Court Opinion

ID: 9806045
Source: CourtListenerOpinion
Date Created: 2023-08-31 18:36:45.751347+00
Date Added: 2024-06-11T10:55:20.299085
License: Public Domain

Robinson, J.,
¶ 33. concurring and dissenting. The majority expands the so-called economic-loss rule by applying it to claims resting on physical damage to property and by implying a presumptive prospective waiver of tort claims whenever parties assume corresponding contractual duties. In so doing, it misapprehends the rationale for and scope of the rule, further muddying an already confused area of law.
¶ 34. Courts, including this one, have cited “the economic-loss rule” to support a variety of related but nonetheless distinct *471propositions.3 This Court has generally cited the “rule” in support of two related principles — one general, and one more specific. At the general level, the rule “prohibits recovery in tort for purely economic losses” — except when it doesn’t.4 See Long Trail, 2012 *472VT 80, ¶ 10 (quotation omitted); see also Gus’ Catering, Inc. v. Menusoft Sys., 171 Vt. 556, 558, 762 A.2d 804, 807 (2000) (mem.) (“Negligence law does not generally recognize a duty to exercise reasonable care to avoid intangible economic loss to another unless one’s conduct has inflicted some accompanying physical harm, which does not include economic loss.” (alterations and quotation omitted)).
¶ 35. Significantly, as this Court has long recognized, the “economic losses” to which the economic-loss rule applies are intangible economic losses, and do not include losses accompanying physical harm to persons or property. See Long Trail, 2012 VT 80, ¶ 10 (“ ‘negligence actions are limited to those involving unanticipated physical injury' ” (emphasis added) (quoting EBWS, LLC v. Britly Corp., 2007 VT 37, ¶ 30, 181 Vt. 513, 928 A.2d 497)); Glassford v. BrickKicker, 2011 VT 118, ¶41, 191 Vt. 1, 35 A.3d 1044 (“When, as here, economic loss without physical injury is claimed by plaintiff, the obligation of defendant is governed by the contract terms, and not the law of negligence.” (emphasis added)); Wentworth v. Crawford & Co., 174 Vt. 118, 126, 807 A.2d 351, 356 (2002) (“absent some accompanying physical harm, there is no duty to exercise reasonable care to protect another’s economic interests” (emphasis added)); Springfield Hydroelectric, 172 Vt. at 314, 779 A.2d at 70 (“[Njegligence law does not generally recognize a duty to exercise reasonable care to avoid intangible economic loss to another unless one’s conduct has inflicted some accompanying physical harm!’) (emphasis added) (quotation omitted); Restatement (Third) of Torts: Liab. for Econ. Harm §2 (“ ‘[Economic loss’ is pecuniary damage not arising from injury to the plaintiffs person or from physical harm to the plaintiffs property!’ (emphasis added)).
¶ 36. A more specific corollary to the general rule articulated above is that the assumption of a contractual duty does not give rise to a tort duty to prevent economic losses with respect to the subject of the contract. Long Trail, 2012 VT 80, ¶ 10 (“ ‘[Claimants cannot seek, through tort law, to alleviate losses incurred pursuant to a contract.’ ” (quoting EBWS, 2007 VT 37, ¶ 30)); Wentworth, 174 Vt. at 127, 807 A.2d at 357 (“[O]ur caselaw prohibits a claimant from seeking damages for contractual losses through tort law.”); Restatement (Third) of Torts: Liab. for Econ. Harm § 3 (“Except as provided elsewhere in this Restatement, there is no liability in tort for economic loss caused by negligence *473in the performance or negotiation of a contract between the parties.”). We have sometimes said that the economic-loss rule “serves to maintain a distinction between contract and tort law.” Long Trail, 2012 VT 80, ¶ 10.
¶ 37. However, it is not the law, and we have never previously held, that a person cannot have simultaneous duties in tort and contract covering the same subject matter. The existence of a contractual duty does not give rise to a tort duty to prevent economic losses where such a duty does not otherwise exist, but neither does it as a matter of law negate an independent tort duty. As we have previously recognized, “[t]he underlying analysis turns on whether there is ‘a duty of care independent of any contractual obligations.’ ”5 Springfield Hydroelectric, 172 Vt. at 316, 779 A.2d at 71 (quoting Grynberg v. Agri Tech, Inc., 10 P.3d 1267, 1269 (Colo. 2000)).6
¶ 38. To be sure, contracting parties may agree in advance to limit the remedies available for a party’s negligence in tort, but it takes more than contract provisions establishing overlapping contract duties to effect such a waiver or limitation. First and foremost, courts will not enforce an exculpatory agreement unless the language effectuating the waiver is clear. We have explained that “courts have traditionally disfavored contractual exclusions of negligence liability,” and accordingly “have applied more exacting judicial scrutiny when interpreting this type of contractual provision.” Colgan v. Agway, Inc., 150 Vt. 373, 375, 553 A.2d 143, 145 (1988). “[A] greater degree of clarity is necessary to make [an] exculpatory clause effective than would be required for other types of contract provisions,” and such clauses “must be construed strictly against the part[y] relying on them.” Id. (emphasis omitted). Accordingly, “contractual language disclaiming tort liability [must] be clear enough that the intent of both parties to reheve the defendant of the claimed liability [is] unmistakable.” Id.
*474¶ 39. We have explained that “[t]he most effective way for parties to express an intention to release one party from liability flowing from that party’s own negligence is to provide explicitly that claims based in negligence are included in the release.” Id. at 376, 553 A.2d at 146. In Colgan, we concluded that broad exculpatory language at the end of a limited warranty clause was insufficient to shield the defendant from liability for negligent design. Compare id. at 376-77, 553 A.2d at 146, with Douglass v. Skiing Standards, Inc., 142 Vt. 634, 635-37, 459 A.2d 97, 97-99 (1983) (holding that agreement, viewed in its entirety, was sufficiently clear to show that experienced, professional skier intended to hold ski area harmless).
¶ 40. In addition, we have recognized that “[e]ven well-drafted exculpatory agreements . . . may be void because they violate public policy.” Dalury v. S-K-I, Ltd., 164 Vt. 329, 332, 670 A.2d 795, 797 (1995); see also Glassford, 2011 VT 118, ¶¶ 17-30 (evaluating substantive provisions of contract and circumstances surrounding its execution in concluding that contract effectively limiting liability was void as against public policy).
¶ 41. Turning to this case, in his second amended complaint Walsh alleged that “[i]n the process of vacating the premises, the Defendants negligently damaged them quite extensively which inhibited the Plaintiff from reletting the premises for some time, while repairs were made.” Walsh sought a judgment that “the Defendants are liable for the cost of repairing the damages to the Lease Premises negligently inflicted by them, the loss of rentals during the period of repair, and other consequential damages resulting therefrom.”
¶ 42. At trial, Walsh supported these allegations with evidence that defendants left holes in the sheetrock, including a major hole, such that the sheetrock had to be replaced; altered the windows by removing or damaging surrounding molding or trim; destroyed the heating units, necessitating replacement; failed to put sheet-rock up in Unit 8 after (with Walsh’s consent) removing a bathroom in Unit 6 to make room for a stairway to connect two units; damaged light switches and an electric-outlet plate; left dangling electric wires which had to be removed and capped by an electrician; caused several hundred dollars’ worth of damage to ceiling tiles; broke the thermostat and left it dangling; and damaged the doorframe and latch such that Walsh had to replace them.
*475¶ 43. In affirming the dismissal of Walsh’s claims on the basis of the economic-loss rule, the majority makes two significant missteps. First and foremost, it has invoked the rule in a setting in which the plaintiff is not seeking damages for purely economic losses. Walsh’s allegations and the above evidence clearly support a claim for damage to his property. This simply isn’t an “economic-loss” case, in which a plaintiff is seeking a tort remedy for a purely economic loss. For that reason, the economic-loss rule should pose no obstacle to Walsh’s claims. The fact that, in addition to the costs of repairing the damaged property, Walsh seeks a judgment for the loss of rental income during the repair period does not change the character of his claim or convert it into a claim for purely economic losses. He does not seek damages for “economic loss without physical injury,” Glassford, 2011 VT 118, ¶ 41, or “absent some accompanying physical harm.” Wentworth, 174 Vt. at 126, 807 A.2d at 356. See also Restatement (Third) of Torts: Liab. for Econ. Harm § 2 cmt. a (“Economic loss that accompanies even minor injury to the plaintiff’s person or property” does not fall into the category of pecuniary losses subject to the economic-loss rule.). On this basis alone, I would reverse the trial court’s decision.
¶ 44. The majority recognizes that this case involves harm to property, but asserts that “injury to the product or property that is the subject of a contract is generally considered a disappointed economic expectation for which relief lies in contract rather than tort law.” Ante, ¶ 28. This general statement has everything to do with products liability and construction cases, and nothing to do with a case like this. The primary case relied upon by the majority, East River Steamship Corp. v. Transamerica Delaval Inc., involved ship turbines which failed due to design and manufacturing defects. 476 U.S. 858, 859-61 (1986). No other property was damaged as a result of the failures, but the economic expectations of the companies that chartered the affected ships were frustrated. Id. at 861-62. The question presented to the Court was whether the defective turbines could support a claim in tort for products liability. The Court noted that “when a product injures itself, the commercial user stands to lose the value of the product, risks the displeasure of its customers who find that the product does not meet their needs, or, as in this case, experiences increased costs in performing a service.” Id. at 871. The Court concluded that “[djamage to a product itself is most naturally *476understood as a warranty claim. Such damage means simply that the product has not met the customer’s expectations, or, in other words, that the customer has received ‘insufficient product value.’ ” Id. at 872 (citation omitted). The Court’s conclusion reflects a specific application of the general principle that, with a host of exceptions, a person has no duty in tort to protect another against purely economic harms, and of the more particular principle that the fact of a contract between the parties does not give rise to a tort duty where such a duty does not otherwise exist. The same is true in construction cases in which a party contracts to build something for another: in the absence of an independent tort duty, the fact of a contract does not give rise to a tort duty on the part of the builder to avoid purely economic harms to others resulting from negligent construction. Long Trail, 2012 VT 80, ¶ 11.
¶ 45. The leased premises in this case are in no way akin to the defective product in East River Steamship or the defectively constructed condominium in Long Trail. As the Florida Supreme Court noted in connection with a similar issue, “[h]ad the courts adhered to [the East River] requirements (a product, the product damaging itself, and economic losses), the confusion that has abounded in this area of the law would have been minimized.” Comptech Int’l, Inc. v. Milam Commerce Park, Ltd., 753 So. 2d 1219, 1224 (Fla. 1999), modified by Tiara Condo. Ass’n v. Marsh & McLennan Cos., 110 So. 3d 399 (Fla. 2013). Although the leased premises in this case were “the subject of a contract” in a colloquial sense, the damage alleged here was not in any sense a mere frustration of the goals and purposes of the contract. Walsh did not hire defendants to repair the space in question; he leased it to them for their commercial use. The damage here was the product of a breach of a duty independent from — indeed, having nothing to do with — the contract or obligations arising solely from that contract. A builder has no obligation to build a building that doesn’t collapse except to the extent that someone contracts with that builder to do so: In the absence of any other injury to person or property, a manufacturer’s obligation to provide a widget that does not blow itself up arises only from the manufacturer’s warranty. By contrast, any person walking off the street, with no obligations based in a lease and no relationship to another entity with obligations based in a lease, would be similarly liable for negligently damaging the premises at issue here.
*477¶46. That leads to the second flaw in the majority’s analysis. Rather than considering whether, independent of the contract, Walsh has alleged a breach of a cognizable tort (or other) duty by defendants, and, in turn, whether the contract then limits that duty, the majority concludes that because the parties executed a contract with provisions imposing a duty on defendants with respect to the condition of the leased premises, no tort duty exists. In doing so, the majority falls into the very trap criticized in the treatise upon which it relies:
The principle that respects the parties’ private ordering is to some extent undermined when courts assume, without analyzing the contract, that the contract has allocated risks on the matter in dispute. In addition, some courts have applied the contract version of the economic loss rules much more broadly than the core idea suggests. For example, courts may exclude the tort claim because the contract imposes a duty that is the same as or similar to the duty imposed by an independent tort rule. Courts may also exclude the tort claim that arises from an independent tort duty if the tort claim deals with the same “subject matter” covered by the contract, or is “interwoven” with the contract, or even when the tort claim merely arises from the same set of facts as the contract claim. Professor Johnson has carefully criticized these broad approximations. It is possible that fine-tuning over-broad statements will come as case law develops with more attention to effectuating the parties’ intent in contracting.
3 D. Dobbs, et al., The Law of Torts § 613, at 480-81 (2d ed. 2011) (emphasis added) (footnotes omitted). The same treatise explains:
Where a contract creates a special relationship between the parties, such as a status like lawyer and client, the duties arising from the relationship may often be enforced in tort, not merely in contract. However, according to some authority, if the contract sets a duty relevant to the claim, the contract will control even if there would also be a tort duty independent of the claim.
Id. § 615, at 490 (emphasis added) (footnote omitted). The statement from Dobbs upon which the majority relies in characterizing *478the law on this point, ante, ¶ 31 n.2, thus does not reflect the majority or preferred view, but rather represents the treatise’s acknowledgment that some courts have departed from the general approach described in the treatise with respect to cases in which tort duty arising from a “special relationship” exists even with respect to solely economic losses.
¶ 47. In this case, the provision of the parties’ lease agreement apparently relied upon by the majority provides that tenant owns and may remove all furniture, machinery, and equipment used during the lease, provided that the removal does not cause substantial damage to the premises, and provides that fixtures installed by the tenant that cannot be removed without causing permanent damage to the interior of the leased premises shall become property of the landlord. The provision does not purport to supersede and replace all existing tort duties including those duties relating to the alleged holes in the sheetrock, damage to the window trim, destruction of the heating units, failure to replace sheetrock after removing a bathroom, damage to light switches and an electric-outlet plate, dangling electric wires, a broken thermostat, and damage to the doorframe and latch. It is not at all clear that all, or even most, of this damage was directly tied to the removal of furniture referenced in the lease agreement.
¶ 48. By concluding that this contract provision relating to fixtures essentially wipes out the tort duties of a third party with respect to property damage more broadly, the majority shifts from a rule that recognizes that a contractual duty does not give birth to a tort duty to avoid purely economic losses to a rule that presumes that a contractual duty negates any pre-existing, independent tort duty concerning the same subject matter. This approach turns the analysis on its head and bypasses the proper threshold question — “Is there a duty here independent of the contract?” The resulting rule embraced by the majority is not a logical corollary of the economic-loss rule in either its general or more specific expression, but represents a new approach that upends the very balance between the respective and sometimes overlapping domains of tort and contract law that the economic-loss rule is supposed to protect. It also sidesteps the rigorous review this Court applies to exculpatory clauses in contracts.
¶ 49. Wholly apart from any lease agreement, defendants here had a well-established duty not to unreasonably damage Walsh’s premises. It is black-letter tort law that “[a]n actor whose *479negligence is a factual cause of physical harm is subject to liability for any such harm” unless an exception applies. Restatement (Third) of Torts: Liab. for Physical & Emotional Harm § 6 (2010). “Physical harm” includes “the physical impairment of . . . real property or tangible personal property (‘property damage’).” Id. § 4. Regardless of whether they were parties to the lease agreement, or whether there even was a lease agreement, defendants in this case had a common-law tort duty not to negligently damage Walsh’s property. The economic-loss rule is not an obstacle to Walsh’s claim based on this common-law duty — both because, by definition, the economic-loss rule does not apply to claims for property damage, and because the duty on which Walsh’s claim is based exists wholly independent of the lease agreement.
¶ 50. Moreover, as occupiers of Walsh’s premises, both defendants had a well-established common-law duty to avoid waste. In Turgeon v. Schneider, we approved a trial court’s instruction that while the tenants lawfully possessed a farm, “they had a duty to take care of the farm and the equipment therein and return it to [landlords] in substantially the same condition as when their occupancy began, reasonable wear and tear excepted.” 150 Vt. 268, 277, 553 A.2d 548, 553-54 (1988). The approved instruction further provided that if the jury found damage “they must also, in order to find defendants liable, find that it was caused by defendants either by destruction, misuse, alteration or neglect.” Id.
¶ 51. We examined this duty most recently in the case of Prue v. Royer, in which we explicitly defined waste to include repairable as well as irreparable damage to property. 2013 VT 12, ¶ 65, 193 Vt. 267, 67 A.3d 895. In that case, we affirmed the trial court’s finding that plaintiffs’ neglect of the property constituted waste because it “constituted a substantial injury to the property,” even though the property could be repaired to avoid a permanent diminution of property value. Id.
¶ 52. Significantly, like the more general duty of reasonable care with respect to another’s property, the duty not to commit waste does not depend on a contract directly with a landlord; rather, it arises from the lawful possession of property. The Restatement (Second) of Property provides the following illustration:
L leases commercial property to T. T subleases the premises for part of the remainder of the term to S. During his occupancy, S causes substantial damage to the *480premises. S has violated his obligation to T not to make changes in the leased property. If S’s conduct has damaged L’s reversionary interest in the leased property, S is liable to L for that damage.
Restatement (Second) of Property: Landlord & Tenant § 12.2, illus. 19 (1977) (emphasis added).7
¶ 53. Moreover, nothing in the lease agreement suggests that Walsh has contracted away his legal protections with respect to common-law negligence or waste — as to Cluba individually as a party to the contract, or to Good Stuff as some sort of third-party beneficiary. The most pertinent provision of the lease agreement simply provides: “The tenant agrees ... at the termination of this lease to surrender the premises in the same condition as at the commencement hereof, reasonable wear and tear excepted.” Nowhere in the lease agreement does Walsh implicitly or explicitly waive his common-law remedies for waste with anything approaching the degree of clarity and specificity we have consistently required for an effective exculpatory release.
¶ 54. On the basis of the above considerations, I would join those courts that have allowed a claim for purely economic loss (which this is not) based on allegations of waste by tenants, notwithstanding the existence of a contract covering overlapping duties. The Supreme Court of Washington considered a similar issue in Eastwood v. Horse Harbor Foundation. In that case, a commercial landlord of a horse farm sued the tenant, a nonprofit corporation, as well as its employee and its board of directors for breach of the lease, commission of waste, and negligent breach of a duty not to cause physical damage to the leasehold. 241 P.3d at 1259. The intermediate appellate court concluded that the landlord was limited to contractual remedies for the damage done to her *481horse farm by the lessee, and that the individual defendants could not be individually liable for the damages. Id. at 1260. The Washington Supreme Court reversed, explaining that “[t]he term ‘economic loss rule’ has proved to be a misnomer. It gives the impression that this is a rule of general application and any time there is an economic loss, there can never be recovery in tort.” Id. at 1261. The court rejected as overly broad a statement that economic losses cannot be recovered in tort, noting that such a formulation pulls too many types of injuries into the orbit of the economic-loss rule. Id.
¶ 55. Listing a host of causes of action — such as wrongful interference with contractual relations, breach of an agent’s fiduciary duty to act in good faith, wrongful discharge in violation of public policy, failure of an insurer to act in good faith, and fraudulent concealment — the court concluded that “the fact that an injury is an economic loss or the parties also have a contractual relationship is not an adequate ground, by itself, for holding that a plaintiff is limited to contract remedies.” Id. Instead, “[a]n injury is remediable in tort if it traces back to the breach of a tort duty arising independently of the terms of the contract.” Id. at 1262. The court held that because the duty not to cause waste arises independently of the lease agreement, the landlord’s claims were not barred by the economic-loss rule, and the individual defendants could be liable for the tort of waste. Id. at 1266-67; see also Serfecz v. Jewel Food Stores, Inc., 1998 WL 142427, at *1-5 (N.D. Ill. Mar. 26, 1998) (concluding that because commercial tenants had common-law “extracontractual duty” to avoid committing waste, economic-loss rule did not preclude a claim for economic loss arising from the tenants’ waste).
¶ 56. For the above reasons, I respectfully dissent from the majority’s holding with respect to Walsh’s counterclaim against defendants for property damage, but concur in all other respects.

 See Restatement (Third) of Torts: Liab. for Econ. Harm § 1 Reporter’s Note (Tentative Draft No. 1, 2012) (describing “economic loss” as a “potent source of confusion” within the law of liability for negligence). The economic-loss provisions of the Restatement (Third) of Torts: Liability for Economic Harm cited in this opinion were approved at the 89th Annual Meeting of the American Law Institute. 89th Annual Meeting: 2012 Proceedings, Discussion of Restatement of the Law Third, Torts: Liability for Economic Harm, 89 A.L.I. Proc. 22, 46-47 (2012). The A.L.I. states that “[o]nce it is approved by the membership at an Annual Meeting, a Tentative Draft . . . represents the most current statement of the American Law Institute’s position on the subject and may be cited in opinions or briefs . . . until the official text is published.” Overview, Project Development, Am. Law Inst., http://www.ali.org/index. cfm?fuseaction=projects.main.

 I add the “exeept-when-it-doesn’t” caveat because courts have recognized a host of exceptions to this general principle, such that the broad statement quoted above doesn’t actually reflect the state of the law. See, e.g., Long Trail House Condo. Ass’n v. Engelberth Constr., Inc., 2012 VT 80, ¶ 13, 192 Vt. 322, 59 A.3d 752 (recognizing that there “might be recovery for purely economic losses in a limited class of cases” involving parties who have “a special relationship, which creates a duty of care independent of contract obligations,” such as the obligation to avoid violating a “professional duty”) (quotations omitted); Springfield Hydroelectric Co. v. Copp, 172 Vt. 311, 316, 779 A.2d 67, 71 (2001) (“[Cjourts have permitted recovery for economic loss” where there is “a special relationship between the alleged tortfeasor and the individual who sustains purely economic damages sufficient to compel the conclusion that the tortfeasor had a duty to the particular plaintiff and that the injury complained of was clearly foreseeable to the tortfeasor.” (quotation marks and citation omitted)); see also Limoge v. People’s Trust Co., 168 Vt. 265, 268-69, 719 A.2d 888, 890 (1998) (applying Restatement (Second) of Torts § 552(1) (1977) and recognizing that one who, in the course of his or her business, fails to exercise reasonable care and supplies false information for the guidance of others in their business transactions “is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information”).
Because of the plethora of exceptions to the broad formulation of the economic-loss rule, the Restatement (Third) of Torts: Liability for Economic Harm articulates “a more limited principle: not that liability for economic loss is generally precluded, but that duties of care with respect to economic loss are not general in character; they are recognized in specific circumstances.” § 1 cmt. b (“Stating the absence of a duty as a general rule can create confusion by seeming to threaten well-established causes of action, by leaving behind an uncertain and unwieldy number of exceptions, and by implying a needless presumption against the existence of a duty on facts not yet considered. The rule of this Section creates no such presumption. It merely means that duties to avoid causing economic loss require justification on more particular grounds than duties to avoid causing physical harm.”).

 Because the “economic loss rule” phrase “has proved to be a misnomer,” at least one state has rejected that label, now referring instead to the “independent duty doctrine,” a “more apt term.” Eastwood v. Horse Harbor Found., Inc., 241 P.3d 1256, 1261, 1268 (Wash. 2010).

 The majority recognizes this, ante, ¶ 31 n.2, but then departs from this framework, embracing the view that an agreement that establishes a contractual duty to take or refrain from taking certain actions displaces or overrides a pre-existing and independent tort duty with respect to the same subject matter. See ante, ¶¶ 28-30.

 Although the discussion of waste is found in the Restatement (Second) of Property, rather than the Restatement of Torts, the duty not to cause waste is frequently characterized as a tort duty. Whether we describe the duty to avoid waste as a duty in tort or as a common-law property duty, it is independent from contract. See, e.g., Restatement (Third) of Property (Mortgages) § 4.6 cmt. a (1997) (‘Waste does not depend oh the presence of covenants in the mortgage. It is in the nature of a tort, a breach of a duty arising from the mortgage relationship,” although “the parties may insert covenants in the mortgage refining or expanding the definition of waste.”); 8 R. Powell, Powell on Real Property ¶ 56.01, at 56-3 (M. Wolf ed. 2007) (“The law of waste can be considered as a part of the law of torts, because it considers wrongful and actionable conduct and the available remedies for such wrongs.”).