Florida Economic Loss Rule and How it Should Be Applied
The 11th Circuit Court of Appeals recently upheld the dismissal of a lawsuit based upon the recent Florida Supreme Court opinion of Tiara Condominium Association v. Marsh & McLennan, 110 So2d 399 (Fla. 2013). The Tiara opinion was issued last year and clarified the application of Florida’s economic loss doctrine to various types of cases. In this recent use of the Tiara opinion, the 11th Circuit upheld the dismissal of a lawsuit against a bank regarding the account holder having been scammed.
After being ripped off by an Internet scam, Lamm (the account holder) tried to recoup his losses by suing his bank. He alleged multiple counts premised upon breach of express contract, breach of implied contract, breach of fiduciary duty, negligence, gross negligence, aiding and abetting the breach of a fiduciary duty, and aiding and abetting fraud. All of these causes of action arose from the bank accepting what appeared to be counterfeit paper and transferring funds, which were subsequently lost. Apparently, the bank did not check to make sure that the paper wasn’t counterfeit. Why the account holder felt it was the banks obligation to do his homework for him is beyond me. However, the various appellate court decisions illustrate the concept of greed overshadowing common sense. Somehow Lamm thought the bank had a duty to tell him that the securities were worthless. However, he was the one that accepted the paperwork.
State Street Bank moved to dismiss the complaint in its entirety, citing the Tiara opinion for the proposition that Florida now limited the economic loss doctrine to products liability cases only and thus the tort claims must fail. This argument was successful at the trial court level and ultimately approved by the 11th Circuit.
But what exactly is the economic loss rule?
This has been a popular topic of the Florida Bar examiners and frequently causes anxiety in new lawyers regarding its application. Simply put, the original economic loss rule barred suing in tort when the underlying cause of action was really a breach of contract claim. When the only losses are economic, a litigant can only use breach of contract and not the claim of a tort to pursue their remedies. The rule was initially applied to protect manufacturers from liability for economic damages caused by a defective product beyond those damages provided by warranty law. However, subsequent opinions applied this rule to other types of claims, and the ensuing appellate court mess needed to be clarified.
One would think that this is a fairly easy issue to be analyzed, but it has proven to be a problem for many trial judges and appellate court judges. Given the plethora of different factual scenarios that occur in real life, it is not difficult to see that different scenarios can create different end results. This is true, especially when there is no independent act or omission to support a tort claim other than the breach of contract.
The Tiara lawsuit stemmed from an insurance broker allegedly failing to secure the correct windstorm coverage limits for a condominium tower located on Singer Island in Palm Beach County Florida. When the 2004 fall hurricanes Frances and Jeanne caused significant damage in excess of $50 million to the entire condominium building, it didn’t take long for the owners to realize that they had a problem with their insurance coverage. Instead of the $100 million in coverage that they thought they were getting, they were limited to $50 million. Given there was more than $89 million in damage to this one structure, litigation was deemed necessary. Tiara subsequently sued their insurance broker in federal court alleging: breach of contract, negligent misrepresentation, breach of implied covenant of good faith and fair dealing, negligence, and breach of fiduciary duty. The trial court granted summary judgment in favor of the broker on all claims. Because multiple issues were decided based on Florida law, the federal appellate court asked Florida Courts for interpretation of various legal issues. That process ultimately led to the Florida Supreme Court issuing its Tiara opinion.
The economic loss rule was initially created to apply only to cases involving product liability. Although many commentators thought it was a departure from precedent, it really wasn’t. Multiple previous appellate court decisions had attempted to clarify where the originating court was going when the economic loss rule was first developed. The bottom line of all of these cases was that it did not clarify the law, and it was up to the Florida Supreme Court to do so. Given the rule was always intended to apply to product liability cases, all of the various interpretations expanding the rule to other cases was deemed inappropriate.
Where are we now in regards to the economic loss rule?
Clearly, the language in the Tiara opinion states that it is to be applied only to product liability cases. However, it will not take long for creative lawyers to demonstrate that it should be expanded to other areas or other causes of action that judges had not previously thought about. What about legal malpractice claims? Most of the time lawyers are retained under a written fee agreement. Does this rule prohibit them from being sued in tort? According to Tiara, this rule would not apply. However, the dissenting opinions in Tiara would seem to say otherwise. Are there any cases pending in which a higher court might provide clarification? Right now, there are none.
Although the 2013 Tiara opinion would seem to have set the law on this issue, savvy litigators will still raise it as either an affirmative defense or the grounds for motion to dismiss. It is just a matter of time before additional cases or factual scenarios come forth in which the appellate courts will have another opportunity to clarify this doctrine. Until then, “if you don’t raise it, you might lose it” would seem to be the prudent path to take.
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