Florida’s Supreme Court Finally Brings Clarity To The Economic Loss Rule

April 1, 2005

This article was originally published in the Subrogator, a publication by the National Association of Subrogation Professionals, Spring/Summer 2005, Page 100. © Copyright 2005 by NASP. All rights reserved. Republished by Butler with permission from NASP.  

After years of confusing and contradictory rulings, Florida’s Supreme Court finally reigned in the scope of the Economic Loss Rule. In Indemnity Ins. Co. v. American Aviation, Inc., 891 So. 2d 532 (Fla. 2004), the Florida Supreme Court cogently limited the Economic Loss Rule. It held that the Economic Loss Rule does not bar a negligence action to recover solely economic damages where the defendant is not a product manufacturer or distributor. The Court also held that the Economic Loss Rule simply does not apply to any situation where there is no privity between the litigants.

In Indemnity, the owner of an aircraft, Profile, and the aircraft’s insurer, Indemnity, brought suit against American Aviation for damages caused by negligent maintenance. American Aviation was not a manufacturer or distributor of the aircraft and there was no privity of contract. The United States District Court for the Middle District of Florida dismissed the tort actions brought by Profile and Indemnity against American Aviation, finding said claims barred by the Economic Loss Rule. Profile and Indemnity appealed the dismissal of the claims to the Eleventh Circuit. The Eleventh Circuit certified five questions to the Florida Supreme Court, which in turn rephrased the questions as follows:

WHETHER THE ECONOMIC LOSS DOCTRINE BARS A NEGLIGENCE ACTION TO RECOVER PURELY ECONOMIC LOSS IN A CASE WHERE THE DEFENDANT IS NEITHER A MANUFACTURER NOR DISTRIBUTOR OF A PRODUCT AND THERE IS NO PRIVITY OF CONTRACT.

In answering the rephrased certified question in the negative, the Florida Supreme Court reviewed the history of the Economic Loss Rule in Florida. The Court noted that the Economic Loss Rule has traditionally been applied in two circumstances: (1) where the parties are in contractual privity and one party seeks to recover damages in tort for matters arising from the contract and (2) where there is a defect in a product which causes damage to the product but causes no personal injury or property damage to other property.

The Court in Indemnity noted that the present matter did not involve an action in which the parties were in privity of contract, nor in which the defendant was a manufacturer or distributor of a product which damaged only itself. Rather, the matter involved plaintiffs who were claiming economic loss by the alleged negligence of a defendant with whom the plaintiffs were not in privity. As the Indemnity case did not fall under the two circumstances in which the Economic Loss Rule has traditionally been applied, the Court held that the Economic Loss Rule should not be applied. The Court reiterated that the Economic Loss Rule should continue to be applied to those cases which fall under these two categories, however, all other cases should be decided under traditional negligence principles.

The Indemnity decision is important because subrogation claims for negligence can now clearly be brought in Florida against those defendants who are not manufacturers or distributors of the product in question, or in privity with the plaintiffs. The Indemnity case should greatly expand the subrogation recovery opportunities available in Florida.