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Economic Loss Doctrine

The Law Office of Stephen Barker Aug. 29, 2023

Businessman reading documents at meeting before signing legal contractGenerally, victims of personal injury, negligent accidents, or contractual breaches are entitled to seek economic, non-economic, and other available damages for their injuries and losses. Traditionally, the economic loss doctrine required the civil court to help differentiate between economic losses and non-economic losses and then determine whether damages should be recovered through tort law under contract law.  

What Is the Economic Loss Doctrine?

Economic Loss Doctrine (ELD) can be described as a legal doctrine that often comes into play when a person or business entity suffers economic and non-economic damages from the actions of another with whom the damaged party is in contractual privity. Under the Economic Loss Doctrine, when two parties had an agreement, one party might not be allowed to sue the other in tort for carelessness or harm related to what they agreed upon. They cannot bring a negligence or tort action against the other party concerning the failed expectations of the first party. 

Most tort actions do not pertain to contractual situations. You are not likely to have a contractual relationship with the entity who struck your vehicle or on whose sidewalk you fell. Therefore, your remedy is clearly in tort.

Other situations have been explicitly exempted from any limitation of the economic loss doctrine, for example, medical malpractice. While arising out of a contractual relationship between doctor and patient, the law has exempted such actions from any such tort/ contract delineation, which are subject to their own set of rules of recovery against negligent medical providers.

Florida law of ELD

The Economic Loss Doctrine was initially developed in the products liability context. The essence of the early holdings discussing the Economic Loss Doctrine is to prohibit a party from suing in tort for purely economic losses to a product or object provided to another for consideration, the rationale being that in those cases contract principles are more appropriate than tort principles for resolving economic loss without an accompanying physical injury or property damage. The Rule was gradually expanded to cover construction situations and other property damage actions which arose in a business setting.

Eventually, Florida scaled back its interpretation of the term "Economic Loss Doctrine" to only apply to product liability actions, although the Courts have made it clear that they will still respect contractual provisions and limit parties to contractual remedies where claims are based upon agreements between parties and claims arise from an alleged breach of the subject contract.  

Other Property Exception

One key component of the Economic Loss Doctrine in product liability settings under Florida law is the distinction between property damage to a faulty product and damage to “other property" for instance, where a defective product explodes and damages the claimant’s other personal belongings. In commercial litigation, the court may bar the claimant from seeking tort recovery for damages limited to the product itself. This is because the court considers the damage to be a purely economic loss and covered by the product sale contract. There is no such limitation where other property is affected by the loss, as is often the case in property subrogation actions where a product failure yields fire or water damage to surrounding property.

Economic Loss Doctrine in Construction Settings

The Economic Loss Doctrine in Florida construction cases generally prohibits recovery in tort for purely economic losses unless there is personal injury or damage to other property. This doctrine is primarily applied to prevent parties from circumventing contract law where a contractual relationship exists and to limit the liabilities to what was agreed upon in the contract. In construction cases, the Economic Loss Doctrine is applied to ensure that the parties' economic expectations are governed by their contractual agreements rather than tort claims. This is particularly relevant when the parties have had the opportunity to negotiate the terms and allocate risks contractually. For instance, if a construction defect arises, the remedy is typically confined to what was agreed upon in the contract, unless there is damage to property other than the construction itself or personal injuryVesta Constr. & Design, L.L.C. v. Lotspeich & Assocs., 974 So. 2d 1176, Casa Clara Condominium Ass'n v. Charley Toppino & Sons, Inc., 588 So. 2d 631. However, there are exceptions to this doctrine. For example, fraudulent inducement and negligent misrepresentation are recognized as independent torts that can survive despite the Economic Loss Doctrine. This means that if a party was induced into a contract by fraud, they may still have a tort claim even if the losses are purely economic Allen v. Stephan Co., 784 So. 2d 456. In summary, while the Economic Loss Doctrine serves to limit the application of tort remedies in Florida construction cases, focusing disputes on the terms and conditions of the contract, exceptions exist that allow for tort claims in cases of fraud or other wrongful acts that induce contractual obligations. Key cases such as Vesta Constr. & Design, L.L.C. v. Lotspeich & Assocs., 974 So. 2d 1176 and Allen v. Stephan Co., 784 So. 2d 456 provide insight into the nuances of this doctrine in the context of construction law in Florida

Understand Your Options

While Florida limits the Economic Loss Doctrine to product liability actions, the same tort vs. contract principles may stop people from seeking damages through a tort action if they have only suffered financial losses from the actions of another with whom they are in contractual privity. While the doctrine may appear simple in theory, it can include several complexities. Therefore, consulting with a seasoned subrogation or business law attorney is imperative for detailed guidance and to help protect your rights. 

At The Law Office of Stephen Barker, we have the diligence and expertise to help clients in a huge spectrum of legal matters that involve seeking economic and non-economic losses. As your legal counsel, we can evaluate the surrounding circumstances of your unique situation and determine how the Economic Loss Doctrine applies to your case. In addition, our trusted lawyer will fight for your legal rights and help you pursue your rightful compensation for your injuries, damages, and losses. 

Contact us at The Law Office of Stephen Barker today to schedule a simple consultation with a trusted business litigation attorney. Our reliable attorney can offer you the personalized legal counsel and brilliant advocacy you need to navigate key decisions in your legal matters. We’re proud to serve clients across all of Florida.