Affiliated FM Insurance Co. v. LTK Consulting Services, Inc.

Supreme Court of Washington, En Banc
243 P.3d 521 (2010)

ELI5:

Rule of Law:

An engineering firm's tort duty of reasonable care, which exists independently of its contractual obligations, extends to protect any party holding a legally recognized property interest from physical damage to the property on which the firm worked.

Facts:

In 1994, the City of Seattle entered a concession agreement with Seattle Monorail Services (SMS), granting SMS the exclusive right to maintain, operate, use, and occupy the Seattle Monorail System.
The agreement required SMS to perform emergency maintenance and carry fire insurance on the monorail.
In 1999, the City of Seattle contracted with LTK Consulting Services, Inc. (LTK), an engineering firm, to examine the monorail system and recommend repairs.
As part of its work, LTK allegedly recommended changes to the monorail trains' electrical grounding system.
In May 2004, a fire, allegedly caused by a faulty electrical collector shoe resulting from the changed grounding system, ignited on the monorail's blue train.
The fire caused extensive physical damage to the blue train and smoke damage to the red train, leading to business interruption and repair costs for SMS.

Procedural Posture:

Affiliated FM Insurance Company (AFM), as subrogee for Seattle Monorail Services (SMS), sued LTK Consulting Services, Inc. (LTK) for negligence in King County Superior Court.
LTK removed the case to the United States District Court for the Western District of Washington.
LTK filed a motion for summary judgment, arguing SMS's tort claims were barred by the economic loss rule.
The U.S. District Court granted LTK's motion for summary judgment, dismissing AFM's claims.
AFM, as appellant, appealed the dismissal to the United States Court of Appeals for the Ninth Circuit.
The Ninth Circuit certified a question of Washington state law to the Supreme Court of Washington for resolution.

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Issue:

Does an engineering firm owe an independent tort duty of reasonable care to a commercial operator of property, with whom the firm is not in contractual privity, to prevent physical damage to that property?

Opinions:

Majority - Fairhurst, J.

Yes, an engineering firm owes an independent tort duty of reasonable care to a commercial operator in these circumstances. Under the independent duty doctrine, an injury is remediable in tort if it stems from the breach of a tort duty arising independently of a contract's terms. Engineers have a common law duty of reasonable care, grounded in the significant public interest in safety, to prevent physical harm. The scope of this duty extends beyond property owners to any person with a legally protected interest in the property, such as SMS's contractual right to use and occupy the monorail. Because the fire represented a breach of LTK's duty to avoid safety risks of physical damage, SMS's resulting losses, including repair costs and business interruption, are recoverable in tort.

Concurring - Chambers, J.

Yes. This is a straightforward professional negligence case, and the court has long recognized that engineers have a duty to exercise reasonable skill and judgment. The majority's extensive analysis under the 'independent duty doctrine' was unnecessary to reach the correct result. The only real issue was whether LTK's established duty extended to SMS, and the answer is clearly that it did. The majority's approach risks re-examining every established tort duty whenever the independent duty doctrine is raised as a defense.

Concurring/dissenting - Madsen, C.J.

Yes, a tort suit is permissible, but the majority's reasoning is flawed and its 'independent duty' analysis is inappropriate. The economic loss rule, which the independent duty doctrine is meant to clarify, is not implicated at all in this case. The rule applies only when parties are in a contractual relationship (or a construction project network) and a plaintiff seeks tort remedies for a loss that should be governed by their contract. Since SMS and LTK had no contract, there is no choice between contract and tort remedies, and the economic loss rule is irrelevant. The case should have been resolved using settled tort law principles without engaging in a confusing analysis that muddles the law.

Analysis:

This decision formally transitions Washington law from the vaguely defined 'economic loss rule' to the more precise 'independent duty doctrine,' clarifying the boundary between tort and contract law. It establishes that professionals like engineers have public safety-based tort duties that exist independently of their contracts, preventing them from using the absence of privity to shield themselves from liability for physical damage. The ruling also broadens the class of potential plaintiffs for property damage to include not just owners, but any party with a legally protected interest to use and possess the property, thereby protecting the interests of commercial operators and lessees.

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