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Moransais v. Heathman: Opening the Door for Professional Malpractice Suits and Other Claims
On July 1,1999. the Florida Supreme Court rendered a decision concerning professional liability that will have profound effects for years to come. In Moransais v. Heathman, the court held specifically that the economic loss rule does not bar a claim against a professional for negligence though the damages resulting from the negligent act are merely economic in nature and arise from a contract with the professional's employer. The court made it clear that injured parties have a cause of action for negligence against professionals, even without a direct contract between the injured party and the professional.
To understand the significance of the opinion, one must understand the concept of the economic loss rule. In a simplified sense, the economic loss rule is a doctrine created by the court that prohibits an injured party to a contract from suing in tort for purely economic losses. Tort claims are claims for negligence, fraud, breach of fiduciary duty and the like. Judges and attorneys alike, confirm that the bench and the bar have greatly misunderstood and misapplied the economic loss rule. Moransais is a step in returning the law in this area to the old order, the way in which it existed before the economic loss rule grew from its earliest application in Florida in 1987.
The significance of the Moransais case extends far beyond the facts of the case, which involved professional engineers, though the holding of the case was limited to professionals. A "profession" for purposes of the statute of limitations, is any vocation requiring at a minimum a four-year college degree before licensing is possible in Florida. In Florida, the statute of limitations for suits against professionals is two years. In Moransais, the contract purchaser of residence engaged an engineering firm to inspect the home and provide an opinion of soundness. Two engineers employed by the firm inspected the home and failed to detect defects that ultimately made the home uninhabitable. The precise question presented to the court was whether the purchaser could pursue a claim for damages resulting from professional malpractice against the inspecting engineers where there was no contract between the purchaser and those engineers, and whether the economic loss rule was a bar to such an action. The court held that the negligence claim could be pursued against the inspecting engineers and the "economic loss" rule was not a bar.
Despite the limited holding of the court, the decision would appear to reverse a growing trend of cases that barred tort claims for economic damages whenever a contractual relationship was at its base.
The significance to members of the construction industry is readily apparent in that architects, engineers, and any other licensed professional whose license is dependent upon a four-year college degree, may now be sued for professional malpractice and other applicable torts, for example, fraud, despite the existence of a contract with the injured party. Contractors, electricians, plumbers and many other trades that are required to be licensed in Florida are not required to obtain a degree from a college or university to be eligible for their respective licenses. While it would appear that such members of the construction industry would be exempt from the holding in Moransais, it is respectfully submitted that Moransais will be applied in all contract cases where the underlying facts give rise to additional tort claims.
The Supreme Court reviewed the history of the economic loss rule in its opinion. The rule grew out of a case called Seely v. White Motor Company, a California case that was decided in 1965. In that case, the purchaser of a vehicle that was returned to the mechanical shop repeatedly for warranty repairs sued to recover lost profits because the purchaser, a farmer, was unable to get his crops to market with regularity. The Seely decision was the first of its kind. The Seely court held that if the purchaser sought to recover for economic losses because of the defective vehicle, he should have negotiated for that in his contract of purchase. The court in Moransais recognized the origins of the economic loss rule and acknowledged that it had been applied well beyond the area of the law for which it was intended: product liability cases. The court made clear that the application of the economic loss rule should generally be limited to those contexts or situations where the policy considerations are substantially identical to those underlying the product liability-type analysis.
A broader and more expansive reading of Moransais suggests that tort claims that were previously barred by the economic loss rule and that grew out of contractual situations are now actionable. Such claims could involve every aspect of contractors business affairs and are not limited to matters involving professional malpractice. The consequences of Moransais, then, would apply to contractual relations involving corporate agreements, that is, between corporations, shareholder agreements, vendor agreements, partnership and joint venture agreements, and every kind of commercial relationship that a contractor may enter. The holding does not create new causes of action; it only permits causes of action in tort that were allowed before Florida's application of the economic loss rule barred them in 1987.
The economic loss rule, in its application, prevented claims that gave rise to punitive damages, since such claims arise out of tortious conduct. A gross breach of a contract does not give rise to punitive damages. However, the facts underlying such conduct may give rise to a tort action that would enable a claim for punitive damages. For example, assume a surveyor under contract plagiarizes the work of another surveyor in preparing a tentative plat survey and it is determined that the first surveyor's survey was erroneous. The surveyors certificate recites that the surveyor personally inspected the work and certifies to its accuracy. The first surveyor and the second would be liable for contract damages, and possibly, malpractice under some appellate court cases holding that negligence claims could be pursued against surveyors. The application of the economic loss rule prior to Moransais would bar the injured party's claim for punitive damages for the fraudulent conduct of the second surveyor and would limit his claim to purely contractual damages. The Moransais decision allows the injured party to sue the second surveyor for fraud, in addition to the traditional claim of breach of contract and negligence, where the latter claim has been allowed by the particular appellate courts.
Using the facts in Moransais, if the inspecting engineers never visited the residence and submitted an entirely fictitious report, they would be liable for fraud. The "economic loss" rule previously barred such actions and limited the injured party to a breach of contract claim against the employer. The Moransais decision suggests that the inspectors may now be sued for fraud.
What is the meaning of Moransais to the construction industry? Plainly and simply, one may sue or be sued for as many legal causes of action as are supported by the facts, except that in products liability cases, the "economic loss" rule still exists to bar claims for negligence between parties to a contract where there is no separate damage to person or property. Tort claims for purely economic losses arising from defective products are still barred.
It is impossible to gauge the effect of Moransais on the construction industry as a whole. It is difficult to imagine that Moransais will foster more suits. However, the decision can be expected to make existing and future suits more complicated because of the number of additional claims that can be brought in tort arising from the same set of facts supporting actions for breach of contract.
In a philosophical vein, the effects of Moransais can be both positive and negative. On the positive side, lawsuits are the way civilized societies resolve disputes between its members, although the manner in which this is accomplished nowadays seems, in some cases, uncivilized. Litigation is a regulating force. It has brought about changes for the betterment of the health, safety and welfare of society. On the other hand, litigation has been used abusively and indiscriminately. Anyone with several hundred dollars can file a suit in Miami-Dade or Broward County. Many suits are not worth the cost of filing, yet they are filed nonetheless. Only time will tell whether Moransais will have the effect of constraining misconduct and providing additional remedies for parties suffering legitimate injury at the hands of another, or whether it will simply complicate litigation without any discernible benefit. If Yogi Berra were asked to decide the issue, he would probably say, "If I have to choose one way or the other, I'd take both".
