The business of construction continues to experience change. There are a number of new legal cases related to construction defects and contractor liability that are important to pay attention to as 2007 comes to a close.
Expansion of the Economic Loss Rule
One of the most significant new developments with regard to contractor liability is the expansion of the “economic loss rule.” This long-standing rule essentially prevents property owners from asserting a negligence claim against the contractor for defective construction. In a recent case, Alejandre v. Bull, the Washington Supreme Court made clear that the homeowner cannot assert a negligence claim for economic damages if there are construction defects. The court declined to recognize any cause of action for negligent construction because there was no evidence of personal or physical injury.
While the economic loss rule bars a homebuyer from making a negligent construction claim against the builder, the buyer may still be covered under the “implied warranty of habitability.” As the name suggests, this means that the seller or builder must present the home to the buyer in a “habitable” condition. However, the warranty is of limited scope and only covers defects that are serious enough to impact the safety or practical livability of the home. Mere defects in workmanship are generally not covered because the warranty does not impose an obligation upon a builder to construct a “perfect” home. Defects giving rise to these types of claims can include water intrusion and other major structural defects.
Abolishment of completion and acceptance doctrine
Contractors have always been liable for physical injury to the property owner caused by negligent construction. However, the “completion and acceptance doctrine” protected contractors from liability for injury to persons other than the buyer (third parties) caused by defective workmanship, so long as the work was “completed” in compliance with plans and specifications and “accepted” by the buyer after inspection. After inspection, the risk of liability was passed to the owner, since the owner controlled the property.
All of this changed in 2007. In Davis v. Baugh Industrial Contractors Inc., the Washington Supreme Court discarded this concept calling it outmoded, incorrect and harmful. The Court ruled that contractors – not property owners – will be liable if defective construction harms third-parties. In short, the contractors are now liable for any physical harm to any person resulting from their construction defects.
Expansion of timeframe for filing suit on construction defect claims
Another significant change occurred in late 2006 when the Washington Supreme Court decided the 1000 Virginia Limited Partnership v. Vertecs suit. The Court decided that the “discovery rule” applies in determining the timeframe in which a homeowner must bring a lawsuit for construction defect claims. In so doing, the Court differentiated between a breach of contract dispute and a construction defect claim. An action for breach of a written construction contract must be brought within six years of the breach. However, if the dispute is based on defective construction, the discovery rule applies. Under this rule, the buyer gets six years after the completion of construction to discover the defect, and then they have an additional six years after discovery to bring the claim. This means that a claim for defective construction could be brought up to 12 years after completion of construction.
With so much activity in the courts, contractors should take care to keep themselves informed of this ever-changing legal landscape within the building industry. There are many classes and newsletters available to help with this endeavor, including offerings from the Washington State Department of Labor & Industries and the Building Industry Association of Clark County (BIA).
Kelly Walsh is an attorney for Schwabe, Williamson and Wyatt. She can be reached at kwalsh@schwabe.com or 360-905-1432.
