Tennessee Supreme Court Holds Economic Loss Doctrine Does Not Apply to Construction Services Contracts

By: Emma Wolfe and M. Ryder Lee

On 28 September 2023, the Tennessee Supreme Court held that the economic loss doctrine (ELD) “only applies in products liability cases and should not be extended to other claims.” After years of confusion and guessing by the lower courts and federal district courts in the state, the Court in Commercial Painting Company, Inc. v. The Weitz Company, LLC, et al. (Weitz) declined to extend the ELD and clarified that it does not apply to contracts for services, including construction contracts.

The ELD is a judicially-created rule aimed at preserving the distinction between contract and tort law by precluding recovery in tort for purely economic or commercial losses arising out of a contractual relationship. As stated in Weitz, it was created to prevent the “tortification” of contract law. The ELD first arose in the products liability context, but has since been extended to apply in other contexts in varying degrees and subjected to numerous exceptions and tests by courts in other jurisdictions. Noting how the ELD’s “unprincipled expansion” had resulted in a “confusing morass” elsewhere, the Supreme Court declined to extend the ELD in Tennessee.

The issue in Weitz was whether Tennessee’s ELD precluded a drywall subcontractor’s sizeable jury award for compensatory and punitive damages in its suit against a general contractor. The Tennessee Court of Appeals held that the ELD applied to limit the subcontractor’s recovery, but the Supreme Court reversed. The Court noted that it found “no compelling reason to extend the economic loss doctrine to services contracts,” including the one at issue.

The immediate impact of this decision is softened by the fact that it merely affirms the status quo in Tennessee. It does, however, remove a great deal of uncertainty surrounding the ELD’s applicability in construction disputes. But, the Weitz opinion will not necessarily preclude the application of the ELD to disputes involving a contract for the sale of goods in connection with a construction project. For typical materials suppliers, application of the ELD would be consistent with the doctrine’s origins and proper in the products liability context, which the Court affirmed. It is likewise possible that a Tennessee court might apply the ELD in the context of construction contract disputes involving vendors of manufacturing equipment where the services provided are only incidental to the products provided. The Court’s reasoning seems to leave that door cracked, at least for now.

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