The State and Impact of Florida’s Economic Loss Rule

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In March of this year, the Florida Supreme Court departed from established precedent and limited the application of the economic loss rule to product liability cases. The court explained that this was necessary given the rule’s unprincipled expansion beyond its origins in product liability cases, which proved “unwise and unworkable in practice.”  Tiara Condo. Assoc., Inc. v. Marsh & Mclennan Co., Inc., 110 So.3d 399, 407 (Fla. 2013).  Despite this significant limitation, a review of the history and development of Florida’s economic loss rule and  common law contract principles demonstrate that defendants can still defeat tort claims based on breach of contract.

 

Florida adopted the product liability economic loss rule in 1987 in the seminal case on this issue, Florida Power & Light Co. v. Westinghouse Elec. Corp., 510 So.2d 899 (Fla. 1987). In that case, Florida Power & Light (FPL) sued Westinghouse for economic losses sustained as a result of defects in steam generators that Westinghouse designed and manufactured pursuant to contract.  FPL alleged that Westinghouse was liable for breach of warranties and negligence. The court concluded that warranty rather than tort law was best suited to resolve the parties’ dispute, recognizing that “a manufacturer in a commercial relationship has no duty under either a negligence or strict product liability theory to prevent a product from injuring itself.”  Florida Power, 510 So.2d at 901.  The premise was that economic losses, which are in essence disappointed expectations, should be protected by contract rather than tort law.

 

The application of the rule was expanded to the contractual privity context, where it was used to prohibit parties in contractual privity from recovering in tort for economic losses based on a contract.  AFM Corp. v. Southern Bell Telephone & Telegraph Co., 515 So.2d 180 (Fla. 1987).  This became known as the contractual privity application of the economic loss rule.  Id.  The court later expressed concern over this expansion of the rule and receded from AFM to the extent “it was unnecessarily expansive in its reliance on the economic loss rule as opposed to fundamental contract principles.” Tiara Condominium, 110 So.3d 402 n. 2 (citations omitted).

 

In an attempt to prevent what it described as the “rule’s unprincipled expansion,” the court created several exceptions to the rule’s application in both the product liability and contractual privity context.  These exceptions include claims for fraudulent inducement, negligent representation and professional malpractice.  Id. at 406-407.  The court has now determined that nothing will curb the rule’s expansion other than limiting its application to product liability cases.

 

This decision should not deter defendants from moving to dismiss tort claims based solely on breach of contract in a nonproduct liability context.  Such claims should properly be dismissed under Florida’s contract law principles, which require dismissal of tort claims that are not independent of a contractual breach.  Id. at 408.

Topics:  Breach of Contract, Economic Loss Doctrine, Fraudulent Inducement, Negligent Misrepresentation, Privity of Contract

Published In: Civil Procedure Updates, General Business Updates, Personal Injury Updates, Products Liability Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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