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Justices address economic loss rule in 2 opinions

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In two separate rulings involving the “economic loss rule,” the Indiana Supreme Court ruled against a library seeking to hold subcontractors and an engineer responsible for negligence, and in favor of a bank in its tort claim against a title company.

In Indianapolis-Marion County Public Library v. Charlier Clark & Linard, P.C., et al., No. 06S05-0907-CV-332, the justices dealt the library a blow in its attempt to recover damages for repair costs and other fees because of a delay in the construction of the Central Library in Indianapolis. Construction was delayed after problems were discovered in the concrete used for the parking garage and foundation of the library. The library brought a lawsuit against the architect, general contractor, and various subcontractors for negligence. The library settled with the architect and general contractor, with whom it had a contractual relationship.

The trial court granted the remaining defendants’ motion for summary judgment, finding the negligence claims were barred by the economic loss rule. The Indiana Court of Appeals majority affirmed.

In the IMCPL case, the justices extensively examined the economic loss rule and held that it applies in the instant case. 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, and those contracts - not negligence law - govern the outcome of the library’s claims, wrote Justice Frank Sullivan.

“From the outset of the project, the Library looked to a series of contracts to establish the relative expectations of the parties. And reliance on contract law in this regard is perhaps greater in construction projects than any other industry,  …” wrote the justice.

The Supreme Court also emphasized that the economic loss rule operates as a general rule to preclude recovery in tort for economic loss and does so only for purely economic loss. There are exceptions to the general rule, but those don’t apply in the library’s case.
 
But one of those exceptions does apply in the case of U.S. Bank, N.A. v. Integrity Land Title Corp., No. 17S03-1002-CV-120, which is a case of first impression. The issue is whether or not a title company, after issuing an incorrect title commitment on which the lender relied to its detriment, owes a duty in tort to the recipient to which it certified clear title to the subject real property.

The facts of this case fit within the tort of negligent misrepresentation, so applicable tort law allows U.S. Bank’s tort claim to go forward, the justices ruled.

A buyer of real property got a mortgage from lender Texcorp Mortgage Bankers, who prior to lending the money, contracted with Integrity Land Title Corp. to prepare a title commitment, close the mortgage, and provide the company with an insured first and superior mortgage lien against the subject real property. Integrity’s search uncovered no judgments against the seller of the real property, but the search failed to show a 1998 foreclosure judgment from LPP mortgage.

U.S. Bank, as successor of Texcorp’s interests, intervened in LPP’s action to foreclose the 1998 judgment lien. The bank asserted claims against Integrity of breach of contract and tort of negligent real estate closing. The trial court found Integrity wasn’t in breach of contract and not negligent because it owed no duty to U.S. Bank in tort. The two parties did not have a contract.

Justice Sullivan noted that the existence or non-existence of a contract is not the dispositive factor for determining whether a tort action is allowable where special circumstances and overriding public polices have created exceptions.

Integrity should have known that Texcorp would act in justifiable reliance on the statement in the preliminary commitment that the title was free and clear. The relationship between Integrity and Texcorp was of an advisory nature and Integrity deliberately provided specific information in response to a request by Texcorp to guide Texcorp into its transaction with a third party. Integrity also affirmatively vouched for the accuracy of the information.

 Based on this, applicable tort law allows U.S. Bank’s tort claim to go forward.
 

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  1. Frankly, it is tragic that you are even considering going to an expensive, unaccredited "law school." It is extremely difficult to get a job with a degree from a real school. If you are going to make the investment of time, money, and tears into law school, it should not be to a place that won't actually enable you to practice law when you graduate.

  2. As a lawyer who grew up in Fort Wayne (but went to a real law school), it is not that hard to find a mentor in the legal community without your school's assistance. One does not need to pay tens of thousands of dollars to go to an unaccredited legal diploma mill to get a mentor. Having a mentor means precisely nothing if you cannot get a job upon graduation, and considering that the legal job market is utterly terrible, these students from Indiana Tech are going to be adrift after graduation.

  3. 700,000 to 800,000 Americans are arrested for marijuana possession each year in the US. Do we need a new justice center if we decriminalize marijuana by having the City Council enact a $100 fine for marijuana possession and have the money go towards road repair?

  4. I am sorry to hear this.

  5. I tried a case in Judge Barker's court many years ago and I recall it vividly as a highlight of my career. I don't get in federal court very often but found myself back there again last Summer. We had both aged a bit but I must say she was just as I had remembered her. Authoritative, organized and yes, human ...with a good sense of humor. I also appreciated that even though we were dealing with difficult criminal cases, she treated my clients with dignity and understanding. My clients certainly respected her. Thanks for this nice article. Congratulations to Judge Barker for reaching another milestone in a remarkable career.

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