Arizona Supreme Court Declines to Expand Economic Loss Doctrine

8.13.13

By Garrett Olexa*

The economic loss rule limits a contracting party to contractual remedies for the recovery of economic losses that are unaccompanied by physical injury to persons or other property. The Arizona Supreme Court recently issued the latest decision on the economic loss rule in Sullivan v. Pulte Home Corp. 2013 WL 3929151 P.3d (July 31, 2013), declining to expand the application of the rule.

In Sullivan, the Court was faced with the question of whether the economic loss rule would bar tort claims asserted against the home builder by the second owner of the home because the second homeowner could have sued the builder for breach of implied warranty. The Supreme Court rejected an attempt to expand the economic loss rule to non-contracting parties. In doing so, the Court in Sullivan re-affirmed its“express limited holding” in Flagstaff Affordable Housing Ltd. Pship v. Design Alliance, Inc., 223 Ariz. 320, 223 P.3d 664 (2010) that “a contracting party is limited to its contractual remedies for purely economic loss from construction defects.”

The Sullivan decision suggests that the Arizona Supreme Court intends to hold the economic loss rule in-check and prevent it from being further expanded. Additionally, in citing with approval language from a secondary source indicating that the economic loss rule should only “ . . . relegate[e] a plaintiff to contract remedies in cases where there is an agreement between the parties allocating economic risks,” the Court hinted that it might also refuse to find that a tort claim is barred by the economic loss rule where (i) a tort duty exists independently of the contract and (ii) the parties’ agreement neither expressly nor implicitly addresses the scope of the duty nor the relief being sought.

*Garrett Olexa is a Member with the law firm of Jennings, Strouss & Salmon, PLC and works in its commercial litigation practice group.He can be contacted at golexa@jsslaw.comor 623.878.2222.