James N. Rhodes, J.D.
ConstructionRisk, LLC
The Supreme Court of Washington applied the state’s “independent duty doctrine” to allow a professional negligence and a negligent misrepresentation action to move forward by residential property owners against their contracted engineer. The “independent duty doctrine” is a variation in Washington law to the “economic loss” rule applied in most states, both of which generally limits the ability of contractual parties to seek negligence actions against each other for economic losses. The “independent duty doctrine” allows tort actions involving construction contracts to proceed only when the tort duties implicated in the suit arise “independently of the terms of a contract.”
The court found that a negligent misrepresentation count could proceed because the duty of the engineer to avoid misrepresentations that would induce the property owners into a contract arose independently of the contract itself. For the professional negligence count, the court stated that further fact finding was needed to determine if any professional duties of care arose independent of the terms of the contract, but rejected the defendant’s attempt to summarily dismiss the claim based on the contractual relationship. Donatelli v. D.R. Strong Consulting Engineers, Inc., 179 Wash. 2d 84, 312 P.3d 620 (Wash. 2013)
Steve and Karen Donatelli sought to develop two homes on property that they owned in King County, Washington. They allege that an engineering company, D.R. Strong, orally agreed to prepare the reports and other actions to obtain the necessary county permits and approvals. The engineers allegedly represented that they could complete the project within a year and a half. Shortly after receiving preliminary approval in October 2002, the engineer and the owners entered into a written contract for $33,150 for various phases of engineering services. However, over the next five years, the engineers took a more direct managerial role over the project that was not encompassed in the written contract, and charged around $120,000 to the owners.
The owners were surprised to learn in October 2007 that the preliminary approval for the project had expired. The owners allege that the engineers apologized and said they “screwed up” and would “make everything right.” However, the owners suffered financial losses and lost the property in foreclosure before they could obtain new county approvals. The owners sued the engineers on several bases, including breach of contract, negligent misrepresentation, and professional negligence.
The engineers sought summary judgment on the two negligence claims at the trial court, arguing that these tort claims were barred because of their contractual relationship. Generally speaking, the “economic loss rule” draws a line between contract law and tort law by preventing a party from pursuing a negligence action against another contractual party for a purely economic loss. The rationale behind the rule is that the contractual relationship gave the parties the opportunity to allocate the risks of economic loss, making an overlapping tort action inappropriate. Stemming from a 2010 Washington Supreme Court decision, the state modified the traditional economic loss rule, now calling it the “independent duty doctrine.” Under the “independent duty doctrine” tort actions involving construction contracts can only proceed when the tort duties implicated in the suit arise “independently of the terms of a contract.”
The trial court denied summary judgment on the two negligence claims, finding that the owners’ claims were not barred by the independent duty doctrine. On appeal, the Washington Court of Appeals agreed with the trial court. On appeal a second time, the state’s supreme court addressed whether each of the two negligence claims were barred by the doctrine.
The state supreme court agreed with the trial and appeals courts that the negligent misrepresentation claim was not barred by the independent duty doctrine. The court discussed that under the traditional economic loss rule, negligent misrepresentation claims for economic damages were generally barred. But the court explained that under its independent duty doctrine, the duty to avoid negligent misrepresentations that would induce the other party into a contract can arise independently of the contract itself, as was the case here.
However, the court noted that this duty would not necessary arise independently of the contract in all cases, as some jurisdictions have found. For example, a contract could specifically implicate a contractual duty and remedy for such a misrepresentation that would bar the tort action. But here the court found that the engineers clearly had a duty to avoid negligent misrepresentations independent of the contract.
For the professional negligence count, the court agreed with the lower courts that the engineers’ summary judgment request should be denied, but stated that further fact finding was needed to see if the claim was barred by the independent duty doctrine. The court explained that the record needed to be better developed to understand the scope of the engineers’ professional obligations to the owners, regardless of whether the claim was brought as a breach of contract or a breach of a duty of care in tort.
The scope of the engineers’ obligations was particularly unclear on the record because the parties appeared to have agreed for the engineers to take a much more central role in the project than described in the written contract. The court reiterated the principle that “design professionals also owe duties to their clients and the public to act with reasonable care, which can sometimes give rise to a tort duty independent of the contract.” In deciding to remand the case to the trial court, the court explained that, “to determine whether a duty arises independently of the contract, we must first know what duties have been assumed by the parties within the contract.”
Copyright 2014, ConstructionRisk, LLC