Landmark Florida Supreme Court Decision: Florida’s Economic Loss Rule

In Tiara Condominium Association, Inc. v. Marsh & McLennan Companies, Inc., the Florida Supreme Court held, in a five-to-two decision, that the economic loss rule is limited to products liability cases.  Tiara Condominium Association, Inc. v. Marsh & McLennan Companies, Inc., 2013 WL 828003 (Fla. Mar. 7, 2013).   The case came to the Florida Supreme Court for review in the form of a certified question by the United States Court of Appeals for the Eleventh Circuit.  The Eleventh Circuit certified a question to the Florida Supreme Court, which was restated by the Florida Supreme Court as follows:

DOES THE ECONOMIC LOSS RULE BAR AN INSURED'S SUIT AGAINST AN INSURANCE BROKER WHERE THE PARTIES ARE IN CONTRACTUAL PRIVITY WITH ONE ANOTHER AND THE DAMAGES SOUGHT ARE SOLELY FOR ECONOMIC LOSSES?

Answering the certified question in the negative, it was held that “the application of the economic loss rule is limited to products liability cases.” 

The crux of the underlying lawsuit was essentially a claim by Tiara Condominium Association, Inc. (Tiara) sounding in tort and contract against its insurance broker, Marsh & McLennan Companies, Inc. (Marsh) for failing to provide adequate professional advice where Marsh had advised Tiara that its loss limits coverage was per occurrence, relying upon which advice, Tiara proceeded with expensive remediate efforts.  Ultimately, it turned out that the insurer, Citizens Property Insurance Corporation (Citizens), claimed that the loss limit was not as advised by the Marsh, and that it was $50 million in the aggregate, not per occurrence.  While a settlement ensued between Tiara and Citizens in an approximate amount of $89 million, the amount was less than the $100 million plus expended by Tiara.  Tiara filed suit against Marsh, alleging (1) breach of contract, (2) negligent misrepresentation, (3) breach of the implied covenant of good faith and fair dealing, (4) negligence, and (5) breach of fiduciary duty.  A summary judgment was entered as to all counts except negligence and breach of fiduciary duty.  It was as to these two claims, the appeals court certified a question to the Florida Supreme Court to determine whether the economic loss rule prohibited recovery, or whether an insurance broker falls within the professional services exception that would allow Tiara to proceed with the claims.

In its analysis, the Florida Supreme Court discusses, at length, the origins and development of the Economic Loss Rule, the pertinent aspects of which are summarized as follows: (1) The rule appeared initially in both state and federal courts in products liability type cases, and historically the doctrine was introduced to address attempts to apply tort remedies to traditional contract law damages. (2) The rule was recognized as the fundamental boundary between contract law, which was designed to enforce the expectancy interests of the parties, and tort law, which imposed a duty of reasonable care thereby encouraging citizens to avoid causing physical harm to others. (3) The contractual privity rule provided that, generally, a tort action is barred where a defendant has not committed a breach of duty apart from a breach of contract.  (4) However, an exception to the above rule was also recognized, allowing torts committed independently of a contractual breach, such as for fraud in the inducement. (5) Another situation where the economic loss rule was limited was in the case of neglect in providing professional services.

The Florida Supreme Court subsequently engaged in a discussion regarding the roots of the doctrine originating in the products liability context where the focus of the rule was directed to damages resulting from defects in the product itself.  The Court goes on to state that for some time, the Court had been concerned with what they perceived as an “over-expansion of the economic loss rule”, and noting the expression of this concern in various cases. 

After going through an extensive analysis of the origin and original purpose of the economic loss rule, and the extension thereof being classified as “unprincipled”, the Florida Supreme Court stated, in pertinent part, as follows:

…[W]e now take this final step and hold that the economic loss rule applies only in the products liability context.  We thus recede from our prior rulings to the extent that they have applied the economic loss rule to cases other than products liability.  The Court will depart from precedent as it does here ‘when such departure is necessary to vindicate other principles of law or to remedy continued injustice.’”…Stare decisis will also yield when an established rule has proven unacceptable or unworkable in practice…Our experience with the economic loss rule over time, which led to the creation of the exceptions to the rule, now demonstrates that expansion of the rule beyond its origins was unwise and unworkable in practice. Thus, today we return the economic loss rule to its origin in products liability.

Justice Pariente wrote a concurring opinion to address Justice Canady’s assertion in his dissenting opinion that the Court’s decision represents a “dramatic unsettling of Florida law.”  The concurring and dissenting opinions can be read in their entirety, at http://www.floridasupremecourt.org/decisions/2013/sc10-1022.pdf

This is certainly a landmark decision, and it will be interesting to see the effects of this case unfolding, and its impact upon Florida tort litigation.