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Cannon AllenAdams and Reese attorneys Cannon Allen and John Woods had their article “Limiting the Reach: Economic Loss Doctrine Did Not Prevent Recovery of Fraud Damages Arising from the Breach of a Construction Contract” published in CLM Construction Claims magazine.

The Tennessee Supreme Court recently issued an important opinion in Commercial Painting Inc. v. The Weitz Company LLC that limits the application of the economic loss doctrine to only certain product liability cases, rejecting the Court of Appeals’ expanded application of this doctrine to breach-of-services contracts.

John WoodsConsequently, parties aggrieved by a breach-of-services contract may be able to recover “tort” damages that are typically prohibited by the plain language of the parties’ contract. Such tort damages may include consequential, incidental, and punitive damages. Left unresolved, however, is where the line is now drawn between enforceable damage-limitation provisions and exposure to potentially eye-popping tort liability in services contracts.

For years, there has been uncertainty in Tennessee state and federal courts as to whether sophisticated parties to services contracts, where contracts prohibit either party from recovering tort damages, are actually limited to the damages provided in the contract.

The court in Commercial Painting — which involved a dispute between a general commercial contractor and its drywall-subcontractor related to a 93-page contract governing a $3.5 million job — held that damages may not be so limited by the parties. To do so would risk “the economic loss doctrine [shallowing] much of tort law[.]”

Allen and Woods discuss the background of the economic loss doctrine, the Supreme Court’s reasoning in Commercial Painting, and the decision’s effect on the construction industry.

The Claims and Litigation Management Alliance consists of more than 50,000 professional members. The CLM publishes both CLM Magazine and Construction Claims. The Construction Claims magazine features articles on all aspects of construction-related claims, including construction defect, site accidents/injuries, insurance coverage, subcontractor issues, and new technologies that address both national and regional/statewide audiences.