Category Archives: Economic Loss Rule

PRODUCTS LIABILITY LAW – APPLICATION OF ECONOMIC LOSS RULE

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When it comes to product liability law, one important doctrine that will always come up is the economic loss rule.  The economic loss rule, oftentimes going by its acronym ELR, lives and breathes in the realm of product liability law.

Does the economic loss rule extend to a manufacturer’s distributor for a duty to warn when the product is NOT defective?  A recent opinion out of the Eleventh Circuit Court of Appeals, NBIS Construction & Transport Ins. Services v. Liebherr-America, Inc., 2024 WL 861257 (11th Cir. 2024), was confronted with this question, including whether the economic loss rule should even extend to a distributor of a product, and certified the following to Florida’s Supreme Court to answer: “Whether, under Florida law, the economic loss rule applies to negligence claims against a distributor of a product, stipulated to be non-defective, for the failureto alert a product owner of a known danger, when the only damages claimed are to the product itself?” NBIS, supra, at *8.

This presents an interesting issue and question of utmost importance for Florida’s Supreme Court to address.  How far does the economic loss rule extend in the product liability context? Does it extent to products that are not claimed to be defective? Can the economic loss rule be circumvented by couching a claim differently?  While reading the below, consider these questions and issues, particularly if you are representing a plaintiff in a product liability-type of action, or defending a party in a product liability-type action. The Eleventh Circuit’s consideration of these issues may impact how you frame a claim or defense or willingness to stipulate as to a product defect.

A. Background of NBIS Construction

In NBIS Construction, a crane company purchased a crane from a broker.  Per the agreement, a manufacturer’s trained technician, through its distributor, was to provide onsite commissioning and train the crane company’s personnel per the operating manual so operators and employees could safely operate the crane. The distributor sent a representative that provided forty hours of training.  However, the distributor typically provides about eighty hours of training. The crane company claimed the trainer did not inform it of certain issues/risks and skipped other training issues. Later, as the crane company was operating the crane, the crane collapsed due to improper manipulation causing damage to itself. Notably, prior to the collapse, another collapse occurred in Japan due to the same improper manipulation issue. This prompted the manufacturer and distributor to update product safety information and issue a safety bulletin relative to the improper manipulation. Unfortunately, due to a delay in the issuance of the safety bulletin, the crane company did not get the safety bulletin until after the collapse.

The plaintiff (which was the managing general agent of the insurer of the crane company) sued the manufacturer’s distributor for negligence, negligent training, and a violation of Florida’s Deceptive and Unfair Trade Practices Act. The issue before the Eleventh Circuit was the negligence claim. The plaintiff claimed the manufacturer’s distributor was “negligent for failing to properly train [the crane company’s] employees in usage of the crane and for failing to send the product safety bulletin in a timely manner.” NBIS Construction, supra, at *3.  The distributor argued the economic loss rule precluded recovery because the distributor had no duty to protect the crane company from purely economic harms.  The parties stipulated the crane was NOT defective (as the collapse occurred due to improper manipulation and not a specific defect).  After a bench trial, the trial court ruled in favor of the plaintiff and rejected the distributor’s economic loss rule defense. The trial court held that since the crane was not defective, the plaintiff’s action was not one grounded in products liability law, but one based on negligent services where the economic loss rule does not apply.  The manufacturer appealed.

B. Florida Economic Loss Rule – Product Liability Context

“[T]he economic loss rule is a judicially created doctrine that sets forth the circumstances under which a tort action is prohibited if the only damages suffered are economic losses.” It developed in large part to “protect manufacturers from liability for economic damages caused by a defective product beyond those damages provided for by warranty law.”

***

Thus, as the Florida Supreme Court later explained, “[i]n exchange for eliminating the privity requirements of warranty law and expanding the tort liability for manufacturers of defective products which cause personal injury, [it] expressly limited tort liability with respect to defectiveproducts to injury caused to persons or damage caused to property other than the defective

product itself.”

***

The Florida Supreme Court also refused to apply the rule in cases concerning professional malpractice, fraudulent inducement, negligentmisrepresentation, and statutory causes of action. Then, in Tiara, the Florida Supreme Court receded from its “prior rulings to the extent that they haveapplied the economic loss rule to cases other than products liability,” and returned “the economic loss rule to its origin in products liability.” Thisremains the state of the doctrine in Florida today.

NBIS Construction, supra, at *4-5 (internal citations omitted).

C. Inherently Dangerous Products – Duty to Warn and Applicability of Economic Loss Rule

The distributor argued the economic loss rule applies because it is a products liability case irrespective of the fact that the parties agreed the crane was not defective. The distributor contended the plaintiff’s negligence claims based on the failure to adequately train or promptly send the safety bulletin are duty to warn claims, where the economic loss rule does apply. In this regard, the distributor maintained that Florida law requires a distributor to warn of potential dangers with a product:

With respect to “inherently dangerous” products, the Florida Supreme Court explained the duty this way:

When a distributor of an inherently dangerous commodity places it in the channels of trade, then by the very nature of hisbusiness he assumes the duty of conveying to those who might use the product a fair and adequate warning of its dangerouspotentialities to the end that the user by the exercise of reasonable care on his own part shall have a fair and adequate notice ofthe possible consequences of use or even misuse.

And long ago, the Florida Supreme Court said that “a crane in operation is inherently dangerous.” The Florida Supreme Court has also found that a “amanufacturer has a duty to warn of dangerous contents in its product which could damage or injure even when the product is not used for its intended purpose.”

Florida’s intermediate appellate courts have applied the duty to warn in various cases, including those involving goods with “dangerous propensities.”

Further, Florida courts have described cases concerning this duty to warn as “products liability action[s] … based on negligence.”

Additionally, under Florida’s strict products liability law, a product may be defective because of an inadequate warning.

For an example of the economic loss rule applied to a failure to warn claim, [the distributor] directs us to the Florida Supreme Court’s decision inAirport Rent-A-Car, Inc. v. Prevost Car, Inc., 660 So. 2d 628 (Fla. 1995), receded from on other grounds by Tiara, 110 So. 3d 399. There, wecertified three questions to the Florida Supreme Court, including one asking whether, “under Florida law, a cause of action may exist outside thebar of the economic loss rule where the plaintiffs allege a duty to warn which arose from facts which came to the knowledge of the companyafter the manufacturing process and after the contract.” Id. at 629. The Florida Supreme Court answered no: the “failure to warn, without therequisite harm [to person or other property], will not circumvent the economic loss rule” in such circumstances. Id. at 632. There is anotherexample too. In Florida Power & Light, one of FPL’s allegations was that Westinghouse “failed to warn of potential problems” with respect to thesteam generators at issue. 510 So. 2d at 900. And the Florida Supreme Court, of course, concluded that the economic loss rule applied to bar FPL’s claim. Id. at 902.

NBIS Construction, supra, at *5-6 (internal citations omitted).

D. Negligent Services 

The plaintiff stated that the distributor got it wrong.  This case is not a products liability action demonstrated by the parties’ stipulation that the crane was not defective. Rather, the case is a negligent services case in which the economic loss rule does not apply.

 E. Certification to Florida Supreme Court

Hmm. Does the economic loss rule apply to the plaintiff’s claims against the distributor? The Eleventh Circuit is not so sure, hence the certification to Florida’s Supreme Court to address:

We find Florida law unclear as to the economic loss rule’s applicability here. On one hand, we see merit in [the distributor’s] argument that[plaintiff’s] theories of negligence are like the failure to warn theories found in products liability law. If [the distributor] could not be held liable foreconomic loss resulting from an inadequate training manual under Florida’s economic loss rule, then it makes sense for that rule to also shield [the distributor] from liability for economic loss arising from its failure to adequately train [the crane company] and to promptly send the product safetybulletin.

On the other hand, [the plaintiff] is correct that cases concerning product defects are at the heart of Florida’s economic loss rule. Indeed, “from theoutset, the focus of the economic loss rule was directed to damages resulting from defects in the product itself.” Even the case on which [the distributor] relies, Airport Rent-A-Car, concerned a defective product. And while [the distributor] is a distributor of the crane at issue, we wonderhow applying Florida’s economic loss rule in this case might affect Florida’s tort law with respect to defendants who are not in the distributive chain. Inother words, if a defendant, not in the distributive chain, negligently trained [the crane company] and the collapse of the crane’s boom resulted, wouldthe economic loss rule still apply? If the answer is yes, then that would appear to be an extension of Florida’s economic loss rule in tension with Tiaraand Am. Aviation. And if the answer is no, then it is worth considering why it makes sense to exempt [the distributor] from liability solely because it is a distributor of the product at issue.

NBIS Construction, supra, at *7 (internal citations omitted).

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

PRODUCT LIABILITY ECONOMIC LOSS RULE AND “OTHER PROPERTY” DAMAGE

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One of the best defenses a manufacturer has, particularly in non-personal injury cases, is the economic loss rule.  Lo and behold, a recent opinion out of the Middle District of Florida, Dero Roofing, LLC v. Triton, Inc., 2022 WL 14636884 (M.D.Fla. 2022), touches on this very subject with cogent analysis regarding “other property” damage for purposes of the economic loss rule.

In Dero Roofing, a roofing contractor repaired hurricane damage to roofs of condominium buildings. The roofing contractor became a certified applicator of the manufacturer Triton’s products. After the roofer applied certain products with a sprayer, the products “streaked down the roof tiles onto ‘the exterior and interior of the [Condos], including penetration of the residents’ screens, gutters, and other related areas.”  Dero Roofing, supra, at *1.  The roofing contractor obtained an assignment of the condominium’s claims and sued the manufacturer and distributor of the (Triton manufactured) products.

The defendants moved to dismiss under the economic loss doctrine.

The economic loss doctrine “prohibits tort recovery when a product damages itself, causing economic loss, but does not cause personal injury or damage to any property other than itself.”  Dero Roofing, supra, at *3 (quotation and citation omitted).

Well, what is other property?  The Dero Roofing opinion explains.

When a defective product is ‘an integral or component part’ of a larger item, then damage to the larger item ‘caused by this component part was not damage to separate property.’  As the rationale flows, a component becomes part of the purchased product, so they are one.  If nothing else was damaged, therefore, the economic loss rule applies because there was no damage to other property.

To qualify as other property, there must be damage to something ‘unrelated and unconnected to the product sold.’ In other words, ‘there is no privity between the owner of the property damaged and the distribution chain for the product causing the damage.’  And, crucially, ‘The character of the loss determines the appropriate remedies.’  That’s lawyer-speak for saying ‘one must look to the product purchased by the plaintiff, not the product sold by the defendant.’

Dero Roofing, supra, at *3 (internal quotations omitted).

Based on this definition of “other property” for purposes of the economic loss doctrine, the trial court held the economic loss doctrine applied to bar most of the plaintiff’s claims:

[The roofer] applied [the manufacturer’s products] to the roofs.  They were component parts of each respective roof.  And notably, the Condos presumably paid for completed roofs, not individual parts that could later make up a roof.  In short, [the roofer] cannot bring a products liability action for damages to the roofs because those theories are barred by the economic loss doctrine.

Dero Roofing, supra, at *4.

However, since this was at the motion to dismiss stage, the court is allowing, in a limited capacity, certain arguments relating to one of the products to move forward, but with an important analysis (caveat) that is prudent analysis for anyone dealing with a products liability claim relating to damage to “other property”:

This case is still at the pleading stage (when the Court must accept well-pled allegations as true and view them most favorably to Dero [the roofer]).  In part, Dero alleges the Condos suffered damage to their screens. As the Court understands it, TritoCryl [one of the producs] oozed below the roof onto either the window or lanai screens—damaging those screens and potentially whatever was beneath or inside them. There are no allegations to suggest the screens were anything but other property for the purposes of the economic loss rule. Specifically, nothing implies the screens were connected in any manner to the roofs or their repairs. So at this time, Dero plausibly alleged damage to other property of “the exterior and interior of the buildings, including penetration of the residents’ screens, gutters, and other related areas.”

To be sure, the damage as it relates to the gutters plus “exterior and interior of the buildings” (which the Court assumes could mean fascias, soffits, and walls) is a much closer call than the screens. While it leaves final resolution for another day, the Court notes an inclination to conclude this is not other property. Gutters, fascias, and soffits may be part of a complete roof (i.e., what the Condos bargained for). What’s more, the wall immediately adjoining the roof beneath a soffit would seem intimately connected with the roof. So the economic loss rule might eventually bar these types of damages too. But there is no need to step out on a limb over these matters today given the impossibility of concluding the screens weren’t other property on these allegations.

One final point. Even for the screens, ownership of that property might doom Dero’s claims. In Florida, it is settled that plaintiff must own the “other property.”  Again, the Complaint does not clarify who owns the screens. If individual residents are the property owners, then Dero (through the Condos) cannot claim that as damage to other property. But that is a factual issue well outside the pleadings to resolve at a later stage.

Dero Roofing, supra, at *5.

 

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

 

ECONOMIC LOSS RULE BARS CLAIMS AGAINST MANUFACTURER

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The economic loss rule lives to bar a claim against a product manufacturer in a real estate transaction.  In a products liability action, there needs to be personal injury or property damage, other than to the property itself, in order to recover economic damages.  Otherwise, the economic loss rule will bar the recovery of such economic losses when the economic losses deal to the product itself.  This is important to keep in mind in any product liability action against a manufacturer.

In a recent case, 2711 Hollywood Beach Condominium Ass’n, Inc., v. TRG Holiday, Ltd., 45 Fla. L. Weekly D2179a (Fla. 3d DCA 2020), a condominium association purchased the condominium from the developer.  Subsequently, it noticed leaks with the fire suppression system in the condominium and sued multiple parties for damages for repairs due to the leaks and the replacement of the fire suppression system.  One of the parties sued in negligence and strict liability was a manufacturer of pipe fittings used in the fire suppression system.  The manufacturer moved for summary judgment based on the economic loss rule and relying on the 1993 Florida Supreme Court opinion in Casa Clara Condominium Ass’n v. Charley Toppino & Sons, Inc., 620 So.2d 1244 (Fla. 1993), holding “the economic loss rule limited a defendant’s tort liability for allegedly defective products to injuries caused to persons or damage caused to property other than the defective product itself.”  2711 Hollywood Beach Conominium Ass’n, supra.  The trial court agreed with the manufacturer and granted summary judgment.  On appeal, the Third District affirmed based on the economic loss rule:

The Association bargained for, purchased and received a building; [the manufactuer’s] fittings were only a component of the FSS [fire suppression system], incorporated into the building. Applying the rule set forth in Casa Clara, the Association purchased a completed building from the developer. [The manufactuer’s] fittings were “an integral part of the finished product and, thus, did not injure ‘other’ property.”  Injury to the building itself is not injury to “other” property because the product purchased by the Association was the building. See Casa Clara, 620 So. 2d at 1247. The economic loss rule therefore bars the Association’s recovery as to [the manufacturer] to the extent that it sought damages to replace the FSS [fire suppression system] and repair damage to the building.

2711 Hollywood Beach Conominium Ass’n, supra (internal citations omitted).

Notably, in Casa Clara, homeowners sued a concrete supplier for supplying defective concrete that caused the reinforcing steel in the concrete in their homes to rust.  The concrete supplier, in an action that went up to the Florida Supreme Court, prevailed based on the economic loss rule because there was no personal injury or damage to property other than the property itself, which was the completed building.  As the Florida Supreme Court held:

The homeowners also argue that [the supplier’s] concrete damaged “other” property because the individual components and items of building material, not the homes themselves, are the products they purchased. We disagree. The character of a loss determines the appropriate remedies, and, to determine the character of a loss, one must look to the product purchased by the plaintiff, not the product sold by the defendant.  Generally, house buyers have little or no interest in how or where the individual components of a house are obtained. They are content to let the builder produce the finished product, i.e., a house. These homeowners bought finished products—dwellings—not the individual components of those dwellings. They bargained for the finished products, not their various components. The concrete became an integral part of the finished product and, thus, did not injure “other” property.

We also disagree with the homeowners that the mere possibility that the exploding concrete will cause physical injury is sufficient reason to abrogate the economic loss rule. This argument goes completely against the principle that injury must occur before a negligence action exists. Because an injury has not occurred, its extent and the identity of injured persons is completely speculative. Thus, the degree of risk is indeterminate, with no guarantee that damages will be reasonably related to the risk of injury, and with no possibility for the producer of a product to structure its business behavior to cover that risk. Agreeing with the homeowners’ argument would make it difficult “to maintain a realistic limitation on damages.”

Casa Clara, supra, at 1247 (internal citations omitted)

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

THE SLOW OR NOT SO SLOW DEATH OF THE ECONOMIC LOSS RULE

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What is the economic loss rule in Florida? The answer — who really knows anymore.

 
The economic loss rule was a rule that applied in two scenarios. Under the first scenario, the economic loss rule said that if parties were in contractual privity, one party cannot sue the other party under tort theories (such as negligence) for damages that arise out of the contract. In other words, a party cannot get around the contractual remedies and damages by suing for tort instead of for breach of contract. However, over the years, this scenario has been watered down by various exceptions that allows a party to sue in tort if their damages were independent from the contract (such as damages from being fraudulently induced into the contract, etc.) or the party they were suing was a professional (such as an architect, engineer, etc.). Nevertheless, the rule still applied to prevent a majority of contracting parties from suing in tort instead of for breach of a contract, thereby maintaining the integrity of contract law.

 

The second scenario the economic loss rule applied was in the products liability context. Under this scenario, a manufacturer cannot be sued by a non-contracting party, in particular, for a defect in a product unless that product causes personal injury or damage to other property. However, if the product just damages itself (in other words, the product is simply defective), then the economic loss rule could apply to bar a tort claim against a manufacturer.

 

Confusing? Yes! To add confusion, the Florida Supreme Court in Tiara Condominium Association, Inc. v. Marsh & Mclennan Companies, Inc., 38 F. L. Weekly S151a (Fla. 2013), eliminated the the first scenario in which the economic loss rule applied. In this case and in eliminating the first scenario, the Florida Supreme Court maintained that an insured’s tort claims (negligence and breach of fiduciary duty) against its insurance broker that it was in contractual privity with was not barred by the economic loss rule.

 

 

What exactly does this ruling mean? Ultimately, it means that parties that are in contractual privity could sue each other under tort theories such as negligence to potentially recoup damages in excess of the recoverable breach of contract damages and/or to get around contractual provisions and remedies. Thus, tort claims are now available, and quite frankly, will be pursued and argued, against contracting parties. If the Florida Supreme Court finds that tort claims between an insured and the insured’s broker (where the parties were in contractual privity) are permissible, then just think of the arguments and tort claims that could be made to dilute contract law.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.