The Florida Supreme Court recently held that the application of the Florida economic loss rule is limited to products liability cases.
A copy of the opinion is available at: http://www.floridasupremecourt.org/decisions/2013/sc10-1022.pdf.
A condominium association ("Association") retained an insurance broker ("Broker") to secure condominium insurance coverage. Association's building suffered significant damage cause by Hurricane Frances and Hurricane Jeanne. Association proceeded with repairs based on assurances by Broker regarding the policy limits of Association's coverage, but later was denied coverage for almost half the amount of Association's costs for repairs when it submitted its claim. Association filed a lawsuit against the Broker, alleging causes of action including negligence and breach of fiduciary duty.
The trial court granted summary judgment in Broker's favor as to all counts, and the Eleventh Circuit Court of Appeals affirmed the trial court on all but the negligence and breach of fiduciary duty claims. For these claims, the Eleventh Circuit certified to the Florida Supreme Court the question of whether the economic loss rule bars an insured's suit against an insurance broker where the parties are in contractual privity and the damages sought are solely for economic losses.
As you may recall, the economic loss rule prevents a party from bringing tort actions against entities with whom they are in contractual privity for purely economic loss unaccompanied by any personal injury or damage to property. As stated by the Florida Supreme Court, the underlying rationale for the economic loss rule is that "[w]hen parties are in privity, contract principles are generally more appropriate for determining remedies for consequential damages that the parties have, or could have, addressed through their contractual agreement." In other words, "[w]here damages sought in tort are the same as those for breach of contract a plaintiff may not circumvent the contractual relationship by bringing an action in tort." Ginsberg v. Lennar Fla. Holdings, Inc., 645 So. 2d 490, 494 (Fla. 3rd Dist. 1994).
Discussing the historical roots of the economic loss rule, the Florida Supreme Court explained that the rule is rooted in the products liability arena, and was primarily intended to limit actions in the products liability context. The Court then described the "unprincipled expansion" of the rule out of the products liability arena, and into contractual privity generally.
Having noted the multiple exceptions to the economic loss rule created since its inception, including exceptions for professional malpractice, fraudulent inducement, negligent misrepresentation, and free-standing statutory causes of action, the Court ultimately decided that these exceptions "simply did not go far enough," stating that "we now take this final step and hold that the economic loss rule applies only in the products liability context."
Two dissenting opinions expressed concern that the majority "obliterates the use of the doctrine when the parties are in contractual privity, greatly expanding tort claims and remedies available without deference to contract claims." Both dissenting opinions would have instead relied on existing decisions to hold that the economic loss rule bars actions against insurance brokers in contractual privity with the insured on the grounds that insurance brokers are not professionals as defined by the Florida Supreme Court, and the professional services exception to the economic loss rule therefore does not apply.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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