Engineering firm’s alleged failure to supervise the construction of an airplane hangar were consequential damages and were excluded by the parties’ contract.
Keystone Airpark Authority brought an action for breach of contract and negligence against Passero Associates LLC, the engineering firm tasked with the responsibility to provide “part-time resident engineering services and inspection, [and] material testing,” specifically to “observe the work to determine conformance to the contract documents and to ascertain the need for correction or rejection of the work” and to “determine the suitability of materials on the site, and brought to the site, to be used in construction.” Airpark sought damages relating to the cost to remove, repair and replace the hangars, taxiways and underlying subgrade. It sought the same relief from the contractor.
Airpark argued that the cost of repair to the hangars and taxiways constituted general damages, not consequential damages, because those damages were foreseeable. The court went on to explore the definitions of general, special, and consequential damages and how the question of foreseeability affected the nature of the damage incurred.
The court reasoned that consequential damages do not arise within the scope of the immediate buyer-seller transaction but stem from losses incurred by the non-breaching party in its dealings, often with third parties, which were the proximate result of the breach and which were reasonably foreseeable by the breaching party at the time of contracting. The consequential nature of the loss is not based on the damages being unforeseeable by the parties. What makes the loss consequential is that it stems from relationships with third parties while still reasonably foreseeable at the time of contracting.
The court stated that the need for repairs to the hangar stemmed from the loss incurred by Airpark in its dealings with a third party—the contractor—and therefore constituted consequential damages. However, the court recognized that no case law was directly on point involving damages stemming from the failure to supervise and inspect construction work. Thus, the court certified the following question as one of great public importance: Where a contract expressly requires a party to supervise construction work and to determine the suitability of materials used in the construction, but the party fails to properly supervise and inferior materials were used, are the costs to repair damage caused by the use of improper materials general, special or consequential damages?
The judgment from the Circuit Court was affirmed by holding that the cost of repairs to the hangar constituted consequential damages because the damages were not a direct consequence of the engineering firm’s alleged failure to supervise the construction, and therefore, are excluded by a provision in the contract excluding recovery for consequential damages.
Case Law Alerts, 1st Quarter, January 2019
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