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Typically, in construction disputes the parties are arguing about money, and the legal theory to recover money is through a claim for breach of contract. However, can a contractor recover money when the other party鈥檚 negligent or intentional acts called 鈥渢orts鈥� (e.g., fraud, misrepresentation) 鈥� result in damage to the other party?

This can be an important question as claims for negligence are potentially covered by the other party鈥檚 insurance.

The answer to the question of whether a contractor can recover money in tort depends on whether the other party鈥檚 tortious acts led to property damage or whether the damage is purely economic. The answer also depends on whether the project is located in Oregon or Washington, because the law on this issue differs in the two states.

If a party鈥檚 acts or omissions result in property damage, the answer is fairly clear 鈥� a party may recover for such damages even though there is a contract between the two parties.

The classic example in this region is a construction defect claim, in which the owner sues the general contractor for negligent construction that has resulted in water intrusion and resultant property damage. However, if there is no property damage and the damage is purely economic, recovery may be barred by what is known in Oregon as the economic loss doctrine and in Washington as the independent duty doctrine. The two doctrines differ in which claims they allow.

In Oregon, a party may not recover from another party for purely economic losses in tort unless there is a 鈥渟pecial relationship鈥� between the parties. A special relationship is one such as the attorney/client or agent/principal relationship in which a heightened duty is owed to the other party. An arm鈥檚-length transaction, such as those typically entered into for construction projects, do not give rise to a special relationship. In Washington, a party may pursue an action in tort even when there is a contract between the parties when the defendant鈥檚 alleged misconduct implicates a tort duty that arises independently of the terms of the contract.

The following example is a typical scenario that illustrates how the doctrines affect claims on construction projects in Oregon and Washington. A general contractor and a subcontractor enter into a written subcontract. The subcontractor executes a conditional lien waiver, as a condition of payment to it by the general contractor. The waiver states that the sub has paid all of its second-tier subcontractors and suppliers. The general pays the sub and then later discovers, which liens are recorded on the project, that the sub never paid its subs and suppliers. The general is forced to pay the lien claimants and then sues the sub for breach of contract and fraud in order to recover the amounts it was forced to pay the lien claimants.

If the project is in Oregon, the sub could argue that because its alleged tortious acts (i.e., not paying its subs and suppliers) did not result in property damage, the general鈥檚 damages were purely economic, and there was no special relationship between the general and the sub, the economic loss doctrine bars the general鈥檚 fraud claim. This argument would likely prevail and a court would likely dismiss the fraud claim.

If the project is in Washington, the same argument may not be successful. As stated above, under the independent duty doctrine, a party may pursue an action in tort, even when there is a contract between the parties and the damages are purely economic, if the duty breached is independent of the contract. In the case of fraud, Washington courts have held that the duty to not commit fraud is a duty that is independent of the contract. Therefore, it seems likely that a Washington court would not dismiss the general鈥檚 claim.

Thus, where the project is located matters. As illustrated above, a claim on a project in Portland may be dismissed, while the same claim on a project in Vancouver probably would not. Therefore it is key that a contractor analyze the law of the jurisdiction in which the project is located before initiating costly litigation.

Brent Carpenter is a shareholder at Jordan Ramis PC. He focuses his practice on construction law. Contact him at 503-598-7070 or [email protected]. Note: This article is intended to provide readers with general information and not legal advice. For specific situations, consult with competent counsel.

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91视频 guarantees the accuracy or completeness of any information published herein.