Drowning in a Sea of Tort: The Florida Supreme Court Reels in the Economic Loss Rule

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On March 7, 2013, the Florida Supreme Court in Tiara Condominium Assoc., Inc. v. Marsh & McLennan Companies, Inc. expressly limited the application of the economic loss rule to products liability cases. 2013 WL 828003 (Fla. Mar. 7, 2013). In that case, the condominium association contracted with an insurance broker to secure condominium insurance coverage. Id. at *1. When the condominium association learned that its loss limit coverage was less than what had been advised by the insurance broker, the condominium association sued the insurance broker for breach of contract, negligence and breach of fiduciary duty, among others. Id. Thus, the issue before the court was whether the economic loss rule barred the condominium association’s negligence and breach of fiduciary duty claims, where the parties were in contractual privity and the damages sought were only for economic losses. Id.

In reaching its opinion, the Tiara court traced the origins of the economic loss rule and its development under Florida law. The economic loss rule is a judicially created doctrine that “sets forth the circumstances under which a tort action is prohibited if the only damages suffered are economic losses.” Id. at *2. The doctrine is rooted in products liability and was first applied by Florida courts in Florida Power & Light Co. v. Westinghouse Elec. Corp. In that case, Westinghouse contractually agreed to manufacture two nuclear steam supply systems, including six generators, for Florida Power & Light (“FPL”). 510 So. 2d 899, 900 (Fla. 1987). After FPL discovered leaks in the generators, FPL sued Westinghouse for negligence and breach of express warranties in the contracts. Id. The Florida Supreme Court, however, concluded that contract principles were more appropriate than tort principles for allowing recovery for economic losses that did not have accompanying personal or property damage. Id. at 902. The court explained that when the damage is the failure of the product to function properly, such damage “is the essence of a warranty action, through which a contracting party can seek to recoup the benefits of its bargain.” Id. at 901 quoting East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 868 (1986).

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