A recent Illinois State Court of Appeals decision has highlighted the distinction between providing a product for sale to the public on the one hand, and providing a service under a contract on the other. Many design firms are now branching out to market and deliver their own products, satisfying a growing market for prefabricated structures, substructures, and building systems while taking advantage of developments in manufacturing coordination. Historically, architects involved solely with design have enjoyed immunity from expanding breach of warranty doctrines. But, as designers enter the stream of commerce to deliver fully manufactured products, that protection may disappear. When they do, design firms may subject themselves to liability for implied warranties and strict liability, concerns typically reserved for manufacturers and builder-sellers. Design firms need to make sure their products are priced to account for this risk and that they are insured for it. Sophisticated customers ordering prefabricated structures, substructures, and building systems from design firms or their subsidiaries should seek proof of the same.
In Board of Managers of Park Point at Wheeling Condominium Ass’n v. Park Point at Wheeling, LLC, 2015 IL App (1st) No. 123452, ___N.E.3d___, 2015 WL 9589615 (December 31, 2015), a condominium homeowners association sued an architecture firm for defective design leading to water and air infiltration. The architecture firm had designed the 128-unit complex in 2000, and construction had commenced from 2001 to 2004. The architecture firm did not take part in the construction or sale of the units.
In reviewing the Association’s argument that the architecture firm should be liable for breach of implied warranty, the Illinois court reviewed state and national caselaw. It noted that even the sale of pre-drawn plans and shell materials as a package to a builder-seller would not subject an architect to liability for breach of implied warranty in Illinois, so long as the architect did not have a role in the construction, discussing Paukovitz v. Imperial Homes, Inc., 271 Ill App 3d 1037, 659 NE2d 473 (1995). In reviewing the national caselaw, the Court noted the general consensus that the concept of a “warranty” applies to goods, not services, and that architects are no different from other professions in being held only to the standard of care of a reasonable practitioner in the same time and place. Regardless, the Association argued that the law should be extended. An Illinois appeals court had previously extended liability for implied warranty to a painting subcontractor who was not the direct builder-vendor, in Minton v. The Richards Group of Chicago, 116 Ill App 3d 852, 452 N E 2d 835 (1983), on the basis that the responsible contractor should have liability.
Rejecting this in application to design professionals, the Court focused on the act of construction and manufacture as the principal, distinguishing feature. The Court ruled that absent any involvement in the construction itself, the architecture firm would not be liable for implied warranty, in accord with the national consensus. See, e.g., 797 Broadway Group, LLC v. Stracher Roth Gilmore Architects, 123 A D 3d 1250 (2014); Huang v. Garner, 157 Cal App 3d 404 (1984)
The flip side of this review and discussion is if a design firm is involved in the manufacture of structures which it designs, that the design firm may very well find itself liable for implied warranty and strict product liability, as would any other manufacturer or builder-seller.
A minority of courts have already begun to use the terminology of “implied warranty” in application to design professionals. For example, in Arizona, the court used the phrase to hold that the implied warranty given by design professionals is “that they have exercised their skills with care and diligence and in a reasonable, non-negligent manner.” N. Peak Const., LLC v. Architecture Plus, Ltd., 227 Ariz 165, 168, 254 P3d 404, 407 (Ct. App. 2011). In response, however, this sounds like the generally applicable traditional professional negligence standard.
In Oregon, no court has yet extended the implied warranties of workmanlike construction and habitability of Yepsen v. Burgess, 269 Or 635 (1974) to design professionals providing design services. Given the history of law differentiating professional services from the delivery of goods, design firms may not be keyed in on the liability they may be taking on if they market and sell manufactured dwellings, Accessory Dwelling Units, seismic substructures, and the like. As entrepreneurial design professional firms continue to branch out and offer prefabricated structures, they should have a look at whether they are crossing the line from providing professional services for a fee to providing a product for a cost. When they do, design firms should make sure that they take the same precautions that manufacturers and builder-vendors do, obtaining the proper insurance and writing their sales agreements to expressly identify and limit implied warranties and liabilities. Customers and sophisticated consumers of architectural products should make sure that the company with whom they are dealing is equipped to handle any problems with its products down the road.