COSTS OF REPAIR – KEYSTONE AIRPARK v. PIPELINE
Construction Law Section
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Repair damages
sustained by an owner
— stemming from an
engineering firm’s failure
to inspect and monitor
construction work — are
consequential damages.
I
n a case of first impression,
the First District Court of
Appeals recently clarified its
ruling that repair damages
sustained by an owner — stemming
from an engineering firm’s failure
to inspect and monitor construction
work — are consequential damages,
and thus precluded from recovery
under the terms of the parties’
contract. Keystone Airpark Authority
v. Pipeline Contractors, Inc., et al,
2019 WL 323775 (1st DCA Jan. 25,
2019) (The opinion has not been
released for publication in the
permanent law reports. Until
released, it is subject to revision
or withdrawal.)
Separate from its agreement with
the contractor to construct airplane
hangars and taxiways, Keystone
Airpark Authority entered into a
contract with Passero Associates,
LLC to provide engineering services
that included resident engineering
and inspection, and material testing.
The First DCA noted that the
contract “expressly required Passero
to inspect, observe and monitor the
construction work and to determine
the suitability of materials used by
the contractor.”
Bringing suit against both the
contractor and Passero, Keystone
alleged that the contractor
used substandard material for
stabilization underneath the
structures, which Passero failed
to detect, causing the concrete
:
hangar slabs and asphalt taxiways
to prematurely deteriorate.
Keystone sought to recover from
defendants the costs to remove,
repair, and replace the hangars,
taxiways, and underlying subgrade.
The trial court held that
Keystone’s alleged damages were
consequential damages, which were
excluded by the parties’ contract.
Keystone argued that the repair
costs constitute general damages
and not consequential damages
because those damages were
foreseeable from Passero’s failure
to supervise the contractor’s work.
On appeal, the First DCA affirmed
the trial court, holding that the
costs of the engineering services
provided by Passero to Keystone
were the only direct or general
damages available.
Analyzing the definition of
general, special, and consequential
damages and how the question
of foreseeability affects the nature
of the damages (going back to
Hadley v. Baxendale), the First
DCA determined that while
the repair costs were “reasonably
foreseeable,” they were “not the
direct or necessary consequence
of Passero’s alleged failure to
properly inspect, observe, monitor,
and report problems with the
construction work.” The need for
repair instead flowed from loss
incurred by Keystone in its dealings
with the contractor (e.g., “[t]he
contractor could have completed
the job correctly without Passero
performing its contractual duties”).
Accordingly, Keystone’s damages
were consequential and not general
or direct damages.
Upholding partial summary
judgment in favor of Passero, the
First DCA nevertheless certified a
question of great public importance:
“Where a contract expressly
requires a party to inspect, monitor,
and observe construction work and
to determine the suitability of
materials used in the construction,
but the party fails to do so and
inferior materials are used, are the
costs to repair damage caused by
the use of the improper materials
general, special, or consequential
damages?” If the Supreme Court
accepts certiorari, owners,
contractors, design professionals,
and their
counsel alike
will be
interested in
the answer.
Author:
Catherine M.
DiPaolo –
Trenam Law
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