Hayes v. Intermountain Geoenvironmental Servs. Inc.
446 P.3d 594
Utah Ct. App.2019Background
- In 2004 Developer hired Intermountain GeoEnvironmental Services, Inc. (IGES) to prepare a geotechnical/slope stability report for a subdivision; IGES concluded construction could occur with specified precautions.
- Developer sold lots; Kim and Nancy Hayes (Plaintiffs) bought one and had a house built in 2015. Plaintiffs allege the house later developed foundation and wall cracks and excessive settling due to unstable slope conditions.
- Plaintiffs retained a different engineering firm whose report recommended extensive remedial foundation work (e.g., supports extending ~65 feet) and concluded the slope failed minimum safety factors.
- Plaintiffs sued IGES (among others) asserting negligence, negligent misrepresentation, and negligent infliction of emotional distress; IGES moved to dismiss under Utah’s economic loss rule and for lack of third-party beneficiary status.
- The district court dismissed Plaintiffs’ tort claims against IGES as barred by the statutory economic loss rule (Utah Code § 78B-4-513); Plaintiffs appealed only that dismissal after resolving other parties below.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Plaintiffs’ tort claims against IGES are "actions for defective design or construction" within Utah Code § 78B-4-513(1) and therefore limited to contract claims | Hayes: IGES’s 2004 report was a professional opinion about an existing lot condition, issued before any house was designed or built; the suit is for a wrong opinion, not defective design/construction | IGES: The geotechnical recommendations informed whether and how houses could be designed/built; damages alleged arise from construction that failed to function as designed, so claims are for defective design/construction | Held for IGES: Plaintiffs’ damages (repair/diminution, moving expenses, emotional distress, and loss of lot value) arise from defective design/construction and thus fall within § 78B-4-513(1) and must be pursued as contract claims when in privity |
| Whether the statutory "other property" exception (§ 78B-4-513(2)) applies to Plaintiffs’ claims for damage to the house or to the lot | Hayes: The house is separate from the land and thus constitutes "other property"; alternatively, damages to the house should be treated as distinct from the failure of construction to function as designed | IGES: The house and land are an integrated unit; IGES’s report addressed buildability and foundation requirements, so alleged harm is the failure of construction to function as designed and not "other property" | Held for IGES: The statutory exception does not apply. The house (and the claimed diminution in lot value tied to buildability) is not "other property" but part of the integrated constructed product |
| Whether it matters that IGES’s work predated specific house plans and thus was not "design work" | Hayes: Timing and nature of the report make it a condition assessment rather than design; thus economic loss rule should not bar tort claims | IGES: Geotechnical recommendations are integral to design; engineers performing such work are akin to "design professionals" and their recommendations are part of the design/construction chain | Held for IGES: Geotechnical reports are a prerequisite to design and count as part of the design process for § 78B-4-513 purposes; timing before plans does not remove the report from the design/construction context |
Key Cases Cited
- SME Indus., Inc. v. Thompson, Ventulett, Stainback & Assocs., Inc., 28 P.3d 669 (Utah 2001) (describing the economic loss rule as marking the boundary between contract and tort in design/construction contexts)
- Davencourt at Pilgrims Landing Homeowners Ass'n v. Davencourt at Pilgrims Landing, LC, 221 P.3d 234 (Utah 2009) (discussing the "other property" exception and that components of an integrated product are not "other property")
- Reighard v. Yates, 285 P.3d 1168 (Utah 2012) (post-enactment construction-context economic loss analysis)
- American Towers Owners Ass'n v. CCI Mech., Inc., 930 P.2d 1182 (Utah 1996) (holding that individual components of a constructed complex are not "other property")
- Terracon Consultants W. Inc. v. Mandalay Resort Group, 206 P.3d 81 (Nev. 2009) (treating geotechnical engineers as design professionals for economic loss rule purposes)