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Real Property & Development Review

Potential Codification of Economic Loss Doctrine for Designers

Posted in Construction

One of the concepts recently introduced at the Oregon Legislative Assembly for the legislative session involves a bill addressing the economic loss doctrine as it applies to designers.

Senate Bill 421 essentially proposes that:

designers can’t be sued for economic damages (i.e. not including property damage or personal injury) caused by defective design based on claims of negligence, indemnity or contribution, EXCEPT by entities or persons who have a contract with the designer.

This means that the designer would protected from claims brought by the contractor on a design-bid-build construction project (i.e. where the owner has seperate contracts with the designer and the contractor).  Since the contractor has no direct contract with the designer, the contractor’s only recourse is the Owner.

The Economic Loss Doctrine exists in Oregon…kind of.

The status of the economic loss doctrine in Oregon has been unclear for years because the landmark cases addressing the issue lack claritynever seem to be directly on point and provide for vague exceptions.  Working through those cases and exceptions is of course a creative lawyers dream.  However, the unpredictability factor is disconcerting, especially to clients.

For instance, in Onita Pacific Corp v. Trustees of Bronson, 315 Or 149, 842 P.2d 890 (1992),  the court found that recovery of economic loss on a negligent misrepresentation theory must be based on something more than ordinary duty of care, such as where the culprit entity has a “special duty” or “special relationship” to the other party.  Good luck predicting to what extent a court will rely on this landmark non-construction case involving a slightly different tort theory than your run-of-the-mill defective design case.

Jones v. Emerald Pacific Homes, Inc., 188 Or App 471, 478-79, 71 P.3d 574 (2003) is yet another landmark case that provides guidance, but no clear resolution on the issue.

So if the case law doesn’t provide the necessary clarity, perhaps the legislature can.

Whether it is good policy and/or fair for designers to enjoy statutory protection from these claims is of frequent debate.  Obviously the designers would be thrilled, and the contractors miffed.

Regardless of opinion, having a clear statute on this (and any) issue will help lawyers advise clients with more certainty on the potential outcome of a lawsuit brought under these circumstances.

I get a sense this bill will be one of the most heavily debated ones this year…