The Florida Supreme Court has finally taken the Economic Loss Rule head-on and has attempted to address an issue that has created much litigation. On March 7, 2013, the Court released its opinion in the case of Tiara Condominium Association, Inc. v. Marsh & McLennan Companies, Inc. , 2013 WL 828003, significantly narrowing the application of the Economic Loss Rule in Florida.
By way of background, 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. Although the roots of the Economic Loss Rule are primarily found in the products liability arena, it has been expanded over the years to include circumstances where there is contractual privity and one party seeks to recover damages in tort arising from a contract. The purpose of the expansion of the Rule was to prevent parties to a contract from circumventing the provisions of the contract by suing under a cause of action in tort. In Tiara, the Court has now reverted to the original interpretation of the Economic Loss Rule holding that the “application of the economic loss rule is limited to products liability cases [receding] from prior case law to the extent that it is inconsistent with this holding.” Tiara at 1.
The facts of the case are fairly straightforward: Tiara Condominium Association retained Marsh & McLennan as its insurance broker. One of Marsh’s responsibilities was to secure condominium insurance coverage and secured windstorm coverage through Citizens Property Insurance Corporation with a loss limit of $50 million. In September 2004, Tiara sustained significant hurricane damage related to two storms. Tiara began the process of an expensive loss remediation with the belief that they would be entitled to coverage for each storm. However, when Tiara sought payment from Citizens, it was informed that the loss limit was $50 million in the aggregate, not per occurrence. Although, Tiara and Citizens settled for approximately $89 million, that amount was less than the more than $100 million spent by Tiara. Tiara then sued Marsh and the trial court granted summary judgment in favor of Marsh on all claims. The appeals court certified a question to Florida Supreme Court seeking a determination of whether the Economic Loss Rule bars an insured’s suit against an insurance broker where the parties are in contractual privity with one another and the damages sought are solely for economic losses.
After a lengthy discussion on the history and application of the Economic Loss Rule, the Florida Supreme Court never even addressed the original question being posed to them, as they ultimately decided, without exception, that the Economic Loss Rule applies only in the products liability context, receding from all of its prior rulings to the extent that they have applied the economic loss rule to cases other than products liability, including the Tiara case.
While the underlying facts of Tiara are not related to the construction defect litigation, the holding will likely create significant ripples in that arena and how it might be applied to construction defect cases. Specifically, in the seminal case of Casa Clara Condominium Association v. Charlie Toppino And Sons, Inc., 620 So.2d 1244 (Fla. 1993), the Court made a determination that a cause of action against manufacturer of defective concrete was barred by the Economic Loss Rule where there was no personal injury or damage to property other than the product itself, notwithstanding absence of privity. The Court looked at the subject home in Casa Clara as a single product, as opposed to a group of disparate components, stating that “[g]enerally, house buyers have little or no interest in how or where the individual components of a house are obtained. They are content to let the builder produce the finished product, i.e., a house. These homeowners bought finished products—dwellings—not the individual components of those dwellings. They bargained for the finished products, not their various components.”
This would appear to indicate that a home or building is a product that would fall under the Florida Supreme Court’s new interpretation of the Economic Loss Rule. Of course, only time will tell how this will all shake out, but it will likely lead to future litigation as Plaintiff attorneys likely attempt to re-broaden the scope of the newly narrowed Economic Loss Rule.