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July 19, 2005

Our client, a manufacturer and supplier of windows, provided windows for the original construction of a single-family residence in 1989. Plaintiffs, as third owners, purchased the home from the second owners in 1997. In 2001 (twelve years after the house was originally built) Plaintiffs brought in a contractor to make some repairs to their residence. They discovered extensive water damage to the building. The six-year statute of limitations/statute of repose had expired on claims Plaintiffs may have had against the designer or builder of the residence, so Plaintiffs could not sue those entities. That left our client, as a product manufacturer, and the sellers of the home, for the Plaintiffs to sue.

Plaintiffs reached a small settlement with the home sellers prior to instituting their lawsuit rolling the dice against our client (13 years after the subject residence was constructed). In their complaint, Plaintiffs alleged breach of the Washington Products Liability Act ("WPLA"), negligence, breach of warranty, as well as for violation of the Consumer Protection Act ("CPA") and Uniform Commercial Code ("UCC"). Plaintiffs claim that the water damage to their home was the result of defects in our client's windows that were installed in the residence as part of the original construction that was completed in 1989 and damages of approximately $500K for their out of pocket costs for repairs made to the home and incidental expenses. There was no denying the fact that the home had serious water intrusion damage, however a majority of the damage was caused by the poor construction practices utilized by the contractors who clad it in stucco. Some of our client's windows did exhibit failures that contributed to water infiltration, but that may have been related to improper installation, and there was no evidence presented that the windows were somehow inherently defective. Thus, we moved for summary judgment.

Plaintiffs agreed to dismiss their claims based on Uniform Commercial Code, breach of warranty, and negligence. Thus, that left only Plaintiffs' CPA and WPLA claims at issue for purposes of our client's summary judgment motion. The Court granted our motion and subsequently dismissed Plaintiffs' claims for reasons discussed below.

In order to state a claim under the CPA, Plaintiffs had to establish that our client somehow committed acts that were unfair or deceptive, occurred in the course of trade or commerce, affected the public interest and caused injury to Plaintiffs' property. Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 780, 719 P.2d 531 (1986). We argued that Plaintiffs' allegations about what alleged acts by our client they considered unfair or deceptive were baseless and, moreover, unsupported by any facts contained in the record before the Court. Specifically, Plaintiffs (1) did not claim that they have ever received, saw, and/or relied upon any warranty issued by our client (in fact, they agreed to dismiss their breach of warranty claims); (2) did not demonstrate that our client made any claims or representations regarding compatibility with stucco siding; and (3) did not offer any evidence that our client's windows were not manufactured or designed to last more than 15 years if installed properly. The Court dismissed Plaintiffs' CPA claim because Plaintiffs presented no evidence that anyone relied upon any representation made by our client.

Plaintiffs' WPLA claim was also dismissed ruling that the insidious nature of water intrusion damage constituted pure economic loss not recoverable under the WPLA. Under Washington law, product liability claims based on breach of express or implied warranties are either tort actions under the WPLA, chapter 7.72 RCW, or contract actions under Article 2 of the Uniform Commercial Code ("UCC"), Title 62A RCW. Touchet Valley Grain Growers Inc., v. Opp & Seibold Gen. Constr., Inc., 119 Wn.2d 334, 343, 831 P.2d 724 (1992).

The WPLA confines recovery to physical harm of persons and property and leaves economic loss, standing alone, to the Uniform Commercial Code. Talmadge, Washington's Product Liability Act, 5 U. Puget Sound L. Rev. 1, 10 (1981-1982). "'Harm' includes any damages recognized by the courts of this state: PROVIDED, That the term 'harm' does not include direct or consequential economic loss under [the UCC]." RCW 7.72.010(6). The WPLA's economic loss exclusion operates to "restrict product liability plaintiffs to contract remedies for economic loss." Wash. Water Power Co. v. Graybar Elec. Co., 112 Wn.2d 847, 857, 774 P.2d 1199 (1989). Therefore, any claim based upon breach of warranty (express or implied) resulting solely in economic loss, as is the case here, does not fall within the WPLA, and thus is not a tort claim.

Whether or not a party's damages constitute more than pure economic loss, which are unrecoverable under the WLPA, is determined by applying a "risk of harm" analysis. Touchet Valley, 119 Wn.2d at 351. The "risk of harm" analysis is used to determine whether the safety-insurance policy of tort law or the expectation-bargain protection policy of warranty law is most applicable to the claim in question. Graybar, 112 Wn.2d at 860-61.

In characterizing the "risk of harm," two approaches may be used: the "sudden and dangerous test" approach, and the "evaluative" approach. Touchet Valley, 119 Wn.2d at 351-353. "Under the 'sudden and dangerous' approach to risk of harm analysis, economic loss is distinguished from other damages according to the manner in which the product failure has occurred." Id. at 351. If the injury or damage suffered is the result of a sudden and dangerous event, then tort principles are applicable. Id. If no such event has occurred, the injury or damage is considered economic loss. Id. Under the evaluative approach, the line between tort and contact are drawn by examining interrelated factors such as the nature of the defect, the type of risk, and the manner in which the injury arose. Id.

We argued successfully that under either the sudden and dangerous test or evaluative approach, Plaintiffs' losses constituted no more than pure economic loss barred by the WPLA's economic loss exclusion.

Briefing for the Court of Appeals is pending. Please contact us for additional information.