Masonry Magazine July 2003 Page. 41
(2003). The EIFS Product
The EIFS product is an exterior cladding material. The plaintiffs' lawyers have argued that the product is defective because it is so impervious to moisture, that water leaking through adjacent elements of construction (such as leaking windows) gets trapped behind the EIFS leading to damage. The manufacturer's position is that its product works when properly applied and where the contractor uses proper coordination and design efforts for adjacent components.
In Pulte v. Parex, a homeowner purchased an EIFS clad home. The home had been built by Pulte and sold to the original owner who in turned sold the home to the plaintiffs. The plaintiffs alleged significant damages to their home and sued Parex, the EIFS manufacturer. The plaintiffs included a whole host of legal theories in their complaint (negligence, negligence per se, fraud, constructive fraud, violation of Virginia Consumer Protection Act, breach of implied warranty). Pulte in turn filed a cross-claim against Parex seeking recovery for breach of express warranty, breach of implied warranty, indemnification and contribution.
The trial court dismissed both the plaintiffs and the homeowners' claims against the manufacturer. The court found that the manufacturer was remote to the transaction and that the plaintiffs failed to allege any specific representations from the manufacturer to the homeowner. The court also applied the economic loss rule and found there was no contract between the manufacturer and the homeowners. This ruling resulted in a dismissal of the negligence based claims and the breach of implied warranty claim. Finally, the court dismissed the cross-claim of the builder, again finding that the manufacturer was not in privity of contract with the builder. The court also found that there was no proper proof or allegations of the actual existence of an express warranty in the case.
On appeal, the Supreme Court of Virginia ruled that the trial court's decision dismissing the builder's claims was proper in all respects.
Some Practical Points
While you may be tempted to view the economic loss doctrine as legal "mumbo jumbo," I would suggest that you ignore this concept at your peril.
The Voice of the Mason Contractor
First, the feast or famine environment of the construction industry naturally leads to individuals and companies going into bankruptcy. The net result could be that if you contract with a party who went bankrupt, you are left with no remedy even if you can prove a clear breach of contract.
Second, practical concerns may interfere. For example, you perform work for an owner who you want work from in the future. The owner's architect commits a serious error on the drawings, yet for business reasons you do not want to sue the owner because you want more work from them. Can you sue the architect directly and keep the owner out of the case? The answer depends on your state's law and its interpretation of the economic loss rule.
Similarly, you may have a specification for a specific type of brick or block that must meet certain performance standards. If the brick fails to meet the specification, you may want to pass that liability downstream. If your supplier is bankrupt, or if you want to avoid suing them for business reasons (such as they are the only reliable supplier in your area), you may have a tough time filing suit directly against the brick manufacturer.
Conclusion
As with my discussion of implied and contractual indemnification in my last column, I believe a prudent mason contractor needs to understand the law of its particular jurisdiction. This advice would extend to the question of the economic loss rule and its application. Knowing your state's law can only help you in establishing a fair price for the amount of risk you are undertaking. This knowledge can also help you evaluate how carefully you need to scrutinize the financial condition of your clients, subcontractors and suppliers. Without knowing or understanding the law of your jurisdiction before you enter into a contract, you could be left holding the bag,
Timothy R. Hughes, Esq., is the principal of the Northern Virginia law firm of Hughes & Associates, P.L.L.C. He specializes in construction litigation, corporate and business related representation, and complex civil litigation. He may be reached at tim@hughesnassociates.com.
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July 2003
Masonry 39