'Economic Loss Rule' Bars Material Supplier's Claim for Indemnification

In a recent published decision by the Second District Court of Appeal (State Ready Mix, Inc. v. Moffatt & Nichol decided January 8, 2015), a concrete supplier sought equitable indemnification from a civil engineer who had gratuitously reviewed the supplier's concrete mix design at the request of the contractor to whom the concrete had been supplied. The plans required the concrete attain a comprehensive strength of 5,000 PSI at 28 days. When it failed (it was only 3,650 PSI at 28 days) the contractor removed the concrete and reinstalled and sued the concrete supplier to recover these costs. When the concrete supplier tried to sue the civil engineer for equitable indemnification against the damages suffered by the contractor, its claim was denied on the grounds it was barred by the economic loss rule.

Citing Aas v. Superior Court (a 2000 decision of the California Supreme Court) the court of appeal affirmed the trial court decision barring the concrete supplier's claim. Where parties are not in privity of contract, the economic loss rule bars claims for equitable indemnification unless the party seeking indemnification can show the other party breached a legal duty independent of its alleged breach of its contract with another party. Here, the civil engineer was under contract to the project manager, not the contractor or the concrete supplier, and the concrete supplier could not articulate a separate legal duty owed to it by the civil engineer. (Though it seems unlikely to have changed the ultimate result, the concrete supplier's ability to plead around the economic loss rule seems to have been hampered by an email it sent to the contractor, that was made part of the pleading in the action, wherein the concrete supplier essentially admitted it was at fault for the concrete's failure to meet the required design strength.)

Click here, if you'd like to review the actual decision of the court.