The importance of the economic loss rule in construction law cannot be overstated. If a construction project goes south, the economic loss rule allows construction law attorneys to identify which parties to the project can bring what types of claims against which other parties. This blog post discusses Florida’s economic loss rule in the construction litigation sector.
Florida’s Economic Loss Rule Applied in Construction Law
Under the economic loss rule, tort recovery is prohibited if the only damages suffered are economic losses. Indem. Ins. Co. of N. Am. v. Am. Aviation, Inc., 891 So. 2d 532, 536 (Fla. 2004). This means a product that damages itself, but does not cause personal injury or damage to other property cannot be the basis of tort recovery; instead, breach of contract is the proper cause of action. See Casa Clara Condo. Ass’n, Inc. v. Charley Toppino & Sons, Inc., 620 So. 2d 1244, 1247 (Fla. 1993). The application of the economic loss rule in the construction context is easy to imagine. For example, if a developer has a contract with a buyer, and the buyer claims damages caused by the defective work of the developer, then that buyer’s only remedy against the developer will be for breach of contract, not negligence.
However, the application of Florida’s economic loss rule has a long, confusing history. As the Florida Supreme Court noted, “pronouncements on the [economic loss] rule have not always been clear and, accordingly, have been the subject of legitimate criticism and commentary.” Moransais v. Heathman, 744 So. 2d 973, 980 (Fla. 1999). A full discussion of the Florida Supreme Court’s treatment of the economic loss rule is beyond the scope of this post; for a discussion of the rule’s history in Florida, see Brad Hughes’ post on the independent tort doctrine. For now, it is important to highlight the Florida Supreme Court’s most recent decision in Tiara, which held the economic loss rule applies only in products liability cases. See Tiara Condo. Ass’n v. Marsh & McLennan Cos., 110 So. 3d 399, 407 (Fla. 2013). Nonetheless, as Justice Pariente noted in her concurrence, it is still possible to set forth a claim in tort between two parties in privity if the alleged tort is beyond and independent of the breach of contract claim. See id. at 408 (Pariente, J., concurring). For an in-depth discussion of Tiara, see our post on whether tort claims are available for economic losses when parties are in contractual privity.
Following Tiara, what remains of the economic loss rule in construction law is unclear. Some Florida courts appear to treat buildings as products, and accordingly, apply the economic loss rule in construction-defect cases. See, e.g., Cent. Park LV Condo. Ass’n, Inc. v. Summit Contractors, Inc., No. 2010-CA-015748-O, 2013 WL 12161475, at *2 (Fla. 9th Cir. Ct. May 24, 2013) (“[T]he economic loss rule precludes Plaintiff from bringing a tort claim because the only damages it suffered are to the homes, that is, the products themselves.”). It is important to note, however, that “the finished product is the entire structure, not the individual units.” Sienna at Celebration Master Ass’n v. Winter Park Constr. Co., No. 2009-CA-006474 CN (Fla. Cir. Ct. Sept. 4, 2013); see also Casa Clara Condo. Ass’n, Inc. v. Charley Toppino & Sons, Inc., 620 So. 2d 1244, 1247 (Fla. 1993). Therefore, contractors and subcontractors should be protected under the economic loss rule for tort claims involving the construction of buildings.
Additionally, Florida courts have cited Justice Pariente’s concurrence in Tiara with approval, and consequently, require any alleged tort be independent of any breach of contract claim. See, e.g., Monsoon, Inc. v. Bizjet Int’l Sales & Support, Inc., NO. 16-80722-CIV-MARRA/MATTHEWMAN, 2017 WL 747555, at *8 (S.D. Fla. Feb. 27, 2017). As the Third District Court of Appeal noted, when “a contract has been breached, a tort action lies only for acts independent of those acts establishing the contract’s breach.” Peebles v. Puig, 223 So. 3d 1065, 1069 (Fla. 3d DCA 2017).
Relatedly, the Florida Supreme Court’s holding in Moransais that there is a cause of action under Florida law against professionals for their negligent actions despite a lack of privity between the professional and the plaintiff remains intact after Tiara. See Moransais v. Heathman, 744 So. 2d 973, 980 (Fla. 1999). However, Florida courts appear to limit this to economic professionals, “where the standard of care includes a duty to protect the economic interests of clients or affected parties.” Lucarelli Pizza & Deli v. Posen Constr., Inc., 173 So. 3d 1092, 1095 (Fla. 2d DCA 2015). Consequently, for example, local business owners cannot sue contractors, such as a local utility company, because the contractor negligently ruptured a gas line, thereby causing a loss of business. See id. Finally, there are other important exceptions to the economic loss rule in the construction context. For example, the economic loss rule does not preclude statutory causes of action, such as an action against another for failing to follow a building code or an action against another under Florida’s Uniform Fraudulent Transfer Act. See Fla. Stat., §§ 553.84, 726.101.
In sum, while the contours of the economic loss rule remain unclear after Tiara, the doctrine remains to be an important protection for contractors and subcontractors. As a result, those involved in construction projects must be well versed in the rule to ensure their protection.