Kentucky Court of Appeals Rejects Argument for Expansion of Economic Loss Rule

Kentucky Court of Appeals Rejects Argument for Expansion of Economic Loss Rule

      With respect to the sale of products, the Kentucky Supreme Court has endorsed the “economic loss rule,” a legal principle that “prevents the commercial purchaser of a product from suing in tort to recover for economic losses arising from the malfunction of the product itself, recognizing that such damages must be recovered, if at all, pursuant to contract law.” Giddings & Lewis, Inc. v. Industrial Risk Insurer, 348 S.W.3d 729, 733 (Ky. 2011). In a recent decision, the Kentucky Court of Appeals considered and rejected an effort to expand the application of the economic loss rule to a service contract. D.W. Wilburn, Inc. v. K. Norman Barry Associates, Architects, PLLC, No. 2015-CA-001254-MR (Ky. App. December 22, 2016).

      This dispute arose out of an effort to build a new high school in Oldham County. Consequent to various change orders, delays arose in the project. Eventually an electrical subcontractor would bring suit alleging various damages. One defense raised was the economic loss rule, a position that would be rejected by the Court of Appeals. After reviewing the history of the economic loss rule in Kentucky, and notwithstanding the citation to cases indicating that the economic loss rule has expanded beyond products liability into construction litigation (Cincinnati Ins. Cos. v. Staggs & Fisher Consulting Engineers, Inc., 2008-CA-002395-MR, 2013 WL 1003543 (Ky. App. 2013)), the Court cited other decisions predicting that Kentucky courts would not expand the economic loss rule to construction services contracts.

      This panel the Court of Appeals was comfortable concluding that the economic loss doctrine does not preclude a claim for negligent representation, finding that to the contrary holding would essentially “eviscerate” claims for negligent representation. Ergo “We conclude that the economic loss doctrine does not apply to a claim of negligent misrepresentation and the architect/contractor scenario.” Slip op. at 16.