Economic Loss Rule blocks “negligent representation and fraudulent representation” causes of action when a contract controls

In Cox v. O’Brien, No. 37194–4–II the Court of Appeals Div. II reinforced the economic loss rule:

Rumson, New Jersey“Citing Alejandre v. Bull, 159 Wn.2d 674, 682, 153 P.3d 864 (2007), both parties appear to concede that the economic loss rule applies and that the loss at issue here is the structural damage within the walls of the home, undiscovered until after the home sale closed and the Coxes moved in.  In Alejandre, our Supreme Court discussed the economic loss rule as maintaining the fundamental boundaries of tort and contract law.   Alejandre, 159 Wn.2d at 682 (citing Berschauer/Phillips Constr. Co v. Seattle Sch. Dist. No. 1, 124 Wn.2d 816, 826, 881 P.2d 986 (1994)). 

       Where economic losses occur, recovery is confined to contract to ensure that the allocation of risk and the determination of potential future liability is based on what the parties bargained for in the contract.  Alejandre, 159 Wn.2d at 683.  A seller sets a price in consideration of potential contractual liability.  Id. The economic loss rule prevents a party to a contract from obtaining through a tort claim benefits that were not part of the contractual bargain.  Id.

In short, the purpose of the economic loss rule is to bar recovery for alleged breach of tort duties where a contractual relationship exists between the parties and the losses are economic in nature.  If the economic loss rule applies, a party will be held to the contractual remedies, regardless of how the plaintiff characterizes the claims.  Id. at 684.” Cox at 8–9. 

For those readers who are not attorneys and don’t understand some of the intricacies of the economic loss rule, if there is a contractual relationship between the parties, the court will look to the contract and NOT tort law to govern how damages are determined.  Consequently, negligence in representing the condition of the home are controlled by the selling contract, and not general tort law.