The Other Property Problem: Applying the Economic Loss Rule to Construction Contracting Claims

The economic loss rule in Florida says you can’t sue for damages in a contract dispute unless there’s personal injury or damage to other property. That’s easy to understand when it comes to products, but it gets tricky with construction contracts because there’s no clear line between what’s considered “other property” and what’s not. This article suggests that we should define “other property” based on the scope of work in the contract. In Florida, the economic loss rule says that if a product only damages itself, you can’t sue for damages. This was seen in a case where a faulty oil pump in a boat engine destroyed the engine, but the court said it was just economic loss. The same rule also applied in a case where defective concrete damaged a building, and the homeowners couldn’t sue for damages. The homeowners in Casa Clara argued that the different building materials made them different types of property, but the court disagreed. The court said that the homeowners bought finished houses, not the individual parts, so the damage was to the product itself, not to other property. This decision meant that many defect claims would be covered by the economic loss rule. When buying a building or building materials, it’s easy to determine what counts as “other property” in a contract. However, when it comes to hiring a construction contractor, things get more complicated because they provide services, not products. The economic loss rule prevents people from suing contractors for negligence, and the definition of “other property” in this context is unclear. A recent court case ruled that property related to the business and located near the construction may not be considered “other property.” The Florida Supreme Court overturned a decision about damage to a warehouse during renovation, stating that the “product” of the contract was the renovation itself. However, the court did not provide a clear rule for determining what counts as “other property” in such cases. It is unclear whether damage to parts of the building not being renovated would be considered “other property.” This could have implications for liability insurance for contractors. When a contractor agrees to do a specific job in a contract, that job is considered the “object” of the contract. Anything beyond that job is “other property.” This rule is objective and easy to understand, and it has been used in previous court cases. It is also similar to how insurance companies handle claims against contractors. Comprehensive general liability insurance protects manufacturers and contractors if someone is hurt or something is damaged as a result of their work, but not if their work itself is faulty. It only covers personal injury and damage to property that is not part of the work they are doing. If a customer is unhappy with a contractor’s work, they have to seek compensation through a contract or performance bond, not the insurance. The scope of work for a particular job determines what is covered by the insurance. For example, if a contractor builds an addition onto a home and it causes damage to the original structure, that damage may be covered by the insurance. But if the contractor negligently builds a swimming pool that cracks and causes erosion in the backyard, only the damage to the backyard is covered. A contractor damaged the roofs of a condominium complex while installing gutters, and their insurance policy covered the cost of fixing the roofs. However, the policy did not cover damage to the interiors caused by water leaking through the improperly sealed roofs. In Florida, cases generally treat the existing structure as “other property” covered by insurance. In simple terms, if a contractor is hired to fix or change something on a building, any damage to the building caused by the contractor’s work should be covered by insurance. In insurance law, the term “other property” should be understood to include comprehensive general liability insurance for contractors and subcontractors. This would ensure that property owners are protected from defective work and can seek remedies from the contractors’ insurance if needed. This definition provides a clear rule for determining what “other property” includes and aligns with the purpose of the law to protect property owners from faulty work.

Source: https://www.floridabar.org/the-florida-bar-journal/the-other-property-problem-applying-the-economic-loss-rule-to-construction-contracting-claims/