Economic Loss Rule Flashcards
Damages to Other Property than the Subject Matter of Contract
A. Damage to “other property” than the subject matter of a contract must be present for tort damages and to escape the economic loss rule. See, Chapman Custom Homes, Inc. v. Dallas Plumbing Co., 445 S.W.3d 716 (Tex. 2014).
Is Privity Required?
B. Privity is not required to negate the rule as long as the damages arise from same contract or chain of contracts; i.e., owner has contract with architect and contractor.
Exception to the Rule
- Intentional torts (fraudulent inducement)
2. Special relationships (accountants, lawyers, fiduciaries, but not design professionals)
Bottom Line
Bottom Line – Acts or omissions within the scope of a construction contract will most likely mandate an action in contract. To have a negligence action a party must suffer bodily injury or physical harm to property in which the claimant has a proprietary interest. If actions or omissions arise out of a contract, there will seldom be recovery in tort.
What is “Economic Loss”?
Section 2 of the Restatement
(Third) of Torts—which the Texas Supreme
Court cited approvingly this past year—
defines the term to mean “pecuniary damages
not arising from injury to the plaintiff’s person
or from physical harm to the plaintiff’s
property.” In other words, economic loss refers to
most financial loss other than damages for
physical injury and property damages; those
two categories are not purely economic loss
Examples of economic and non-economic losses
For example: Noneconomic loss Personal injury damages Property damage
Economic loss Lost profits Lost wages Business interruption losses Delay damages Consequential damages
What is the Economic Loss Rule?
For almost 90 years, the fundamental rule
of tort law has been this: one cannot recover
economic loss unless that loss resulted from
physical damage to property in which one has
a proprietary interest.
in cases involving negligent
services or negligent performance of contract,
the specific test is whether the claim is
independent from contract. You look beyond
the pleadings to the substance of the claim,
and examine (1) the source of the duty
allegedly breached and (2) the nature of the
plaintiff’s loss.
Intentional Tort Exception to Rule–Fraudulent Inducement
“tort damages are recoverable
for a fraudulent inducement claim irrespective
of whether the fraudulent representations are
later subsumed in a contract or whether the
plaintiff only suffers an economic loss related
to the subject matter of the contract.”
Intentional Tort Exception to Rule–Tortious Interference
the rule does not bar claims for tortious interference with contract, although
the losses are purely economic. See Am. Nat’l
Petroleum Co. v. Transcon. Gas Pipe Line
Corp., 798 S.W.2d 274, 278 (Tex. 1990).
Special Relationship Exception
Accounting, Legal, & Fiduciary Duty. In each of these cases, it is not so much that the claims are exceptions to the economic loss rule, but rather, in each, the duties exist independent of any contractual promises.
Eby v. LAN/STV holding
The reasons for the economic loss rule support its application in this case to preclude a general contractor from recovering delay damages from the owner’s architect.
Interpreting Eby.
(1) Negligent misrepresentation is not an
exception to the economic loss rule (unlike
intentional torts and special relationships).
(2) Design professionals are also not an
exception (or, rather, not in a special
relationship). They are treated just like other
parties on a project, who cannot recover
purely economic loss in tort.
(3) And because Eby
did not sustain any damage to property in
which it had a proprietary interest, the rule
barred its claims for purely economic loss.
Can An Owner sue subcontractor for negligent design absent a contract?
No, the claim is barred by the economic loss rule. (2016 case). There would need to be a separate injury to property or person.
