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Developments in the economic loss rule

On Behalf of | Jul 11, 2017 | Business & Commercial Law |

It looks like the Utah Supreme Court has abrogated fraud and other intentional torts as exceptions to the economic loss rule in Utah. An associate attorney and I at our office have been defending a fraud claim that is based upon obligations in a land contract. The previous owner of the property is claiming fraud and one million dollars in punitive damages. Quoting the Colorado Supreme Court, our Court said:

The proper focus in an analysis

under the economic loss rule is on

the source of the duties alleged

to have been breached. Thus, our

formulation of the economic loss

rule is that a party suffering only

economic loss from the breach of an

express or implied contractual duty

may not assert a tort claim for such

a breach absent an independent duty

of care under tort law.

Hermansen v. Tasulis, 2002 UT 52, ¶ 16, 48 P.3d 235 (quoting Grynberg, 10 P.3d 1267, 1269 (Colo. 2000) (emphasis added)). The reasoning is that people are free to define their own relationships and bargain for consequences resulting from the breach of those relationships, and that absent a common law breach of duty, the breach is a contractual one. Consequently, a fraud claim based upon a contractual breach of duty is nothing more than a breach of contract.

This rationale was a shift with the Utah Supreme Court, but has since been followed by all other courts specifically addressing intentional torts arising from contractual duties based upon Utah law. See, Grynberg v. Questar, 2003 UT 8, ¶ 49, 70 P.3d 1 (The Utah Supreme Court was interpreting Wyoming law but in dicta reaffirmed Hermansen as well.); HealthBanc, 2016 Westlaw 5327979; Al-Fouzan, 2016 Westlaw 4625676 *3. This makes a lot of sense. Where there’s no independent duty, there’s no tort, and consequently, no punitive damages claims.

-Lewis P. Reece