In Harris v. Suniga, the Oregon Supreme Court dealt a blow to construction industry professionals, holding that a subsequent purchaser of property can maintain an action for negligent construction despite lacking any contractual relationship with the developer or contractor(s).
Harris arose out of the sale of an apartment building, in which the trustees of a trust purchased a Salem apartment building ("Plaintiffs") that had been built by contractors ("Defendants") for an investment company that later sold the building to Plaintiffs. Plaintiffs brought an action against Defendants after discovering dry rot caused by water leaking into the building; Plaintiffs alleged negligent construction (primarily for failure to install flashing in various parts of the building) and sought $376,000 in damages to make necessary repairs.
Defendants denied the allegations, and also asserted the affirmative defense that the claim was barred by the economic loss doctrine, which prior Oregon decisions have held to bar negligence claims between parties to a contract in the absence of a "special relationship" between the parties beyond the duties imposed by the contract itself. Defendants argued that, whether Plaintiffs’ alleged loss was characterized as a reduction in the value of the building or the difference between what Plaintiffs paid and what they would have paid had they known of the alleged defects, the damage was purely economic loss and was thus barred by the doctrine. Defendants placed particular emphasis on the fact that, as a subsequent buyer of the building, Plaintiffs could not have suffered the physical damage to the property but could only have been damaged with respect to the benefits received in the purchase of the property from the original owner. The trial court agreed and granted summary judgment in favor of Defendants. The Oregon Court of Appeals reversed, contrasting the physical damage to the property with the type of economic loss generally barred by the doctrine - losses such as indebtedness incurred and return of monies paid.
The Supreme Court agreed with the Court of Appeals. The court first noted that "[e]very physical injury to property can be characterized as a species of ‘economic loss’ for the property owner, because every injury diminishes the financial value of the property owner’s assets." After reviewing the line of Oregon cases establishing the economic loss doctrine, the court contrasted the types of losses generally barred - diminished stock price, indebtedness incurred, etc. - with the type of damage sought by Plaintiffs – recovery for damages to physical property:
[T]his court had identified the potentially limitless economic impacts of negligent conduct as the reason for barring claims for economic losses. That concern, however, is rarely present when the claim is for physical damage to real or other tangible property. Unlike economic losses to third parties, which can be indeterminate and potentially unlimited, physical damage to property ordinarily can be ascertained, assessed, and paid.
Although the court extended potential liability of construction industry professionals to negligence damages incurred by subsequent purchasers for physical injury to tangible property, it also gave the industry a consolation prize, holding that "[o]nce a party has paid damages related to the physical injury to property caused by its negligence, its liability is at an end."