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Florida Supreme Court Narrows Economic Loss Rule

By Scott C. Harris | 

On Thursday, March 7th, 2013, in Tiara Condominium Association, Inc. v. Marsh & McLennan Companies, Inc. (No. SC10-1022), the Florida Supreme Court issued a landmark ruling that limits the economic loss rule (“ELR”) in Florida to only products liability actions. The ELR is a judicially created doctrine that bars tort claims when the only damages suffered are economic losses. As stated by the Florida Supreme Court, the ELR was “primarily intended to limit actions in the products liability context” (Id. at 5), but, over time, the ELR expanded to any actions where parties were in privity of contract because “contract principles are generally more appropriate for determining remedies for consequential damages that the parties have, or could have, addressed through their contractual agreement.” (Id. at 6). Accordingly, Courts apply the ELR and bar claims when a party has not committed a breach of duty apart from a breach of contract and have dismissed claims against parties who provided personal services and performed construction work.

However, after the Order in Tiara Condominium Association, Inc., the Florida Supreme Court has now held that the ELR can only be applied in products liability cases. In Tiara, the Eleventh Circuit of Florida had asked the Florida Supreme Court to decide whether insurance brokers could use the ELR to prevent tort claims by policy holders who were not provided adequate insurance coverage and suffered financial losses. Instead of answering this limited question, the Florida Supreme Court decided to hold that, even when parties are in privity of contract for things such as construction project and service contracts, the ELR can no longer be used as a defense to tort claims outside of the product liability context. Based upon this ruling, it will be interesting to see how the various courts in Florida determine what constitutes “product liability” and whether products that are incorporated into homes are still considered products.