Express warranties through advertising create basis for implied indemnity claims
June, 2004
A recent Washington State Supreme Court decision affirms that express warranties made by manufacturers through advertising can form the basis of an implied indemnity claim even when there is no contractual relationship between the manufacturer and the claimant. As a result, contractors may now be able to recover against manufacturers for express warranties made in advertising even when there is no contractual relationship between the contractor and manufacturer.
The implications of Urban Development
For contractors, the implications of Urban Development are extraordinary in that a manufacturer may now be liable to a contractor, with whom it has no contractual relationship. Essentially, the case provides an additional remedy outside the limits of the Uniform Commercial Code and Product Liability Act and allows a contractor to sue a product manufacturer for express warranties based on an implied indemnity claim for damages.
Manufacturers of building materials will now need to take measures to protect themselves from possible claims by parties with whom they have no direct contractual relationship. Based on the decision in Urban Development, any contractor or developer who theoretically relied on representations made in marketing materials and brochures will now have the basis for an implied indemnity claim. Manufacturers who puff up their products in promotional brochures and advertising in an effort to increase sales will face serious exposure.
Facts of the Urban Development case
Urban Development was hired as a general contractor by a developer, Fortune Star Development Company, to construct the Fortune View Condominiums. After completion, the condominiums began to crack and leak causing water damage to the units. As typical in construction defect cases, the homeowner's association sued the developer and the developer sued the contractor, Urban Development. In turn, Urban Development claims against its subcontractors, Dryvit Systems, Inc., the manufacturer of the siding system, and Evergreen Building Products, the company that supplied the product to the siding subcontractor.
The claim against Dryvit and Evergreen was based on Urban Development's reliance on a product brochure prepared by Dryvit. The brochure included water penetration and resistance test results as well as a five-year limited warranty. The brochure also represented that the siding was "designed and engineered specifically for the residential and light commercial market." Urban Development's President stated that Urban Development relied on the warranties when submitting its bid for the project.
Even though Urban Development was not the purchaser of the siding system and therefore, did not have contracts with Dryvit or Evergreen, it asserted claims for implied and express warranties and implied indemnity. The trial court dismissed those claims due to the nonexistence of a contractual relationship. Urban Development appealed. The only issue on review for the Washington Supreme Court was whether express warranties in advertising could support an implied indemnity claim.
The Court's ruling
In upholding the Court of Appeals ruling that an implied indemnity claim could be supported by an express warranty, the Supreme Court reiterated that implied indemnity is an equitable remedy that does not arise from a contract between the parties. The Court went on to note "contractual privity is not required to create express warranties." The Court explicitly rejected Dryvit's argument that permitting the implied indemnity claim would expose it to claims from anyone who had contact with a Dryvit brochure.
Justice Madsen dissented from the majority, arguing that the decision was a dramatic departure from established case law, which requires contractual privity in order to pursue a claim for breach of an express warranty.
Urban Development, Inc., et al v. Dryvit Systems, Inc.
Doc. No. 73543-3, Slip Opinion May 27, 2004
Bullivant's construction group
Bullivant represents owners (both public and private), developers, manufacturers, contractors, sureties, subcontractors, vendors, suppliers and insurers, on all types of construction projects and similar implied indemnity claims throughout the United States, including Oregon, Washington, California, Alaska, Idaho, Montana, Utah, Nevada and Arizona. Our attorneys have trial experience in both state and federal courts, as well as AAA arbitrations, mediations, and other forms of alternative dispute resolution.