Authored by Attorney J. Brandon Sieg, firstname.lastname@example.org; 804.237.8829
If you are a contractor in Virginia, you may have heard of the “economic loss rule.” This legal rule helps preserve a distinction between contract law and tort negligence. Contract law upholds agreements made between parties, and Virginia courts value the terms of the parties’ agreement. For example, if a project owner hires you to construct a building and your work has an unreasonable number of problems, then the project owner may recover the cost to correct your mistakes as damages in a breach of contract action. The costs to correct errors in your work are a type of economic loss, which is governed by your contract with the owner.
On the other hand, there is also a “common law” duty not to harm people in the community. This is the concern of tort negligence. For example, if the building collapses due to a defect in your work and people are injured by the collapse, then those people can probably recover damages from you, as the contractor, for the harm they suffered. The injured people might have a viable claim for personal injury or property damage even if you did not have a contract with them.
This analysis becomes more complex when, as often happens in construction projects, there are many different subcontractors and sub-subcontractors, each of which is party to a different contract. Among other things, the economic loss rule helps to prevent building owners from converting one breach of contract issue into a broad tort negligence lawsuit directed against all project participants.
For example, imagine a project where you are a subcontractor responsible for a discrete part of the project. Perhaps the owner thinks your work was inadequate, but nobody has been injured. The owner’s disappointed expectations in your work, absent personal injury or property damage beyond the building itself, will still be governed by the owner’s contract with the prime construction contractor. The owner’s claims for the cost of repairing your work must, therefore, flow through the series of contracts, starting first with a lawsuit against the prime construction contractor. See Sensenbrenner v. Rust, Orling & Neale, Architects, Inc., 236 Va. 419 (1988). There will undoubtedly be contract terms allocating this risk throughout the chain of individual construction contracts, but the economic loss rule benefits the entire construction team by ensuring that claims flow through that negotiated contact structure and that recoverable damages are limited to contract damages.
Building owners who do not have a contract directly with the targeted member of the construction team may try to short-circuit the economic loss rule analysis to support a claim directly against that remote sub- or sub-subcontractor. For example, the owner might argue that a sub-subcontractor negligently breached a duty to follow applicable building codes. This argument draws on an appreciation that building codes promote public safety, and public safety sounds like a tort negligence issue.
But just because something sounds like a tort, doesn’t mean that it is a tort. After all, the purpose of building codes is to protect the safety of the public, not to protect a building owner’s economic interests. See Zuberi v. Hirezi, 2017 WL 436278 (E.D. Va. Jan. 30, 2017). Simply recasting disappointed expectations about a construction project through the lens of an obscure building code violation is not likely sufficient for a building owner to overcome the economic loss rule.
All of this is to say that the analysis of construction claims is no more intuitive than the analysis of building codes you perform in your own daily work. The analysis can follow many twists and turns, and you should promptly seek the advice of a construction attorney when a project owner references a potential claim affecting your work in any way.
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