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Florida Construction Law News

07JUL 2013

Economic Damages Post-Tiara


As we have previously written about here, the Florida Supreme Court has recently narrowed the scope of the economic loss rule in Tiara Condo. Ass’n, Inc. v. Marsh & McLennan Companies, Inc., 110 So. 3d 399, 407 (Fla. 2013).    In summary, the Court receded from prior rulings to the extent that they have applied the economic loss rule to cases other than products liability.  Note, however, that the Supreme Court did not recede from the reasoning in the seminal case of Casa Clara Condominium Association v. Charlie Toppino And Sons, Inc., 620 So.2d 1244 (Fla. 1993), where the Court made a determination a constructed home is a single product, as opposed to a group of disparate components.  It remains to be seen how courts apply the economic loss rule post-Tiara in construction defect actions.

After the ruling in Tiara, there was a concern that the door is now open to negligence or other tort claims in construction defect actions.  This concern was highlighted by the dissenting opinion in Tiara wherein Chief Justice Polston stated, “the majority greatly expands the use of tort law at a cost to Florida’s contract law. Now, there are tort claims and remedies available to contracting parties in addition to the contractual remedies which, because of the economic loss rule, were previously the only remedies available.”

However, another interpretation of the ruling in Tiara was expressed in the concurring opinion of Justice Pariente who noted that independent of the economic loss rule, “[b]asic common law principles … restrict the remedies available to parties who have specifically negotiated for those remedies,” and Tiara “does nothing to alter these common law concepts.”  The dismissal of a tort claim remains appropriate under basic contractual principles, which prohibit a party to a contract from seeking to obtain a better bargain by turning an alleged breach of contract into a tort “when the parties have negotiated remedies for nonperformance pursuant to a contract.”  Id.  (quoting 891 So. 2d at 542).  To bring a valid tort claim to recover for economic losses, a plaintiff must still demonstrate that all of the required elements for the cause of action are satisfied, including that the tort is independent of any breach of contract claim.  For instance, under Florida law, a claim of intentional interference with a business relationship is not independent from an alleged breach of contract. Rosa v. Fla. Coast Bank, 484 So. 2d 57, 58 (Fla. Dist. Ct. App. 1986).

The Southern District of Florida recently analyzed whether a plaintiff can proceed with fraud claims based on a contractual relationship between two parties after the ruling in Tiara. In Altenel, Inc. v. Millennium Partners, L.L.C., 2013 WL 2363233 (S.D. Fla. 2013), the court ruled that two theories supported dismissal of the fraud claims. It stated “[f]irst and most obvious is that allowing Plaintiffs to proceed with fraud claims contradicted by a subsequent agreement is to invite contracting parties to make agreements … and then avoid them simply by taking the stand and swearing that they relied on some other statement.”  (quotation omitted).  The court also recognized that “the existence of contrary [contractual] provisions makes reliance on the fraudulent misrepresentations unreasonable as a matter of law.”

 Thus, despite the initial concern over the ruling in Tiara, courts may be leaning towards Justice Pariente’s concurring opinion and allowing the economic loss rule to serve as a valid defense against tort claims between contracting parties when they are duplicative of contractual remedies including the Economic Loss Rule.  These rulings also emphasize the importance of clearly limiting the parties’ remedies in a dispute or claim to those remedies set forth initially in the contract. Given the significance of the ruling in Tiara, it will be a very interesting line of case law to follow to determine its true impact on construction litigation.