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Florida Supreme Court Rules That Economic Loss Rule Only Applies to Product Liability Cases

On March 7, 2013, the Florida Supreme Court entered an opinion in Tiara Condominium Association, Inc. v. Marsh & McLennan Companies, Inc., et. al., which may have altered the commercial and construction industries forever. In Tiara, the Court held that the Economic Loss Rule (“ELR”) no longer applies to cases concerning contractual privity, but rather, the ELR is now exclusively limited to use in product liability cases.

The ELR is a judicially created law which initially arose out of product liability cases where the only damages were economic losses, such as, inadequate value, cost of repairs and replacement of the defective product, without any claim for personal injury or damage to other property. Over the years, the ELR evolved to cover numerous factual situations, including where the parties were in contractual privity with another but one party seeks to recover damages in tort for matters arising out of the contract. In such cases, the courts have held that a tort action, such as negligence, is barred where there was a contract, with very limited exceptions.

The construction industry is one of the industries greatly affected by the application of the ELR. For example, in many construction negligence cases, a homeowner, condominium association, or developer (the “owner”) will sue a general contractor for defective work, and in turn, the general contractor will sue its subcontractors.

Prior to Tiara, Florida courts routinely applied the ELR to these scenarios and barred the owner/general contractors from suing its general contractors/subcontractors for negligence for purely economic losses resulting from a defective product or material installed in the construction project. The seminal case applying ELR to the construction industry was a Florida Supreme Court case, Casa Clara Condominium Ass’n, Inc. v. Charley Toppino and Sons, Inc., in 1993 which held that ELR barred a cause of action in tort for providing defective concrete (the product being the object of the contract) where there was no personal injury or damage to property other than to the product itself.

Now, with the advent of Tiara, the holding in Casa Clara no longer controls and parties in contractual privity, outside of the product liability setting, may sue for both breach of contract and in tort. Whether or not Florida contract law has been undermined as a result of Tiara is yet to be seen; however, it goes without saying, owners, contractors and/or subcontractors may now have easier roads to recovery for damages that might have otherwise been precluded under contract law.

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