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Economic Loss Rule

Under Maryland law, defendants in products liability cases often rely upon the “economic loss rule” to avoid liability for certain harm.  Application of the economic loss rule in the construction context was recently clarified by the Maryland Court of Special Appeals in Cash & Carry Am., Inc. v. Roof Solutions, Inc., 2015 Md. App. LEXIS 79 (2015).  In that case, a roofing contractor’s negligent operation of a torch resulted in a fire at the homeowner’s townhome.  Unique to this case, however, was the fact that computer equipment for a third-party business was stored in the townhome and damaged by fire.  At the trial level, the contractor and subcontractor successfully obtained summary judgment, in part, based on the economic loss rule.

Reversing the trial court’s decision, the Maryland Court of Special Appeals found that the economic loss rule did not apply.  In reaching that conclusion, the Court provided the following succinct summary of the economic loss rule’s application:

The economic loss doctrine, which developed in product liability cases, prohibits a plaintiff from recovering tort damages for what in fact is a breach of contract.  So, a plaintiff in a product liability action alleging that a product is defective cannot recover tort damages for “the loss of value or use of the product itself, and the cost to repair or replace the product.”  Citations omitted.  As the Supreme Court’s East River decision makes clear, the economic loss doctrine serves as a boundary between contract law, the purpose of which is to enforce the expectations of the parties to an agreement, and tort law, the purpose of which is to protect people and property from foreseeable risks of harm by imposing upon others a duty of reasonable care.

Applying the economic loss rule to the facts in this case, the Court of Special Appeals explained that, had the Plaintiff been seeking damages for the repair of the roof itself, without any risk of harm to life or personal property, the economic loss rule would apply; Plaintiff’s recovery would be limited to theories of contract and not tort.  Because, however, the Plaintiff was seeking to recover damage to personal property (i.e. the computer equipment), tort law was the proper method to obtain such recovery.

While not a seismic shift in Maryland law, Cash & Carry Am., Inc. v. Roof Solutions, Inc., 2015 Md. App. LEXIS 79 (2015) helps clarify application of Maryland’s economic loss rule in the construction context.  Because each case is fact specific, for more information on whether the economic loss rule may be a potential defense to a contractor’s liability, contact the attorneys at Walker, Murphy & Nelson, LLP today.

Disclaimer: This article is for general informational purposes only. Nothing contained herein constitutes legal advice, nor does it create an attorney-client relationship. All persons reviewing this should consult counsel for advice regarding any specific legal questions and any unauthorized use of this information is expressly prohibited.