Construction litigation is costly and time consuming. Knowing which damages you can recover before embarking on a lawsuit will help in your assessment of whether to file suit. Factoring into this decision will be the impact of the economic loss doctrine whether it will limit the claims you can pursue.

What is the Economic Loss Doctrine?

The economic loss doctrine is a judicially created doctrine that sets forth the circumstances under which tort actions are prohibited if the only damages suffered are commercial losses flowing from the contract. In other words, the doctrine will prevent most claims other than breach of contract claims. While the doctrine was created by judges, they at least acknowledge that it is a confusing morass.

The doctrine has been applied to bar causes of action beyond breach of contract where the injured party has only suffered commercial damages, such as delay, lost profits and similar commercial losses.

Application of the Economic Loss Doctrine

Let’s say you are a subcontractor on a project that is delayed and you have suffered significant cost overruns through no fault of your own. You have a contract with the general contractor and the contract identifies the damages that may be recovered, such as no damage for delay, only extensions of time.

You sue the general contractor to recover your damages asserting breach of contract, but also fraudulent misrepresentation. In the fraudulent misrepresentation claim, you assert that the general contractor misled you about the site conditions.

The court may dismiss the fraudulent misrepresentation claim because the contract controls your measure of damages. And if the contract says your damages are limited, you may not be able to recover all of your damages.

This is yet another reason why you need to review your contract. The contract may severely limit the damages you may recover and, under the economic loss doctrine, a court may not allow you to pursue claims outside of your contract.