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Town of Alma v. Azco Construction9/18/2000
quotation marks omitted, citations omitted); see also University of Denver v. Whitlock, 744 P.2d 54, 57 (Colo. 1987); Metropolitan Gas Repair Serv., Inc. v. Kulik, 621 P.2d 313, 317 (Colo. 1980).
Consistent with this duty analysis, we now expressly adopt the economic loss rule. We hold that a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law. Economic loss is defined generally as damages other than physical harm to persons or property.
E. Application of the Rule
Turning to the facts before us, the contract in the instant case expressly assigned a duty of care to AZCO in the installation of the water system¾it was this contractual duty that AZCO allegedly breached. The provisions contained within the contract demonstrate that AZCO guaranteed its workmanship when it installed the water system. Section 29.1 of the Contract, titled "GUARANTEE," provided, "[AZCO] shall guarantee all materials and equipment furnished and WORK performed for a period of one (1) year . . . . [AZCO] warrants and guarantees . . . that the completed system is free from all defects due to faulty materials or workmanship." (Emphasis added.) In addition, section 3.3.1 of the "Special Conditions" attached to the contract, titled "MAINTENANCE AND GUARANTY," provided, "[AZCO] hereby guarantees that the entire work constructed by under the contract will fully meet all requirements of the contract as to quality of workmanship and materials . . . ." (Emphasis added.) These contractual provisions demonstrate that AZCO expressly assumed the duty to guarantee its quality of workmanship and its materials when it undertook to install the water system. As such, Petitioners have failed to demonstrate that AZCO breached any duty independent of its contractual obligations.
Moreover, the town and the individual landowners are only seeking damages for the cost of repair and replacement of the water lines that were the subject of the contract. Damages for the cost of repair and replacement of property that were the subject of the contract constitute economic loss damages that must be supported by an independent duty of care to be recoverable in a negligence action. As there is no independent duty to support Petitioners' negligence claim, the economic loss rule bars this claim. See Sensenbrenner v. Rust, Orling & Neale, Architects, Inc., 374 S.E.2d 55, 58 (Va. 1988) ("The effect of the failure of the substandard parts to meet the bargained-for level of quality was to cause a diminution in the value of the whole, measured by the cost of repair. This is a purely economic loss, for which the law of contracts provides the sole remedy.")
Petitioners argue that applying the economic loss rule to bar its negligence claim would be inconsistent with our prior cases. Petitioners rely primarily on a trilogy of cases where we allowed a negligence action to proceed despite the existence of a contractual relationship between the parties. Lembke Plumbing and Heating v. Hayutin, 148 Colo. 334, 366 P.2d 673 (1961); Metropolitan Gas Repair Serv., Inc. v. Kulik, 621 P.2d 313 (Colo. 1981); Cosmopolitan Homes, Inc. v. Weller, 663 P.2d 1041 (Colo. 1983). Upon review, we conclude that the economic loss rule we formulate today does not conflict with our earlier cases because in each of these cases the negligence claims arose from the breach of duties which were independent of the contract.
Specifically, in Lembke, 366 P.2d 673, we considered whether homeowners could bring a negligence action against Lembke Plumbing and Heating ("Lembke") for negligently installing plumbing
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