On March 7, 2013, in Tiara Condominium Association Inc. v. Marsh & MClennan Companies, the Supreme Court of Florida issued a surprising and far reaching opinion, essentially overruling three decades of prior Florida Supreme Court precedent concerning the application of a doctrine known as the Economic Loss Rule (ELR). 

The ELR was essentially a judicially created rule that precluded or limited a party to a contract from bringing tort claims for economic losses.  The ELR operated to favor contractual remedies over tort remedies when the claim for damages was for economic losses (i.e., not property damage or bodily injury). 

Why is this decision important?

While it is too soon to understand the long term effects of the decision, the immediate reaction from those reviewing it is that we are likely to see an increase in business tort claims seeking recovery for economic losses in a contractual setting.  Parties that have invested substantial time and dollars allocating contractual risks and responsibilities are likely to see adverse parties in a contractual relationship bring (formerly barred) tort claims for economic losses, while seeking to avoid the application of unfavorable contractual terms.  Companies and individuals that in the past were able to utilize superior bargaining power to negotiate very favorable contractual terms limiting their liability may now find themselves in unfamiliar territory defending a business tort claim without the protection of the ELR to shield them from such claims. 

What can businesses do to protect themselves?

In light of the Tiara Condominium case, businesses are well advised to review the terms of their contracts, including their form or template contracts, to evaluate modifications necessitated by the Tiara Condominium decision.  It would be prudent, for example, for businesses to include in their contracts an express waiver and release by the adverse contracting party of the right to bring tort claims for strictly economic losses arising out of the performance of the contract.  Previously, the operation of the ELR essentially served to eliminate that exposure but the Tiara Condominium decision has effectively removed that tort shield from the hands of businesses in Florida.  While it is always a good idea to periodically review form contracts to ensure compliance with changing state laws, the Tiara Condominium opinion should cause risk averse businesses to revisit their contract forms sooner rather than later.