“Before the home reached the market, the Great Recession struck.” – Opinion. Here, a series of loan contracts for the construction of a home and a later default resulted in a Deed in Lieu of foreclosure. The home was transferred to a corporate subsidiary of the lender. Lender later sued contractor for negligent construction. The lower courts declined to apply the economic loss rule (ELR) to bar the tort claims. The Court reversed, clarifying that the ELR applies to parties with contract remedies, including third-party beneficiaries who are not subsequent purchasers. Here, the subsidiary was a third-party beneficiary to a contract between the contractor and lender and thus not a “subsequent purchaser.” But, the Court remanded for further fact finding regarding the interrelatedness of the contracts and the scope of the contractual duties to determine if the ELR applies.
Tag Archives: Economic Loss Rule
In re the Estate of Carol S. Gattis, deceased. Scott M. Gattis, Linda L. Spreitzer, and Amy G. Goeden, as Personal Representatives, v. John E. McNutt; Timothy A. McNutt; and Christopher L. Boortz, 2013COA145 (Nov. 7, 2013)
This is a case of how NOT to flip a house. Defendants bought a house, repaired damage caused by expansive soils, and then sold it to Plaintiffs. In the standardized Seller Property Disclosure form, Defendants claimed no knowledge of expansive soils. Plaintiffs brought a nondisclosure tort claim after the soils damaged the home. Defendants asserted the Economic Loss Rule as a defense, which was rejected by the trial court. As a matter of first impression, the court of appeals held the economic loss rule does not bar nondisclosure tort claims arising from a house built on expansive soils. First, home sellers owe home buyers an independent duty to disclose latent defects of which they are aware. Second, common law duties remain with standardized form contracts that do not set out a standard of care, limit rights to specific disclosures, or provide express remedies for nondisclosure.
Mid Valley Real Estate Solutions V, LLC, v. Hepworth-Pawlak Geotechnical, Inc.; Steve Pawlak; Daniel Hardin; and S K Peightal Engineers, Ltd., 2013COA119 (August 1, 2013)
Soils swelled, cracking substructure; single-asset subsidiary sues. Residential homebuilders owe an independent duty to homeowners to build a home with reasonable care. In this CAR 4.2 interlocutory appeal, Defendant homebuilders argued that the economic loss rule should prevent a corporate subsidiary of a bank from bringing tort claims that a natural-person homeowner could bring. Rejecting each of Defendants’ arguments, the court of appeals held that the independent duty owed by homebuilders announced in Cosmopolitan Homes, Inc. v. Weller, 663 P.2d 1041(Colo. 1983) also prevents the economic loss rule from barring a corporate-plaintiff’s construction defect claims. A homebuilder’s duty of care is owed to any subsequent owner of a house because the duty arises from the residential nature of the project, not the nature of the homeowner (corporate or otherwise).
“Listen, this old system of yours could be on fire and I couldn’t even turn on the kitchen tap without filling out a 27b/6.” Harry Tuttle – Brazil. In this case, Defendant’s employee, while repairing a cooling system, caused a tank of ammonia to explode, causing property damage. Plaintiff sued in tort, not breach of contract. The court of appeals affirmed dismissal under the economic loss rule (ELR). No tort duties existed outside of the repair contract because Plaintiff could have sought consequential damages, equal to tort damages, even with a limitation-of-liability clause. Though ammonia is toxic, the standard of “reasonable care” in tort law is the same as “prudent and workmanlike” because Colorado does not recognize a distinct “highest” degree of care. The court also held that ELR applies to property damage and negligent supervision is not a distinct tort claim.
Stan Clauson Associates v. Colemen Brothers Construction, Coleman Ranch, Dan Coleman, 2013COA7 (January 17, 2013)
“We are all professionals here…” But not if you are a land planner. In this case, a developer hired a land planner to help develop a property. Eventually, the planner sued the developer for breach of contract, who counter-sued for negligence. The counterclaim was dismissed based on the economic loss rule. That rule dismisses tort claims that are really contract claims, unless there is an independent tort duty outside of contract duties. Professionals owe independent tort duties consistent with other members of the profession and not just a duty to substantially perform under the contract. CRS 12-1.5-101 et. seq. lists 45 professions. The common law will recognize a duty only if the risk, likelihood of loss, burden, and consequences justify imposing a higher duty. The court of appeals held land planners are not professionals so the economic loss rule barred the counterclaim.
Casey, et. al. as class representatives v. Colorado Higher Education Insurance Benefits Alliance Trust, 2012COA134 (August 16, 2012)
Unexpected long-term disabilities are sometimes worse than death. This case involves CGIA immunity arising from a trust created by public colleges to provide employees with long-term disability benefits. When Mesa State pulled out of the trust, its employees sued the trust for their contributions, alleging breaches of fiduciary duties and inverse condemnation. If plaintiffs’ claims lie or could lie in tort, the defendants would be immune. The court of appeals held that the trustees’ fiduciary duties were written into the contract, so they were not tort claims. Neither the breach of the duty of good faith, nor the inverse condemnation claims were tort claims either. But the economic loss rule barred some contract damages. Fraud claims based on alleged misrepresentations by any attorney regarding benefits, however, could lie in tort because they alleged fraud.