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Economic Loss Doctrine Crumbles Homeowners’ Hopes and Concrete


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Pirtle

By Mary Leigh Pirtle

As many as twenty-two homeowners alerted their builder to defects in their outdoor concrete installations, which included pitting, discoloration, crumbling, and spalling.  The builder had purchased the allegedly defective concrete from a subcontractor.  In response to the homeowners’ concerns, the builder asked each homeowner to assign their rights arising from the supply of defective concrete for the purpose of prosecution and/or otherwise resolving their claims as seen fit by the builder.

All twenty-two homeowners agreed to the assignment of rights, and the builder brought suit against the subcontractor in its own name and through the assignments.  However, it is important to note that only two homeowners bargained with the builder to ensure that the builder would repair or replace their concrete, if the lawsuit was not successful. The suit demanded damages for breach of contract, breach of warranty and negligence, among other claims.  In response, the subcontractor moved for summary judgment arguing that the negligence claims were barred under the economic loss doctrine because none of the homeowners had damage, other than damage to the concrete itself.

Only economic loss?  No viable lawsuit
According to previously decided cases, Wisconsin courts have consistently concluded that homeowners cannot directly sue a subcontractor in tort under the economic loss doctrine.  Specifically, “a tort suit does not lie when . . . the defective product is a component part of an integrated structure or finished product and the damage is solely to an integrated product, which results in only economic loss, rather than physical harm or personal injury.”  The court explained that to hold otherwise would prevent the rules of contract from serving their legitimate purpose in governing commercial transactions.  In other words, the homeowners had a contract with the builder, not the subcontractor.  Instead the homeowners are required to seek remedy from the builder, and in turn, the builder, who has a contract with the subcontractor, may seek recourse from the subcontractor.  An exception to this economic loss doctrine only occurs if the subcontractor’s negligence caused a physical harm or injury to the homeowners.  In this case, no such injury was present.  Instead, the homeowners only incurred damage to the concrete itself.  

The Wisconsin Supreme Court held that because the homeowners were precluded from suing the subcontractor in tort under the economic loss doctrine, they had no claims to assign to the builder.  Thus, the builder was precluded from suing the subcontractor in the name of the homeowners.  

Takeaway
This decision reinforces that suppliers and subcontractors can be protected by the economic loss doctrine in Wisconsin. Also, in this case only two of the homeowners received assurances from the builder that their concrete would be repaired regardless of the outcome of the lawsuit against the subcontractor. The other twenty homeowners learned a hard lesson—make sure you understand the rights you are assigning to another, because if the other party does not prevail under an assignment of rights, then you, too, could be left with crumbling concrete and no remedy in court.

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