The "other property" problem applying the economic loss rule to construction contracting claims.

• Author: McConnell, H. Hugh
• Position: Florida

Practitioners familiar with Florida's economic loss rule are well aware of its general proscription against tort recovery for losses that do not arise out of either personal injury or damage to "other property." While relatively straightforward in product cases, defining what property is "other"--and what is not--presents a challenging analytical problem in the case of services contracts, where there is no "product" sold and therefore no basis to compare tangible "properties." The task is even more complicated in construction contracting cases, where products are installed--but only incidentally in the course of the contractor's providing services--and where the work entails the combination of several different building materials in a single "property." This article addresses the conceptual problem of applying the economic loss rule to construction contracting cases and proposes that the appropriate line of definition for identifying "other property" is the "scope of work" of the contract giving rise to the claim for damages.

Products Cases

Florida's economic loss rule has its source in product liability cases. The first expression by the Florida Supreme Court occurred in Florida Power & Light Co. v. Westinghouse Elec. Corp., 510 So. 2d 899 (Fla. 1987), in which tort recovery was precluded where steam generators were themselves defective but otherwise caused physical damage to no other property or equipment. Tort law, said the court, "is particularly unsuited to cover instances where a product injures only itself."[1]

While a product injuring only itself is merely economic loss, what of a product that injures other products with which it is assembled to form a larger whole? That issue was first addressed in American Universal Ins. Group v. General Motors Corp., 578 So. 2d 451 (Fla. 1st DCA 1991), a case involving components of a fishing boat engine. There the drive gear in a defective replacement oil pump seized while in operation and destroyed the engine. The insurer subrogated to the boat owner's claim sought recovery in tort against General Motors, the manufacturer of the faulty pump, arguing that the economic loss rule did not apply because "the oil pump was the product and the engine was `other property.'"[2] In rejecting that argument the First District noted that the entire engine had originally been manufactured by General Motors and that the "object of the bargain was a repaired engine, not just a replacement oil pump.[3] Because the "pump became an integral part of the engine ... when it damaged itself, and the engine parts, this was not damage to `other property.'"[4]

Defective Building Materials

The same rationale was employed by the Florida Supreme Court in Casa Clara Condominium Association v. Charley Toppino & Sons, Inc., 620 So. 2d 1244 (Fla. 1993), in which homeowners sought tort recovery against a concrete supplier, whose defective concrete caused damage to other components of their buildings and the structural integrity of the buildings as a whole. Unlike the engine components in American Universal, building products typically are furnished by different manufacturers and suppliers and are often incorporated into real property by several contractors specializing in different trades.

Arguing that the disparate sources of building materials make them mutually "other" property under the economic loss rule, the homeowners in Casa Clara had relied on the precedent of Adobe Building Centers, Inc. v. Reynolds, 403 So. 2d 1033 (Fla. 4th DCA 1981), for the proposition that the concrete was a "product" and the rest of the building was "other property." In Adobe the Fourth District had found a seller of defective stucco, which had damaged the surface of the wall to which it was applied, to be subject to strict product liability in tort under the Restatement (Second) of Torts [sections] 402A, on the theory that the stucco had caused "physical harm ... to the ultimate user or consumer, or to his property." But the Florida Supreme expressly disapproved Adobe, ruling that it "incorrectly refused to apply the economic loss rule to what should have been" a contract action.[5]

Orienting its analysis toward "the product purchased by the plaintiff, not the product sold by the defendant," the Casa Clara court refused to recognize the concept of mutual "otherness" among building components.[6] Because the homeowners had bought "finished products--dwellings--not the individual components of those dwellings," the product had damaged itself and the concrete "thus, did not injure `other' property."[7] By defining the product as what the plaintiff bought, rather than what the defendant sold, the court neatly disposed of the component problem. By then declaring that a building is a product, rather than real property as was customarily held,[8] the court moved many defect claims cleanly within the ambit of the economic loss rule.

Construction Contracting Cases

Cases involving the purchase of a building or of building materials provide an easier basis for analyzing "other property," because the identity of the "product" is readily...