Florida Supreme Court limits the economic loss rule to product liability matters – or not?

For the last eight (8) years, Florida’s economic loss rule has been applied to bar claims (1) where the parties are in contractual privity and one party seeks to recover damages in tort for matters arising out of the contract, or (2) where the defendant is a manufacturer or distributor of a defective product which damages itself but does not cause personal injury or damage to any other property. Indemnity Ins. Co. v. American Aviation, Inc., 891 So.2d 532 (Fla.2004).

However, in its March 7, 2013 5-2 split decision in Tiara Condominium Ass’n, Inc. v. Marsh & McLennan Companies, Inc., 38 Fla.L.W. S151A (Fla. March 7, 2013) the Florida Supreme Court has now receded from prior precedent and appears to have limited the application of the economic loss rule to product liability matters. The Court observed that the economic loss rule is a judicially created doctrine that sets forth the circumstances under which a tort claim is prohibited if the only damages suffered are economic losses. In addition, the Court noted that the economic loss rule had its origin in product liability matters

As to contract disputes, the Court observed that the economic loss rule had been applied to prevent parties to a contract from circumventing the allocation of losses set forth in the contract by bringing a tort claim. Expressing concern, however, about the over-expansion of this rule to contract matters, the Court in Tiara Condominium Ass’n held that the economic loss rule should be applied only in the product liability context.

Although a concurring opinion Justice Pariente referred to the Florida Court’s previous decision in Indemnity Ins. Co. v. American Aviation, Inc., and specifically the language which stated “when the parties have negotiated remedies for nonperformance pursuant to a contract, one party may not seek to obtain a better bargain than it made by turning a breach of contract into a tort for economic loss.” Stating that the Court’s decision in Tiara Condominium Ass’n did not change this statement of law, but it is principles of contract law, as opposed to the economic loss rule that provides this result.

Certainly, there will be much debate over the application of the Florida Supreme Court’s recent decision. Plaintiffs seeking to pursue tort claims against those with whom they are in contractual privity may argue that this decision provides further support for their ability to do so. Defendants opposing such claims may argue that not much has changed, and when substance is elevated over form, common law contractual legal principles should preclude such claims.