For many years, the economic loss rule essentially eliminated the construction law practitioner from pursuing design professionals for the negligent design of plans and specifications. In Moransais v. Heathman, 744 So. 2d 973 (Fla. 1999), a professional malpractice claim was brought by a homeowner against licensed engineers who made a pre-purchase inspection and allegedly failed to detect and disclose defects in the condition of the house. The homeowner had contracted with a professional engineering corporation to perform the home inspection services, and the contract did not name the licensed engineers who actually conducted the inspection as parties to the contract. The Florida Supreme Court shocked many in its holding in Moransais by finding that the “economic loss rule does not bar a cause of action against a professional for his or her negligence even though the damages are purely economic in nature and the injured party has entered into a contract with the professional’s employer.” The Court’s holding in Moransais opened up an individual design professional that prepared the plans and specifications to individual liability, regardless of the fact that the property owner entered into a contract with the design professional’s employer, not the individual designed professional. In many instances, the property owner desired to pursue the individual design professional because they carried professional liability insurance covering any negligent design, thereby providing a source of recovery in a potential lawsuit. The fallout from the holding in Moransais was an bevy of professional negligence actions against individual design professionals, and more and more design professionals being turned away from practicing due to potential exposure to litigation and increased insurance costs.
Partly in response to the holding in Moransais, the Florida Legislature, during the 2013 session, passed Senate Bill 286 providing design professionals contractual liability limitations. A design professional includes engineers, architects, surveyors and mappers, landscape architects and interior designers. Now, under 558.0035, Florida Statutes, a design professional employed by a business entity or an agent of the business entity is not individually liable for damages resulting from negligence occurring within the course and scope of a professional services contract, such as the design of plans and specifications of a construction project, if:
- The Contract is made between the business entity and a claimant (more often than not this would be the property owner) or with another entity for the provision of professional services to the claimant;
- The Contract does not name as a party to the contract the individual employee or agent who will perform the professional services;
- The Contract includes a prominent statement, uppercase font that is at least 5 point sizes larger than the rest of the text, that, pursuant to section 558.0035, Fla. Stat., an individual employee or agent may not be held individually liable for negligence;
- The business entity maintains any professional liability insurance required under the contract; and
- Any damages are solely economic in nature and the damages do not extend to personal injuries or property not subject to the contract.
This legislative change will have a great impact on contract negotiations for design services. For example, under the 4th prong of the test above, the business entity is required to maintain professional liability insurance as contemplated under the contract. This does not mean that the business entity is required to maintain such insurance. Rather, it is necessary and incumbent upon the property owner or entity contracting for design services to ensure that a provision is included in the contract requiring that the business entity maintain a professional liability insurance policy during the course of the project; otherwise, the property owner or entity contracting with the business entity that complies with all other provisions of Section 558.0035, Fla. Stat. may be left with the nothing to pursue for a professional negligence claim. If the business entity refuses to maintain professional liability insurance during the project, the property owner should consider (1) requiring an individual design professional employed by the business entity whom does maintain professional liability insurance to be named in the contract, or (2) consider hiring a different design business entity altogether that will maintain such insurance. Now, there is certainly a benefit to this legislative change. One such benefit is that individual design professionals will now pay significantly less in insurance premiums which may, in turn, result in lower prices to customers for their professional services. Lastly, it may be important for any design professional that has been operating as a sole proprietorship to consider incorporating him or herself, or establishing some other type of business entity to reduce exposure and reap the benefits of the contractual liability limitations.