In the latest issue of The Wright Toolbox:
- Maryland Court of Appeals Upholds Economic Loss Doctrine- read now
- Contractual Indemnity Provisions for First Party Attorney’s Fees Are Enforceable? – read now
Maryland Court of Appeals Upholds Economic Loss Doctrine
In Balfour Beatty Infrastructure, Inc. v. Rummel Klepper & Kahl, LLP, the Maryland Court of Appeals recently upheld the Economic Loss Doctrine to bar the claim of a general contractor against the owner’s engineer on a government project. The general contractor was seeking to recover economic losses based upon reliance on allegedly defective designs. The Court upheld Maryland’ s long standing rule that in the absence of contractual privity, physical injury, or serious risk of physical injury, design professionals on construction projects do not owe a tort duty to those who bid and contract with the owner. The Court stated that the “[t]he economic loss doctrine represents a judicial refusal to extend tort liability to negligence that causes purely economic harm in the absence of privity, physical injury, or risk of physical injury.” In upholding the requirement of privity the Court noted, “[w]e think the complex web of contracts that typically undergirds a public construction project should govern because parties have sufficient opportunity to protect themselves (and anticipate their liability) in negotiating these contracts.” The Court also focused on the fact that the case involved a government contract and the financial impact that might befall the owner and the public if contractors could make tort claims against design firms to recover economic losses on such projects. The court explained, “[w]e are also mindful that government contracts have a special consideration – the public purse. Imposing a tort duty on design professionals will likely correlate with an increase in project costs and with a corresponding risk in price for government entities.”
Contractual Indemnity Provisions for First Party Attorney’s Fees Are Enforceable?
In Bainbridge St. Elmo Bethesda Apartments, LLC v. White Flint Express Realty Group Limited Partnership, LLLP, 454 Md. 475, the Court of Appeals recently held that a contractual indemnity provision containing a prevailing party attorney fees clause could indemnify the non-breaching party for its legal fees, including the fees expended to recover the legal fees themselves. In Bainbridge, an entity (Bainbridge) was formed to oversee the construction and management of a 17 story building in Bethesda. To construct the building, Bainbridge needed to access the neighboring property (owned by White Flint), so the parties entered into an easement agreement that provided, among other things, for Bainbridge to indemnity White Flint from all claims, including attorney’s fees, arising from any breach of that agreement.
After Bainbridge breached the easement agreement, White Flint terminated the agreement. White Flint then filed a declaratory judgment action seeking primarily a determination that the agreement’s indemnity obligations survived White Flint’s termination of the agreement. The trial court held that such obligations did survive termination and awarded White Flint more than $3.5 million in attorney’s fees based on the prevailing party attorney fee provision in the easement agreement. Bainbridge appealed, arguing that under the Court of Appeals’ prior decision in Nova Research v. Penske Truck Leasing Co., 405 Md. 435 (2008), first party attorney’s fees arising from a contractual indemnity provision are not recoverable under Maryland law. The Court of Special Appeals and Court of Appeals both disagreed, holding that where, as here, the indemnity provision expressly includes the right to recover attorney’s fees, such fees are recoverable – even in a first party action. The Court of Appeals also made clear that, in its view, the easement agreement clearly intended to compensate the parties to that agreement in the event one of the parties breached the agreement, and that such compensation included attorney’s fees.
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