E. Damages

• Library: The South Carolina Law of Torts (SCBar) (2023 Ed.)

E. Damages

1. Generally: Tort, Contract, and "Economic Loss"

When liability for product injury is based on negligence or on strict liability in tort, the general rules discussed in Chapter 8 concerning tort damages apply. However, when liability is based on a warranty theory, different rules may apply. This section addresses the difference in damages allowed under a warranty claim that is brought under a tort theory and the problem of determining whether a plaintiff's recovery is limited to contract.

In the context of products liability, damages may be divided into personal injury, property damage, and economic loss; also, punitive damages may be added in some cases.

Problems arise when the plaintiff suffers "pure economic loss":⁴⁶⁵ economic loss from damage only to the property itself, unaccompanied by any personal injury or injury to other property beyond the property at issue.⁴⁶⁶ For example, in terms of products liability law, pure economic loss is involved when the defendant's negligence has caused a "flaw" like that resulting from using the wrong color paint on the exterior siding of a new house.⁴⁶⁷

The purpose of South Carolina's economic loss doctrine "is to define the line between recovery in tort and recovery in contract." It provides that "[w]here a purchaser's expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only 'economic' losses." "Conversely, where a purchaser buys a product which is defective and physically harms him, his remedy is in either tort or contract." As the South Carolina Supreme Court has explained, "[c]ontract law seeks to protect the expectancy interests of the parties," while "[t]ort law ... seeks to protect safety interests and is rooted in the concept of protecting society as a whole from physical harm to person or property."⁴⁶⁸

Traditionally, the "economic loss rule" bars recovery in tort for such losses. In South Carolina this rule applies only where duties are created solely by contract.⁴⁶⁹ "A breach of duties arising independently of any contract duties . . . may support a tort action."⁴⁷⁰ For example, an independent legal duty can arise when a relationship involves legal duties independent of contract.⁴⁷¹ Thus, an architect may be liable in tort for purely economic damage resulting from negligence.⁴⁷²

Under this approach, therefore, a plaintiff's first step is to determine whether independent tort duties are involved.⁴⁷³ A leading South Carolina case dealing with this question is Kennedy v. Columbia Lumber & Manufacturing Co.,⁴⁷⁴ which held that a home builder can be held liable in tort for "economic loss" resulting from negligent construction. Kennedy rejected formulations of the economic loss rule focusing on the nature of injury that occurred (economic loss vis-à-vis physical harm), rather than on the defendant's actions (violation of contractual duty only or of independent legal duty as well).⁴⁷⁵ In its attempt to clarify the scope of protection of the purchaser "against diminution in the value of the building" caused by negligence, the court stated:

The framework we adopt focuses on activity not consequence. If a builder performs construction in such a way that he violates a contractual duty only, then his liability is only contractual. If he acts in a way as to violate a legal duty, however, his liability is both in contract and in tort. . . .

A builder may be liable to a home buyer in tort despite the fact that the buyer suffered only economic losses where: (1) the builder has violated an applicable building code; (2) the builder has deviated from industry standards; or (3) the builder has constructed housing that he knows or should know will pose serious risks of physical harm.⁴⁷⁶

Although Colleton Preparatory Academy, Inc. v. Hoover Universal, Inc.⁴⁷⁷ expanded the exception in Kennedy beyond the home-building context to encompass construction issues generally,⁴⁷⁸ in the following year Sapp v. Ford Motor Co.⁴⁷⁹ explicitly overruled the expansion in Colleton Prep and held that the exception to the economic loss rule in Kennedy is only applicable in residential real estate construction.⁴⁸⁰ Except when Kennedy applied, the rule as declared in Sapp is as follows: "[T]he economic loss rule prohibit[s] negligence actions against a manufacturer where duties [are] created solely by contract and where the product only injured itself or where the damage was contemplated by the parties' contract."⁴⁸¹ This rule is consistent with section 21 of the Restatement (Third) of Torts: Products Liability.⁴⁸²

2. Punitive Damages⁴⁸³

The basic South Carolina rule as to punitive damages is as follows:

Under South Carolina law, punitive damages may be awarded to punish tortfeasors who have acted in a reckless, willful, or wanton manner. A tort is characterized as reckless, willful or wanton if it was committed in such a manner or under such circumstances that a person of ordinary reason and prudence would have been conscious of it as an invasion of the plaintiff's rights. A conscious failure to exercise due care constitutes willfulness.⁴⁸⁴

Punitive damages are available only for negligence claims, not for strict liability or breach of warranty.⁴⁸⁵ In Barnwell v. Barber-Colman Co.⁴⁸⁶ the South Carolina Supreme Court held that "recovery of punitive damages is not allowed under a cause of action based solely upon the South Carolina strict liability statute." However, a later case, Scott v. Fruehauf Corp.⁴⁸⁷ distinguished Barnwell and held that where suit is brought in both statutory strict liability and common law negligence, punitive damages were...