Massachusetts court rejects economic loss rule in development claim

Condominium associations scored a legal win late last year with a decision rendered by the Massachusetts Appeals Court in Wyman v. Ayer Properties, LLC, 83 Mass. App. Ct. 21 (2012). In the case, the court barred use of the economic loss rule thus ruling in favor of the association for losses allegedly sustained at the hands of a real estate developer.

What is an economic loss rule?

The economic loss rule bans recovery in a lawsuit when a product defect or a failure of that product causes damage - economic loss - only to itself and not to other products, property or people. For example, a homeowner whose new roof shingles were defective and leaked may only be able to recover the cost of replacement shingles and may not be able to sue for negligent installation nor collect damages to other areas of the home. There are, of course, limitations to the use of the rule that vary based on the case specifics.

The Massachusetts lawsuit

The Wyman case involves a condominium association that sued the developer of the condominium project for damages suffered from the following construction defects:

  • Deteriorating exterior brick masonry façade
  • Multiple leaking and weather damaged windows
  • Leaking roof

At the trial court level, the judge ruled in favor of the association regarding the leaking roof and windows issues but dismissed its claim regarding the brick façade. The judge applied the economic loss rule to the masonry claim holding that the defective brickwork only damaged the façade itself and not any other parts of the project. The judge did allow the association to pursue its negligence claims regarding the windows and roof because the leaks caused damage to window bodies, sashes, panes and insulation within the roof structure.

The association appealed stating that the economic loss rule should not have been applied to the masonry claim. The developer appealed stating that the rule should have been applied to the windows and roof issues as well as the masonry claim.

The Appeals Court ruled that a condominium association has the right to bring a lawsuit for negligence against a real estate developer if:

  • The association has no other form of remedy, such as a contract claim
  • The damages are reasonably determined

The case outcome is at odds with two decisions rendered in 2002 by the Supreme Judicial Court of Massachusetts. In both cases, that court held that the economic loss rule specifically applies to condominium construction tort claims. Time will tell if the court's decision will be changed by the state's highest court.

Consult a lawyer

Construction companies, real estate developers, companies and individual property owners may be affected by the court's decision. If you are defending yourself from a negligence claim or suffered damages due to someone else's negligence, the economic loss rule may apply. Consult an experienced business litigation lawyer who is knowledgeable about Massachusetts law.