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The Economic Loss Rule – A 400 Meter Hurdle Event


The Economic Loss Rule – A 400 Meter Hurdle Event

By J. Russel “Rusty” Umble

The construction industry is no stranger to contractual disputes: an owner suing a general contractor for not completing a project in a timely manner, the general contractor subsequently suing a sub-contractor, and so on and so forth. A plaintiff is likely to bring a myriad of causes of action to have the greatest shot at recovery. In addition to a classic breach of contract claim, a plaintiff will often bring a tort action – such as negligence – to boost its damages model and potential payout. However, the economic loss rule (sometimes referred to as the economic loss doctrine) in Texas serves to be a significant hurdle guarding the finish line.

Stated simply, the economic loss rule prevents a plaintiff from recovering against a defendant for the “loss or damage pertaining to the subject matter of a contract, [if the plaintiff] cannot maintain a tort action against the defendant based on the same course of conduct.” [1] In essence, a “duty in tort does not lie when the only injury claimed is one for economic damages recoverable under a breach of contract claim.” [2] In Strobach v. WesTex, the court found that Strobach’s breach of contract claim involved the same allegations as her claim for negligence and therefore her claim arose from a breach of contract and not negligence – correctly barred by the economic loss doctrine. [3}

What defeats the economic loss rule? A party must “plead and prove either a personal injury or property damage as contrasted to mere economic harm.” [4] In 2014, the Texas supreme court issued its opinion in Chapman Custom Homes, Inc. v. Dallas Plumbing Company that a plumber who installed a faulty plumbing system “assumed an implied duty not to flood or otherwise damage the … house while performing its contract with the builder.” [5]

So, in Chapman, the plumber was negligent because he had a duty to not flood the home which created a separate cause of action and avenue for recovery from the breach of contract alone. Such duty was “independent of any obligation undertaken in its plumbing contract with the builder, and the damages allegedly caused by the breach of that duty extend beyond the economic loss of any anticipated benefit under the plumbing contract.” [6]

When a plaintiff is mounting its causes of action, a common approach is to couple together each and every plausible claim. However, if the plaintiff is to be successful on a tort claim, such as negligence, while coupled with a claim under a contract, it must show more than just economic harm.

  1. Strobach v. WesTex Community Credit Union, 621 S.W.3d 856, 878 (Tex. App. ⸻El Paso 2021, no pet. h.) (citing Sterling Chemicals, Inc. v. Texaco Inc., 259 S.W.3d 793, 796 (Tex. App. ⸻Houston [1st Dist.] 2007, pet. denied).
  2. Id. (emphasis added).
  3. Id.
  4. Express One Int’l, Inc. v. Steinbeck, 53 S.W.3d 895, 899 (Tex. App. ⸻Dallas, 2001, no pet.) (“Damages resulting solely from economic harm generally are not recoverable in simple negligence actions. [Citations omitted] To be entitled to damages for negligence, a party must plead and prove either a personal injury or property damage as contrasted to mere economic harm.”).
  5. Chapman Custom Homes, Inc. v. Dallas Plumbing Company, 445 S.W.3d 716, 718 (Tex. 2014) (per curiam).
  6. Id. at 718-19.

J. Russel “Rusty” Umble

Rusty focuses his practice on commercial and construction litigation, insurance defense, and personal injury defense. He routinely represents contractors, independent business owners, and insurance companies. Rusty’s experience covers a variety of disputes involving construction defects, breach of contract claims, business formation issues, negligence, insurance coverage, and personal injury issues.

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