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Town of Alma v. Azco Construction9/18/2000
n of Alma, 985 P.2d at 57 (this appeal); Grynberg v. Agri Tech, Inc., 985 P.2d 59, 63 (Colo. App. 1999) (holding that the economic loss rule bars negligence claim for failure to receive a particular return on cattle investment program); Terrones v. Tapia, 967 P.2d 216, 220 (Colo. App. 1998) (holding that the rule bars negligence claim for lost profits as a result of restaurant owner's inability to use drive-through window); Chellsen v. Pena, 857 P.2d 472, 477 (Colo. App. 1992)(citing economic loss rule to bar action for negligent termination of employment); Scott Co. of California v. MK-Ferguson Co., 832 P.2d 1000, 1005 (Colo. App. 1991) (holding that the rule bars subcontractor's negligence claim because no independent duty was breached); Centennial Square, Ltd. v. Resolution Trust Co., 815 P.2d 1002, 1004 (Colo. App. 1991) (upholding dismissal of borrowers' negligence claim against lender because no independent duty was breached); cf. Consolidated Hardwoods, Inc. v. Alexander Concrete Constr., Inc., 811 P.2d 440, 443 (Colo. App. 1991) (allowing homeowner's negligence claim against subcontractor because independent duty was breached).
C. Rationale Underlying the Economic Loss Rule
Although originally born from products liability law, the application of the economic loss rule is broader, because it serves to maintain a distinction between contract and tort law. The essential difference between a tort obligation and a contract obligation is the source of the duties of the parties.
Tort obligations generally arise from duties imposed by law. Tort law is designed to protect all citizens from the risk of physical harm to their persons or to their property. These duties are imposed by law without regard to any agreement or contract.
In contrast, contract obligations arise from promises made between parties. Contract law is intended to enforce the expectancy interests created by the parties' promises so that they can allocate risks and costs during their bargaining. Limiting tort liability when a contract exists between parties is appropriate because a product's potential nonperformance can be adequately addressed by rational economic actors bargaining at arms length to shape the terms of the contract. For example, a buyer may demand additional warranties on a product while agreeing to pay a higher price, or the same buyer may choose to assume a higher level of risk that a product will not perform properly by accepting a more limited warranty in exchange for a lower product price. Limiting the availability of tort remedies in these situations holds parties to the terms of their bargain. In this way, the law serves to encourage parties to confidently allocate risks and costs during their bargaining without fear that unanticipated liability may arise in the future, effectively negating the parties' efforts to build these cost considerations into the contract. The economic loss rule thus serves to ensure predictability in commercial transactions.
The key to determining the availability of a contract or tort action lies in determining the source of the duty that forms the basis of the action. We find the following discussion by the South Carolina Supreme Court informative:
The question, thus, is not whether the damages are physical or economic. Rather the question of whether the plaintiff may maintain an action in tort for purely economic loss turns on the determination of the source of the duty plaintiff claims the defendant owed. A breach of a duty which arises under the provisions of a contract between the parties must be redressed under contract, and a tort action will not lie. A breach of a duty arising independently of any contract duties betwe
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