The economic loss rule was a rule that applied in two scenarios. Under the first scenario, the economic loss rule said that if parties were in contractual privity, one party cannot sue the other party under tort theories (such as negligence) for damages that arise out of the contract. In other words, a party cannot get around the contractual remedies and damages by suing for tort instead of for breach of contract. However, over the years, this scenario has been watered down by various exceptions that allows a party to sue in tort if their damages were independent from the contract (such as damages from being fraudulently induced into the contract, etc.) or the party they were suing was a professional (such as an architect, engineer, etc.). Nevertheless, the rule still applied to prevent a majority of contracting parties from suing in tort instead of for breach of a contract, thereby maintaining the integrity of contract law.
The second scenario the economic loss rule applied was in the products liability context. Under this scenario, a manufacturer cannot be sued by a non-contracting party, in particular, for a defect in a product unless that product causes personal injury or damage to other property. However, if the product just damages itself (in other words, the product is simply defective), then the economic loss rule could apply to bar a tort claim against a manufacturer.
Confusing? Yes! To add confusion, the Florida Supreme Court in Tiara Condominium Association, Inc. v. Marsh & Mclennan Companies, Inc., 38 F. L. Weekly S151a (Fla. 2013), eliminated the the first scenario in which the economic loss rule applied. In this case and in eliminating the first scenario, the Florida Supreme Court maintained that an insured’s tort claims (negligence and breach of fiduciary duty) against its insurance broker that it was in contractual privity with was not barred by the economic loss rule.
What exactly does this ruling mean? Ultimately, it means that parties that are in contractual privity could sue each other under tort theories such as negligence to potentially recoup damages in excess of the recoverable breach of contract damages and/or to get around contractual provisions and remedies. Thus, tort claims are now available, and quite frankly, will be pursued and argued, against contracting parties. If the Florida Supreme Court finds that tort claims between an insured and the insured’s broker (where the parties were in contractual privity) are permissible, then just think of the arguments and tort claims that could be made to dilute contract law.
Please contact David Adelstein at email@example.com or (954) 759-0026 or (407) 740-6600 if you have questions regarding the application of the economic loss rule or would like more information regarding the issues and topics presented in this article. You can follow David Adelstein on Twitter @DavidAdelstein1 and Facebook at Florida Construction Legal Updates.