Economic Loss Rule
Economic Loss Rule and Tort-based Claims
Abby Caldwell
June 26, 2013
Both Washington and Oregon courts have released decisions in recent years discussing the distinction and validity of tort-based claims when the parties have a contractual relationship. Simply put, the current stance in both states is that if a tort duty arose independently of the contract terms, then such claim may be brought notwithstanding the contractual relationship.
I. Washington
Initially, Washington’s economic loss rule precluded almost all tort-based claims seeking purely economic damages when a contract existed between parties. Parties were to be held to their bargained-for contract remedies when a loss potentially implicated both tort and contract relief. The economic loss rule barred recovery for alleged breach of tort duties where a contractual relationship allocated risk, and the losses were economic.
This concept has eroded over time, and the independent duty doctrine now stands in place of the former economic loss rule. The independent duty doctrine does not bar a tort claim merely because a contract exists, as long as the tort claim arises independently of the contract. In Elcon Constr., Inc. v. E. Wash. Univ., 174 Wn.2d 157, 273 P.3d 965 (2012), the Court affirmed that the independent duty doctrine more accurately captured the purpose behind the economic loss rule and replaced the latter.
Now, a trial court cannot automatically dismiss tort claims based solely on the existence of a contract between the parties. Instead, it must determine whether the alleged breach of claimed tort duties arose independently, and if so, plaintiffs may include such claims, including for example, contract-related negligent misrepresentation, fraud, and tortious interference.
Contractors must be aware that merely having a contract will no longer provide complete protection from pure economic losses.
II. Oregon
In Oregon, pure economic losses are recoverable in negligence only if a defendant is subject to a heightened standard of care, such as one arising out of a special relationship. However, tort claims may be brought notwithstanding a contractual relationship for recovery of other damages, such as personal injury and property damage, if a standard of care exists independent of the terms of the contract.
The Abraham Court clarified Oregon’s rule for non-economic damages arising from tort claims, “a contract will not be construed to provide immunity from the consequences of a party’s own negligence unless that intention is clearly and unequivocally expressed.” Before dismissing a tort claim, the Court must evaluate the contract entered into and determine whether it creates, defines, or limits the proposed claim.
Nonetheless, like Washington, plaintiffs must still establish that a standard of care exists independent of the terms of the contract in order to sustain a tort claim. This standard could arise from common law, statutes, administrative rules, or a special relationship.
If an independent standard of care exists and the damages are not economic, a plaintiff may sustain tort-based claims against a contractor notwithstanding their contractual relationship. For example, a negligence claim for personal injury or property damage that would exist in the absence of a contract will continue to exist notwithstanding a contract unless the parties define their respective obligations and remedies in the contract to preclude such a claim
III. Conclusion
The recent decisions in both Washington and Oregon require contractors to be on notice that they may be held liable for tort claims even with a contract in place. In both states, plaintiff’s tort-based claim must arise from an independent duty outside the parameters of the contract.
The content of this article is intended to provide general information and as a guide to the subject matter only. Please contact an Advise & Consult, Inc. expert for advice on your specific circumstances.
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