ECONOMIC LOSS RULE DOES NOT BAR NEGLIGENCE CLAIM BY ONE NOT A PARTY TO CONTRACT

Chapman Custom Homes, Inc. v. Dallas Plumbing Co.
Supreme Court of Texas, No. 13-0776 (August 22, 2014)
Per Curiam
In a per curiam decision, the Supreme Court of Texas reconfirmed the scope of the “economic loss rule.” A property owner retained a contractor to build a home. The contractor, in turn, subcontracted the plumbing work. When the defectively installed plumbing system flooded the newly built structure, the property owner sued. The trial court granted summary judgment to the plumbing subcontractor, holding (i) the property owner had no breach-of-contract claim because it was not a party to the plumbing subcontract, and (ii) the “economic loss rule” barred the owner’s claim for negligence because its petition effectively “asserted only breach of contractual duties.” The court of appeals affirmed, but the Supreme Court reversed. The Court observed that the economic loss rule “does not bar all tort claims arising out of a contractual setting,” particularly with respect to third parties. Here, “the plumber assumed an implied duty not to flood or otherwise damage the [owner’s] house while performing its contract with the builder.” It breached that duty to the owner, independent of any contractual duty to the builder, and the economic loss rule did not bar a claim for damages by the owner, who was not a party to that plumbing contract.

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