Placing the Commercial and Economic Loss Problem in the Construction Industry Context

78 Pages Posted: 6 Nov 2007 Last revised: 13 Mar 2013

See all articles by Carl J. Circo

Carl J. Circo

University of Arkansas - School of Law

Date Written: September 26, 2012

Abstract

This article concludes the author's three-part series that underscores the importance of context in analyzing risk allocation in the construction industry. See Carl J. Circo, When Specialty Designs Cause Building Disasters: Responsibility for Shared Architectural and Engineering Services, 84 NEB. L. REV. 162 (2005); Carl J. Circo, Contract Theory and Contract Practice: Allocating Design Responsibility in the Construction Industry, 58 FLA. L. REV. 561 (2006). Some of the most interesting and frequent economic tort claims raise important policy issues in a construction industry context. For example, the plaintiff may be a disappointed developer or owner seeking recourse against a solvent subcontractor after the builder's bankruptcy, or the claimant may be a building contractor suing to recover delay damages from the owner's architect. Inevitably, the defendant asserts that because it has no direct relationship with the plaintiff, tort policy should preclude recovery for economic harm. Do these claims improperly attempt to cross the boundary between tort and contract? Or do they point toward the next logical tort law frontier? The cases are in considerable disarray. The article briefly surveys how the authorities have analyzed tort claims for recovery of purely economic loss (economic loss incurred without physical damage to person or property). It then critiques in greater detail the most common theories for recovering purely economic loss in building construction cases. The cases are incoherent because the prevailing tort analysis fails to consider industry context. Courts should replace the overstated economic loss rule with a commercial loss defense that will place economic torts in the appropriate context. While the article focuses on the construction industry cases, the recommendations also apply to other economic tort problems.

Keywords: economic loss, construction law

JEL Classification: K12, K13

Suggested Citation

Circo, Carl J., Placing the Commercial and Economic Loss Problem in the Construction Industry Context (September 26, 2012). John Marshall Law Review, Vol. 41, Fall 2007. Available at SSRN: https://ssrn.com/abstract=1027670

Carl J. Circo (Contact Author)

University of Arkansas - School of Law ( email )

Fayetteville, AR 72701
United States
479.575.2714 (Phone)
479.575.3320 (Fax)

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