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Construction Law

: The South Carolina Construction Law Blog

Exception to the Economic Loss Rule Extended to Commercial Construction

By Ryan McCabe

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            The economic loss rule is a court-created doctrine that bars liability in tort where the only damages are injuries to the defective product itself: this means no personal injuries or damages to other property exist. See Kennedy v. Columbia Lumber & Mfg. Co., 299 S.C. 335, 341 (1989). The rule only applies where the duty owed by the wrongdoer to the aggrieved arises out of a contract.

            In 2008, the Supreme Court of South Carolina considered the applicability of the economic loss rule in the context of commercial context. See Colleton Preparatory Acad., Inc. v. Hoover Universal, Inc., 379 S.C. 181 (2008)Colleton Preparatory Acad., Inc. v. Hoover Universal, Inc., 379 S.C. 181 (2008). Plaintiff, a private school in Walterboro, South Carolina, sued Defendant for negligence and reckless/gross negligence. Defendant manufactured the fire retardant used to treat the wood on Plaintiff's roof. The school alleged that the roof's truss system had to be replaced for safety reasons because the retardant caused the wood to deteriorate.

            The Court noted that like builders who have a legal duty outside of the contract to meet industry standards, manufacturers owe the expected users of their products the duty of care to conform with industry standards also. The focus is the defendant's actions, rather the consequences of their conduct. Accordingly, the court found that defendant manufacturer of the retardant owed more than a contractual duty to the school. Therefore, the economic loss rule was not applicable.

            The important part of the decision was with regard to commercial plaintiffs versus home buyers or other consumers. Namely, the Court noted that commercial users or owners also do not have to wait until a defective product causes personal injuries or damages to other property to have a tort claim.

            Manufacturers owe commercial plaintiffs the duty to manufacture products that do not pose a "serious threat of physical harm." Id. at 191. This duty is separate and apart from contractual duties. See id. Importantly, however, the Court limited this duty to serious threats of injury. Damages would then be the costs to repair or remove the dangerous product. Id. at 193.

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Full post as published by The South Carolina Construction Law Blog on May 13, 2009 (boomark / email).