Economic Loss Rule Remains Alive and Well in Texas

Pugh v. Gen. Terrazzo Supplies, Inc., 243 S.W.3d 84 (Tex. Ct. App. 2007), petition for review filed (Mar. 24, 2008)

In this case, the court affirmed a take-nothing summary judgment in favor of a materials supplier based on the economic loss rule.  Pugh arose out of a residential construction project involving an exterior insulated finishing system (“EIFS”).  After discovering alleged water damage to their home’s wood frame and interior wood flooring, the homeowners sued the masonry subcontractor and veneer supplier for negligence, “product liability (marketing defect),” and breach of the “implied warranties of good and workmanlike service and habitability.” 

In a motion for summary judgment, the material supplier argued that the economic loss rule barred the homeowners’ claims for negligence and strict liability.

The homeowners responded that the economic loss rule could not bar their non-contractual claims because they were not seeking “damages for loss of the product provided by the materialman alone” and the duties on which they based their claims were “outside the scope of [the materialman’s] contract to provide product.”

The court rejected the homeowners’ argument, holding that the claims against the materialman were barred by the economic loss rule, and noting that the doctrine “applies to both negligence and strict liability claims” whenever “losses from an occurrence arise from failure of a product and the damage or loss is limited to the product itself.”  Elaborating on its holding, the court explained that the economic loss rule applies in “two related, overlapping contexts.”  First, it “preclude[s] tort claims brought to recover economic losses when those losses are the subject matter of a contract.”  Second, it “preclude[s] tort claims brought to recover economic losses against the manufacturer or seller of a defective product where the defect damages only the product an does not cause ‘personal injury’ or damage to ‘other property.’”  The Pugh court decided that damage to the wood frame and flooring did not constitute damage to “other property” distinct from the EIFS veneer itself, ruling instead that “all of the alleged damages are property damages to [the] home.”