Although businesses should review their standard “form” contracts annually with their attorney, many do not. Most often changes to year’s old contracts occur after a deal has gone bad or an expensive lawsuit has been lost. Hidden “time bombs” await businesses in the form of “the law has changed since we first used this contract” or ” this provision has not been enforced by a court in years”. However, every so often news of a court case, ruling or new statute froths to the top and successful businesses take the necessary steps to adapt their businesses and their contracts accordingly. The recent Florida Supreme Court decision in Tiara Condominium Assoc. v. Marsh & McClennan Companies, Inc. (SC10-1022) should be one of those instances.
In the Tiara Condominium case, the Florida Supreme Court severely limited the “Economic Loss Rule”. This means business that may not have been able to sue for breach of contract, because the actual contract said they could not (clauses limiting certain damages or liability, etc.) have a second chance. Lawsuits seeking damages for tort claims like negligence can now be filed even though a claim for breach of contract, on the same set of facts, is not available.
To businesses that update their contracts regularly, the court’s decision restricting the confusing and often sloppily applied Economic Loss Rule will be welcome. These businesses will have their attorneys review their contracts for the best way to adapt to the court’s ruling. Most likely contract provisions regarding liability and damage limitations, indemnity, insurance and dispute resolution will be modified. Unfortunately, for many businesses the effect of the court’s decision will only be known at a later, much more expensive, date.