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The Economic Loss Rule in the...

Larsen & Rico is an experienced business litigation firm in Salt Lake City that provides effective courtroom representation to clients throughout Utah.

The Economic Loss Rule in the Construction Industry in Utah

In addition to common law, the Utah Legislature has codified the economic loss doctrine to make it clear that “an action for defective design or construction is limited to breach of the contract,” including written and unwritten contracts and for “both express and implied warranties.” Utah Code Ann. § 78B-4-513(1)(2012) (emphasis added). Such action “may include damage to other property . . . if the damage or injury is caused by the defective design or construction.” Utah Code Ann. § 78B-4-513(2). For the construction industry, the economic loss rule now is codified in Utah Code Ann. § 78B-4-513, entitled, “Cause of action for defective construction,” which states:

(1) Except as provided in Subsection (2), an action for defective design or construction is limited to breach of the contract, whether written or otherwise, including both express and implied warranties.

(2) An action for defective design or construction may include damage to other property or physical personal injury if the damage or injury is caused by the defective design or construction.

(3) For purposes of Subsection (2), property damage does not include:

(a) the failure of construction to function as designed; or

(b) diminution of the value of the constructed property because of the defective design or construction.

(4) Except as provided in Subsections (2) and (6), an action for defective design or construction may be brought only by a person in privity of contract with the original contractor, architect, engineer, or the real estate developer.

(5) If a person in privity of contract sues for defective design or construction under this section, nothing in this section precludes the person from bringing, in the same suit, another cause of action to which the person is entitled based on an intentional or willful breach of a duty existing in law.

(6) Nothing in this section precludes a person from assigning a right under a contract to another person, including to a subsequent owner or a homeowners association.

Although a judicially created doctrine, unlike most states, in Utah the application of the Economic Loss Rule to construction defect cases is subject to statutory interpretation, not judicial whim.  In cases based upon a construction defect in Utah, the Economic Loss Doctrine cannot suddenly “recede.” For example, in Tiara Condominium Ass’n, Inc. v. Marsh & McLennan Cos. Inc., 110 So. 3d 399, 407 (Fla. 2013), the Florida Supreme Court brought a halt to what it considered the unprincipled expansion of the economic loss rule, stating:

Having reviewed the origin and original purpose of the economic loss rule, and what has been described as the unprincipled extension of the rule, we now take this final step and hold that the economic loss rule applies only in the products liability context. We thus recede from our prior rulings to the extent that they have applied the economic loss rule to cases other than products liability.

 

 

©2014 Mark A. Larsen, Jonathan O. Hafen, Michael A. Stahler, and Steven R. Glauser

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