Under Construction - September 2013: Summary of Nevada Law on the Economic Loss Doctrine in the Context of Commercial Construction Disputes

by Snell & Wilmer

The Nevada Supreme Court has addressed the economic loss doctrine in the context of commercial construction disputes in a number of cases over the past several years. Nevada’s general rule, as detailed below, is that the economic loss doctrine bars recovery in tort for negligence claims asserting purely economic loss. The overarching rationale is that parties in contractual privity with one another, or part of an interrelated network of contracts, should rely exclusively upon those contracts for all remedies because the intentions and provisions set forth therein can best determine a party’s “disappointed economic expectations.” Halcrow, Inc. v. Eighth Judicial District Court, 129 Nev. Adv. Op. 42, 302 P.3d 1148, 1153 (2013).   

The Nevada Supreme Court first addressed the economic loss doctrine in the commercial construction context in Calloway v. City of Reno, 116 Nev. 250, 993 P.2d 1259 (2000). In Calloway, the plaintiffs, owners of townhomes, filed suit against various subcontractors alleging negligence, among other contractual claims for alleged faulty construction (asserted prior to the enactment of Nevada’s construction defect statutory scheme codified as Nevada Revised Statute, Chapter 40). The Supreme Court concluded that because plaintiffs failed to allege any personal injury damage or any damages to property other than the defective entity itself (the townhomes), the plaintiffs suffered purely economic loss, which is not properly addressed by tort law.  Id. at 1269. The Court held that “[c]ontract law is designed to enforce the expectancy interests created by agreement between the parties and seeks to enforce standards of quality.... In contrast, tort law is designed to secure the protection of all citizens from the danger of physical harm to their persons or to their property and seeks to enforce standards of conduct. These standards are imposed by society, without regard to any agreement. Tort law has not traditionally protected strictly economic interests related to product quality—in other words, courts have generally refused to create a duty in tort to prevent such economic losses.”  Id. at 1265-66. Accordingly, the Supreme Court rejected plaintiffs’ negligence claims against the subcontractors, setting the general standard in Nevada that the economic loss doctrine bars negligence claims against contractors and subcontractors in the commercial construction context.  Id. at 1270.

While Calloway did leave open the possibility for exceptions to this general bar, it did foreclose the “foreseeability exception,” holding that purely economic loss, even if foreseeable, falls outside the purview of tort recovery.  Id. at 1270.  And in this vein, after Calloway, the Supreme Court did uphold a bright-line exception to the general bar in the context of construction defect litigation, finding that negligence claims are not prohibited in construction defect actions arising under Nevada Revised Statute, Chapter 40. “[A] negligence claim can be alleged in a construction defects cause of action initiated under Chapter 40.” Olson v. Richard, 120 Nev. 240, 89 P.3d 31, 33 (2004). The Supreme Court concluded that because “NRS 40.640 states that a contractor is liable for any construction defects resulting from his acts or omissions or the acts or omissions of his agents, employees, or subcontractors. This language in no way limits a homeowner’s recovery to construction defects covered by a contract or warranty. Thus, we presume that the Legislature envisioned that Chapter 40 would provide more than just contractual remedies.”  Id. at 33.

The Supreme Court has more recently considered the economic loss doctrine as it applies specifically to design professionals within a commercial construction context. Terracon Consultants Western, Inc. v. Mandalay Resorts, 125 Nev. 66, 206 P.3d 81 (2009). In Terracon the Court determined whether the doctrine applies to preclude “negligence-based” claims against design professionals who provide services in the development, construction, or improvement of commercial properties. Id. at 83. The Court concluded, yes, such negligence based claims are precluded by the doctrine when the alleged damages are purely financial. Id. at 83, 89. The Supreme Court held that “[i]n the context of engineers and architects, the bar created by the economic loss doctrine applies to commercial activity for which contract law is better suited to resolve professional negligence claims. This legal line between contract and tort liability promotes useful commercial economic activity, while still allowing tort recovery when personal injury or property damage are present. Further, as in this case, contracting parties often address the issue of economic losses in contract provisions.” Id. at 89. The Court determined that “the work provided by construction contractors or the services rendered by design professionals in the commercial building process are both integral to the building process and impact the quality of building projects. Therefore, when the quality is deemed defective, resulting in economic loss, remedies are properly addressed through contract law.”  Id. at 90.

Very recently, the Supreme Court in Halcrow, Inc. v. Eighth Judicial District Court clarified its holding in Terracon. The Court was presented with the question of whether the more specific “negligent misrepresentation” claim qualifies as an exception to the general economic loss doctrine bar.  Halcrow, Inc. v. Eighth Judicial District Court, 129 Nev. Adv. Op. 42, 302 P.3d 1148, 1150, 1152 (2013). The Court declined to acknowledge a negligent misrepresentation claim as an exception to the general bar, and concluded that a negligent misrepresentation claim is an unintentional tort which cannot form the basis of liability solely for economic damages in claims against design professionals in commercial construction disputes. Id. at 1154. The Court found no material distinction between a professional negligence claim (asserted in Terracon) and the negligent misrepresentation claim at issue in Halcrow, noting that the evidence necessary for each claim in the commercial construction context is almost identical.  Id. at 1154. The Supreme Court stated that “[a]llowing one and not the other would create a loophole in Terracon’s objective of foreclosing professional negligence claims against commercial construction design professionals and would, essentially, cause the economic loss doctrine to be nullified by negligent misrepresentation claims.” Id. at 1154.

Therefore, Nevada continues to uphold and further solidify its generally recognized prohibition on negligent tort claims asserted for purely economic losses arising in the commercial construction context.

Written by:

Snell & Wilmer

Snell & Wilmer on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.