Court Opinion

ID: 3134368
Source: CourtListenerOpinion
Date Created: 2015-10-22 17:27:55.175617+00
Date Added: 2024-06-11T12:06:35.831088
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               Docket No. 81439--Agenda 13--January 1997.

        FIREMAN'S FUND INSURANCE COMPANY, as Subrogee of Neptune

      Construction Company, Inc., Appellant, v. SEC DONOHUE, INC.,

               f/k/a Donohue & Associates, Inc., Appellee.

                      Opinion filed April 17, 1997.

     JUSTICE FREEMAN delivered the opinion of the court:

     The question presented for review is whether the economic loss

doctrine, as enunciated by this court in Moorman Manufacturing Co.

v. National Tank Co., 91 Ill. 2d 69 (1982), bars a tort action

against an engineer for purely economic losses. We hold that it

does.

                                BACKGROUND

     This cause is before us following a motion to dismiss pursuant

to section 2--619(a)(9) of the Code of Civil Procedure (735 ILCS

5/2--619(a)(9) (West 1994)). The motion admits all well-pled

allegations in the complaint and reasonable inferences to be drawn

from the facts. Mayfield v. ACME Barrel Co., 258 Ill. App. 3d 32,

34 (1994); Chicago Title & Trust Co. v. Weiss, 238 Ill. App. 3d

921, 924 (1992).

     The complaint alleges as follows. Plaintiff, Fireman's Fund

Insurance Company (Fireman's), is the subrogee of Neptune

Construction Company (Neptune). Neptune is a contractor in the

business of constructing underground water service. Defendant, SEC

Donohue, Inc., formerly known as Donohue and Associates, Inc.

(Donohue), is a professional engineering firm.

     In April 1989, Neptune entered into a subcontract agreement

with Artfield Builders to install underground water service for an

apartment complex located on East River Road between Golf and

Central Roads in Des Plaines. Neptune was to tunnel horizontally

from the complex, under a state tollway, and connect with water

supply lines on the opposite side of the tollway. Neptune was to

perform its work "in accordance with the engineering plans,

specifications and general conditions prepared by: DONOHUE &

ASSOCIATES, INC."

     Donohue was the project engineer. Under Donohue's contract

with Artfield, Donohue was to provide engineering plans for

improvements that included water supply lines. In anticipation of

Neptune's work, Donohue supplied drawings and plans that specified

where Neptune should dig the tunnel and use an auger to bore into

the water supply lines.

     Donohue's drawings and plans erroneously located the site for

digging and boring at a spot approximately 73 yards south of the

correct location. Relying on Donohue's plans, Neptune worked at the

wrong location, thereby damaging the shoulder of the tollway. The

Illinois State Toll Highway Authority required Neptune to repair

the tollway at a cost of $57,754.02. Neptune made a claim to its

insurer, Fireman's, for this amount. Fireman's paid the claim,

becoming subrogated to Neptune's claim against Donohue.

     Fireman's brought a negligence action against Donohue in the

circuit court of Cook County. The complaint alleged that Donohue

had the duty to provide accurate information to those who would

rely on it, such as Neptune; that Donohue breached that duty by

"carelessly and mistakenly" locating the site for digging and

boring 73 yards south of the correct location; and that Neptune's

damages were proximately caused by its reliance on Donohue's

erroneous work.

     The trial court denied defendant's motion to dismiss pursuant

to section 2--619(a)(9) of the Code of Civil Procedure (735 ILCS

5/2--619(a)(9) (West 1994)). The trial court subsequently certified

the following question for interlocutory review (see 134 Ill. 2d R.

308):

               "Is a professional engineer who prepares plans and

          specifications for a construction project in the business

          of supplying information to others for the guidance of

          the recipient in its business dealings with third parties

          and liable in tort for negligent misrepresentations under

          Moorman Manufacturing Co. v. National Tank Co.,

          [citation][?]"

     The appellate court answered the question in the negative,

reversing the trial court. 281 Ill. App. 3d 789. The appellate

court concluded that the economic loss doctrine applies to

engineers in general. 281 Ill. App. 3d at 796. The appellate court

also concluded that Moorman's negligent misrepresentation exception

to the economic loss doctrine (Moorman, 91 Ill. 2d at 89) did not

apply in this case. 281 Ill. App. 3d at 798. We allowed Fireman's

petition for leave to appeal (155 Ill. 2d R. 315), and now affirm

the appellate court.

                                DISCUSSION

     The question certified for interlocutory review presents two

issues. The first issue regards the form of the question itself;

the second issue regards an exception to the economic loss

doctrine. Before addressing these issues, some background is in

order.

     At common law, purely economic losses are generally not

recoverable in tort actions. In re Illinois Bell Switching Station

Litigation, 161 Ill. 2d 233, 240 (1994). In Moorman Manufacturing

Co. v. National Tank Co., 91 Ill. 2d 69 (1982), this court

enunciated the economic loss rule, and held that a products

liability plaintiff cannot recover purely economic loss under the

tort theories of strict liability, negligence, and innocent

misrepresentation. Moorman, 91 Ill. 2d at 91.

     This court has explained the rationale of the economic loss

doctrine as follows:

               "In Moorman, this court [reasoned] that tort law

          would, if allowed to develop unchecked, eventually

          envelop contract law. Contract law serves a vital

          commercial function by providing sellers and buyers with

          the ability to define the terms of their agreements with

          certainty prior to a transaction. Where the duty of a

          seller has traditionally been defined by contract,

          therefore, Moorman dictates that the theory of recovery

          should be limited to contract although recovery in tort

          would be available under traditional tort theories."

          Congregation of the Passion, Holy Cross Province v.

          Touche Ross & Co., 159 Ill. 2d 137, 159-60 (1994).

     In Anderson Electric, Inc. v. Ledbetter Erection Corp., 115

Ill. 2d 146 (1986), this court applied the economic loss rule to

claims that services were performed negligently. This court also

held that "[a] plaintiff seeking to recover purely economic losses

due to defeated expectations of a commercial bargain cannot recover

in tort, regardless of the plaintiff's inability to recover under

an action in contract." Anderson, 115 Ill. 2d at 153.

     In the present case, Fireman's does not dispute that its

losses are purely economic. With this background in mind, we now

address the issues presented for review.

                           I. Certified Question

     Both Fireman's and Donohue urged the appellate court to modify

the certified question on appeal. The certified question,

previously quoted, asks whether a professional engineer who

prepares plans and specifications for a construction project is "in

the business of supplying information to others for the guidance of

the recipient in its business dealings with third parties and

liable in tort for negligent misrepresentations under Moorman."

(Emphasis added.) The parties contend that the reference to "third

parties" is erroneous. We agree with the appellate court that "with

or without a third-party requirement, our answer to the certified

question would be the same." 281 Ill. App. 3d at 798. However,

pursuant to our responsibility to maintain a sound and uniform body

of precedent (Hux v. Raben, 38 Ill. 2d 223, 224-25 (1967)), we will

address this issue. See 134 Ill. 2d R. 366(a)(5); Schrock v.

Shoemaker, 159 Ill. 2d 533, 537 (1994).

     In Moorman, this court articulated three exceptions to the

economic loss rule: (1) where the plaintiff sustained personal

injury or property damage resulting from a tortious event, i.e., a

sudden or dangerous occurrence (Moorman, 91 Ill. 2d at 86); (2)

where the plaintiff's damages are proximately caused by a

defendant's intentional, false representation, i.e., fraud

(Moorman, 91 Ill. 2d at 88-89); and (3) where the plaintiff's

damages are proximately caused by a negligent misrepresentation by

a defendant in the business of supplying information for the

guidance of others in their business transactions (Moorman, 91 Ill.

2d at 89). See In re Chicago Flood Litigation, Nos. 80460, 80535

cons., slip op. at 15 (February 20, 1997); In re Illinois Bell

Switching Station Litigation, 161 Ill. 2d at 240-41. In each of

these three situations, the plaintiff may recover in tort against

the defendant.

     In several subsequent decisions, this court has discussed the

Moorman exception of a negligent misrepresentation by a defendant

in the business of supplying information for the guidance of others

in their business transactions. This court has never included an

additional requirement that those business transactions must be

made specifically with third parties. See, e.g., 2314 Lincoln Park

West Condominium Ass'n v. Mann, Gin, Ebel & Frazier, Ltd., 136 Ill.

2d 302, 309 (1990); Anderson, 115 Ill. 2d at 153-54.

     However, several appellate court decisions refer to an

additional third-party requirement. See N. Rifkind, Negligent

Misrepresentation in Illinois: The Third Party (Non)requirement, 82

Ill. B.J. 668 (1994). Appellate court decisions that refer to an

additional third-party requirement (e.g., Grass v. Homann, 130 Ill.

App. 3d 874, 878-79 (1984); Black, Jackson & Simmons Insurance

Brokerage, Inc. v. International Business Machines Corp., 109 Ill.

App. 3d 132, 134-36 (1982)) are overruled on this point. We modify

the certified question by deleting the reference to third parties.

The question, as modified, is as follows:

               "Is a professional engineer who prepares plans and

          specifications for a construction project in the business

          of supplying information to others for the guidance of

          the recipient in its business dealings and liable in tort

          for negligent misrepresentation under Moorman ***[?]"

                        II. Economic Loss Doctrine

     We first address Fireman's suggestion that we abandon this

court's application of the economic loss doctrine to the furnishing

of services, and replace it "with a traditional tort duty

analysis." We decline the invitation. As this court has explained:

               "A provider of services and his client have an

          important interest in being able to establish the terms

          of their relationship prior to entering into a final

          agreement. The policy interest supporting the ability to

          comprehensively define a relationship in a service

          contract parallels the policy interest supporting the

          ability to comprehensively define a relationship in a

          contract for the sale of goods. It is appropriate,

          therefore, that Moorman should apply to the service

          industry. Just as a seller's duties are defined by his

          contract with a buyer, the duties of a provider of

          services may be defined by the contract he enters into

          with his client. When this is the case, the economic loss

          doctrine applies to prevent the recovery of purely

          economic loss in tort.

                                   * * *

               The evolution of the economic loss doctrine shows

          that the doctrine is applicable to the service industry

          only where the duty of the party performing the service

          is defined by the contract that he executes with his

          client. Where a duty arises outside of the contract, the

          economic loss doctrine does not prohibit recovery in tort

          for the negligent breach of that duty." Congregation of

          the Passion, 159 Ill. 2d at 161-62.

                        A. Application to Engineers

     The appellate court held as follows: "We think that the

holding in 2314 Lincoln Park West requires us to find that a

plaintiff may not recover purely economic losses in a tort action

against an engineer." 281 Ill. App. 3d at 796. Fireman's assigns

error to this holding and to the appellate court's reliance on 2314

Lincoln Park West.

     We agree with the appellate court that, based on 2314 Lincoln

Park West, the economic loss doctrine applies to engineers. In 2314

Lincoln Park West, this court held that the economic loss doctrine

applied to architects, preventing the recovery of purely economic

losses in tort. This court reasoned that "[t]he architect's

responsibility originated in its contract with the original owner,

and in these circumstances [purely economic loss] its duties should

be measured accordingly." 2314 Lincoln Park West, 136 Ill. 2d at

317.

     2314 Lincoln Park West involved a claim against several

parties, including an architectural firm. However, the certified

question in that case was:

               " `Should there be an exception to the rule set

          forth in Moorman which would permit Plaintiffs seeking to

          recover purely economic losses due to defeated

          expectations of a commercial bargain to recover from an

          architect or engineer in tort?' " (Emphasis added.) 2314

          Lincoln Park West, 136 Ill. 2d at 306.

This court concluded that, "[c]onsistent with Moorman and its

progeny, we answer the certified question in the negative and hold

today that a tort action will not lie in the circumstances

described." 2314 Lincoln Park West, 136 Ill. 2d at 312.

     Further, the appellate court could not find any substantive

difference between architects and engineers for purposes of the

economic loss rule (281 Ill. App. 3d at 796 (and cases cited

therein)), nor can we. In 2314 Lincoln Park West, this court

likewise did not distinguish architects from engineers. 2314

Lincoln Park West, 136 Ill. 2d at 311. We hold that the economic

loss doctrine bars recovery in tort against engineers for purely

economic losses.

                 B. Negligent Misrepresentation Exception

     Again guided by 2314 Lincoln Park West, the appellate court

also held that the negligent misrepresentation exception to the

economic loss doctrine found in Moorman did not apply in this case.

Fireman's assigns error to this holding.

     The focus of Moorman's negligent misrepresentation exception

to the economic loss doctrine is whether the defendant is in the

business of supplying information for the guidance of others, or

whether the information that is supplied is merely ancillary to the

sale or in connection with the sale of merchandise or other matter.

281 Ill. App. 3d at 797, quoting Rosenstein v. Standard & Poor's

Corp., 264 Ill. App. 3d 818, 823 (1993). In dicta in 2314 Lincoln

Park West, this court reasoned that although an architect supplies

information, that information is incidental to a tangible product,

i.e., a structure, and is usually transformed into the structure

itself. 2314 Lincoln Park West, 136 Ill. 2d at 313.

     Fireman's attempts to distinguish this case from 2314 Lincoln

Park West based on the following facts. In 2314 Lincoln Park West,

the architect's information had been incorporated into the building

at the time the action arose. Fireman's points out, however, that

at the time this action arose, Donohue's drawings and plans had not

been incorporated into the water supply system. Indeed, Donohue's

plans could never be incorporated into the water system because

they were erroneous. Therefore, according to Fireman's, Donohue's

drawings and plans were information rather than a product, and

Moorman's negligent misrepresentation exception to the economic

loss doctrine applies to this case.

     We cannot accept Fireman's argument. The appellate court

correctly observed that this court, in determining whether the

economic loss doctrine applies to a case of professional

malpractice, focuses on the ultimate result of the professional's

work. Congregation of the Passion, 159 Ill. 2d at 163. The

appellate court correctly reasoned that it could not base its

determination on the fact that Donohue's plans were not, or could

not be, incorporated into the water supply system. Rather, the

appellate court correctly looked to the ultimate result of

Donohue's work, which was a tangible object, i.e., the water supply

system. 281 Ill. App. 3d at 797-98. As we explained in Congregation

of the Passion, 159 Ill. 2d at 163:

          "In contrast to the relationship between an attorney or

          accountant and their client, the relationship between an

          architect and his client produces something tangible,

          such as a plan that results in a structure. The

          characteristics of a tangible object are readily ascer-

          tainable, and they can be memorialized in a contract and

          studied by the parties."

     Donohue's plans and drawings were incidental to a tangible

product, i.e., the water supply system. The accuracy of such plans

can be memorialized in contract terms. We hold that Moorman's

negligent misrepresentation exception to the economic loss doctrine

does not apply in this case.

                                CONCLUSION

     Fireman's attempts to recover purely economic loss resulting

from Donohue's product that did not meet commercial expectations.

This interest was meant to be protected by contract law rather than

tort law.

     For the foregoing reasons, the judgment of the appellate court

is affirmed as modified, and the cause is remanded to the circuit

court of Cook County.

                                                      Affirmed as modified;

                                                            cause remanded.

     CHIEF JUSTICE HEIPLE, dissenting:

     I dissent from the majority opinion because I believe that the

Moorman doctrine should no longer apply to professional malpractice

cases. We should take this opportunity to reevaluate the

application of Moorman and remove its protection for professional

services, rather than continue to engage in a case-by-case

determination of whether a given profession owes some undefinable

extracontractual duty to clients. See Congregation of the Passion,

Holy Cross Province v. Touche Ross & Co., 159 Ill. 2d 137, 186-92

(1994) (Heiple, J., dissenting, joined by Harrison, J.). The

majority, however, has seen fit to continue a piecemeal approach by

applying the Moorman doctrine to professional malpractice of

architects and now engineers but not to attorneys or accountants.

In so doing, this court has failed to coherently differentiate

between these professional groups, thereby placing trial judges and

litigants in the unenviable position of guessing which additional

professionals will receive protection under Moorman's economic loss

doctrine.

     Accordingly, I respectfully dissent.

     JUSTICES HARRISON and NICKELS join in this dissent.