ASCE Risk Management Resources

Know the Limits of Your Contract

Posted on 4/15/2016 by ASCE Insurance in Construction Contracts

General contractors and developers rarely have insurance covering construction defect claims, and they regularly become insolvent and/or judgment proof after a project is completed. Because of this, homebuyers often attempt to expand the duties of design professionals beyond those imposed by common law or agreed to in a contract. Illinois homebuyers recently attempted to expand the duties and attendant liability of design professionals by arguing the doctrine of implied warranty of habitability applies to design professionals.

This doctrine is based on the premise that a homebuyer has the right to receive what was bargained for and what the builder-seller agree to construct: a dwelling reasonably fit for its intended use as a residence. Thus, the courts have found that builders and developers impliedly warrant the dwellings they sell will be reasonably fit as residences.

In Board of Managers of Park Point at Wheeling Condominium Ass'n v. Park Point at Wheeling, LLC, the Appellate Court of Illinois held that the doctrine of implied warranty of habitability does not apply to design professionals.1 The case involved a claim for breach of the implied warranty of habitability by a condominium association against the architect that designed the condominium complex in relation to water and air filtration into the buildings and units.2 The court recognized the public policy reasons for adopting the implied warranty of habitability doctrine, namely that: (1) the modern home buyer is dependent upon the competency and honesty of the builder rather than the buyer's own ability to discern latent defects; (2) the buyer is potentially making the largest single investment of his or her life; and (3) fairness dictates that the repair costs of defective construction be borne by the builder-seller who created the latent defects.3

While builders usually warrant the habitability of their construction work, engineers and architects do not warrant the accuracy of their plans and specifications.

However, the court also found that, while builders usually warrant the habitability of their construction work, engineers and architects do not warrant the accuracy of their plans and specifications.4 The court likened architects and engineers to other professionals who deal in "inexact sciences and are continually asked to exercise their skilled judgment in order to anticipate and provide for random factors which are incapable of precise measurement."5 Therefore, the court found that the law does not require perfect results, but rather "the exercise of skill and judgment reasonably expected from similarly situated professionals."6

The court highlighted two principles from the relevant case law: (1) the implied warranty of habitability is traditionally applied to those who engage in construction; and (2) design professionals, such as architects, do not construct structures, but instead perform design services pursuant to contracts which set out their obligations.7 The court declined to extend the doctrine of implied warranty of habitability past those involved in actual construction, such as builders and developers, to design professionals, such as architects and engineers.8

With Board of Managers of Park Point, Illinois solidifies itself among the majority of jurisdictions refusing to expand the doctrines of such equitable warranties to design professionals.9 While this trend is certainly positive for engineers, it heightens the importance of the engineer’s written contracts, as those documents will continue to dictate the nature of any warranties provided by the engineer.

1 Bd. of Managers pf Park Point at Wheeling Condo. Ass’n v. Park Point at Wheeling, LLC, 2015 IL App (1st) 123452, 31.
2 Id. at 3-4.
3 Id. at 8.
4 Id. at 15.
5 Id. at 20 (quoting City of Mounds View v. Walijarvi, 263 N.W.2d 420, 424 (Minn. 1978)).
6 Id. at 20 (quoting Mounds View, 263 N.W.2d at 424).
7 Id. at ¶ 22.
8 Id. at ¶ 31.
9 See, e.g., Kemper Architects, P.C. v. McFall, Konkel & Kimball Consulting Engineers, Inc., 843 P.2d 1178, 1186 (Wyo. 1992) (finding that engineers and other design professionals do not warrant their services or that the tangible evidence of services will be merchantable or fit for its intended use); Bd. of Trustees of Union College v. Kennerly Slomanson & Smith, 400 A.2d 850, 852-54 (N.J. Super Ct. Law Div. 1979) (refusing to apply the implied warranty theory to the performance of architectural and engineering services); Mound View, 263 N.W.2d at 424 (finding that applying a theory of implied warranty to architectural services would amount to strict liability and declining to impose same); but, see North Peak Constr., LLC v. Architecture Plus, Ltd., 254 P.3d 404, 408 (Ariz. Ct. App. 2011) (recognizing the validity of a claim for breach of implied warranty against an architect).