For the past two decades, architects have somewhat successfully managed to keep their hands clean of the surge of construction defect litigation that has swept through California. They have been successful for two reasons: (1) many California contractors utilize general contracts drafted by the American Institute of Architects (AIA) that contain defense and indemnity language extremely favorable to architects, and (2) beginning with the Bily decision in 1992 and continuing with the Weseloh decision in 2004, architects have often found support for the position that they do not owe a general duty of care to third-parties with which they did not directly contract (i.e. homebuyers and HOAs). Earlier this month, the California Supreme Court unanimously struck down this second leg of support in holding that architects, like attorneys and most others offering professional advice, owe a duty of care to third-party beneficiaries regardless of privity of contract.
To understand the Beacon decision one first needs a brief understanding of the history of tort liability in the construction industry. Traditionally, a builder of a structure or a supplier of goods or services had no liability to a person without privity of contract. The courts gradually began applying a tort duty of care for harm caused to third-parties in circumstances where a manufactured product was “reasonably certain to place life and limb in peril when negligently made.” This exception was first expanded to apply to property damage caused by construction defects about 50 years ago in the case of Stewart v. Cox (1961) 55 Cal.2d 857.
The general rule is now that all contractors, manufacturers, suppliers and providers of services owe a general duty of care to third parties for all of the reasonably foreseeable harm that they negligently cause. The factors for determining whether such a duty exists were first outlined in the seminal case of Biakanja v. Irving (1958) 49 Cal.2d 647, as follows: “(1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of harm to him, (3) the degree of certainty that the plaintiff suffered injury, (4) the closeness of the connection between the defendant’s conduct and the injury suffered, (5) the moral blame attached to the defendant’s conduct, and (6) the policy of preventing future harm.”
Then, in 1992, a case with unique facts came along that highlighted the inequity in holding all providers of professional services liable to all third-parties for negligent advice. In Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, the California Supreme Court applied the Biakanjafactors to determine that it would be unfair to hold an accounting firm liable to unknown third-party investors that relied on the accountant’s negligently performed audit without the accountant’s knowledge. Doing so would expose the accounting firm indefinitely to claims from a class of unknown potential investors whose potential losses would often dwarf the value of the auditing services provided. As such, the Supreme Court held that the accounting firm owed no duty to third-parties with which it did not directly contract. Seizing on the holding in Bily, architects and other design professionals began filing demurrers and motions for summary judgment with limited success based upon the proposition that they owed no duty of care to third-party homebuyers with which they did not share privity of contract.
Next, in 2004, another case with unique facts came along that further bolstered the architects’ position. In Weseloh v. Wessel (2004) 125 Cal.App.4th 152, an architectural firm subcontracted with the lead architect on a construction project for the design of two retaining walls for between $1,500-$2,200. When one of the retaining walls ultimately failed an alleged $6,000,000 of property damage resulted (the lead architect paid $1.2 million in settlement). The Weseloh Court held that the sub-architect owed no duty of care to the homebuyer with whom it did not directly contract after balancing the Biakanja factors (and relying on the reasoning of Bily). Architects quickly argued that Weseloh stood for the proposition that no architect ever owed a duty of care to a third-party with whom it was not in privity of contract, and often successfully absolved themselves of liability via demurrer and motion for summary judgment.
With the Beacon decision earlier this month, the Supreme Court single-handedly struck down this defense, limited Bily and Weseloh to their specific facts, and left only a potential “sub-architect” exception to the general rule that architects and other design professionals are liable in tort to third-party purchasers regardless of privity of contract.
The Beacon decision followed a simple application of the Biakanja factors in reaching its holding, but noted that “Although the application of these factors necessarily depends on the circumstances of each case, it is possible to derive general rules that govern common scenarios.” It is therefore wise to read the unanimous holding of the Supreme Court as a general proposition. While the ultimate holding of Beacon may appear somewhat limited – “we hold that an architect owes a duty of care to future homeowners in the design of a residential building where, as here, the architect is a principal architect on the project” – Justice Goodwin Liu’s Opinion uses broad strokes to paint a picture of general liability to third-parties absent unique mitigating facts.