Imagine that you are an environmental professional who has been retained by a purchaser to perform environmental due diligence on an unremarkable piece of commercial property. You enter into a professional services contract to perform a limited Phase I Environmental Site Assessment in accordance with the applicable ASTM Standard. You complete your investigation finding no recognized environmental conditions, recommend no further investigation, and deliver the report to the client. Based on your Phase I, the client purchases the property and then turns around and sells the property to a new buyer. In doing so, the client gives your Phase I to the new buyer who relies on it and purchases the property. The new owner then discovers contamination and claims you are liable for the costs of remediation because you negligently prepared the Phase I. Can you be legally liable to the new owner even though she wasn’t your client? Maybe.
Under Indiana law, a professional generally owes no duty to a party with whom it has no contractual relationship. Emmons v. Brown, 600 N.E.2d 133, 135 (Ind. Ct. App. 1992); Essex v. Ryan, 446 N.E.2d 368, 371 (Ind. Ct. App. 1983). Thus, a professional is general not liable to third persons who rely on her conclusions or opinions unless the professional has “actual knowledge that those third persons would have such reliance.” Webb v. Jarvis, 575 N.E.2d 992, 996 (Ind. 1991); Thomas v. Lewis Eng’g, Inc., 848 N.E.2d 758, 760 (Ind. Ct. App. 2006); Emmons v. Brown, 600 N.E.2d 133, 135 (Ind. Ct. App. 1992). Thus, tort liability will only attach when there is sufficient contact between the professional and the third party, not when it is merely foreseeable that a third party may rely on the professional opinion. The Indiana Supreme Court has recently emphasized this requirement. U.S. Bank, N.A. v. Integrity Land Title Corp., 2010 WL 2594312, *4 (Ind. 2010).
Indiana courts have not addressed the exception in the context of environmental professionals whose opinions regarding recognized environmental conditions are relied upon by third parties. However, liability may be imposed in those instances where the environmental professional has actual knowledge that the third party – in our hypothetical the new buyer – will rely on your professional opinions. One way of shielding yourself from potential liability may be to include contractual language in your professional services agreement regarding when your opinions may be disseminated to third parties and who is liable in such instances.
For more information on defending malpractice claims against environmental professionals, contact Brad Sugarman or any member of Taft’s environmental practice group.