South Carolina Supreme Court Retreats from Economic Loss Rule Exceptions

Last month, the South Carolina Supreme Court retreated from some exceptions it had previously carved out of the economic loss rule and strongly suggested the possibility that it will find no further exceptions to the rule. In Sapp & Smith v. Ford Motor Co., — S.E.2d —-, No. 26754 (S.C. Dec. 21, 2009), the Court began this new direction by noting that South Carolina continues to follow the economic loss rule in products liability cases:

‘The economic loss rule is a creation of the modern law of products liability. Under the rule, there is no tort liability for a product defect if the damage suffered by the plaintiff is only to the product itself.’ Kennedy v. Columbia Lumber & Mfg. Co., 299 S.C. 335, 341, 384 S.E.2d 730, 734 (1989). In other words, tort liability only lies where there is damage done to other property or personal injury.

Id. In the past, South Carolina courts have developed an exception to the rule for construction of residential homes. See Kennedy, 299 S.C. at 341, 384 S.E.2d at 734. Some of the reasons for the exception were: a home is typically the single largest investment of an individual, a home is a completely different type of manufactured good, and the sale of a home involves inherently unequal bargaining power between the parties. Two years ago, in Colleton Preparatory Acad,, Inc. v. Hoover Universal Inc., 379 S.C. 181, 666 S.E.2d 247 (2008), the court seemed to extend this exception to the construction of commercial buildings, as well.

In Sapp, the plaintiffs involved in the consolidated appeal had each purchased used Ford trucks. The trucks allegedly had a design defect with their cruise control mechanism, which in turn caused the trucks to catch fire. In each case, there was neither a personal injury claim nor a property damage claim (other than to the trucks themselves). Further, in each respective case, the plaintiffs lost at the trial court level due to the court’s application of the economic loss rule. On appeal, each plaintiff argued that the exception outlined in Colleton applied to their cases, and thus, their claims should not be barred by the economic loss rule. The court disagreed, holding that that the economic loss rule barred both plaintiffs’ claims.

The Sapp court went on to overrule the expansion of the exception initially created in Kennedy. In so doing, it expressly overruled Colleton to the extent it expanded the narrow exception to the economic loss rule beyond the residential builder context as pronounced by Kennedy.

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