The Colorado Supreme Court determined that no exception to the economic loss rule existed for allegations of willful and wanton conduct. Mid-Century Ins. Co. v. HIVE Construction, Inc., 2025 Colo. LEXIS 273 (Colo. April 21, 2025).
HIVE Construction, Inc. served as the general contractor for the construction of Masterpiece Kitchen, a restaurant. HIVE warranted, among other things, that "the Work will conform to the requirements of the Contract Documents." The architectural plans and design for the restaurant called for the construction of a wall separating the kitchen and dining area. The documents specified that two layers of drywall, which would increase the wall's fire resistance, were to be installed on the kitchen side of the wall. HIVE, however, installed one layer of drywall and one layer of plywood on the kitchen side. HIVE did to submit a change order asking permission to deviate from the plans and design in that way.
Installing the plywood on the kitchen side of the wall placed combustible material much closer to a heat source (the broiler in the kitchen) than the plans and design had prescribed. A fire eventually started within the wall, causing damage to the restaurant, forcing the restaurant to close.
Mid-Century, Masterpiece Kitchen's property insurer, made payments to Masterpiece Kitchen for damages caused by the fire. Mid-Century, as Masterpiece Kitchen's subrogee, sued HIVE and the project's architect, asserting single claims for negligence against each of them. One week before trial, Mid-Century sought leave to amend its complaint to assert a breach of contract claim. In the proposed amended complaint, Mid-Century alleged that HIVE had breached its duty under the contract and project-related documents to perform its work as a general contractor safely and competently when it installed combustible plywood in the kitchen wall. The motion for leave to amend was denied.
A jury trial commenced, and after Mid-Century presented its case, HIVE moved for a directed verdict, arguing that the economic loss rule barred Mid-Century's negligence claim. The trial court denied HIVE's motion for a direct verdict after concluding that the economic loss rule did not apply to allegations of willful and wanton conduct. The jury returned a special verdict, finding that HIVE's conduct was willful and wanton and caused Mid-Century's damages. Judgement was entered in Mid-Century's favor.
HIVE appealed, arguing that the trial court erred in denying its directed verdict motion on the ground that the economic loss rule did not apply to willful and wanton conduct. The court of appeals agreed with HIVE and reversed. Mid-Century then petitioned the Colorado Supreme Court for a writ of certiorari. The court granted the petition.
The court noted that under the economic loss rule, 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. Whether the economic loss rule applied depended not on the nature of the damages – physical or economic- but rather on the source of the duty allegedly breached – the contract or some other source. The court concluded that willful and wanton conduct was not excepted from the economic loss rule.
The court then applied three factors in determining the source of the duty at issue and, in turn, whether the economic loss rule applied. The factors were whether (1) the relief sought in negligence was the same as the contractual relief; (2) there existed a recognized common law duty of care in negligence; and (3) the negligence duty and contractual duty differed in any way.
Here, the parties did not dispute that the relief that Mid-Century sought by way of its negligence claims (i.e., damages to the restaurant caused by the fire) was the same relief that it could have sought by way of a contract claim. Second, Mid-Century alleged in its complaint a duty of care in negligence "to perform its work as general contractor . . . in a safe, careful, competent, and workmanlike manner" and that HIVE had breached this duty when it deviated from the plans and design and installed combustible plywood in the wall.
Third, notwithstanding the possible existence of this duty of care in negligence, such a duty did not differ in any way from HIVE's duty under the contract, in which HIVE warranted that "the Work will conform to the requirements of the Contract Documents" and specified that "substitutions not properly approved and authorized" did not conform to the requirements.
The parties therefore memorialized in their contract the same duty that Mid-Century contended HIVE breached by deviating from the plans and design. Thus, the alleged tort duty was not independent of the duty set forth in the parties' contract. Accordingly, the economic loss rule required Mid-Century to pursue its claim in contract, rather than tort. The fact that Mid-Century alleged that HIVE had engaged in willful and wanton conduct did not alter this conclusion.
Therefore, the economic loss rule did not except allegations of willful and wanton conduct from its reach. The rule barred Mid-Century's negligence claim. The judgment of the court of appeals was affirmed.