Friday, February 25, 2011

Erosion of the Economic Loss Rule in Washington

A recent Washington Court of Appeals case expanded the right of homeowners to recover damages from contractors whose negligence causes damage to their homes and property. At the same time, the opinion expanded the potential liability of contractors. In Jackson v. Trenchless Construction Services, the homeowner sued a contractor who was under contract with the prior owner to install a waterline on the property. The homeowner alleged that the work was performed negligently and sued in tort.

For years, the mantra in construction law in Washington has been there is no tort of negligent construction. The only remedy had been breach of contract based on the economic loss rule: An economic loss is a defect of quality as evidenced by internal deterioration. But when a loss stems from defects that cause accidents involving violence or collision with external objects, that is a physical injury and tort remedies apply.

This rule has allowed negligence cases to proceed when a contractor’s negligence caused bodily harm. In this recent case, no one was injured. The water pipe did not rupture or explode, rather the homeowner alleged that the manner in which the work was performed caused instability in the slope that in turn caused the landslide. The court found this distinction sufficient to allow the case to proceed in tort.

What ramifications does this have? For homeowners whose property is injured by contractors who worked on the property in years past, this expands the right to recover damages. This is especially critical in light of the fact that homeowners insurance policies typically exclude coverage for land movement. For contractors, not only does it suggest they must exercise due care, but also suggests they need to be properly insured.

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