In the early 1990’s, the Florida Supreme Court ruled that the economic loss rule (“ELR”) could be raised as a complete defense to a cause of action asserting the “negligent” performance of a contract where there was no personal injury or injury to other property. As an example, in a real estate contract which has a purchase price of $150,000.00, if the contract provides that the seller is entitled to $5,000.00 in liquidated damages if the buyer breaches the contract, the ELR could be raised as a defense by the buyer to prevent the seller from suing the buyer for “negligent” performance of the contract to recover more than the agreed upon amount of damages. The reasoning of the ELR is that the parties to a contract have agreed upon the remedy in the event of a breach, and a court must look solely to the contract terms to determine whether there has been a breach and what remedy the contract provides for that breach, unless there has been a tort committed which is independent of the breach of contract (e.g., fraud).
On March 7, 2013, in Tiara Condominium Association, Inc. v. Marsh & McLennan Companies, Inc., 38 Fla.L.Weekly S151 (Fla. 03/07/13), the Florida Supreme Court held that the economic loss rule now does not apply to an action for breach of contract even if the damages sustained are purely economic (i.e., even if there is no personal injury or injury to other property). Some have argued, including the dissenting Justices in the case, that the Florida Supreme Court’s decision was a radical departure from long standing precedent, and now every breach of contract claim will be accompanied by a negligence claim. On the other hand, Justice Pariente, in her concurring opinion, stated that the Court’s decision is not a departure from existing law because “basic common law principles already restrict the remedies available to parties who have specifically negotiated for those remedies, and contrary to the assertions raised in the dissent, our clarification of the economic loss rule’s applicability does nothing to alter these common law concepts.”
How this new case will affect existing and subsequent real estate related litigation remains to be seen.
