On Petition to Transfer from the Indiana Court of Appeals, No. 06A05-0804-CV-239
The Indianapolis-Marion County Public Library ("Library") seeks to hold two subcontractors and an engineer responsible for negligence in rendering their respective services during the renovation and expansion of its downtown Indianapolis library facility. In accord with the analysis of the trial court and Court of Appeals, we affirm the trial court's dismissal of the Library's claims of negligence against the defendants. Primarily because the Library is connected with the defendants through a network or chain of contracts in which the parties allocated their respective risks, duties, and remedies, those contracts, and not negligence law, govern the outcome of the Library's claims.
The Library hired Woollen Molzan and Partners, Inc. ("WMP") to serve as the architect for the renovation and expansion of many structures contained in the Library's downtown Indianapolis facility, including its parking garage. WMP then subcontracted with Thornton Tomasetti Engineers ("TTE") and Charlier Clark and Linard, P.C. ("CCL") to perform architectural and engineering services. Joseph G. Burns ("Burns"), a managing principal of TTE, served as "engineer of record" for the library project. Specifically, TTE performed structural engineering services and CCL administered various services for the project including reviewing and inspecting the construction plans and construction progress to determine if construction was in general compliance with the construction documents. The Library never contracted directly with TTE, CCL, or Burns for any services during the renovation and expansion project, but each was a party to one or more contracts with WMP or other entities involved in the project.
According to the Library, after construction of the project had progressed significantly, it became concerned about the structural integrity of the accompanying parking garage, which was to serve as the foundation for the rest of the library structure. The Library hired an expert who confirmed that there were several construction and design defects in the Library parking garage. The expert advised that the garage would be at serious risk for structural failure if construction were to continue. The Library suspended construction and took steps to mitigate the effects of the negligent design. The Library maintains that curing the defects and their effects caused it to sustain damages of approximately $40 to $50 million, as follows:
(Appellant's Br. at 22-23.)
The Library brought a lawsuit against WMP, TTE, Burns, CCL, and Shook, LLC (the general contractor), an insurance company, and other contractors working on the project alleging negligent failure to perform engineering, administrative, and design work in a skillful, careful, workmanlike manner along with breach of contract claims with the parties with whom the Library had a contractual relationship. The Library sought to recover damages for repair costs, project delay settlements, expert fees, utilities, rental fees, increased insurance premiums, and costs associated with seeking additional public funding. The Library eventually settled with WMP and Shook, the two parties with whom it had a contractual relationship, for an undisclosed amount.
The Defendants then moved for partial summary judgment, arguing that the negligence claims against them were barred by the so-called "economic loss rule." The trial court agreed and granted the Defendants' motions for partial summary judgment. The Court of Appeals affirmed, Indianapolis-Marion County Public Library v. Charlier Clark & Linard, P.C, 900 N.E.2d 801 (Ind.Ct.App.2009). Judge Brown dissented as to one Defendant, believing that partial summary judgment should not have been entered in favor of TTE. Id at 817-19 (Brown, J., dissenting). The Library sought, and we granted, transfer, thereby vacating the opinion of the Court Appeals. Ind. Appellate Rule 58(A).
Under long-standing Indiana law, a defendant is liable to a plaintiff for the tort of negligence if (1) the defendant has a duty to conform its conduct to a standard of care arising from its relationship with the plaintiff, (2) the defendant failed to conform its conduct to that standard of care, and (3) an injury to the plaintiff was proximately caused by the breach. Estate of Heck ex rel. Heck v. Stoffer, 786 N.E.2d 265, 268 (Ind.2003).
In this opinion, we will first examine the history of the economic loss rule in Indiana and its rationale. We will then turn to the Library's contentions that the economic loss rule does not apply in this case because the Defendants' alleged negligence caused (A) damage to what is called in this context "other property" and (B) imminent risk of personal injury. Third, we will address the Library's policy arguments that the economic loss rule should not be applied here because (A) the Defendants are professionals, (B) they allegedly negligently misrepresented facts to the Library, and (C) they provided solely services and not tangible products.
A recent project of the American Law Institute ("ALI") focusing on the economic loss rule has produced some detailed and highly illuminating materials on this subject.
Gergen Restatement Draft § 8, cmt. a, reports that explicit references to the "economic loss rule" began to appear in case law in the early 1980s. Consistent with this trend, the first decision under Indiana
Soon thereafter, the Court of Appeals followed suit in a decision written by Judge Robertson. The plaintiff in Prairie Production, Inc. v. Agchem Division-Pennwalt Corp. had sought damages for lost profits allegedly caused by the defendant's negligence in manufacturing a pesticide that had failed to protect the plaintiff's crop from infestation. 514 N.E.2d 1299, 1304 (Ind.Ct.App.1987). Employing an analysis similar to Sanco, the court held that a plaintiff could not recover economic losses in the form of lost profits when the alleged economic loss flows from the failure of a product to perform as expected. Id. at 1304.
In two decisions—one responding to a negligence claim and the other to a products liability claim—written by Justice Krahulik, this Court recognized the economic loss rule as well. In Martin Rispens & Son v. Hall Farms, Inc., the plaintiff's negligence claim alleged defendant had marketed infected seeds that failed to perform as expected, leaving plaintiff with a damaged crop that resulted in lost profits. 621 N.E.2d 1078 (Ind.1993). Citing Prairie Production, we held that "[t]he general rule in Indiana is that where a negligence claim is based upon the failure of a product to perform as expected and the plaintiff suffers only economic damages, no recovery may be had in negligence; instead, the buyer's remedy lies in contract." Id. at 1089-90. In Reed v. Central Soya Co., Inc., the plaintiff's products liability claim alleged damages caused by their dairy cattle having eaten contaminated feed manufactured and sold by the defendants. 621 N.E.2d 1069, 1070 (Ind. 1993). We wrote that where loss is solely economic in nature, i.e., where there was no damage to other property or person, "such losses are more appropriately recovered by contract remedies." Id. at 1075.
Our most recent pronouncement on the subject was in an opinion written by Justice Boehm:
Gunkel, 822 N.E.2d at 153.
A review of the case law and ALI materials suggests several principal justifications for the economic loss rule.
Miller v. U.S. Steel Corp., 902 F.2d 573, 574 (7th Cir.1990) (Posner, J.).
Among the first and best known articulations of this justification came in Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965). The plaintiff had sought to recover lost profits and a refund of the purchase price of a defective truck. The Supreme Court of California ruled that such damages, although recoverable in a breach of warranty action, were not recoverable in strict liability in tort. Explaining the court's decision, Justice Traynor identified warranty law rather than tort law as establishing the appropriate rules for recovery for economic loss. A manufacturer "can appropriately be held liable for physical injuries caused by defects by requiring his goods to match a standard of safety defined in terms of conditions that create unreasonable risks of harm[,]" Traynor wrote. Id., 45 Cal.Rptr. 17, 403 P.2d at 151. But the manufacturer "cannot be held for the level of performance of his products in the consumer's business unless he agrees that the product was designed to meet the consumer's demands." Id.
In a similar vein, Reed explained that a tort remedy was inferior to commercial law "where the loss is solely economic in nature." 621 N.E.2d at 1074-75. A "dissatisfied buyer may avail himself of those statutory remedies fashioned by the legislature" in Article 2 of the Uniform Commercial Code, we said. Id. at 1075. This is superior to "[a]llowing a buyer to recover in tort where he has suffered only economic loss," we continued, because recovery in tort would allow "him to circumvent the seller's effective limitation or exclusion of warranties under the UCC, and subject[ ] manufacturers to liability for damages of unknown and unlimited scope." Id.
A second justification for the economic loss rule is that "[l]iability should not be imposed when it creates a potential for liability that is so uncertain in time, class, or amount that [a defendant should not] fairly or practically be expected to account for the potential liability when undertaking the conduct that gives rise to" it. Gergen Restatement Draft § 8, cmt. d(2). This justification is implicated "when an accident causing physical harm has significant far-flung economic consequences." Id. § 8, cmt. b. It is also the focus of attention in claims of accountant liability and, more generally, negligent misstatement, "because of the ease of transmitting information that appears to invite a recipient's reliance." Id. § 8, cmt. d(2).
The rationale for this justification is that tort law ought not expose a defendant guilty of mere negligence "to a liability in an indeterminate amount for an indeterminate time to an indeterminate class." Ultramares Corp. v. Touche, 255 N.Y. 170, 174 N.E. 441, 444 (1931) (Cardozo, C.J.). Chief Judge Cardozo's aphorism has been relied upon by the Court of Appeals on a number of occasions. See, e.g., Thomas v. Lewis Eng'g, Inc., 848 N.E.2d 758, 761 (Ind.Ct.App.2006) (no claim for negligent misrepresentation against surveyor not in privity of contract with plaintiff); Essex v. Ryan, 446 N.E.2d 368, 373 (Ind.Ct.App. 1983) (no claim for negligence against surveyor not in privity of contract with plaintiff). Cf. First Cmty. Bank & Trust v. Kelley, Hardesty, Smith & Co., 663 N.E.2d 218, 224 (Ind.Ct.App.1996) (limiting Ultramares to cases where "non-contractual, non-assignee parties seek redress").
This second justification for the economic loss rule is not directly implicated by the case before us. While the damages are large, they are by no means indeterminate. Nor is there any exposure to the Defendants for an indeterminate time or to an indeterminate number of plaintiffs.
The discussion supra clearly demonstrates that the economic loss rule is well established in Indiana and that there are sound legal and economic justifications for it. But we emphasize before going further that the economic loss rule has limits, that while it operates as a general rule to preclude recovery in tort for economic loss, it does so only for purely economic loss—pecuniary loss unaccompanied by any property damage or personal injury (other than damage to the product or service provided by the defendant)—and even when there is purely economic loss, there are exceptions to the general rule.
These two limitations on the economic loss rule—that there (1) must be purely economic loss for it to apply and (2) are some exceptions to its application even where there is purely economic loss—provide the bases for the Library's five arguments that the economic loss rule is inapplicable in this case and that the Library should be allowed to proceed in tort against the Defendants. The Library makes two arguments that it has not suffered purely economic loss; these are discussed
The Library's principal contention is that its loss is not "pure" economic loss and thus that its tort claims against the Defendants are not precluded by the economic loss rule. Specifically, the Library maintains that the damages it suffered were (A) to "other property" and (B) physical, not commercial, and even if not physical, should be treated as such because they created an imminent risk of personal injury.
The economic loss rule is only implicated where a plaintiff has suffered "pure economic loss." As we have already discussed, "pure economic loss" means pecuniary harm not resulting from an injury to the plaintiff's person or property. The Library contends that the nature of its losses take this case outside the economic loss rule. This requires that we return to the corollary to the economic loss rule at issue in Gunkel: the so-called "other property rule."
Gunkel and the cases preceding it made clear that "contract law governs damage to the product or service itself and purely economic loss arising from the failure of the product or service to perform as expected." Gunkel, 822 N.E.2d at 153. However—and this is the "other property rule"—"damage from a defective product or service may be recoverable under a tort theory if the defect causes personal injury or damage to other property." Id. (emphasis added).
Gunkel went on to explore in some detail "what constitutes `other property[.]'" Id. at 154. "[W]e align[ed] ourselves with the courts that have concluded that the `product' is the product purchased by the plaintiff, not the product furnished by the defendant." Id. at 155. Thus, the question is what "product" the Library purchased, because
Id. Here the Library purchased a complete refurbishing of its library facility from multiple parties. The Library did not purchase a blueprint from the Defendants, concrete from the materials supplier, and inspection services to ensure the safety of the construction project in isolation; it purchased a complete renovation and expansion of all the components of its facility as part of a single, highly-integrated transaction. Thus, irrespective of whether Defendants' negligence was the proximate cause of defects in the design of the library facility, for purposes of the other property rule, the product or service that the Library purchased was the renovated and expanded library facility itself.
Gunkel's analysis is the same as the Gergen Restatement Draft's:
Gergen Restatement Draft § 8 cmt. c(2). This is also the case when services are provided:
Id. § 8 cmt. c(3).
In Gunkel, the plaintiff had contracted with a corporation other than the defendant to build an entirely new home. The plaintiff then contracted in a separate transaction with the defendant to attach a stone façade to the new home. We concluded that the "product or service purchased" from the defendant was the façade added to the exterior of the plaintiff's home by the defendant "under an arrangement with the [plaintiff] that was independent of the contract with [the other corporation] to build the home." 822 N.E.2d at 156. The economic loss rule precluded tort recovery for damage to the façade itself, but the other property rule did permit tort recovery for damage to the home, and its parts, caused by the allegedly negligent installation of the façade. Id. at 156-57. The contrast with this case is clear. Here the product or service purchased from the Defendants was an integral part of the entire library construction project, not independent from it. Any damages alleged to have resulted from the Defendants' negligence were to the "product" the Library purchased, not to "other property." The economic loss rule applies.
The Library also argues that its claims are not governed by the economic loss rule because the damages it suffered were physical, not commercial, and even if not physical, should be treated as such because they presented the imminent risk of personal injury.
Contending that having to repair and reconstruct a substantial portion of the project was tantamount to suffering property damage, the Library argues that it suffered damages distinct from commercial losses such that the economic loss rule is not applicable. Had the Library suffered property damage to "other property," the economic loss rule would not apply and the Library would be entitled to recover in tort for the pecuniary harm attributable thereto. But our resolution of the Library's contention on "other property" in subpart A supra disposes of this contention as well. As the Court of Appeals correctly stated, "[a]lthough the repairs have a component of physical destruction, the repair and reconstruction of the garage and other portions of the project are economic losses that arose from the Library's complaint that it did not receive the benefit of its bargain." Indianapolis-Marion County Pub. Library, 900 N.E.2d at 812. This is also the view of many of our sister jurisdictions.
Seely v. White Motor Co., 45 Cal.Rptr. 17, 403 P.2d at 151, quoted in Martin Rispens, 621 N.E.2d at 1090.
In Progressive Insurance Co. v. General Motors Corp., 749 N.E.2d 484 (Ind.2001), when confronted with interpreting the scope of the Indiana's Products Liability Act for damage to the product itself, we explicitly declined a request to "allow a claim where the absence of personal injury is merely fortuitous, such as when an object explodes but does not inflict personal injuries on anyone.'" Id. at 490-91 (following East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 870, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986)).
The Library argues that even if we conclude that it suffered purely economic loss (as we have just done in part II, supra), three policy considerations dictate that its negligence claims not be precluded by the economic loss rule: (A) the Defendants are professionals; (B) the Defendants negligently misrepresented facts to the Library; and (C) the Defendants provided solely services and not a tangible product.
The Library argues that as a matter of policy, the economic loss rule should not be applied to engineers and design professionals, whether or not in privity of contract with a plaintiff. To be sure, certain professionals—lawyers being the prime example—are liable in tort for negligence that causes purely economic loss, whether or not in privity of contract with a plaintiff. The Library argues that tort liability on the part of any professional who owes a duty of care outside of contract should not be precluded by the economic loss rule. And because engineers and design professionals (as are the Defendants here) owe such a duty of care, the Library maintains, tort liability on their part should not be precluded by the economic loss rule.
In support of this proposition, the Library quotes one of our decisions to the effect that design professionals have a duty of care "to all those who may foreseeably be injured" when a structure is negligently designed or when a dangerous condition is not disclosed. (Br. of Appellant at 43) (quoting Peters v. Forster, 804 N.E.2d 736, 742 (Ind.2004)). It also cites a decision of the Court of Appeals for the same proposition. Id. at 44 (citing Strauss Veal Feeds, Inc. v. Mead & Hunt Inc., 538 N.E.2d 299 (Ind.Ct.App.1989), trans. denied). Neither Peters nor Strauss Veal Feeds supports the Library's position.
More to the point are a series of decisions from other jurisdictions that the Library says hold that the economic loss rule does not apply to negligence actions against engineers and other design professionals.
Terracon Consultants W., Inc. v. Mandalay Resort Group, 206 P.3d 81, 89 (Nev. 2009).
The second category of cases cited by the Library—where the plaintiffs are not in privity of contract with the defendant design professionals—focus on the privity requirement. In one of these cases, the plaintiff was a "contractor" and the defendant was a "design professional"; the remaining facts are sketchy. The court held that public policy dictated that privity needed to yield to protect "innocent third parties who suffer economic loss."
We recognize that there are situations where it would be unjust not to allow plaintiffs to proceed in tort against an engineer or design professional for purely economic loss where no contract exists nor could exist between the parties. We need not decide today whether the plaintiff in Peters would have been allowed to recover had he suffered purely economic loss; it is sufficient to say that we would consider whether such a claim should be recognized as an exception to the general economic loss rule. Said differently, our default position in Indiana is that in general, there is no liability in tort for pure economic loss caused unintentionally.
We find that none of the Library's authority involves a major construction project owner seeking to recover in tort from engineers or design professionals with whom the project owner, though not technically in privity of contract, is connected through a network or chain of contracts among the owner, contractors and subcontractors, engineers and design professionals, and others in which they allocate their respective risks, duties, and remedies. We believe that the reasons for applying the economic loss rule to all participants in such a network or chain of contracts in a major construction project are compelling, whatever that rationale might be for not applying the economic loss rule to design professionals in other settings or contexts.
Our analysis starts with the general applicability of the economic loss rule in the construction context. Gunkel was a construction case and the opinion makes clear that the economic loss rule extends
The Arizona Supreme Court recently gave extended treatment to the justification for applying the economic loss rule in the construction context. In a case much like the one before us, the plaintiff project-owner argued that it should be allowed to proceed in tort against a project's architect. But the court said:
Flagstaff Affordable Hous., 223 P.3d at 670.
More generally, the roles of the participants in a major construction project vary with the type of construction contract, and "the particular contract chosen will determine the role the design professional will play and the risks and liabilities to be assumed." Design Professionals Handbook of Business and Law 461 (Robert F. Cushman & James C. Dobbs eds., 1991). "In the context of larger construction projects, multiple parties ... typically rely on a network of contracts to allocate their risks, duties, and remedies[.]" BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 72 (Colo.2004). When parties are connected through a chain of contracts, as in the construction context, courts should defer to the language of the contracts governing their relationship. Id.; Rissler & McMurry Co. v. Sheridan Area Water Supply Joint Powers Bd., 929 P.2d 1228 (Wyo. 1996). Such a rule promotes private ordering by respecting a commonly understood allocation of risk even though the relevant term may or may not be in a contract. As one commentator has stated:
Sidney R. Barrett, Jr., Recovery of Economic Loss in Tort for Construction Defects: A Critical Analysis, 40 S.C. L.Rev.
One treatise on construction law has explained why the economic loss rule is particularly applicable in the construction setting:
Legal Aspects of Architecture, Engineering, and the Construction Process 314 (Justin Sweet ed., 1994). In its brief to this court, amicus notes that the parties can provide contractually for additional costs necessitated by changed specifications or unforeseen conditions, as such eventualities occur frequently in construction work. (Amicus Curiae Br. at 8.) Indeed, we made this very point in the warranty context in Progressive: "The consumer may bargain for a warranty, or choose to pay less and forego a warranty.... Presumably the cost of that additional exposure on the part of the manufacturer will be built into its pricing over time." 749 N.E.2d at 489. The concepts of shifting and sharing the risk of loss are equally applicable to the construction industry where the provision of professional design services is implicated. For example, Legal Aspects of Architecture supra, sets forth a variety of techniques through which parties to a construction project can manage risk, such as indemnity, performance and payment bonds, and professional liability insurance. It also discussed what it refers to as "contractual risk control" by means of clearly demarcating the scope of services each party will provide, the standard of performance, and exclusion of consequential damages. Similarly, Judge Posner has described several strategies that businesses use to minimize their risk of economic losses—minimizing inventory, adopting corporate forms that provide for discharge of debt through bankruptcy, purchasing insurance, and self-insuring. Richard A. Posner, Common-Law Economic Torts: An Economic and Legal Analysis, 48 Ariz. L.Rev. 735, 738 (2006).
At the risk of belaboring the point, we observe that the Library itself has demonstrated total familiarity with these techniques of risk allocation in its Architect Contract with WMP. (Appellant App. at 272, 292, 327, 365-66, 393.) In addition, the Library's contract with Shook, the general contractor of the project who participated in the construction of the parking garage, contained specific provisions that allocated responsibility for uncovering and correcting work that did not conform to the contract documents. Id. at 365-66. And its contract with Patriot Engineering, another contractor for the project, charged Patriot with the task of "perform[ing] testing and inspection services ... for the Project with the objective of obtaining quality construction and timely completion of the Project[.]" Id. at 393.
In Rissler, the Wyoming Supreme Court held that the economic loss rule prohibited a general contractor from proceeding in negligence against a project engineer. 929 P.2d at 1235. Acknowledging that the plaintiff contractor and defendant engineer were not in privity of contract, the court nevertheless held that the plaintiff "had the opportunity to allocate the risks associated with the costs of the work when it contracted with the [project owner] and, in fact, entered into a detailed contract which allowed it the means, method and opportunity to recover economic losses allegedly caused by [defendant's] negligence." Id. at 1235. In doing so, the Wyoming court followed an influential decision of the Washington Supreme Court, Berschauer/Phillips Constr. Co. v. Seattle Sch. Dist. No. 1, 124 Wn.2d 816, 881 P.2d 986, 992-993 (1994). In that case, the Washington Supreme Court had held that a general contractor could not recover purely economic damages in tort from an architect, an engineer, and an inspector, none of whom were in privity of contract with the general contractor:
Id. at 992-93 (citations omitted).
The Colorado Supreme Court also relied on Berschauer in resolving BRW where a subcontractor on a construction project sued both the engineering firm that designed the plans and specifications for the project and an entity performing project inspection and management functions. The plaintiff sought to recover in tort purely economic losses it allegedly incurred as the result of defendants' negligence in design and inspection. 99 P.3d at 67. Apparently the subcontractor was not in privity of contract with the defendants, but the project was controlled by a "network of contracts" that had been "entered into by commercial parties capable of contractually protecting their respective economic expectations." Id. at 71. We quote the Colorado court at some length because of the relevance of its analysis to the case before us:
Fundamentals of Construction Law 4-5 (Carina Y. Enhada et al., eds., 2001).
Id. at 72. The court concluded that "the duties allegedly breached were contained in the network of interrelated contracts, and the economic loss rule applies." Id. at 74.
The Rissler case from Wyoming, the Berschauer case from Washington, and the BRW case from Colorado all involve claims by contractors against engineers, not, as in the case before us, a project owner against engineers and design professionals. However, the substance of our holding is that when it comes to claims for pure economic loss, the participants in a major construction project define for themselves their respective risks, duties, and remedies in the network or chain of contracts governing the project. As a participant, this applies as much to the project owner as it does to contractors and subcontractors, engineers and design professionals, and others.
Finally, Gergen Restatement Draft § 8(3)(c)(i) provides that no exception to the economic loss rule is merited where "the plaintiff reasonably could have, by contracts with the defendant or through an intermediary, protected itself from the loss." We believe this principle is applicable to the facts of the case before us. We see no reason why the Library could not— and perhaps pending collateral litigation will prove that it did—reasonably protect itself from loss by contracts with the Defendants or through an intermediary. But we need not decide this case on a principle quite so broad. We hold instead that there is no liability in tort to the owner of a major construction project for pure economic loss caused unintentionally by contractors, subcontractors, engineers, design professionals, or others engaged in the project with whom the project owner, whether or not technically in privity of contract, is connected through a network or chain of contracts. This is the Library's situation here and the economic loss rule applies.
The Library makes a relatively brief argument that the economic loss rule should not be a bar to its claims against the Defendants because the Defendants have been guilty of providing false information
Indiana has recognized liability for the tort of negligent misrepresentation. Passmore v. Multi-Mgmt. Servs., Inc., 810 N.E.2d 1022, 1025 (Ind.2004). In fact, we have said "negligent misrepresentation may be actionable and inflict only economic loss," citing § 552. Greg Allen Constr. Co., Inc. v. Estelle, 798 N.E.2d 171, 174 (Ind.2003). But we need not give extended treatment to the claim raised here as we have, for all practical purposes, resolved it in our extended discussion in the preceding section of this opinion.
In another case we decide today, we recognize a claim of negligent misrepresentation as an exception to the general economic loss rule where a mortgage lender not in privity of contract with a title company seeks to recover for the title company's negligence in issuing a title commitment that failed to disclose an encumbrance. See U.S. Bank, N.A. v. Integrity Land Title Corp., 929 N.E.2d 742 (Ind.2010). But because the Library is connected with the Defendants through a network or chain of contracts, the economic loss rule precludes it from proceeding in tort in this case.
The Library makes a very brief argument that the economic loss doctrine should not apply in situations where a defendant provides solely services and not a tangible product. The Library acknowledges that we repeatedly say in Gunkel that the economic loss rule applies to services as well as products, 822 N.E.2d at 153, but points us to five cases from other jurisdictions in support of its contention that it should not, notably Insurance Co. of North America v. Cease Electric Inc., 276 Wis.2d 361, 688 N.W.2d 462, 464 (2004).
In Cease Electric, the Wisconsin Supreme Court held that the rationale for the economic loss rule does not support applying it where a defendant provides services rather than a tangible product, even when the defendant does so pursuant to a contract. The court says this for what appear to us to be three major reasons. First, it finds that parties to contracts for services do not have as extensive a set of protections as parties to contracts for products
While it is true that the UCC does not apply to service contracts, the common law of contracts has a well developed set rules of interpretation and doctrines to protect the reasonable expectations of the parties. See Fresh Cut, Inc. v. Fazli, 650 N.E.2d 1126, 1133 (Ind.1995) ("Rules of contract construction and extrinsic evidence need to be employed to determine and give effect to the parties' reasonable expectations.") Nor is contract law blind to public policy. See Straub v. B.M.T. by Todd, 645 N.E.2d 597, 598-99 (Ind.1994) ("Where a properly formed agreement contravenes the public policy of Indiana, for instance, courts have traditionally said it is void and unenforceable.").
That having been said, we return again to a point made several times in the course of this opinion: that the economic loss rule is a general rule that admits of exceptions for contracts for services in appropriate circumstances. Indeed, we have mentioned possible exceptions (for purposes of illustration only
If called upon, we might well recognize an exception to the general economic loss rule in such limited circumstances. However, the policy justifications for the economic loss rule discussed throughout this opinion amply support applying the rule to products and services alike.
We affirm the judgment of the trial court.
SHEPARD, C.J., and DICKSON, BOEHM, and RUCKER, JJ., concur.
Information Negligently Supplied for the Guidance of Others.