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Tennessee Supreme Court Declines to Restrict Extra-Contractual Damages in Construction Lawsuits Under the Economic Loss Doctrine

Last Thursday, the Tennessee Supreme Court in Commercial Painting Co. Inc. v. Weitz Co. LLC[1] ruled the “economic loss doctrine” applies only to products liability cases and should not be expanded to construction disputes. The economic loss rule provides that where a contract exists, the parties have freely negotiated to include, or exclude, terms governing the parties’ “respective obligations, rewards and risks.’”[2] The doctrine attempts to avoid allowing a party to extend its remedies beyond the contract language to obtain damages in excess of (or inconsistent with) what the parties bargained for in the contract.  

In Commercial Painting, the Supreme Court overturned the lower court’s novel decision that the economic loss doctrine applies to construction disputes; thus establishing that Tennessee law rejects limiting the damages in construction disputes to the scope of negotiated damages in an underlying contract, absent fraud or similar misrepresentations.  

Here, the Weitz Company, Inc., served as general contractor to construct a retirement community. It subcontracted with Commercial Painting Company, to install drywall at the project. At contract’s execution, the project was already six to eight months behind. CPC claimed, among other things, Weitz misled it about the delay’s extent, the scope of work, and uncompensated, additional work to make up lost time.

In the parties’ construction contract, except for pass-through rights, Commercial Painting “waive[d] and release[d] [Weitz] from any and all [c]laims for such delay damages, including without limitation [c]laims attributable to breach of contract or tort.” However, given the claim for fraudulent misrepresentation (i.e. fraud), the Court noted that a contracting party (even sophisticated, commercial construction entities), “[s]hould not be expected to factor into its decision to enter the contract the possibility [the other party is] making false misrepresentations.”[3]

As such, the Court concluded, the economic loss doctrine did not bar Commercial Painting’s compensatory and punitive damages based on its tort claim of intentional misrepresentation”[4] even though these damages were seemingly, contractually barred.

What’s to learn  from all of this?

Limitations of liability and waivers of specific types of damages in contracts, such as consequential damages, fees, and interest, are more prominent than ever and should be examined carefully. Courts typically will not renegotiate a contract that is unfavorable to a wronged party that did not adequately negotiate. However, it seems Commercial Painting’s ruling may allow for certain damages to be sought despite contractual language stating otherwise, provided the facts reveal fraud or similar misrepresentations. But the ruling is rather narrow and would not apply to every, or even most, situations—especially those in which (as with vast majority of contractors) quality work and service are provided.

If anything, this ruling justifies freshening up contractor’s agreements and subcontracts, contractual language and terms, and overall due diligence in the construction industry when embarking on projects. Should you need assistance in managing projects, updating or drafting contracts or master service agreements, or are involved in a dispute, call the experienced construction attorneys at CSVL, including Matt Wayne.

[1] No. W201902089SCR11CV, 2023 WL 6304838, at *1 (Tenn. Sept. 28, 2023).

[2] Id. at *9 (quoting Milan Supply Chain Sols., Inc. v. Navistar, Inc., 627 S.W.3d 125 (Tenn. 2021)).

[3] Com. Painting Co. Inc. v. Weitz Co. LLC, No. W201902089SCR11CV, 2023 WL 6304838, at *10 (Tenn. Sept. 28, 2023)

[4] Id.