Economic Loss Rule Bars Recovery for Construction Defects that do not Cause Property Damage

Aas v. Superior Court, 24 Cal. 4th 627 (2000)

In this case, a condominium homeowners association and condominium owner sued the developer, general contractor and subcontractors who participated in the construction of the condominiums.  The plaintiffs alleged a variety of construction defects related to nearly all components and aspects of the construction, and sought repair costs and damages for diminution in value of their residences.  The defendants sought a motion in limine to exclude evidence relating to alleged construction defects that did not cause property damage.  The trial court granted the defendants’ motions as to the plaintiffs’ tort claims, and the court of appeal denied the plaintiffs’ subsequent petition for a writ of mandate.

The California Supreme Court affirmed the court of appeal’s decision, and held that the economic loss rule barred the plaintiffs from recovering negligence damages for construction defects that did not cause property damage.  The Supreme Court recognized that construction defects can diminish the value of a property, but noted that contract law, warranty law and the law of fraud properly governed situations in which there was a difference between price paid and value received or in which there were deviations from standards of quality.