Indemnity Ins. Co. v. American Aviation

• Citation: 891 So.2d 532
• Decision Date: 23 December 2004
• Docket Number: No. SC03-1601.,SC03-1601.
• Parties: INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, et al., Petitioners, v. AMERICAN AVIATION, INC., Respondent.
• Court: United States State Supreme Court of Florida

891 So.2d 532

INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, et al., Petitioners, v. AMERICAN AVIATION, INC., Respondent.

No. SC03-1601.

Supreme Court of Florida.

December 23, 2004.

Hugh C. Griffin and Gary Y. Leung of Lord, Bissell and Brook, LLP, Chicago, IL, and Michael P. Bruyere, Thomas J. Strueber and Jonathan R. Friedman of Lord, Bissell and Brook, LLP, Atlanta, GA, for Appellant.

John M. Murray of Murray, Marin and Herman, P.A., Tampa, Florida and Carolyn A. Pickard of Murray, Marin and Herman, P.A., Coral Gables, FL, for Appellee.

Daniel S. Green of Ullman and Kurpiers, LLC, Tampa, FL and Tracy Raffles Gunn of Fowler, White, Boggs and Banker, P.A., Tampa, FL on behalf of the Florida Defense Lawyers' Association; and Richard A. Solomon of the Andersen Firm, P.C., Winter Park, FL on behalf of the Florida Concrete and Products Association, Inc., As Amici Curiae.

PARIENTE, C.J.

The Eleventh Circuit Court of Appeals certified the following five questions of Florida law that are determinative of a cause pending in that court and for which there appears to be no controlling precedent:

1. WHETHER THE "ECONOMIC LOSS" DOCTRINE OF FLORIDA APPLIES TO ALLEGED TORTS IF THE DEFENDANT HAS PROVIDED SERVICES TO A PRODUCT RATHER THAN HAS SOLD A PRODUCT.

2. WHETHER THE "ECONOMIC LOSS" DOCTRINE OF FLORIDA APPLIES IF THERE IS NO CONTRACTUAL RELATIONSHIP BETWEEN THE PLAINTIFFS AND THE DEFENDANT.

3. WHETHER THE "ECONOMIC LOSS" DOCTRINE OF FLORIDA APPLIES TO THE FACTS OF THIS CASE WITH REGARD TO DAMAGE TO THE TOTAL AIRCRAFT AS OPPOSED TO MERE DAMAGE TO THE LANDING GEAR UNDER THE "OTHER PROPERTY" EXCEPTION.

4. WHETHER THE PROVIDING OF CERTIFIED MECHANICAL SERVICES FALLS UNDER THE CATEGORY OF THE "PROFESSIONAL SERVICES" EXCEPTION TO THE "ECONOMIC LOSS" DOCTRINE OF FLORIDA OR UNDER SOME RELATED SERVICES EXCEPTION.

5. WHETHER THE NEGLIGENT MISREPRESENTATION CLAIM IN THIS CASE PROVIDES AN EXCEPTION TO THE "ECONOMIC LOSS" DOCTRINE OF FLORIDA.

Indemnity Ins. Co. of N. America v. American Aviation, Inc., 344 F.3d 1136, 1148 (11th Cir.2003). We have jurisdiction. See art. V, § 3(b)(6), Fla. Const. For purposes of this opinion, we combine and rephrase the first two certified questions as follows:

WHETHER THE ECONOMIC LOSS DOCTRINE BARS A NEGLIGENCE ACTION TO RECOVER PURELY ECONOMIC LOSS IN A CASE WHERE THE DEFENDANT IS NEITHER A MANUFACTURER NOR DISTRIBUTOR OF A PRODUCT AND THERE IS NO PRIVITY OF CONTRACT.

For the reasons that follow, we answer the rephrased question in the negative. We conclude that the "economic loss doctrine" or "economic loss rule" bars a negligence action to recover solely economic damages only in circumstances where the parties are either in contractual privity or the defendant is a manufacturer or distributor of a product, and no established exception to the application of the rule applies. Because the defendant in this case is neither a manufacturer nor distributor of a product, and the parties are not in privity of contract, this negligence action is not barred by the economic loss rule. The remaining certified questions concerning exceptions to the economic loss doctrine are moot in light of our determination that the economic loss rule does not apply to this case.

FACTS AND PROCEDURAL HISTORY

This case arises from lawsuits filed by Indemnity Insurance Company of North America ("Indemnity") and Profile Aviation Services, Inc. ("Profile") against American Aviation, Inc. ("American") for damages to Profile's aircraft allegedly caused by negligent maintenance and inspection of the aircraft's landing gear. The specific claim of negligence was premised on the fact that the landing gear did not extend because American had installed the lower thrust bearing of the right main actuator backwards.

The United States District Court for the Middle District of Florida dismissed Indemnity's and Profile's tort claims, finding them barred by Florida's economic loss rule. Indemnity and Profile appealed to the Eleventh Circuit Court of Appeals. In certifying the five questions to this Court, the Eleventh Circuit summarized the pertinent facts as follows:

This action arises from the allegedly negligent maintenance and inspection of an aircraft's landing gear by American. All mechanics who work on aircraft must be FAA-certified. To become certified, a mechanic must graduate from a certified aviation maintenance technical school (or have equivalent practical experience) and must pass a written test on the construction and maintenance of aircraft, the federal regulations, and provisions governing mechanics. They must also pass an oral and a practical skills test.

A FAA-certified mechanic who performs maintenance on an aircraft, airframe, engine, etc., must follow the methods, techniques, and practices prescribed in the aircraft's maintenance manual and perform the maintenance in such a manner that the condition of the aircraft will be at least equal to its original or properly altered condition. Moreover, when maintenance has been performed, a FAA-certified mechanic must give approval before the aircraft, airframe, etc., is returned to service. Before returning the aircraft to service, the certified mechanic must also make an entry into the aircraft's logbook regarding the inspection and maintenance performed. According to appellants, an aircraft owner relies on these records to determine, among other things, if the required maintenance has been performed, if the aircraft can be returned to service, and when the next maintenance is scheduled.

On or around November 22, 1996, American's FAA-certified mechanics, pursuant to a contract to which appellants are not parties, performed the required 30-month end play maintenance and inspection on the landing gear of a Beechcraft KingAir 100 aircraft ... ("Aircraft"). During the course of the inspection and repair, American's mechanics removed the Aircraft's right main landing gear actuator and lower thrust bearing. After completing the work, American's mechanics certified in the Aircraft's logbook that the work was done in accordance with the Aircraft's maintenance manual and FAA regulations.

Profile purchased the Aircraft subsequent to American's November 1996 maintenance and inspection. Appellants contend that they reasonably relied upon American's representations in the logbook concerning the November 1996 work. On May 14, 1999, the Aircraft was severely damaged when the right main landing gear failed to extend during a landing. The alleged cause of the failed landing gear was that the lower thrust bearing of the right main landing gear actuator was installed backwards. Appellants contend that they could not have discovered American's alleged negligence prior to the accident.

Proceedings in the District Court

On May 10, 2002, Indemnity, which was the Aircraft's insurer, and Profile filed separate four count complaints in the district court. Appellants sought to recover for negligence (Count I), negligence per se (Count II), negligent misrepresentation (Count III), and breach of warranty (Count IV). American moved to dismiss the complaints, arguing that Florida's economic loss rule barred the tort claims and that no breach of warranty action could be maintained because of a lack of privity between appellants and American.

American Aviation, 344 F.3d at 1137-38 (citations and footnotes omitted).

The federal district court dismissed the tort claims with prejudice, but granted ten days to amend the breach of warranty claim to allege that Profile was an intended third-party beneficiary of the contract between American and the Aircraft's prior owner. Profile could not in good faith amend its complaint to allege intended third-party beneficiary status. Thus, both Profile and Infinity appealed only the dismissal of the tort claims to the Eleventh Circuit. Having doubt as to the correct application of Florida law under the facts of this case, the Eleventh Circuit certified the five questions of law to this Court.

ECONOMIC LOSS RULE

The economic loss rule is a judicially created doctrine that sets forth the circumstances under which a tort action is prohibited if the only damages suffered are economic losses.¹ However, because there has been much confusion about the scope of this doctrine, it is important to review its legal underpinnings. In this state, the economic loss rule has been applied in two different circumstances. The first is when the parties are in contractual privity and one party seeks to recover damages in tort for matters arising from the contract. The second is when there is a defect in a product that causes damage to the product but causes no personal injury or damage to other property.

A. Contractual Privity Economic Loss Rule

The prohibition against tort actions to recover solely economic damages for those in contractual privity is designed to prevent parties to a contract from circumventing the allocation of losses set forth in the contract by bringing an action for economic loss in tort. See, e.g., Ginsberg v. Lennar Fla. Holdings, Inc., 645 So.2d 490, 494 (Fla. 3d DCA 1994)

("Where damages sought in tort are the same as those for breach of contract a plaintiff may not circumvent the contractual relationship by bringing an action in tort."). Underlying this rule is the assumption that the parties to a contract have allocated the economic risks of nonperformance through the bargaining process. A party to a contract who attempts to circumvent the contractual agreement by making a claim for economic loss in tort is, in effect, seeking to obtain a better bargain than originally made. Thus, when the parties are in privity, contract principles are generally more appropriate for determining remedies for consequential damages that the parties have, or could have, addressed through their contractual agreement. Accordingly, courts have held that a tort action is barred where a defendant has not committed a breach of duty apart from a breach of contract. See,...