Donatelli v. D.R. Strong Consulting Engineers, Inc. [Wash. Sup. Ct. No. 86590-6]
A five justice majority in this case continued to develop the “independent duty doctrine” in Washington. That doctrine has superseded the “economic loss rule,” which previously limited recovery of economic damages to contract claims and recovery of non-economic damages to tort claims. According to the majority opinion, described in greater length below, a contracting party can have a duty in tort to another contracting party if and only if the duty is independent of the agreement. If the contract is unclear, then it must be interpreted by a trier of fact before dismissal based on the independent duty doctrine is proper. As explained by the four-justice dissent, this analysis is unnecessary to the independent duty doctrine, cannot be harmonized with the parties’ agreement, and is not supported by settled principles of contract law. Consistent with those legal principles, the dissent would limit the plaintiff to contract damages where, as here, the parties’ agreement encompasses the risk of harm that is claimed.
Steve and Karen Donatelli hired D.R. Strong Consulting Engineers to help the Donatellis develop their real property. The project took longer and cost more than the Donatellis expected and, because of the delay, a preliminary approval expired before the project was complete. Unhappy with the work, the Donatellis sued D.R. Strong for breach of contract, professional negligence, and negligent misrepresentation.
D.R. Strong argued in the trial court – on summary judgment – that the negligence claims must be dismissed under the economic loss rule because the relationship between the parties was governed by contract and the damages claimed by the Donatellis were purely economic. The trial court held that such claims were not barred, and the Court of Appeals affirmed. The Supreme Court then granted D.R. Strong’s petition for review.
A five-justice majority (Justices Fairhurst, Stephens, Owens, Gonzalez, and Chambers) affirmed. Writing for the majority, Justice Fairhurst explained that Washington courts historically applied the economic loss rule to bar a plaintiff from recovering economic damages in tort when the defendant’s duty to the plaintiff was governed by contract. Under the economic loss rule, purely economic losses (e.g., lost profits and repair costs) were recoverable in contract whereas non-economic damages (i.e., property damage and personal injury) were recoverable in tort.
That changed in Eastwood v. Horse Harbor Found, Inc., 170 Wn.2d 380 (2010), in which a majority of the Supreme Court concluded that the “economic loss rule” was a misnomer and renamed the rule the “independent duty doctrine.” Pursuant to this doctrine, as described by the majority opinion, an injury is remediable in tort only if it traces back to the breach of a duty arising independently of the terms of a contract between the parties. In other words, if a particular duty is established by contract, then it cannot exist in tort.
Under this analytical framework, a court must first determine what duties have been assumed by contract. Then, and only then, can the court ascertain whether a duty in tort arises independently of the contract. But in Donatelli, the majority concluded that “the record does not establish the scope of D.R. Strong’s professional obligations to the Donatellis.” As a result “it is impossible to say at this point what professional obligations D.R. Strong owed to the Donatellis – contractually or otherwise.” For that reason, the majority concluded that the Donatelli’s negligence claims were not legally barred.
Having addressed the Donatelli’s negligence claims, the majority turned to their negligent misrepresentation claims. Applying the independent duty doctrine to that claim, the majority held that the trial court properly denied summary judgment in favor of D.R. Strong on this claim because D.R. Strong’s duty to avoid misrepresentations that induced the Donatellis to enter into a contract arose independent of the contract. As such, the negligent misrepresentation claim was not legally barred.
Chief Justice Madson, joined by Justices Wiggins, J.M. Johnson, and C. Johnson, dissented in part. The dissent concluded that the case was legally indistinguishable from Berschauer/Phillips Construction Co. v. Seattle School District No. 1, 124 Wn.2d 816 (1994), which has not been overruled and which applied the economic loss rule to preclude similar professional negligence damages. That opinion, per the dissent, should be applied as controlling precedent.
The dissent also noted that the decisive issue for purposes of the independent duty doctrine is not whether a duty is established by contract but whether the parties’ contract encompasses the risk of harm that is claimed. If so, then the claim is founded on breach of contract and the remedies, if any, should be limited to contractual remedies. The Donatellis were not asserting property damage or personal injury, the dissent concluded, so their professional negligence damages were governed by the parties’ agreement, which included a limitation of professional liability.
Based on the above reasoning, the dissent would hold that the trial court erred when it denied D.R. Strong’s motion for summary judgment on the negligence claims because the claims are not permissible under Washington law and they are not allowable under the limitation of professional liability provision in the parties’ agreement.