OPINION:
In the world of construction, Washington has historically been a “chain of contract” state, in which contracts governed the duties and liabilities of those involved in a project, and parties were generally free to limit by contract both their responsibility and their risk for any purely economic damages. Essentially, if nothing broke and no one bled, liability was limited to what the contract said. This week, the Washington Supreme Court declared that those days are gone with the release of its long-delayed decision in Donatelli v. D.R. Strong Consulting Engineers, Inc.
The facts tell a typical “project gone bad” story. A developer (Donatelli) hired an engineering firm (defendant D.R. Strong) to provide engineering services on its project for an estimated fee of $33,150. In the parties’ contract, they agreed that the engineer’s liability for any problems would be limited to the amount of fees paid by the developer. The engineer even offered to waive that limitation of liability if the developer paid it an extra $1,650, but the developer elected not to incur that extra expense.
As often happens in construction jobs, problems arose, estimates were exceeded, and delays occurred. So the developer sued his engineer, claiming damages in excess of $1.5 million in alleged lost profits and expenses, and alleging not just breach of contract, but also claims for negligence and negligent-misrepresentation. Predictably, the engineer moved to dismiss the negligence and negligent misrepresentation claims as being barred by Washington’s “economic loss rule,” which generally limits contracting parties to their contractual remedies in the case of purely economic losses (i.e., losses that do not stem from something broken or someone bleeding).