether the construction complies or fails to comply with the applicable building code.
After granting SCBI’s permission to appeal, SCBI appealed to the Commonwealth Court arguing that the lower court erred in not applying the Economic Loss Doctrine to bar Baker’s claim for negligence against SCBI. The Commonwealth Court, on appeal, affirmed the lower court’s decision based upon SCBI’s statutory duty under the PCCA. The Commonwealth Court noted that SCBI, as a certified third-party agency under the PCCA, was required under the PCCA regulations to carry “errors and omission liability insurance” for any potential misfeasance. The Court stated that it would be “ludicrous to believe” that such regulatory requirement to carry errors and omission liability insurance was not intended to cover the liability at issue in the case.
Although not mentioned anywhere in the Court’s opinion, it would be interesting to know whether the errors and omission liability insurance carried by SCBI actually does cover the claims brought by Baker against SCBI, whether the insurance carrier has agreed to defend such claims on behalf of SCBI, and whether this would matter to the Court ultimately.
such is a factor in determining whether the Economic Loss Doctrine should be applied, it will be interesting to know whether the errors and omission liability insurance carried by SCBI actually does cover the claims brought by Baker against SCBI and whether the insurance carrier has agreed to defend such claims on behalf of SCBI.