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Economic Loss Rule Prevents Tort Action in Pure Contract Matter
Description Colorado high court upheld a judgment for a contractor who was found not to have breached a contract with a city. Because the issue in the case was breach of contract and the monetary damages from the alleged breach, there could be no suit in tort for negligence. Such a suit is prohibited by the economic loss rule.
Topic Contracts
Key Words Breach; Torts; Economic Loss Rule
C A S E   S U M M A R Y
Facts The Town of Alma, Colorado and various residents sued AZCO Construction for breach of contract and negligence due to problems associated with water line installation work done by AZCO. The trial court dismissed the negligence claim and the jury held for AZCO on the breach of contract claim. Plaintiffs' appeal was rejected by the appeals court. Plaintiffs appealed to the Colorado high court.
Decision Affirmed. The negligence claim was properly dismissed. That is a tort claim. The issue in this case was breach of contract-whether the contractor had followed the terms of the contract, which the jury found to be the case. When a party suffers only an economic loss from the breach of an express or implied contractual duty, there may be no tort claim for such a breach absent an independent duty of care under tort law. The economic loss rule in this context is generally defined as damages other than physical harm to persons or property. This rule applies to third-party contract beneficiaries, the residents of the town in this case, who may have a cause of action for breach of contractual duties. Since the contractor was found not to have breached any duty independent of its contractual obligation, there can be no tort action against it.
Citation Town of Alma v. AZCO Construction, Inc., 2000 WL 1336285 (Sup. Ct., Colo., 2000)

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