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In City of Whiting, Indiana v. Whitney, Bailey, Cox,
& Magnani, LLC, 2018 WL 1400890 (U.S. Dist. Ct., N.D. Ind. March 20,
2018), the United States District Court for the Northern District of Indiana
held that an owner’s tort claim for damage caused by the failure of a retaining
wall designed by a subconsulting engineering firm was barred because all
claimed damages were to the overall project and therefore barred by Indiana’s
economic loss doctrine.
The City of Whiting (“the City”) redeveloped a portion of
its waterfront property along Lake Michigan, called the Whiting Lakefront Park
Project. The City hired American Structurepoint, Inc. (“ASI”) to serve as the Engineer
of Record for the Project. In 2010, ASI subcontracted the marine engineering
services to Whitney, Bailey, Cox & Magnani, LLC (“WBCM”). WBCM designed a
retaining wall to protect the shoreline. The wall subsequently failed and caused
damage to the Project.
The City sued WBCM for negligence. WBCM filed a Motion for Summary
Judgment, arguing the economic loss doctrine barred the City’s claim. Indiana Courts
previously held tort claims related to construction are subject to the state’s
economic loss doctrine. The economic loss rule in Indiana provides that a defendant not
in privity of contract is not liable under a tort theory for purely economic
losses caused by its negligence, including, in the case of a defective product
or damage to the product itself. A defendant can be liable in tort for a
plaintiff's losses, however, if the damage is to property other than the
product itself. WBCM argued the damage was to the Project and therefore the
only loss was to the “product” itself. The City argued its claim was not barred
because only the wall constituted the product, not the Project as a whole.
The Indiana Supreme Court previously addressed what constitutes
a “product” in construction cases and held the term “product” generally
includes the entire construction project, not just the portion of the project
constructed by the defendant. Indianapolis-Marion Cty. Pub. Library v.
Charlier Clark & Linard, P.C., 929 N.E.2d 722, 727 (Ind. 2010). The
City agreed with WBCM’s argument that the economic loss doctrine applied, but re-addressed
the question of what constitutes the product versus “other property.” The City recognized previous cases defined
the product as the entire project, but argued those cases could be
distinguished because they addressed construction of a single structure, not a
large multi-structure facility as in this case. The Court disagreed, noting the
defining character of a product was the nature of what was purchased, not the
size. The Court noted the wall was an “integral part” of the overall project
and therefore the entire project should be treated as a single product.