United States: Maryland: Economic Loss Rule Re-Affirmed

The Court of Special Appeals of Maryland recently reaffirmed the Economic Loss Rule to bar a general contractor's tort claims against an engineer. In Balfour Beatty Infrastructure, Inc. v. Rummel Klepper & Kahl, LLP, 130 A.3d 1024 (Md. Ct. Spec. App. 2016), general contractor Balfour Beatty Infrastructure, Inc. ("BBII") filed suit against design engineering firm Rummel Klepper & Kahl, LLP ("RK&K") seeking damages for economic losses, i.e., money damages only, arising from its alleged reliance upon RK&K's allegedly defective designs for two upgrade projects at the Patapsco Wastewater Treatment Plant in Baltimore, MD. The City of Baltimore utilized a "design-bid-build" project delivery method to facilitate the projects pursuant to which Baltimore contracted with RK&K to provide project designs. After RK&K completed its designs, Baltimore contracted separately with BBII as general contractor to complete the work. BBII and RK&K had no contractual relationship.

BBII's Complaint alleged that it sustained economic losses to remediate defects it attributed to RK&K's defective and delayed designs. More specifically, BBII alleged that RK&K defectively designed denitrification filter cells at the facility that leaked due to deficiently deigned expansion and contraction joints. BBII also alleged that RK&K's designs for the pipe support system for the denitrification filter cells were also defective and required remediation. Finally, BBII alleged that RK&K's delay in completing designs for the "second" project at the Wastewater Treatment Plant delayed BBII's completion of work on the denitrification filter cell project.

Causes of Action

Based upon the foregoing allegations, BBII's Complaint sets forth three tort causes of action sounding in (1) professional negligence, (2) violation of Restatement (Second) of Torts § 552 "Information Negligently Supplied for the Guidance of Others;" and (3) negligent misrepresentation.

With regard to its negligent misrepresentation claim, BBII alleged that an "intimate nexus" existed between RK&K's design and BBII's work that constituted the equivalent of contractual privity, that RK&K should have reasonably foreseen BBII's reliance upon its designs, and, RK&K deviated from its duty to BBII to act within the standard of care for a similarly situated engineer on a similar project. As a result, BBII claimed it sustained economic losses.

With regard to its claim under the Restatement (Second) of Torts § 552 "Information Negligently Supplied for the Guidance of Others," BBII alleged that "it suffered damages as a direct and proximate result of [RK&K's] failure to exercise reasonable care in preparing, supplying and communicating the design, including plans and specifications, for the Project." Id. (internal quotations omitted)

With regard to its negligent misrepresentation claim, BBII averred that "an intimate nexus and equivalent of contractual privity exist[ed]" because RK&K's and BBII's responsibilities overlapped during the design and construction phases of the project, and RK&K "knew that BBII would rely on RK&K's design and project duration schedule." As such, BBII sustained economic losses because RK&K knew, but deviated from its responsibility to inform BBII that its delayed design for the "second" project would delay and increase the cost to complete the denitrification cell project in excess of BBII's contract price.


The Court of Special Appeals affirmed the lower court's dismissal of BBII's tort causes of action against RK&K, holding that Maryland's economic loss rule barred Plaintiff's negligence and negligent misrepresentation claims as a matter of law. The Court explained that in Maryland, the economic loss rule generally holds that "a party cannot recover against another in tort where the resulting harm is purely economic loss and the parties have no contract between them." Id. (citing Robins Dry Dock & Repair Co. v. Flint, 275 U.S. 303, 48 S.Ct.134, 72 L.Ed. 290 (1927); see also U.S. Gypsum Co. v. Mayor and City Council of Baltimore, 336 Md. 145, 156 (1994). Within the context of construction matters, Maryland courts generally limit a construction contractor's ability "to recover for economic losses against a design professional where there is no contractual privity, to... situations involving death, personal injury, property damage, or the risk of death or serious personal injury." Id.

A narrow exception to the economic loss rule exists which allows a party to recover for economic losses even absent personal injury or property damage only if the party establishes an "intimate nexus" that constitutes a "privity equivalent" between the parties. However, the BBII court held "that in government construction matters...the intimate nexus analysis is not expanded to include 'privity equivalent' concepts of extra-contractual duty for the recovery of solely economic losses." The Court explained that BBII may recover from the City of Baltimore for providing defective specifications even if BBII's contract contains a "no-damage-for-delay-clause." United States v. Spearin, 248 U.S. 132 (1918)1; Dewey Jordan Inc. v. Maryland-Nat'l Capital Park & Planning Comm., 258 M.D. 490, 498 (1970). Moreover, the Court expressed concern that if it expanded Maryland law to allow BBII to recover against a design professional for claims sounding in tort, such expansion would detrimentally impact public safety interests by creating "...a chilling effect on a design professional's neutrality and ability to communicate effectively" with contractors. However, a footnote in the Court's decision limits its holding "...to cases involving government construction cases and do[es] not reach whether or not intimate nexus concepts of extra-contractual duty may be applied in a private-sector construction case." Id. n.12.

BBII's claim under the Restatement (Second) of Torts §552 failed because BBII did not plead "facts that establish RK&K provided "false information and failed to exercise reasonable care or competence" beyond a conclusory statement to such effect. The Court further deemed Plaintiff's §552 claim deficient because BBII was not a member of "the limited class to whom the [professional] intends to supply the information or to whom the [professional] knows the recipient intends to supply it, who suffers loss through reliance on the information for substantially the same purpose as the bona fide client." Id. (quotations omitted) In other words, §552 was intended to apply to circumstances where a sophisticated party provided information to a lay person, and the lay person suffered losses arising from reliance upon information the sophisticated party provided. Here, the Court deemed both BBII and RK&K sophisticated parties. As such, the Court deemed Plaintiff's cause of action deficient as a matter of law.


Though the BBII decision is certainly favorable for design professionals, the decision's import is limited to public projects. The Court clearly left the door open to re-visit the issue of whether the economic loss doctrine bars tort claims under similar circumstances within the context of private construction projects.


1 Spearin stands for the proposition that where the government provides specifications, it impliedly warrants the accuracy of its affirmative indications in the documents.

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