Washington construction-defect claims have traditionally been limited by the economic loss rule, which prevents claims for negligent construction where the contract between the parties assigns liability. Referencing this rule, in Hoa Le v. Mark Philip Homes, Inc., the Washington Court of Appeals reaffirmed that Washington does not recognize homeowners’ tort claims of negligent construction for resulting damages against their builder, finding that the homeowners’ claim was for purely economic damages. Accordingly, the homeowners could only recover in an action on contract and not in a tort claim.
The purpose of the economic loss rule has been to allow parties to prevent disproportionate liability and to allocate risk through contract. Some attorneys may still operate under the impression that this is the current state of the law, but newer decisions have significantly changed the landscape.
Shifting Priorities
Over the past 15 to 20 years, that bright-line distinction between tort and contract law has begun to blur, and the courts’ approach to and interpretation of duties implied at law has noticeably expanded. In Jackson v. City of Seattle, the Court of Appeals of Washington, Division One, found that contractors who installed a water line for a homeowner were liable in tort to a subsequent homeowner when, later, the water line installation caused a landslide damaging the subsequent owner’s property. The court found a commonlaw duty of care was owed, confirming that “when a defective product injures something other than itself, such as a person or other separate property, the loss is not merely an economic loss and tort remedies are appropriate.”
The Independent Duty Doctrine
Around the same time as Jackson, the Washington Supreme Court decided Affiliated FM Ins. Co. v. LTK Consulting Servs., Inc. In that case, the operator of the Seattle monorail sued an engineering firm that had worked on the monorail for negligently causing a fire that caused damage, in the form of business interruption, and required repairs. The question to the Washington Supreme Court was whether the rail operator could sue an engineer, with whom they did not have a contract, for errors in the engineer’s work.
The court effectively moved away from the economic loss doctrine, using the so-called “independent duty doctrine,” and held that a tort claim may be made if the injury results from a breach of duty found outside the contract. The court found that because the errors in the engineer’s services endangered people and property, it implicated the interest in safety at stake when engineers do their work. Accordingly, the Supreme Court found the engineer to be under a duty of reasonable care measured by what a reasonably prudent engineer in the state of Washington in similar circumstances would do. That duty included the safety risks of physical damage to the property, breach of which, by itself, is sufficient to state a claim. The scope of that duty extends to parties who hold a legally protected interest in the damaged property.
In Pointe at Westport Harbor Homeowners’ Ass’n v. Eng’rs NW., Inc., the Court of Appeals of Washington, Division Two further examined the independent duty doctrine, again concluding that a tort claim is available where the injury can be traced to a breach of a duty beyond the contract. Pointe involved a claim that the lateral force resistance system designed by the engineer was insufficient to withstand a large seismic event. Notably, the buildings involved in Pointe had not yet suffered any physical damage. The court began to shape the parameters for when tort recovery can be obtained, clarifying that there is more nuance to the analysis than just an examination of the kind of damages being claimed (economic vs. noneconomic losses; physical damage vs. non-physical damage).
Significantly, the court ultimately found that the engineer’s duty of care encompasses the prevention of safety risks, even where damage has not yet occurred as a result of the design error. The duty was owed to the HOA members as holders of property interests, and the errors alleged presented safety risks to the residents and their property. Again, the court focused on safety and property interests as key factors in analyzing the existence and scope of an independent tort duty.
Similarly, in Nichols v. Peterson NW., Inc., the Washington Court of Appeals found that a roofing subcontractor who had worked on a homeowner’s roof owed an independent duty to avoid unreasonable risks of harm to persons and other property. The homeowners did not have a contract with the roofer; however, the court found that the homeowners could not be limited to contractual remedies when the roof’s construction created a risk of harm to the home and its contents.
The shift from the strict application of the economic loss doctrine to the more expansive and less defined independent duty doctrine continues to evolve in construction claims. Most recently, it appears that the Washington Supreme Court decided to blow the roof off the economic loss doctrine.
Current State and Implied Duties
The case of Lake Hills Invs., LLC v. Rushforth Constr. Co., is one of the most significant developments in this story. In Rushforth, the Court of Appeals of Washington, Division One, paved the way for increased scrutiny in construction-defect claims by reaffirming an implied general duty for contractors to perform their work skillfully, carefully, and in a workmanlike manner, free from defects in materials and workmanship.
The court discussed this duty in the context of whether an implied warranty of adequacy of the plans and specifications can operate as a shield to the contractor for breaching its duty of good workmanship. While the decision does not eliminate the economic loss rule, it reflects the court’s increasing willingness to closely examine contractor defenses and reinforces that poor workmanship cannot be excused solely by reliance on defective design documents. Development of this area of the law is anticipated, with more expansion likely to come.
Paul L. Hathaway IV is an attorney at The GLB Attorneys. paul@theglb.com