REPORTED
IN THE COURT OF SPECIAL APPEALS
OF MARYLAND
No. 2122
September Term, 2012
CASH & CARRY AMERICA, INC.
v.
ROOF SOLUTIONS, INC., ET AL.
Eyler, Deborah S.,
Woodward,
Thieme, Raymond G., Jr.
(Retired, Specially Assigned),
JJ.
Opinion by Eyler, Deborah S., J.
Filed: June 30, 2015
The primary question in this case is whether a roofing contractor who performs work
on a structure owes a duty of care in tort to a third party owner of personal property inside
the structure. The answer is yes, although there are limits on the type of property damage
encompassed by this duty of care, as we shall discuss.
Cash & Carry America, Inc. (“CCA”), the appellant, is a business owned in part by
Merle Coe, who is its Chief Executive Officer. In the Circuit Court for Montgomery County,
CCA sued Diogo Depaula and Roof Solutions, Inc. (“Roof Solutions”), the appellees,
alleging that their negligence in carrying out roof replacement work on a townhouse owned
by Coe caused the roof of the townhouse to catch fire, which damaged property belonging
to CCA that was inside the townhouse. The court granted summary judgment in favor of
Depaula and Roof Solutions, a ruling CCA challenges on appeal.1 We shall reverse the
judgment and remand for further proceedings.
FACTS AND PROCEEDINGS
Coe owns and lives in a townhouse in Washington, D.C. In 2010, he contacted Roof
Solutions about replacing the townhouse’s roof, which was old. Artem Chanturiya, a roofing
specialist with that company, met with Coe at the townhouse. According to Coe, the two
1
The particular questions posed by CCA are:
I. In Maryland does the economic loss doctrine shield a contractor from
tort liability to a third party where the contractor damaged the third
party’s personal property located where the tort occurred, but ancillary
to the work being performed?
II. Was there a sufficient factual basis for a reasonable trier of fact to
conclude that Appellee Roof Solutions, Inc. caused the fire that
damaged the Appellant’s property?
walked through the townhouse, and in doing so saw two computers sitting on the floor of an
upstairs bedroom he used as an office. Coe told Chanturiya that the computers belonged to
CCA, a company he ran, and that the office and property of CCA had been moved into his
townhouse.
On September 13, 2010, Coe signed a roof replacement contract with Roof Solutions
and paid a deposit. Pursuant to a subcontracting agreement in force since 2008, Roof
Solutions hired Depaula to perform the roof replacement work.
The work started on September 22, 2010, and still was in progress on September 24,
2010. That evening, the last worker left the townhouse at 7:30 p.m. At 9:34 p.m., a neighbor
called the District of Columbia Fire Department (“DCFD”) to report smoke on the roof of
the townhouse. (Coe was not at home.) Fire Department personnel quickly arrived, spotted
a fire burning on the roof, and put it out. By 10:00 p.m., DCFD investigators Rodney L.
Taylor and Keith Byrd had started their origin and cause (“O&C”) investigation of the fire.
In their report of findings, Taylor opined that the “roofers were using a torch to heat tar
paper. The flame/heat from the torch ignited the structural members of the roof.” He
classified the fire as “accidental.”
The day after the fire, Chanturiya and Coe again walked through the townhouse.
According to Chanturiya, Coe pointed out some computers on the floor in the second story
bedroom he used as an office. They were sitting in water that had come into the townhouse
when the DCFD was putting out the fire. Coe told Chanturiya the computers were for a
2
business he was trying to start. According to Chanturiya, this was the first he had heard
about Coe’s business. Coe said he was unsure about the future of the business because he
did not know if the hard drives on the computers could be salvaged. Chanturiya took
photographs of the computers.
Coe made a claim with State Farm Insurance Company (“State Farm”), his
homeowners insurance carrier, and State Farm hired Firemark, Inc., to perform an O&C
investigation. Ward Caddington, an investigator with Firemark, performed the work and
wrote a report, in which he concluded that “[t]he fire was started as a result of heat from the
roofer’s torch ignited [sic] wooden framework of the roof at the area of the office which was
located on the second floor.”
In his insurance claim, Coe sought to recover, among other things, $298,743.20 in
personal property losses that may have included losses he alleged CCA had sustained as a
result of the fire. CCA is a Delaware corporation that, according to Coe, is in the business
of developing computer cash register systems. The company is owned by Coe and one
Thomas Snyder. Its principal place of business is at Snyder’s house in Bethesda. In the early
2000's, CCA built two computers that were prototype cash registers. The computers use
“CRISPTM ” technology software, which CCA developed. Until 2005, the computers were
kept in a storage facility in Capitol Heights, Maryland. In 2005, they were moved to Florida.
Eventually, they were moved to Coe’s townhouse in D.C.
3
On September 6, 2011, Coe and CCA sued Depaula and Roof Solutions for
negligence. They alleged that Depaula had breached the standard of care in performing the
roof replacement work, thereby causing the roof to catch fire; and that Roof Solutions was
vicariously liable for Depaula’s negligence. They also alleged that Roof Solutions had
negligently hired, retained, and supervised Depaula as a roofing subcontractor.
As relevant here, in Count Three,2 CCA averred that the fire, and more particularly
the water used to put it out, had damaged the interior of the townhouse and items inside it,
including CCA’s computers. It sought compensatory damages for:
• the cost of repairing and/or replacing components in CCA’s computers.
• the cost of repairing and/or replacing the software in CCA’s computers.
• the value of the time expended by Coe, as CCA’s CEO, and other
principals of CCA in connection with repairing and/or replacing the
computer components and the software.
• the cost of disruption and delay in implementing CCA’s business plan.
• the loss of anticipated revenues from implementation of CCA’s
business plan.
CCA identified Taylor and Byrd, with the DCFD, and Caddington, with Firemark, as
expert witnesses. Depaula identified Michael Tracey, a structural engineer with CED
Technologies, as an expert witness.3
2
Counts One and Two were brought by Coe against only Roof Solutions and Depaula.
State Farm brought a subrogation action against Depaula and Roof Solutions. The cases
were consolidated and discovery proceeded. On September 28, 2012, those counts and State
Farm’s subrogation action were settled and voluntarily dismissed with prejudice, along with
cross-claims arising from them.
3
Roof Solutions initially identified Keith Morris, an O&C investigator with Global
Forensics Investigations, as an expert witness. It later decided to use Morris only as a
(continued...)
4
On October 18, 2012, Depaula filed a motion for summary judgment and request for
hearing. In an attached affidavit he attested that, until Coe and CCA filed suit, he did not
know that CCA existed and knew nothing about any computers belonging to CCA being
inside Coe’s townhouse. He also attached Coe’s deposition testimony that the damaged
computers were of a 2000 to 2004 vintage and the damaged software had not been run since
2004.4 He argued that he did not owe a duty of care in tort to CCA, and that CCA was not
a third party beneficiary of his subcontracting agreement with Roof Solutions. He also
argued that CCA’s claims were barred by the “economic loss doctrine.”
CCA filed an opposition. It furnished an affidavit by Coe and additional portions of
his deposition; the Statement of Loss Coe filed with State Farm; and eight photographs of
the damaged computers. In his affidavit, Coe attested that Snyder and Donald Bosic,
Executive Vice President and Director of CCA, “were aware that the contents of the [CCA]
office on Montgomery Avenue in Bethesda, Maryland was moved into” Coe’s townhouse.
CCA argued that there were genuine disputes of material fact that precluded the grant of
summary judgment; Depaula owed it a duty of care in tort; and, specifically, Depaula owed
CCA a duty to perform the roofing work with requisite care, so as to avoid damaging CCA’s
3
(...continued)
consulting, non-testifying, expert.
4
In addition, Depaula attached excerpts of Chanturiya’s deposition; certain
interrogatory answers by CCA; the contract between Roof Solutions and Coe; his
subcontracting agreement with Roof Solutions; a Roof Solutions Work Order pertaining to
Coe’s townhouse; and a Roof Solutions Work Order Ticket, also pertaining the townhouse.
5
property inside the townhouse. CCA argued that the damage to its property was not a purely
economic loss.
On October 25, 2012, Roof Solutions also filed a motion for summary judgment. It
relied upon the documents furnished by the other parties, and some additional documents.
It argued that it did not owe a duty of care in tort to CCA; CCA was not a third-party
beneficiary of its contract with Coe; if it owed any duty of care to CCA, it did not breach it
and no damages were sustained; if any damages were sustained, they were not proximately
caused by any breach of duty on its part; and there was no evidence to support the claim that
it negligently selected, hired, or supervised Depaula.
CCA filed an opposition, relying upon evidence already in the summary judgment
record and additional documents, including the DCFD O&C investigation report; an excerpt
from the deposition of Michael Tracey, in which he opined that Roof Solutions had breached
the standard of care by using a substrate material for the replacement roof that was a quarter
inch less thick than required (although he did not opine that that had caused or contributed
to the fire); an excerpt from the deposition of Russell Deighton, President of Roof Solutions;
and portions of the report prepared by Caddington, of Firemark, for State Farm. It argued
that there were numerous disputes of material fact that precluded summary judgment; Roof
Solutions owed it a duty of care in tort; and Roof Solutions breached that duty by choosing
the wrong materials for the roof, selecting an incompetent subcontractor, failing to
6
adequately supervise the subcontractor’s work, and allowing the subcontractor to use a torch
on the roof.
The summary judgment hearing took place on November 30, 2012. After hearing
argument of counsel, the court granted summary judgment in favor of Roof Solutions and
Depaula on CCA’s negligence claim. It explained:
The primary issue . . . is whether or not the defendants have a legal duty to the
plaintiff in this case. . . . [CCA] is a corporation which is incorporated in
Delaware, its corporate address is . . . in Bethesda. The plaintiff’s corporate
records do not identify Mr. Coe’s . . . residence as a business address, and the
records and documents and photographs do not mention or depict any software
computer equipment at Mr. Coe’s residence prior to the fire. The contract that
was entered into itself is with Mr. Coe. Mr. Coe paid the defendants Roof
Solutions, from his personal account, there’s no evidence that Mr. Coe
consulted with [CCA] about replacing the roof. In addition, the work order .
. . reflects that Mr. Coe is the client for whom the work is being performed, not
[CCA]. I understand what plaintiff is saying with respect to the applicable law
and whether or not there’s an extension of duty that should be applied under
the facts of this case. And given the state of the law, the facts of this case, I
do agree that to allow this claim to proceed would be essentially the equivalent
of allowing anyone who had property at the plaintiff’s residence at the time of
the fire to make the claim for damages, and would result in a slippery slope
that I’m just not prepared to recognize, given the state of the law at this time.
In addition, given the pleadings that have been submitted, I’m also going to
grant summary judgment on the issue of causation.
The court entered orders memorializing its rulings. Thereafter, CCA noted a timely
appeal.
We shall include additional facts as necessary to our discussion of the issues.
STANDARD OF REVIEW
7
A circuit court may grant a motion for summary judgment if it finds that there is no
genuine dispute of material fact and the moving party is entitled to judgment as a matter of
law. Montgomery Cnty. v. Soleimanzadeh, 436 Md. 377, 397 (2013). Both these issues are
questions of law, and therefore our standard of review is de novo. Myers v. Kayhoe, 391 Md.
188, 203 (2006). In assessing whether the circuit court erred in deciding whether there was
a genuine dispute of material fact, we must keep in mind that a fact only is material when its
admission will make a difference in the outcome of the case. King v. Bankerd, 303 Md. 98,
111 (1985).
DISCUSSION
I.
Duty of Care in Tort
The court granted summary judgment to Roof Solutions and Depaula on their duty of
care argument upon a finding that there was no evidence in the summary judgment record
that computer equipment was inside the townhouse when the roof replacement work was
being done and upon a finding that Depaula, as a subcontractor performing work on Coe’s
townhouse roof, did not owe a duty of care in tort to CCA as a third-party owner of personal
property inside the townhouse. CCA argues that the court’s duty of care ruling was legally
incorrect because 1) there in fact was evidence in the summary judgment record that
computer equipment was in the townhouse when the roofing work was being done, and 2)
under the circumstances of this case, principles of foreseeability favor Depaula’s owing a
8
duty of care to CCA to protect its property in the townhouse from harm. Although CCA does
not make a separate argument as to Roof Solutions, it is clear that CCA’s primary theory of
prosecution against Roof Solutions is that it is vicariously liable for Depaula’s negligence.
For reasons that will become evident in our discussion, it is logical to address these
arguments in inverse order.
(A)
To make out a cause of action for negligence, a plaintiff must prove that the defendant
owed “him (or to a class of which he is a part)” a duty of care; that the duty was breached;
that the breach was a proximate cause of the harm suffered; and damages. Jacques v. First
Nat’l Bank of Md., 307 Md. 527, 531 (1986). Thus, “[d]uty is a foundational element in a
claim of negligence.” Pace v. State, 425 Md. 145, 155 (2012). Whether a duty of care exists
is a pure question of law for the circuit court to decide in the first instance, and for this Court
to review de novo. See Valentine v. On Target, Inc., 353 Md. 544, 549 (1999) (existence vel
non of a legal duty of care in tort is a question of law subject to de novo review). See also
Patton v. United States of America Rugby Football, 381 Md. 627, 636 (2004).
A duty of care is “an obligation, to which the law will give recognition and effect, to
conform to a particular standard of conduct toward another.” Prosser and Keeton on the Law
of Torts, § 53, at 356 (5th ed. 1984) (hereinafter “Prosser”). Although “[t]here is no set
formula for this determination,” Ashburn v. Anne Arundel Cnty., 306 Md. 617, 627 (1986),
whether a duty is owed to a particular plaintiff turns on the “essential question—whether the
9
plaintiff’s interests are entitled to legal protection against the defendant’s conduct.” Prosser,
§ 53, at 357. In Village of Cross Keys, Inc. v. U.S. Gypsum Co., 315 Md. 741 (1989), the
Court of Appeals repeated the concept of duty it had expressed many decades before:
[T]here can be no negligence where there is no duty that is due; for negligence
is the breach of some duty that one person owes to another. It is consequently
relative and can have no existence apart from some duty expressly or impliedly
imposed. In every instance before negligence can be predicated of a given act,
back of the act must be sought and found a duty to the individual complaining,
the observance of which duty would have averted or avoided the injury . . . As
the duty owed varies with circumstances and with the relation to each other of
the individuals concerned, so the alleged negligence varies, and the act
complained of never amounts to negligence in law or in fact, if there has been
no breach of duty.
Id. at 751-52 (quoting W. Va. Central R. Co. v. Fuller, 96 Md. 652, 671-72 (1903)).
In Jacques, 307 Md. at 527, the Court of Appeals established principles to guide
courts in assessing whether, in a negligence case, and in a particular context, a duty of care
should be recognized. In Jacques, the plaintiff home buyers applied to the defendant bank
for a mortgage loan. They gave the bank a copy of their contract of sale, which included a
financing contingency with a maximum interest rate, but provided that they would increase
the amount of their down payment if that were necessary to qualify for a loan. The bank
breached the prevailing standard of care in evaluating the plaintiffs’ qualifications for the
mortgage they applied for, and, as a result, extended them a loan for significantly less money
than they had sought. Because of the requirements of their contract, the plaintiffs had to
obtain other financing for the balance of the purchase price. That financing was at a higher
interest rate, and to obtain it they incurred fees.
10
The plaintiffs sued the bank for negligence and prevailed in a jury trial.5 On appeal,
the bank argued that the trial court should have entered judgment in its favor because it did
not owe the plaintiffs a duty of care in tort. The Court of Appeals disagreed, affirming the
judgment. It observed that the sole risk of harm the plaintiffs faced by virtue of the bank’s
substandard loan processing was economic, i.e., the loss of money in the form of a higher
interest rate and payment of fees. (In fact, that is the risk that materialized.) In analyzing
whether a duty of care should be recognized when the risk of injury is solely economic, the
Court examined two seminal cases on third-party tort liability, authored many years ago by
Judge Cardozo.
In Glanzer v. Shepard, 135 N.E. 275 (N.Y. 1922), a purchaser of beans sued a public
weigher, alleging that the weigher’s negligence had shortchanged him, causing him to lose
money. The weigher had been hired by the seller, not the purchaser. The New York Court
of Appeals held that the weigher owed a duty of care in tort to the purchaser, even though
he was a stranger to the contract between the weigher and the seller, because the purchaser
was a known and intended beneficiary of the contract. In effect, although there was no
contract between the purchaser and weigher, their relationship was equivalent to a
contractual one.
5
The plaintiffs were unsuccessful in other claims that were not at issue before the
Court of Appeals.
11
In Ultramares Corporation v. Touche, 174 N.E. 441 (N.Y. 1931), the same court held
that an accounting firm that negligently prepared a balance sheet for a corporation did not
owe a duty of care in tort to a factoring company that lost money when it extended loans to
the corporation in reliance upon the misinformation in the balance sheet. The Court
explained that, unlike in Glanzer, there was no “contractual relation, or even one approaching
it, at the root of any duty that was owing from the [accountant defendants]. . . to the
indeterminate class of persons who. . . might deal with the [corporation] in reliance on the
audit.” 174 N.E. at 446.
From the holdings in Glanzer and Ultramares, the Jacques Court reasoned that the
criteria most significant to whether a duty of care in tort should be recognized are “the nature
of the harm likely to result from a failure to exercise due care, and the relationship that exists
between the parties.” 307 Md. at 534.
Where the failure to exercise due care creates a risk of economic loss only,
courts have generally required an intimate nexus between the parties as a
condition to the imposition of tort liability. This intimate nexus is satisfied by
contractual privity or its equivalent. By contrast, where the risk created is one
of personal injury, no such direct relationship need be shown, and the principal
determinant of duty becomes foreseeability.
307 Md. at 534-35 (footnote omitted). See also Griesi v. Atlantic Gen. Hosp. Corp., 360 Md.
1,12 (2000); Iglesias v. Pentagon Title and Escrow, LLC, 206 Md. App. 624, 638 (2012),
cert. denied, 430 Md. 346 (2013). The Court further explained that
an inverse correlation exists between the nature of the risk on one hand, and
the relationship of the parties on the other. As the magnitude of the risk
increases, the requirement of privity is relaxed - thus justifying the imposition
12
of a duty in favor of a large class of persons where the risk is of death or
personal injury. Conversely, as the magnitude of the risk decreases, a closer
relationship between the parties must be shown to support a tort duty.
Therefore, if the risk created by negligent conduct is no greater than one of
economic loss, generally no tort duty will be found absent a showing of privity
or its equivalent.
Jacques, at 537.
The Court held that because the nature of the risk to the plaintiffs from the bank’s
negligence was solely economic, a duty of care in tort would be recognized only if there was
an “intimate nexus” (i.e., contractual privity or its equivalent) between the two. In fact, the
Court found such a nexus, based on the business relationship between the bank and the
plaintiffs and certain express promises the bank had made to them. Chicago Title Ins. Co.
v. Allfirst Bank, 394 Md. 270 (2006) (holding that in a tort action in which the only damages
were economic, a sufficient intimate nexus was established between the parties to recognize
a duty of care in tort); Noble v. Bruce, 349 Md. 730 (1998) (in absence of privity or its
equivalent, attorney for testator did not owe a duty in tort to testamentary beneficiaries for
economic loss occasioned by professional malpractice in will drafting and estate planning).
In the case at bar, CCA argues that under Maryland law, a contractor (or
subcontractor) who performs repair or replacement work on a structure owes a duty,
independent of its contract, to perform the work in accordance with the standard of care so
as to protect property inside the structure from harm; and the scope of that duty covers
property that is owned by a third party (i.e., a person who is not the owner of the structure
or a party to the roofing contract). Anticipating that Depaula and Roof Solutions will repeat
13
the arguments they made below, CCA also takes the position that the economic loss doctrine
has no relevance to this case.
Depaula and Roof Solutions counter that such a contractor (or subcontractor) owes
a duty of care only with respect to the personal property of the owner of the structure, who
is a party to the roofing contract. A duty of care is not owed to a third party unless there is
an “intimate nexus,” in the form of contractual privity or its equivalent, between the
contractor (or subcontractor) and the third party. They identify this principle as the
“economic loss doctrine” based on the holding in Jacques, and assert that the harm that was
suffered by CCA in this case was an economic loss. They explain that because CCA was a
legal stranger to them, that is, it was not a party to the roofing contract or subcontract, “no
duty of care was owed and there was no exception to the economic loss doctrine.” Echoing
the holding in Ultramares v. Touche, they maintain that concluding otherwise would give rise
to tort liability to an “indeterminate class of plaintiffs,” contrary to established Maryland law.
Although there has been some confusion in the nomenclature in Maryland appellate
case law, the holding in Jacques and the “economic loss doctrine” are not one and the same.
The economic loss doctrine, which developed in product liability cases, prohibits a plaintiff
from recovering tort damages for what in fact is a breach of contract. So, a plaintiff in a
product liability action alleging that a product is defective cannot recover tort damages for
“the loss of value or use of the product itself, and the cost to repair or replace the product.”
U.S. Gypsum v. Mayor and City Council of Baltimore, 336 Md. 145, 156 (1994); Pulte Home
14
Corp. v. Parex, Inc., 174 Md. App. 681, 737 (2007). See Tolan & Son, Inc. v. KLLM
Architects, Inc., 719 N.E. 2d 288, 294 (Ill. App. Ct. 1999) (“tort law is not intended to
compensate parties for monetary los[s]es suffered as a result of duties which are owed to
them simply as a result of a contract.”). See also East River S.S. Corp. v. Transamerica
Delaval, Inc., 476 U.S. 858, 866 (1986) (commenting that if the expansion of product
liability law “were allowed to progress too far, contract law would drown in a sea of tort.”).6
As the Supreme Court’s East River decision makes clear, the economic loss doctrine serves
as a boundary between contract law, the purpose of which is to enforce the expectations of
the parties to an agreement, and tort law, the purpose of which is to protect people and
property from foreseeable risks of harm by imposing upon others a duty of reasonable care.
In the case at bar, the economic loss doctrine would be relevant if, for example, the
new roof installed on Coe’s townhouse was defective in a way that posed no risk to human
safety, and Coe sued Roof Solutions and Depaula in tort to recover damages for the cost to
repair the defect. That claim would sound in contract, and tort recovery would not be
permitted. CCA does not allege that Depaula and Roof Solutions negligently constructed a
defective roof, however. It alleges that, in carrying out the roof replacement work, they
6
In the years since the Supreme Court’s decision in East River, the economic loss
doctrine has been expanded in some states, limited in others, and given way to “‘vast
confusion over this area of law.’” David v. Hett, 270 P.3d 1102, 1105 (Kan. 2011) (quoting
Note, Drowning in a Sea of Confusion: Applying the Economic Loss Doctrine to Component
Parts, Service Contracts, and Fraud, 84 Wash. U.L.Rev. 1513, 1513 (2006), and discussing
at length the evolution of the doctrine).
15
carelessly used a torch so as to accidentally set fire to the roof of the townhouse. That is a
tort claim to which the economic loss doctrine has no relevance. In Pacific Indem. Co. v.
Whaley, 560 F. Supp. 2d 425 (D. Md. 2008), where homeowners sued their roofing
subcontractor for negligently attempting to tarp and secure their roof in a major storm,
resulting in damage to about $800,000 in personal property inside the house, the court
explained that the economic loss doctrine was not pertinent:
The Maryland Court of Appeals has explained the Economic Loss Doctrine as
follows: “It is generally said that a contractor’s liability for economic loss is
fixed by the terms of his contract. . . Tort liability is in general limited to
situations where the conduct of the builder causes an accident out of which
physical harm occurs to some person or tangible thing other than the building
itself that is under construction.” [Counsel of Co-Owners Atlantis Condo. Inc.
v. Whiting-Turner Contracting Co., 308 Md. 18, 33 (1986)] Because the
physical damage in the instant case was to “tangible things” other than the
roof under construction - specifically the [homeowners’] property inside the
house - the Economic Loss Doctrine does not preclude tort liability.
Id. at 430 n.5 (emphasis added).7 In the instant case, the economic loss doctrine likewise has
no relevance to CCA’s negligence claim.
In Jacques and cases decided since then, the Court of Appeals has emphasized that
central to the question whether a duty of care in tort should be recognized is the relationship
between the parties and the nature of the risk of harm created by the defendant’s conduct --
not the harm that actually materialized. In Whiting-Turner, 308 Md. at 18, the Court held
that a builder of a high rise condominium owed a duty of care in tort to condominium unit
7
In Whaley, all the damaged personal property inside the house belonged to the
homeowners.
16
owners, even though there was no privity of contract or the equivalent between them,
because the defects in the building posed a fire hazard that created a risk of personal injury
and death to the unit owners. The Court explained:
[T]he determination of whether a [tort] duty will be imposed in this type of
case should depend upon the risk generated by the negligent conduct, rather
than upon the fortuitous circumstances of the nature of the resultant damage.
Where the risk is of death or personal injury, the action will lie for recovery of
the reasonable cost of correcting the dangerous condition.
Id. at 35 (footnote omitted).8
Here, the risk of harm created by Depaula’s misuse of the torch in performing the roof
replacement work was not solely economic loss. Indeed, it was not economic loss at all. It
was personal injury and death and damage to personal property. See, e.g., A. J. Decoster Co.
v. Westinghouse Elec. Corp., 333 Md. 245, 251 (1994) (death of chickens inside commercial
chicken houses caused by failure of an activation switch for emergency power source during
a power outage was damage to tangible personal property, not intangible economic loss).
Under Jacques, in this situation, contractual privity (or its equivalent) was not a prerequisite
for the law to recognize a duty of care in tort. That is so notwithstanding that Roof Solutions
and Depaula had a contractual relationship with Coe, to which CCA was not a party, and the
8
In Whiting-Turner, the economic loss doctrine was relevant and played a part in the
Court’s analysis. The Court observed that, ordinarily, the economic loss doctrine would
preclude recovery against the builder in tort for repairing or replacing the defects in its work.
However, because the builder’s substandard construction created a risk of personal injury,
the doctrine would not bar the third party unit owners from recovering damages in tort from
the builder for the cost to repair the defects so as to eliminate that risk.
17
negligent conduct occurred in the course of performing that contract. In Whiting-Turner, the
Court of Appeals quoted with approval Dean Prosser’s analysis of the movement in the law
away from the notion that privity is required for a contracting party to be liable in tort for
physical injury to the person or property of a third party sustained in the course of the
contracting party’s performing its contract:
“[B]y entering into a contract with A, the defendant may place himself in such
a relation toward B that the law will impose upon him an obligation, sounding
in tort and not in contract, to act in such a way that B will not be injured. The
incidental fact of the existence of the contract with A does not negative the
responsibility of the actor when he enters upon a course of affirmative
conduct, which may be expected to affect the interests of another person.
***
The requirement of privity of contract has been abandoned as a basis for
recovery by third parties for physical harm to themselves and tangible things
against those who negligently supply, repair, or construct things so as to
leave them in an unreasonably dangerous condition.”
308 Md. at 27 (quoting Prosser, § 93, 667-68) (footnote in Prosser omitted by Court in
Whiting-Turner) (emphasis added). The Court continued:
“It is now the almost universal rule that the contractor is liable to all those who
may foreseeably be injured by the structure, not only when he fails to disclose
dangerous conditions known to him but also when the work is negligently
done. This applies not only to contractors doing original work, but also to
those who make repairs . . .”
Id. at 28 (quoting Prosser, § 104A, at 723(emphasis added and footnotes omitted in Whiting-
Turner)).
18
Because the risk of harm created by Depaula’s careless use of a torch while replacing
the townhouse roof was not solely economic, “foreseeability” is “the principal determinant”
of whether a duty of care in tort should be recognized. Jacques, 307 Md. at 535. “The
foreseeability test ‘is simply intended to reflect current societal standards with respect to an
acceptable nexus between the negligent act and the ensuing harm.’” Patton, 381 Md. at 637
(quoting Dobbins v. Washington Suburban Sanitary Comm’n, 338 Md. 341, 348 (1995), in
turn quoting, Henley v. Prince George’s Cnty., 305 Md. 320, 333 (1986)). As one treatise
explains, “Negligence entails an unreasonable risk of foreseeable harm. . .”; an actor’s
conduct is not negligent unless “a reasonable person in a similar position would have
foreseen that harm to someone’s interests was an unreasonably likely outcome of [the
actor’s] conduct.” Dan B. Dobbs, Paul T. Hayden and Ellen M. Bublick, The Law of Torts
§ 159, at 499 (2d. ed. 2011) (footnote omitted) (emphasis in original).
In addition to the “principal determinant” of foreseeability, other factors pertinent to
whether a duty of care should be recognized when the risk of harm is not solely economic
are
“the degree of certainty that the plaintiff suffered the injury, the closeness of
the connection between the defendant’s conduct and the injury suffered, the
moral blame attached to the defendant’s conduct, the policy of preventing
future harm, the extent of the burden to the defendant and consequences to the
community of imposing a duty of exercising care with resulting liability for
breach, and the availability, cost and prevalence of insurance for the risk
involved.”
Patton, 381 Md. at 637 (quoting Ashburn, 306 Md. at 627 (citation omitted in Patton).
19
It was objectively evident that Depaula’s careless use of the torch in performing the
roof replacement work would cause the roof to catch fire, thereby creating a risk of personal
injury, death, and property damage. Coe was not the only foreseeable subject of these risks.
Any visitor in his townhouse when the fire broke out would have faced the same risk of
personal injury and death he did. Likewise, the risk of damage to items inside the townhouse
would not vary depending upon who owned them. Indeed, it was reasonably foreseeable that
negligent conduct resulting in a fire on the townhouse roof could cause personal injury and
death to people in adjacent townhouses, and to their personal property.
Although Depaula’s negligence created a general risk of personal injury, death, and
property damage, the risk of harm specific to CCA did not include personal injury or death.
That would be so for any third party owner of property inside the townhouse (unless the third
party was living there or happened to be present when the fire broke out). And obviously, a
corporation or other business entity cannot sustain a personal injury and therefore never
would face the risk of personal injury.
Citing Marlboro Shirt Co. v. Am. Dis. Tel. Co., 196 Md. 565 (1951), Roof Solutions
and Depaula argue that a tort duty of care should not be recognized when a contractor’s
breach of the standard of care creates a risk of harm that is limited to damage to property
belonging to a third party. In Marlboro Shirt, a commercial property owner contracted with
a sprinkler company to install a sprinkler system that included an alarm that would “signal
a leakage of water in the sprinkler system to the office of the [sprinkler company].” Id. at
20
568. The property was rented to a shirt manufacturing company. Six years after the sprinkler
system was installed, it developed a leak, but “[t]he alarm system failed to operate.” Id. As
a result, water from the sprinkler caused extensive damage to the shirt company’s inventory
and equipment. The shirt company sued the sprinkler company for breach of contract and
negligence. The case was dismissed for failure to state a claim for which relief could be
granted.
The Court of Appeals affirmed. Most of its discussion was devoted to the shirt
company’s (unsuccessful) argument that its breach of contract claim was viable because it
was a third party beneficiary of the contract between the property owner and the sprinkler
company. The following is the Court’s entire discussion of the shirt company’s negligence
claim:
As to the tort count, it has been held by this Court that a contractor owes no
duty to the general public for which it may be made responsible in an action
in tort for negligence, if it does not perform its contract. The duty under such
contract is only to the one with which the contract is made.
Id. at 571-72.
Marlboro Shirt is inapposite. The tort claim there was premised upon the sprinkler
company’s having furnished a defective alarm system that simply did not work, not upon any
failure on its part to take action when the leak occurred. It was not an accidental injury case.
The defect in the sprinkler system did not create a risk of personal injury or death to anyone.
21
The sole risk of harm was damage to tangible items inside the building when the alarm
malfunctioned.9
For the reasons we have explained, the risk of harm in the case at bar was not solely
economic, and therefore foreseeability and the other relevant factors set forth in Patton guide
our decision as to whether a duty of care should be recognized. Assessing those factors, we
conclude that the fact that, for CCA, Depaula’s negligence only created a risk of property
damage, even though its negligence generally created a risk of personal injury and death as
well, does not militate against recognizing a duty of care in tort to CCA. As already
discussed, a reasonably prudent roofing contractor or subcontractor would know that
accidentally setting fire to a roof in the course of replacing it would create a risk of personal
injury and death, and of damage to tangible property, and that those risks are not targeted and
confined to the owner of the structure that is being worked on.
In Whaley, supra, it was reasonably foreseeable to the roofing contractors that failing
to properly tarp the roof to protect the house from an impending storm would result in
damage to tangible personal property inside the house. It so happened that all of the items
that were damaged belonged to the owners of the house. It was no less foreseeable, however,
9
In some respects, Whiting-Turner is similar to Marlboro Shirt and, indeed, the builder
in Whiting-Turner cited that case to support its argument that it did not owe a duty of care
in tort to the unit owners. The Court of Appeals rejected the argument, commenting that the
risk of harm in Marlboro Shirt did not include personal injury or death at all, and that the
Marlboro Shirt Court’s language concerning the tort claim was overly broad and unnecessary
to its decision. 308 Md. at 29-30.
22
that their roofing contractors’ negligence would result in damage to any tangible items in the
house regardless of who they belonged to. The risk of harm, not the harm that actually
materializes, is the touchstone of the duty analysis.
Moreover, in Whaley and in the case at bar, the conduct of the wrongdoer that
produced a risk of personal injury and death to the owner of the structure undergoing the roof
replacement, and damage to tangible personal property belonging to the owner of the
structure, is the exact same wrongful conduct that produced the risk of personal injury and
death to non-owners in or near the structure, and damage to tangible personal property
belonging to non-owners in or near the structure. In both situations, the connection between
the misconduct of the roofers and the risks of personal injury and death and of damage to
tangible personal property was close. And the misconduct, being the same, carries the same
moral blame, and implicates the same policy of preventing future harm.
Finally, the class of non-owners of a structure such as Coe’s townhouse who are at
risk of sustaining injury to their tangible personal property located inside the structure at the
time of the negligence is neither “indeterminate,” such as the class of persons who could rely
to their economic detriment upon an error in an accountant’s audit of a company, nor large;
and it is readily identifiable. Accordingly, contractual privity or some other special
relationship between the roofers and those third parties whose tangible personal property is
located in or about the structure the roofers are working on is not necessary.
23
In the instant case, CCA was a member of a class of persons/entities owning tangible
personal property inside the townhouse that Depaula and Roof Solutions were replacing the
roof on. Therefore, Roof Solutions and Depaula’s duty to exercise due care in performing
the roofing work included protecting CCA from sustaining damage to its tangible personal
property inside the townhouse. This duty of care does not depend upon the roofer having
advance knowledge of the identity of each owner of tangible personal property inside the
structure. Upon proof by CCA that its computers -- which are items of tangible personal
property -- in fact were present when the roof caught fire; that the fire was caused by the
negligence of Depaula/Roof Solutions; and that damage to the computers was proximately
caused by the negligence, CCA may recover the reasonable cost to repair or replace the
computers, in accordance with prevailing Maryland law on the proper measure of damages.
See e.g. Taylor v. King, 241 Md. 50 (1965); George’s Radio & Television Co. v. Ins. Co. of
N. Am., 549 F. Supp. 1014 (D. Md. 1982).
As we have discussed previously, CCA also seeks to recover for the damage to its
software, in the form of the cost of repair or replacement and the time spent by its agents to
make the repair or replacement; for loss of anticipated revenues; and for losses occasioned
by the delay in implementation of its business plan. The foreseeability principle and related
factors that support our conclusion that Depaula and Roof Solutions owed CCA, and the
owners of any items of tangible property located in or about the townhouse, a duty of care
to protect those items from being damaged by their negligence do not support a reasonable
24
conclusion that such a duty of care also pertains to the risk of harm to non-tangible personal
property and economic loss consequential to injury to non-tangible personal property.
We first address the computer software. Although in a different context, the United
States Court of Appeals for the Fourth Circuit has held that software installed on a computer
hard drive is not tangible property. In America Online, Inc. v. St. Paul Mercury Ins. Co., 347
F.3d 89 (4th Cir. 2003), America Online (“AOL”) sued its commercial general liability
(“CGL”) policy insurer seeking an order compelling it to defend it in a class action lawsuit
brought by consumers alleging that the newest version of AOL software had damaged and
rendered inoperable other software on the consumers’ computers. Under the language of the
CGL policy, the insurer was required to defend AOL in any lawsuit against it for “property
damage”; and “property damage” was defined to mean “physical damage to tangible property
of others, including all resulting loss of use of that property.” Id. at 93-4. The insurer argued
that damage to software is not physical damage to tangible property and therefore its duty to
defend was not triggered.
The Fourth Circuit undertook an extensive analysis of the difference between
computer “hardware,” which is “concededly tangible property,” and computer “software.”
Id. at 94. It first determined that “tangible property” is an unambiguous term meaning
property “having physical substance apparent to the senses.” Id. at 95. It then turned to the
question whether software installed on a computer meets this definition. The court explained
that “hardware” is the physical structure -- including magnetic disks, circuits, drives, and
25
electronic switches -- that allows a computer to store data. Software, in contrast, is a “set of
instructions written by programmers and translated into binary code which is then transmitted
to the computer through the electronic charges turning on some but not all switches and
creating a configuration of on and off switches.” Id. The court concluded that if the
hardware were “physically scarred or scratched” in such a way as to prevent the computer
from receiving these instructions and recording data, that would be damage to tangible
property. Id. If the hardware were to remain functional but the “arrangement of the data and
information stored on the hard drive were to become disordered or the instructions were to
come into conflict with each another [sic], the physical capabilities and properties of the hard
drive would not be affected.” Id. It opined:
Instructions to the computer and the data and information processed by it are
abstract ideas in the minds of the programmer and the user. The switches and
the magnetic disks are media, as would be paper and pencil. Loss of software
or damage to software thus is not damage to the hardware but to the idea, its
logic, and its consistency with other ideas and logic.
* * *
These instructions, data, and information are abstract and intangible, and
damage to them is not physical damage to tangible property.
Id. at 95-96.
We are persuaded by the reasoning of America Online that software is not tangible
personal property. As our foregoing discussion makes clear, the duty owed by Roof Solutions
and Depaula was a duty to use reasonable care to prevent personal injury, death, and damage
26
to tangible personal property. The duty of care does not extend to preventing damage to
CCA’s proprietary software.
Loss or damage to “proprietary software” installed on computers owned by third
parties and located within a structure on which roofers are working are not reasonably
foreseeable. A roofer undertaking a roof replacement job for a homeowner reasonably
should anticipate that substandard performance that could cause the roof to catch fire would
injure tangible things inside the structure -- dishes, vases, furniture, computers, and the like --
regardless of who owns them. The tangible nature of these things makes them likely to be
present inside a townhouse such as that owned by Coe, and, if the roofer undertakes a tour
of the property in advance of the work, makes them capable of being observed. That same
roofer would not reasonably expect, without having been given detailed, specific information
in advance of the project, that the same misconduct would result in loss or damage to
uniquely coded software invented by a third party owner of a computer located inside the
structure.
We next address the claims of lost profits and damages from delay in implementing
CCA’s business plan. It follows from our discussion about CCA’s software that a reasonably
prudent roofer ordinarily would not anticipate that its negligence in performing roof
replacement work, even negligence causing fire and water damage to the structure, would
result in lost profits to the business of a third party that is dependent upon software located
in a computer owned by the third party and located in the structure. These are not reasonably
27
foreseeable risks of harm, and therefore, ordinarily, the roofer’s duty of care does not
encompass them. The only exception, again, would be if the roofer were told very
specifically, in advance, of the particular risk of harm, and had agreed that its undertaking
would protect against that risk.
(B)
As mentioned previously, CCA argues that the circuit court erred by finding that there
was no genuine dispute of material fact regarding the presence of its computers inside the
townhouse at the time of the fire.
In Coe’s affidavit and deposition testimony, he attested that when he and Chanturiya
initially toured the townhouse, there were two computers sitting on the floor of the upstairs
bedroom that Coe used for an office. Thus, the summary judgment record included evidence
that two computers were inside the townhouse when the roof replacement work was being
performed. Roof Solutions acknowledges this, but argues that the court’s ruling nevertheless
was correct because Coe’s testimony about the presence of the computers will not be
admissible at trial. Specifically, Roof Solutions maintains that if Coe offers this testimony,
his purpose will be to alter the terms of their contract, and therefore the testimony would
violate the parol evidence rule, and be inadmissible. Depaula generally asserts that the
summary judgment record is devoid of evidence showing that CCA’s property was inside
Coe’s townhouse before the fire (notwithstanding Coe’s testimony).
28
At trial, Coe’s testimony on behalf of CCA will be sufficient for CCA to prove that
computer equipment belonging to it was present in Coe’s townhouse when the roof
replacement work began, and when the townhouse caught fire. There is no merit to the
argument that this testimony will be precluded by the parol evidence rule. That rule has no
application here. The testimony will not be offered to change the terms of the contract
between Coe and Roof Solutions. Rather, it will be offered to show what items of tangible
personal property belonging to CCA, i.e., the two computers, were inside Coe’s townhouse
when the fire broke out. Accordingly, the circuit court erred in ruling that the summary
judgment record did not include evidence that computers belonging to CCA were present in
the townhouse at the relevant time.
Depaula also argues that the summary judgment record lacked evidence of any
connection between CCA and Coe’s townhouse. There was such evidence in the record.10
As we have discussed, however, it is not necessary for there to be proof of a connection
between CCA and Coe’s townhouse for Roof Solutions and Depaula to owe CCA a duty of
care in tort with respect to CCA’s tangible property inside the townhouse. Nor is it necessary
10
In his affidavit, Coe averred that this property had been “moved” to his home office
in the townhouse prior to the fire; that before signing the contract with Roof Solutions he told
Chanturiya that he kept this property in the townhouse on the second floor; and that Snyder
and another CCA principal knew that the property was being stored in Coe’s townhouse.
CCA also attached as an exhibit to its opposition photographs taken three days after the fire
depicting computers in the home office on the second story, surrounded by debris from the
fire.
29
for CCA to show that, before undertaking the work, Roof Solutions or Depaula knew what
items of tangible personal property were inside the townhouse, and to whom they belonged.
The court erred in finding that there was no genuine dispute of material fact between
the parties about whether CCA’s computers were inside the townhouse at the time of the fire.
The presence of CCA’s computers in the townhouse at the time of the fire was a material
fact, even though whether Roof Solutions and/or Depaula knew the computers were there
was not.
Finally, viewing the summary judgment record in the light most favorable to CCA,
there was no evidence that Coe informed Roof Solutions, before it and Depaula undertook
the roofing replacement work, that there was proprietary software belonging to CCA in the
computers that Roof Solutions and Depaula would be expected to protect from harm.
II.
Causation
CCA contends the circuit court erred in granting summary judgment on the causation
element of negligence because it overlooked that four expert witnesses causally linked the
fire to Depaula’s misuse of the blowtorch. These included the DCFD O&C investigation,
the Firemark investigation, Michael Tracey (who testified that he agreed with the DCFD
O&C investigation), and an expert retained by Roof Solutions.
Roof Solutions maintains that CCA waived any challenge to the court’s causation
ruling because it did not contest the causation argument advanced by Roof Solutions in its
30
motion for summary judgment. Alternatively, CCA did not produce any admissible evidence
on the summary judgment record to prove causation. Roof Solutions asserts that the reports
of DCFD, Firemark, and Morris were inadmissible hearsay that was not properly
authenticated and that CCA did not disclose to the defendants the qualifications of any of the
experts it identified or the factual bases and methodologies they used in arriving at their
opinions. Roof Solutions also points out that Tracey testified in his deposition that it was not
within his area of expertise to determine the cause of a fire; and that Tracey did not link the
use by Roof Solutions of substrate material that was not thick enough to the fire. Indeed,
Tracey opined that the substrate materials that were used were not the cause of the fire. Roof
Solutions further argues that CCA failed to properly designate expert witnesses as required
by the Maryland Rules and the court’s scheduling order.
Depaula does not make any argument on the issue of causation. Roof Solutions asserts
that, even if we recognize a duty of care in tort, we nevertheless should affirm the grant of
summary judgment on the alternative ground stated by the circuit court -- the lack of
admissible evidence of causation.11
11
Roof Solutions states that CCA failed to preserve any challenge to the court’s ruling
on causation because it did not “fil[e] any written motion or argu[e] [this issue] orally before
the Trial Court.” It cites three out of state cases in support of its argument. There is no merit
to this contention. CCA opposed the motions for summary judgment and, as we shall
discuss, supported its opposition with admissible evidence showing that the fire was caused
by a torch used by Depaula in the course of replacing the roof. CCA was not obligated to
supplement this argument orally or to file a post-judgment motion to preserve for review its
argument that the court erred by granting summary judgment on the basis of lack of
(continued...)
31
Roof Solutions did not argue in its motion for summary judgment that there was no
admissible evidence that the fire was caused by Depaula’s negligence. Rather it advanced
several arguments that Depaula’s negligence could not be attributed to it (Roof Solutions),
for instance, because Depaula was an independent contractor. None of these arguments were
addressed or decided by the circuit court in ruling on the summary judgment motions. The
court granted summary judgment to Roof Solutions and Depaula “on the issue of causation,”
which appears to have been a ruling that the evidence was not legally sufficient to show that
Depaula’s conduct caused the fire that in turn caused the damage to CCA’s property.
There was sufficient evidence on the summary judgment record to prove that
Depaula’s conduct was the cause in fact of the fire. The DCFD O&C report, which was
attached to CCA’s opposition to Roof Solutions’ motion for summary judgment, was
admissible evidence tending to show that the fire was started when a torch being used by
Depaula’s workers ignited the wooden structure of the roof. See Md. Rule 5-803(b)(8)
(report by a public agency on “matters observed pursuant to a duty imposed by law, as to
which matters there was a duty to report,” admissible as an exception to the hearsay rule).
CCA designated the authors of that report as expert witnesses and they were expected to
11
(...continued)
causation.
32
testify consistent with that report. Accordingly, the circuit court erred by granting summary
judgment in favor of Roof Solutions and Depaula on the issue of causation.12
JUDGMENT OF THE CIRCUIT COURT FOR
MONTGOMERY COUNTY REVERSED. CASE
REMANDED FOR FURTHER PROCEEDINGS
NOT INCONSISTENT WITH THIS OPINION.
COSTS TO BE PAID BY THE APPELLEES.
12
We shall not address the various grounds on which Roof Solutions argues that it
cannot be held liable for Depaula’s negligence, because none of them was the basis for the
court’s causation ruling. Ordinarily, on review of a decision granting summary judgment,
we will not consider arguments that were advanced to the circuit court but were not the bases
on which the court ruled.
33