The Economic Loss Rule: What Is It, and Why Should You Care?

Let’s say that you have a contract and you feel that the contract has been breached. Certainly you could sue for breach of contract. But could you also sue for, say, negligence? For example, alleging that the other party was negligent in performance of the contract, thus causing a breach?

That would be good—negligence, like any personal injury case, would allow you to collect damages like pain and suffering or any kind of consequential damages—damages that go far beyond what would normally be recoverable just in a standard breach of contract case.

Historically Causes of Action Were Limited

But this has traditionally not been allowed, under what is called the economic loss rule.

The rule says that you cannot obtain or be awarded tort damages (such as in negligence), from a breach of contract—contract damages are limited to what the contract says the damages are, and to whatever prevailing contract law allows.

Letting an aggrieved party sue for negligence, would be extending potential damages for the breach to far beyond what the parties bargained for when they entered into the contract, just because they added another cause of action to the Complaint sounding in negligence. A party that breaches a contract shouldn’t have to pay more than what that party could reasonably anticipate the damages being, based on the contract.

The Rule has Been Limited

But years ago, the Florida Supreme Court became more lenient with the Rule, and limited the economic loss rule, saying that it was only applicable in product liability cases, or in cases where someone was clearly just trying to get extra-contractual damages. So, for example, if a damaged product doesn’t hurt anybody, there would only be a breach of warranty or contract claim—not a claim for damages.

But other than that exception, the modern rule does not strictly limit parties to only breaches of contract actions. There are “extra contractual” causes of action that can be alleged in a breach of contract case.

Claims like fraud, fraud in the inducement, or conversion, are alternative theories which parties can use to try to collect damages beyond the contract. Breach of fiduciary duty is a breach which is separate from the contract, but can be alleged along with a breach of contract case.

Professional negligence cases, like malpractice claims, often can be alleged along with a breach of contract case against that professional.

Proof of Various Claims

With many of these causes of action, to prevail on them, the party seeking damages would need to prove a set of facts that are different from the facts that support the breach of contract.

Many of the causes of action other than breach of contract, such as the ones listed above, have their own elements that need to be proven—if they cannot be, then all the aggrieved party would be able to prove anyway, is breach of contract.

Get the most out of your breach of contract case. Call our Fort Lauderdale business lawyers at Sweeney Law P.A. at 954-440-3993 today for help.

Sources:

floridabar.org/the-florida-bar-journal/economic-loss-rule-the-integral-part-approach-to-the-other-property-exception/

stetson.edu/law-review/article/goodbye-economic-loss-rule-hello-damages-did-the-florida-supreme-courts-tiara-decision-clear-the-path-from-contract-to-tort-claims/