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Posted on: Mar 24, 2017

Recent Court of Appeals Decision Does Not Apply Economic Loss Doctrine to Accounting Malpractice Claim

By Sam Laurin, Bose McKinney & Evans LLP

The Indiana Court of Appeals recently addressed the applicability of the economic loss doctrine to a claim for accounting malpractice in Magic Circle Corp., d/b/a Dixie Chopper, Arthur Evans, Wesley Evans, and Jeffrey Haltom v. Crowe Horwath, LLP. The Court began its analysis by noting that: “We have found no Indiana case that addresses directly the question of whether the economic loss rule applies to bar actions at tort for accountant malpractice.” Relying primarily on decisions from Illinois and Federal Courts, the Court held that the economic loss rule does not bar claims for accountant malpractice. The Court also relied on cases that have held that accountants, like lawyers, are required to act with reasonable professional competence “independent of any contract.” In Magic Circle Corp. there was a contract in the form of engagement letters. The engagement letters also had a limit of liability provision that applied unless the accounting firm performed services with gross negligence and willful misconduct. The Court of Appeals also  reversed the trial court’s decision dismissing the claim based on the limitation of liability provision. The Court reversed because the Plaintiffs alleged gross negligence and willful misconduct. Somewhat implicit in the Court’s holding is that the limitation of liability provision was generally enforceable. Given the Court’s holding that an accountant has to act with reasonable competence outside the contract, an argument could be made that the limitation of liability provision was not enforceable.

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