What are the exceptions to the economic loss rule? In Florida, the rule is narrower than many business owners expect. The Florida Supreme Court limited it to products liability cases. Tort claims can also proceed when they rest on duties separate from a contract, or on intentional wrongdoing such as fraud. Whether an exception fits your situation depends on the facts.
What the economic loss rule means and why its exceptions matter
A tort is a civil wrong, such as negligence or fraud. A contract claim is about a promise that was broken. Business disputes often turn on which label fits, because the two kinds of claims follow different paths.
Picture a contractor who agrees to build an office and then delivers poor work. The owner can say the work broke the contract. The owner can also say the contractor was careless. The first is a contract claim. The second may be barred if it only seeks the money lost under the deal.
Florida’s Third District Court of Appeal puts it this way: a plaintiff may not recover in tort for a contract dispute unless the tort is independent of any breach of contract. That statement, from Frutafino v. Dole Chile decision, is the starting point for most of these disputes.
How Florida limited the rule after Tiara Condominium
The Florida Supreme Court narrowed the economic loss rule in 2013. In the Tiara Condominium decision, the court held that the rule’s application is limited to products liability cases.
That change matters well beyond product disputes. Construction work, professional services and commercial deals are not products cases in the usual sense. The Tiara court also held that the rule does not by itself bar a tort claim between parties in contractual privity, meaning parties with a direct contract with each other.
In its Tiara Condominium Association decision, the Florida Supreme Court stated that it would “hold that the application of the economic loss rule is limited to products liability cases.” The court still asks whether the tort claim stands apart from the contract. Business owners reading about the rule today should know about this 2013 change.
The independent tort doctrine exception
A tort claim can go forward when it rests on a duty that exists apart from the contract. Lawyers call this the independent tort doctrine. Under the Frutafino v. Dole Chile decision, the tort must be independent of any breach of contract.
What does “independent” look like? Imagine a subcontractor hired to install drywall in a commercial building. A late finish or a sloppy seam is often a contract problem. The owner’s remedy usually lies in the contract’s promises. But if the subcontractor’s crew floods the unit next door, the harm reaches past the bargained-for work. That kind of harm can support a separate claim.
A common mistake is to frame every problem as one type of claim. Start by asking two questions. What did the other side promise? What harm happened outside that promise?
Fraud, intentional torts, and fraudulent inducement
Fraudulent inducement is a claim that a party signed a contract because someone made a false statement. The Frutafino v. Dole Chile decision quotes Butler v. Yusem for four elements:
- a false statement concerning a material fact;
- the speaker’s knowledge that the statement is false;
- an intention that the statement induce the other party to act; and
- injury to the party who relied on the statement.
A promise about future action can also be fraud, though, if the person promising had no intention of performing, or a positive intention not to perform, when making it.
The limit matters too. The Frutafino v. Dole Chile decision addresses the “common law principle that a plaintiff may not recover in tort for a contract dispute unless the tort is independent of any breach of contract.” An unpaid bill alone is not enough to create a fraud claim.
Personal injury and damage to other property
Harm to people and to property beyond the work itself is a different kind of loss than a bad bargain. A claim for injury or for damage to other property often raises issues that a claim for lost profit does not.
Consider a roofer whose defective flashing lets water into a finished unit. The roof is the work itself. The tenant’s furniture and flooring are other property. Where the line falls is often a factual question a court must decide, based on how the damage happened.
Timing also matters in construction cases. For a claim tied to the design, planning, or construction of an improvement to real property, Florida law generally allows four years to file suit. Florida Statutes § 95.11 sets these limitations periods. The clock runs from the earliest certificate or abandonment date. For latent defects, it runs from discovery. In any event, the action must begin within seven years of those dates.
Talking through your dispute with Ayala Law PA
Ayala Law PA can help you sort out which claims fit your facts and how Florida law treats them. The firm focuses on business litigation, commercial litigation, contract disputes, shareholder disputes, construction litigation, real estate litigation and international trade litigation in Florida courts and arbitration. Florida ADR Resource Handbook Its only office is in Tampa, at 1646 W Snow Ave. The firm serves businesses in Tampa, Hillsborough County and the Tampa Bay area.
You may be reading this after a project failed, a deal went wrong, or an investment lost value. You may be looking into it for a company, and you may not be ready to decide anything yet. Eduardo A. Maura is the responsible lawyer for this page. This page is general information, not advice about your matter.
Frequently asked questions
Does the economic loss rule still apply broadly in Florida?
The Florida Supreme Court limited its application to products liability cases in 2013. Other claims are assessed under their own rules.
Can a fraud claim proceed when a contract exists?
It can, when the claim rests on a false statement that induced the deal. A dispute over unpaid bills alone usually does not qualify.
What is the deadline to file a construction defect lawsuit in Florida?
Florida law generally allows four years to file a claim tied to the design, planning, or construction of an improvement to real property. Florida Statutes § 95.11 governs these periods. The clock usually starts on the earliest of these dates: when the authority having jurisdiction issues a temporary certificate of occupancy, a certificate of occupancy, or a certificate of completion, or, if construction was not completed, when it was abandoned. For a latent defect, the time runs from when the defect was discovered or should have been discovered with due diligence. In any event, the action must be commenced within 7 years after that earliest date. For a latent defect, the four years runs from when the defect is discovered or should have been discovered with the exercise of due diligence.
If a failed build, a bad deal or a lost investment has cost your business money, you may have claims worth reviewing. Call (305) 570-2208 or contact Ayala Law PA to talk through the facts.
