Tort and contract actions: strange bedfellows no more in the wake of Tiara Condominium.

• Author: Munyon, Lisa T.
• Position: Florida

The economic loss rule, a doctrine that is at the "intersection between contract and tort law [and that] has confounded courts and counsel for decades," (1) is traceable to English case law that predates Abraham Lincoln's presidency. In Hadley v. Baxendale, 9 Ex. 34 (1845)--a case upon which American courts have derived their rules regarding damages for breach of contract--the Court of Exchequer Chamber limited contractual damages to amounts that parties had negotiated when they formed the contract. (2) After numerous challenges to Hadley in cases involving claims for defective products, courts recognized that the general public needed protection from faulty products that contract law could not provide through warranties, (3) which may guarantee the reimbursement of a party's economic losses but offer no remedy for personal injury or property damage. These challenges to Hadley caused the boundaries between tort law and contract law to fade. To recreate those boundaries, courts designed the economic loss rule as a barrier between tort and contract claims. (4) The rule stands for the principle that "because parties may allocate risks and remedies through contract negotiations, tort remedies should not be available simply because an unhappy contracting party deems negotiated contractual remedies to be insufficient." (5)

Since its inception, Florida's economic loss rule had developed into something of a protean doctrine, having taken on varied applications. In 1987, the Florida Supreme Court in Fla. Power & Light Co. v. Westinghouse Elec. Corp., 510 So. 2d 899 (Fla. 1987), enshrined the economic loss rule into common law by adopting the U.S. Supreme Court's holding in East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 866 (1986), in which the Court reasoned: "When a product injures only itself the reasons for imposing a tort duty are weak and those for leaving the party to its contractual remedies are strong." From there, the Florida Fifth District Court of Appeal held that the economic loss rule barred claims for tortious breach of fiduciary duty when parties have a contract that defines their relationship. (6) Just the day before the Fifth District's decision, the Florida Supreme Court chafed at the expansion of the economic loss rule beyond its product liability origins when it stressed that it had "never intended [the economic loss rule] to bar well-established common law causes of action." (7) The Third District then aligned itself with the Supreme Court. (8) The Supreme Court unanimously reined in the economic loss rule in Indemnity Insurance Company of North America v. American Aviation, Inc., 891 So. 2d 532, 542-43 (2004), confining its application to just two scenarios: 1) when parties have negotiated remedies in a contract, and 2) when a defective product damages itself but does not harm a person or damage other property.

American Aviation was the status quo for nearly a decade. Now the Supreme Court, at least in part, has disavowed it outside of the products liability context. In Tiara Condominium Association, Inc. v. Marsh & McLennan Companies, Inc., 110 So. 3d 399 (Fla. 2013), the Supreme Court retracted the economic loss rule, restoring the doctrine to its original conception: as a bar to recovery of economic losses in products liability cases. That is, the Court left unchanged the second scenario under American Aviation but withdrew the first scenario, eliminating the application of the economic loss rule as a bar to tort claims seeking economic damages that arise from a...