The Economic Loss Rule and the Design Professional’s Liability in Texas

The economic loss rule bars recovery by a party who suffers only economic loss, unaccompanied by harm to the person or property. Although the economic loss rule was developed as a way to maintain a “boundary line” between contract and tort law, the application of the rule has proven difficult because of its potential for broad applicability and inequitable results. Because of this, several jurisdictions across the United States have adopted exceptions to the general economic loss rule. One such exception is negligent misrepresentation. The negligent misrepresentation exception is outlined in section 552 of the Second Restatement of Torts. The exception provides that a person who conveys negligent information in the course of his or her business for the guidance of persons within a limited class, who then rely on that information to their detriment, are liable to those persons in tort notwithstanding the economic loss rule. Until recently, Texas law was unclear as to whether it had adopted negligent misrepresentation as a general exception to the economic loss rule. It is clear, however, that Texas has adopted an exception to the economic loss rule for professionals who provide negligent information in the course of their profession. The Court in LAN/STV v. Martin K. Eby Constr. Co. (“LAN/STV”) chose not to extend this exception to design professionals who provide negligent design plans to contractors for a construction project. This decision has received backlash by many in the construction industry as it produces inequitable results and does not extend the “professional” exception to design professionals. Texas should adopt the negligent misrepresentation exception to the economic loss rule, as applied to design professionals in the construction context, so that tort remedies are available to contractors who suffer economic losses due to their reliance on negligent plans from a design professional