The Oregon Court of Appeals recently applied the so-called “economic loss rule” to a construction dispute (Marton v. Ater Construction Co., 256 Or App 554, __ P3d __ (2013)). Among other issues, the court decided whether the prime contractor’s negligence claim against its subcontractor was barred under the economic loss rule.
Under the court-made economic loss rule, a negligence claimant that doesn’t allege personal injury or property damage (i.e., the claimant alleges only an “economic loss”) must prove that the defendant had a duty to the claimant beyond the garden-variety duty to exercise reasonable care.
In Ater, the prime contractor argued that, because the homeowner’s underlying claim was for property damage caused by negligent construction, its claim against the subcontractor wasn’t purely economic loss. The court, however, found that, because Ater sought to recover its own economic losses (and not those of the homeowner), its claim was barred by the economic loss rule.
The Ater decision is a good reminder to be wary of the economic loss rule when drafting construction and design contracts or assessing a construction dispute. Because the rule has twists and turns, varies from state to state, and is always changing, it’s best to bring more reliable breach-of-contract claims whenever possible.