In the previous articles on this subject, I list the general steps involved in analyzing the applicability of the Economic Loss Rule to your case. They are: (1) Subject of the Contract – identify the subject of relevant contracts; (2) Your Property Damaged – identify the property you own that was damaged, (3) Contract or Tort – analyze each property item to determine if your ability to sue flows through contract or tort, (4) Special Damages – for each property item you identified in step two, identify further damages you incurred as a result of damage to that property (e.g., lost profits, business interruption). I also detailed the analysis involved with the first and second steps.
In this article, I discuss the third step.
Determine if Your Ability to Sue Flows Through Contract or Tort
At the outset, an attorney with experience analyzing the economic loss rule should perform this third step on your behalf.
The third step is to determine if your ability to sue flows through contract or tort. Very generally speaking, if the property damaged is the subject of a contract, then your ability to sue may be limited to contract. The following excerpts from Barzoukas v. Found. Design, Ltd., 363 S.W.3d 829 (Tex. App. 2012) help guide the analysis. See also the other articles I have posted to this website.
• The economic loss rule forecloses strict liability claims based on a defective product that damages only itself but not other property. Id. at *6 [415–17] (citing Signal Oil & Gas Co. v. Universal Oil Prods., 572 S.W.2d 320, 325–26 (Tex.1978); Mid Continent Aircraft Corp. v. Curry Cnty. Spraying Serv., Inc., 572 S.W.2d 308, 312–13 (Tex.1978); and Nobility *835 Homes of Tex., Inc. v. Shivers, 557 S.W.2d 77, 81–2 (Tex.1977)).
• The economic loss rule also forecloses a negligence claim predicated on a duty created under a contract to which the plaintiff is a party when tort damages are sought for an injury consisting only of economic loss to the subject of the contract. Sharyland, [354 S.W.3d at 417–18] 2011 WL 5042023 at *7 (citing Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 495 (Tex.1991); and Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex.1986)).
• In these two contexts, economic losses are more appropriately addressed through statutory warranty actions or common law breach of contract suits instead of tort claims. Sharyland, [354 S.W.3d at 417–18] 2011 WL 5042023 at *7.
• “We … declined to extend DeLanney to a fraudulent inducement claim, even when the claimant suffered only economic losses to the subject of a contract.” Id. (citing Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 46 (Tex.1998)).
• The economic loss rule “ ‘applies when losses from an occurrence arise from failure of a product and the damage or loss is limited to the product itself.’ ” Sharyland, [354 S.W.3d at 417–18] 2011 WL 5042023 at *7 (quoting Equistar Chems., L.P. v. Dresser–Rand Co., 240 S.W.3d 864, 867 (Tex.2007)).
• The economic loss rule applies in some circumstances involving parties who are not in privity—such as those involving a remote manufacturer and a consumer in the defective product context. Sharyland, [354 S.W.3d at 417–18] 2011 WL 5042023 at *7.
• “[W]e have never held that [the economic loss rule] … precludes recovery completely between contractual strangers in a case not involving a defective product….” Id.
• The supreme court rejects a formulation of the economic loss rule that “says you can never recover economic damages for a tort claim.” Id. at *8 [418].
• The economic loss rule is not a general rule of tort law; instead, it is a rule in negligence and strict product liability cases. Id.
• Merely because the object of the negligent performance “was the subject of a contract does not mean that a contractual stranger is necessarily barred from suing a contracting party for breach of an independent duty.” Id. “If that were the case, a party could avoid tort liability to the world simply by entering into a contract with one party.” Id.
• “The economic loss rule does not swallow all claims between contractual and commercial strangers.” Id.
• The supreme court has not yet decided “whether purely economic losses may ever be recovered in negligence or strict liability cases.” Id.
In short, these are rules of law that you should consult with an attorney about regarding their application to your facts.
In Conclusion: You should consult with an attorney regarding your specific situation. We have experience and methodologies for undermining the applicability of the economic loss rule.
Written by:
Mark A. Fassold
Watts Guerra, LLP
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San Antonio, TX 78257
Offcie (210) 447-0500
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