On May 3, 2016, Division 2 of the Washington Court of Appeals issued a decision that renders seemingly moribund the economic loss rule and extends the reach of the independent duty doctrine (“IDD”) against design professionals. The case of Pointe at Westport Harbor Homeowners’ Association v. Engineers Northwest, Inc. P.S., 193 Wn. App. 695, — P.3d — (2016), involved what has become commonplace litigation in condominium developments – a suit by a condominium homeowners association (“HOA”) against an engineer for negligent design. The HOA in the Pointe case alleged that the condo building was “rendered unreasonably dangerous to its occupants” because of the design defects and sought costs for investigating and repairing the defects. The defendant engineer moved for summary judgment on the basis that the IDD (previously known as the economic loss rule) barred negligence claims for purely economic loss. The trial court denied the engineer’s pre-trial motion, apparently without addressing whether the IDD applied, finding material issues of fact to preclude summary judgment.
During the trial, the HOA presented a structural engineer as its expert to testify that the structural engineering work had been deficient and led to the defects that rendered the building dangerously unsafe in a large seismic event (which events occur in the area) and prepared a scope of repair work that involved fixing each defect in the building. Id. at *2. The jury ultimately returned a verdict in favor of the HOA and found that the resulting damages amounted to over $1 million for which the defending engineer was 97.5% at fault. Id. The trial court entered judgment against the engineer for the entire amount of negligence damages. Id. at *3.
On appeal, the engineer again argued that the HOA’s claims should have been barred by the IDD. Id. at *4. The appellate court disagreed and affirmed the trial court decision, but, unlike the trial court, specifically addressed the legal issue of whether application of the IDD barred the HOA’s tort-based claims for purely economic damages.
The IDD generally “bars recovery in tort for economic damages suffered by parties to a contract unless the breaching party owed a duty in tort independent of the contract.” Id. (citing Eastwood v. Horse Harbor Found., Inc., 170 Wn.2d 380, 393-94, 241 P.3d 1256 (2010)). Although the “foundation of any liability analysis for . . . design professional[s] rests in contract,” the Washington Supreme Court has held 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.” Id. (quoting Donatelli v. D.R. Strong Consulting Eng’rs, Inc., 179 Wn.2d 84, 92, 312 P.3d 620 (2013)). Engineers owe such a duty of reasonable care not only to developers and contractors to whom they provide engineering services (see Jarrard v. Seifert, 22 Wn. App. 476, 479, 591 P.2d 809 (1979)), but also to holders of legally protected interests in the property (see Affiliated FM Ins. Co. v. LTK Consulting Servs., Inc., 170 Wn.2d 442, 455, 243 P.3d 521 (2010)). Id.
The engineer in the Pointe case argued on appeal that this tort duty is limited to cases where the engineer’s failure to exercise reasonable care results in personal injury or actual physical damage. Id. To support its argument, the engineer relied on the cases of Michaels v. CH2M Hill, Inc., 171 Wn.2d 587, 593, 606-09, 257 P.3d 532 (2011) (engineering firm owed an independent tort duty when a person was killed because of a catastrophic failure at a wastewater treatment plant), and Affiliated FM, 170 Wn.2d at 443-44 (engineering firm owed an independent tort duty when property damage resulted from a fire on the Seattle Monorail). Id. At trial, the HOA had only presented evidence of potential damage to the condominium buildings, not actual injury or physical property damage.
The Washington Court of Appeals disagreed with the engineer’s argument and held that an engineer’s duty of care encompasses, inter alia, the prevention of safety risks.” Id. at *5 (emphasis added). “Even where such safety risks do not cause consequential damage to persons or property, the risk itself constitutes an injury within the class of harm contemplated by a design professional’s duty of care.” Id. The Pointe court ultimately held that the engineer “owed an independent duty to the developer and to members of the HOA, as holders of property interests in [the condominium project], to take reasonable care to design a building that did not present safety risks to its residents or their property.” Id.
The Pointe case illustrates a considerable weakening (if not the end) of the economic loss rule in Washington and a design professional’s ability to limit liability for purely economic damages resulting from alleged design defects. With the expansion of a design professional’s duty of care to prevent mere risks of (rather than actual) damage or injury, design professionals face even more liability exposure in Washington, which likely will only fuel the fire of owners’ and homeowners associations’ design and construction defect claims. Of course, the Pointe case is a decision from only one division of the Washington Court of Appeals, and time will tell whether the current status of the IDD will continue (or even expand further) or whether the Washington Supreme Court will overturn this case in favor of a different interpretation of the doctrine. The design professional community can only hope for the latter.