Economic loss rule: the "integral part" approach to the "other property" exception.

AuthorReis, John W.
PositionFlorida

Few subjects generate more controversy and confusion than Florida's ever-evolving version of the economic loss rule. The rule has been defined simply enough: "The `economic loss' rule is a court-created doctrine which prohibits the extension of tort recovery for cases in which a product has damaged only itself and there is no personal injury or damage to `other property,' and the losses or damage are economic damages." (1)

The problem, however, is in the application. Despite concentrated efforts by the Florida Supreme Court to clarify other aspects of the economic loss rule in recent years, (2) confusion still remains on how to distinguish "the product" from "other property" in order to determine whether the damage extends beyond the "product itself."

One commentator has suggested resolution of the "other property" problem in the construction context by looking at the scope of the contractor's work, such that anything constructed within the contract is "the product" and items not constructed under the contract are "other property." (3) Even in the construction context, however, this proposal only applies to a limited number of fact patterns. It does not apply to used or leased property or to nonconstruction cases. As a hypothetical example, suppose an electrical appliance malfunctions and burns down a motor home. At first blush, the appliance would appear to be "the product" and the remainder of the home "other property." However, now suppose the motor home was purchased used with the appliance bolted in place. The appliance manufacturer will argue that "the product" encompasses everything the owner purchased as a package, i.e., the entire motor home, such that there is no "other property" aside from loose contents in the motor home. Is this a winning argument?

This article proposes that, consistent with recent Florida case law, the question is answered by determining whether the object that caused the loss was an "integral part" of the surrounding property.

Current Status of the Economic Loss Rule

In Moransais v. Heathman, 744 So. 2d 973 (Fla. 1999), and Comptech International, Inc. v. Milam Commerce Park, Ltd., 753 So. 2d 1219 (Fla. 1999), the Florida Supreme Court limited the application of the economic loss rule to product liability "or similar" actions, receding from a body of case law that had expanded the doctrine to service contracts not involving physical loss of a product or structure. (4)

The need for limiting the application of the economic loss rule to product-type cases arose because of "confusion that has abounded in this area of the law" (5) caused by "pronouncements on the rule [that] have not always been clear and, accordingly, have been the subject of legitimate criticism and commentary." (6) Both the Moransais and Comptech decisions emphasized that the original purpose of the rule was not to wipe out legitimate statutory or common law tort actions. Rather, the doctrine was originally intended to apply only in cases involving products for which economic remedies are generally governed by warranty law. (7)

In tracing the roots of the rule to product liability actions, the court in Comptech placed heavy emphasis on the seminal U.S. Supreme Court case of East River S.S. Corp. v. Transamerica Delaval, 476 U.S. 858 (1986):

In East River, the Court was concerned with the question of whether the purchaser of steam turbines could sue the manufacturer in negligence or strict liability, where a defective component of the turbine caused damage to the turbine but did not cause damage to the rest of the ship. See 476 U.S. at 858. In holding that the purchaser's cause of action was one for breach of warranty, the Court discussed the policies underlying the application of the economic loss rule to situations where a product damages itself but no "other property."

It seems abundantly clear that the Supreme Court was dealing with and concerned about a product that had malfunctioned, injuring itself but causing no injury to other property. (8) The court went on to note that Florida's version of the economic loss rule similarly began in the product liability context, citing to Florida Power & Light Company v. Westinghouse Electric Corp., 510 So. 2d 899 (Fla. 1987), a case involving damages to six generators but no damages to other surrounding equipment. "Here again, [in Florida Power,] the economic loss rule was a bar to a tort cause of action where a product...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT