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Florida and the Economic Loss Rule

Nicholas H. Ceavers
Smith, Currie & Hancock LLP - Fort Lauderdale Office

January 8, 2014

Previously published on January 3, 2014

The economic loss rule is a judicially created rule which prohibits certain tort actions when they are based solely on economic losses. Traditionally, this rule operates as a shield to a defendant who provides a defective product. The rule requires a plaintiff to plead something in addition to a purely economic loss for their claim to stand. The Florida Supreme Court‘s recent decision in Tiara Condominium Association v. Marsh & McLennan Companies, 110 So. 3d 399 (Fla. 2013) may significantly affect the future application of the economic loss rule in Florida.

An economic loss occurs when there is no personal injury or damage to products or property other than the defective product. A claim alleging damages based entirely on the repair and replacement costs of the product constitutes purely economic damages. Assume that a construction worker was hammering a nail. Upon striking the nail the hammer breaks. The construction worker cannot bring a tort action against the hammer manufacturer for the replacement cost of the hammer. Now assume that the hammer broke and shattered a glass table. The economic loss rule still bars recovery of the cost of the hammer but does not apply to the damaged glass table because that injury is not purely economic.

History of the Economic Loss Rule

The exact origin of the economic loss rule is unknown. The rule first appeared in cases involving products liability but was subsequently expanded. Florida law first expanded the concept into actions based on services contracts. AFM Corp. v. Southern Bell Telephone and Telegraph, 515 So. 2d 180 (Fla. 1987) held that a service provider can rely on the economic loss rule where the claim does not allege any personal injury or property damage. This case also extended the products liability shield to tort cases between parties who already have a contract. A contractual breach without an independent tort is barred by the economic loss rule if only economic losses exist.

The Florida Supreme Court in Casa Clara Condominium Ass’n v. Charley Toppino and Sons, 620 So. 2d 1244 (Fla. 1993) blurred the line between the application of the economic loss rule in contract law and products liability law. Casa Clara held that a material supplier is not liable to a homeowner in tort where only economic losses are alleged. The court viewed the “product” supplied by the contractor to the home owner as the home itself. Defective concrete which caused no other injury was deemed solely an economic loss that is not recoverable in tort. The court also stated that contract principles were a more adequate remedy than tort principles. This ambiguity blurred the line between the economic loss rule in products liability cases and in contract cases.

The economic loss rules application to breach of contract cases was solidified by the Florida Supreme Court in Indemnity Insurance Co. of North America v. American Aviation, 891 So. 2d 532 (Fla. 2004). This case held that a plaintiff cannot sue a defendant in tort where there is a contract and it suffered only economic losses.

Yet some cases have limited the application of the economic loss rule. The court limited the economic loss shield in Moransais v. Heathman, 744 So. 2d 973 (Fla. 1999). That decision rejected application of the economic loss rule in cases of professional negligence. Moransias holds that a professional can be sued for professional negligence even when the only damages alleged are economic.

The Great Tiara

The Florida Supreme Court changed the economic loss rule landscape in the Tiara decision. Tiara involves a condominium association who purchased insurance through an insurance broker. The condominium association experienced significant damages during two separate hurricanes and filed a claim with the insurance policy secured by the broker. When selling the policy, the insurance broker assured the association that the policy limits were per occurrence and they were entitled to $100 million. The association relied on this information to conduct repairs only later to discover that the coverage was not per occurrence. The association brought a negligence claim against the broker for the cost of repairs over their $50 million aggregate policy limit. The trial court ruled that the economic loss rule barred the negligence claims and the association appealed.

The court in Tiara expressly stated that the economic loss rule only applies to products liability cases. The Tiara court began by reviewing the origins and development of the economic loss rule in Florida. The court then proceeded to highlight the general unintended expansion of the rule into the arena of contracts. The opinion repeatedly expresses the court’s desire to limit the economic loss rule in Florida cases to its origins in products liability cases.

Tiara - From Here to Eternity

The effect that Tiara will have on the economic loss rule for construction cases in Florida is uncertain. It appears that Tiara might not change as much of the existing precedent as one would imagine. An example is the effect of Tiara on a professional negligence action. Moransais exemplifies the interaction of professional liability and the economic loss rule. Moransais held that professionals owe a duty to a client independent of their contractual relationship. It is that independent duty that removes a professional’s liability from the scope of the economic loss rule. The holdings of Tiara and Moransais appear to be congruent in that neither applies the economic loss rule in purely a contractual context.

The court in Tiara faced with the specific question as to whether the economic loss rule applies to bar a tort claim based solely on the fact that the parties have a contract with one another and no personal injury occurred. The Tiara decision unquestionably holds that the mere existence of a contract can no longer solely trigger the economic loss rule. The court went further to state that the economic loss rule only applies in products liability cases. The exact effect of the broad language in Tiara narrowing the economic loss rule to product liability cases is unknown as it relates to construction cases.

How courts will interpret Tiara remains to be seen because the holding of Casa Clara appears untouched. The court in Casa Clara relied on the assumption that the “product” purchased by a homeowner is the home itself and not its individual components. This assumption renders Casa Clara a standard product liability case - at least when the homeowner is the plaintiff bringing suit against a contractor. Tiara appears to solidify the holding in Casa Clara as an application of the economic loss rule in construction cases as a “product liability” case. The more practical issue of what constitutes a “product” under the economic loss rule remains uncertain.


The views expressed in this document are solely the views of the author and not Martindale-Hubbell. This document is intended for informational purposes only and is not legal advice or a substitute for consultation with a licensed legal professional in a particular case or circumstance.

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