Is the Economic Loss Rule Genie Finally Back in the Bottle?

Business litigators have been dealing with the economic loss rule since 1987, when Florida’s Supreme Court, in Florida Power & Light Co. v. Westinghouse Elec. Corp. first barred tort claims for economic losses arising when a product malfunctioned and damaged only itself. The fun began in that same year, when the court, in AFM Corp. v. Southern Bell Telephone & Telegraph Co., expanded the rule to bar negligence claims arising from contractual relationships.

AFM led the court down what it ultimately realized was an ill-advised road, leading to an “unprincipled extension” of the rule. However, rather than stopping the car or making a legal u-turn, the court entered a series of half-hearted rulings, including Moransais v. Heathman and HTP, Ltd. v. Lineas Aereas Costarricences, S.A. [PDF], which scaled back the rule to exempt, for example, claims independent of the contract – like fraud in the inducement and negligent misrepresentation, statutory claims, and “established” torts – like malpractice, but never went quite far enough.

In 2004, in Indemnity Ins. Co. of North America v. American Aviation, Inc., the court seemed ready to prune the economic loss rule back to its original “products liability” roots, but stopped short – continuing to recognize the application of the rule in the contractual context, but seemingly lamenting its decision to do so.

Then, on March 7, 2013, came the court’s ruling in Tiara Condominium Association, Inc. v. Marsh & McLennan Companies, Inc., which, at least in the majority opinion, left no question that the economic loss rule has been scaled back to its Westinghouse roots. An obstinate court refused even to consider the question it had been asked to rule on – regarding whether the professional negligence exception to the rule applied to an insurance broker – deciding, instead, to formally recede from any application of the rule in the contractual context.

Done! Right?

Well, yes – with one caveat.

Justice Pariente, in her concurring opinion, like a screenwriter leaving open the possibility that the rule’s skeletal hand may yet re-emerge from the swamp in the sequel, opined, despite the court’s determination that the economic loss rule would no longer apply in the contractual context, that the same result could nonetheless be reached, based on the common law of contracts.

So, in the end, it appears that we all remain free to advance the contractual privity argument – – – just so long as we don’t call it the economic loss rule.