Tiara Condominium and the Economic Loss Rule
by RaQwin Young, Esquire
Boyle, Gentile, Leonard & Crockett, P.A.
The March 7, 2013 Florida Supreme Court ruling in Tiara Condominium Association, Inc. v. Marsh & McLennan Companies, Inc., et. al., 110 So. 3d 399 (Fla. 2013) limited the application of the Economic Loss Rule to the products liability context, creating the potential for an increase in tort claims arising out of contract.
In Tiara, Tiara Condominium Association (“Tiara”) hired Marsh & McLennan (“Marsh”) as its insurance broker to secure condominium insurance coverage. Id. at 400. Marsh obtained a windstorm policy with a loss limit of about $50 million through Citizens Property Insurance Corporation (“Citizens”). Id. After sustaining damage caused by hurricanes Frances and Jeanne in September 2004, Tiara began a loss remediation process. Id. Marsh assured Tiara that the loss limit coverage was per occurrence and not in the aggregate. Id. Tiara relied on this assurance when it decided to undergo more expensive loss remediation. Id. Unfortunately, when Tiara went to Citizens to recover payment, it was informed that the loss limit was in the aggregate, not per occurrence, causing Tiara to sustain economic loss due to its more expensive remediation efforts. Id.
In October 2007, Tiara filed suit against Marsh, including claims for negligence and breach of fiduciary duty. Id. The appeals court certified a question to the Supreme Court to determine whether the Economic Loss Rule prevents Tiara from recovering on these claims. Id. at 401. The Supreme Court decided in favor of Tiara and ruled that Tiara’s negligence claim was not barred because “the Economic Loss Rule applies only in the products liability context.” Id. at 407.
In its opinion, the Court provided a background as to the origins and rationale behind the Economic Loss Rule. The Rule was initially intended to apply in products liability cases to prevent tort actions to recover solely economic damages when the parties are in contractual privity. The rationale behind the rule was that “contract principles [are] more appropriate than tort principles for resolving economic loss without an accompanying physical injury or property damage.” Florida Power & Light Co. v. Westinghouse Elec. Corp., 510 So. 2d 899, 902 (Fla. 1987). The courts wanted to prevent plaintiffs from circumventing the bargained for terms of a contract by bringing an action in tort. Despite the Rule’s roots in products liability, over the years courts have expanded the Economic Loss Rule to apply to other situations involving claims in tort arising out of contract. In Tiara, the Court determined that applying the Economic Loss Rule outside of the products liability context is “unwise and unworkable in practice;” thus, it decided to limit the Rule’s scope to products liability cases. Tiara, 110 So. 3d at 407.
Justice Canady wrote a dissenting opinion emphasizing the important role that the Economic Loss Rule plays in maintaining the boundary between tort and contract. Id. at 411. Canady expressed his worry that, with the majority’s decision, “we face the prospect of every breach of contract claim being accompanied by a tort claim.” Id. at 414.
Justice Pariente’s concurring opinion attempted to address Canady’s concerns and asserted that common law principles of contract already restrict tort claims between parties in contractual privity. Id. at 408. Pariente emphasized that the majority’s decision “is neither a monumental upsetting of Florida law nor an expansion of tort law at the expense of contract principles. To the contrary, the majority merely clarifies that the economic loss rule was always intended to apply only to products liability cases.” Id.It is unclear how the majority decision in Tiara will affect litigation in the future. However, it certainly raises the possibility that courts will entertain an increased amount of tort claims arising out of contractual relationships. This may have an impact on the insurance industry in that the potential for increased exposure to liability may lead to higher premiums and more complex indemnification provisions in policies.