Hughes Custom Building, L.L.C. v. Davey – 5/7/2009

May 11, 2009

Arizona Court of Appeals Division Two Holds That Economic Loss Doctrine Does Not Bar Homebuilder’s Negligence Claim Against Engineering Firm For Damages From Soil Subsidence to Homes That Were Sold by Homebuilder.

A buyer sued a homebuilder for structural damage to a home because of allegedly improper site preparation and soil subsidence.  After settling that suit, the homebuilder brought a malpractice action against the engineering firm allegedly responsible for the site preparation.  The trial court granted motions for summary judgment in favor of the engineering firm on the grounds that (1) the homebuilder did not have “standing” to assert damages for loss of home values suffered by the homeowners, and (2) the economic loss doctrine barred the homebuilder’s claims for negligence and breach of implied warranty.

The Court of Appeals reversed and remanded.  Under the economic loss doctrine, courts consider whether a claim sounds in contract or tort-based on consideration of three factors: (1) the nature of the defect causing the loss, (2) how the loss occurred, and (3) the type of loss for which the plaintiff seeks redress. 

The third factor looks in part at whether “other property” was damaged.  For this analysis, the damaged home is not considered part of the same property (the lot) that was the subject of the engineering contract.  Accordingly, this factor weighs heavily toward allowing a claim in tort.  Likewise, the first factor favors allowing a tort claim; the defect presented a safety hazard for the home occupants.  Lastly, although the loss did not result from a sudden calamity or accident, but instead was slowly manifested, this factor was outweighed by the other factors favoring allowance of an action in tort.  

The economic loss doctrine, therefore, did not bar the homebuilder’s negligence claim.  And the homebuilder had standing to sue for the damages that it had incurred as a result of the engineering firm’s alleged negligence, despite that the homebuilder’s damages resulted indirectly as a result of its legal obligations to the home buyers.  Because the builder did not address its dismissed implied warranty claim on appeal, the court found that it had waived any appeal of that dismissal.

Judge Brammer wrote the opinion for the unanimous panel; Judges Eckerstrom and Vásquez concurred.