Arizona Economic Loss Rule Construction Defect

In Arizona, it is well-established that a homeowner may not recover in tort against a contractor for economic losses attributable to defective construction when the negligence has not caused personal injury or damage to property other than the defective structure itself. The supreme court of Arizona first recognized the applicability of the economic loss rule in construction defect litigation in Woodward v. Chirco Constr. Co., 141 Ariz. 514, 687 P.2d 1269 (1984). In Woodward, homeowners sued the builder of their house for both breach of the implied warranty of workmanlike performance and habitability and negligence after large cracks developed in the house walls and foundation, the fireplace separated from the wall, a family room wall shifted forward, the kitchen ceiling began to bow, and the floor warped. Id. at 515, 687 P.2d at 1270. The trial court dismissed both claims. On appeal, this court affirmed the dismissal of the negligence claim, but reversed the court's ruling on the implied warranty claim because the six-year statute of limitation on that claim had not expired. Woodward v. Chirco Constr. Co., 141 Ariz. 520, 526, 687 P.2d 1275, 1281 (App. 1984). On review to our supreme court, the builder argued that, because the implied warranty is imposed by law, it did not arise out of contract, and therefore the statute of limitations for tort claims applied. Woodward, 141 Ariz. at 515, 687 P.2d at 1270. The supreme court, however, disagreed, holding that a claim based on the implied warranty was contractual in nature and distinct from a tort claim based upon a builder's breach of the common law duty of care. Id. at 515-16, 687 P.2d at 1270-71. Thus, the Woodward court recognized that an injury resulting from negligent construction may give rise to claims sounding in both contract and tort. Specifically, the court stated that the homeowners could claim damages in contract for defects in the structure that rendered the home less than the purchaser bargained for, and, further, that the homeowners could also sue in tort for injuries sustained due to the contractor's breach of its duty of care. Id. at 516, 687 P.2d at 1271. To illustrate the distinction between these claims, the court explained that "if a fireplace collapses, the purchaser can sue in contract for the cost of remedying the structural defects and sue in tort for damage to personal property or personal injury caused by the collapse." Id. The supreme court thereby established the applicability of the economic loss rule to construction defect claims. In Nastri v. Wood Bros. Homes, Inc., 142 Ariz. 439, 444-45, 690 P.2d 158, 163-64 (App. 1984), the Court held that, absent property damage or personal injury, plaintiffs could not maintain a negligence claim against a homebuilder. In Nastri, the subsequent purchasers of a house sued the builder for latent construction defects that caused severe damage to the house, including cracks in the cement pad, walls, ceilings, a joist, and bricks in a front archway. Id. at 440-41, 690 P.2d at 159-60. The trial court dismissed the action, and on appeal, this court noted that the plaintiffs' damage claim involved only the structure itself, without additional claims for damages to property or person. Id. at 444-45, 690 P.2d at 163-64. The Court therefore held that the trial court had properly dismissed the negligence count because a tort claim was available only for damage to personal property or for personal injury caused by defective construction. Id. Four years later, in Colberg v. Rellinger, 160 Ariz. 42, 44, 770 P.2d 346, 348 (App. 1988), the Court relied on the reasoning in Woodward and Nastri to hold that the plaintiffs could not recover in negligence against a construction supervisor. The plaintiffs brought a breach of contract claim against the construction company and a claim alleging negligence and breach of implied warranty against the construction supervisor, who was both the president of the construction company and the qualifying party for the company's contractor's license. The trial court awarded the plaintiffs damages against the construction company on the contract claim but denied recovery against the supervisor. Id. On appeal, the plaintiffs argued that the supervisor could be liable in negligence for breaching his duty of care under the contractor licensing statutes. Id. The Court concluded, however, that because the plaintiffs had not alleged any damage to other property or any personal injuries, they could not recover in tort for the supervisor's negligence. Id. at 47, 770 P.2d at 351.