Duty. Economic loss rule does not require that liability for physical harm be based on a tort duty independent of any contractual obligations. Liability in tort for physical harm can arise from failure to exercise reasonable care to perform a contractual undertaking.

Langlois v. Town of Proctor, 2014 VT 130 [Filed 05-Dec-2014]

DOOLEY, J. Kathleen Langlois, owner of a building with commercial space on the first floor and an apartment on the second floor, failed to pay her water bill for the property to defendant Town of Proctor. Plaintiff alleged she arranged with a representative of the Town to disconnect water service, but the Town failed to do so, and that she suffered damage in reliance on the Town’s undertaking when she discontinued heating the building, causing the pipes containing water to freeze and split with resulting flooding of the first floor and basement.

The jury found that there was a contract between plaintiff and the Town “regarding the turning off of her water service,” but that the Town had not breached that contract. It found that the Town was negligent, that its negligence was a proximate cause of harm to plaintiff, and awarded plaintiff damages of $64,918.44.

On appeal, the Town argues for reversal because a tort duty must arise independent of any contractual obligations, and that it had no tort duty to properly turn off plaintiff’s water service. We disagree with the Town but reverse on other grounds. Liability in tort for physical harm can arise from failure to exercise reasonable care to perform a contractual undertaking.

The Town relies on a sentence from Springfield Hydroelectric Co. v. Copp, in which this Court stated that a tort duty of care must be “independent of any contractual obligations.” 172 Vt. 311, 316, 779 A.2d 67, 71-72 (2001) (emphasis omitted) (quoting Grynberg v. Agri Tech, Inc., 10 P.3d 1267, 1269 (Colo. 2000)). Plaintiff responds that a tort duty arose from its undertaking to disconnect the water service and plaintiff’s reliance upon that undertaking. She bases this argument on the Restatement (Second) of Torts § 323 (1979) ( Negligent Performance of Undertaking to Render Services)

The Town reads too much into Springfield Hydroelectric. The issue in that case was whether the plaintiff could obtain a tort recovery for purely economic losses in the absence of physical damage. We did not hold that the duty on which plaintiff relies for a tort action can never be contractual. In fact, many of our duty cases are based on undertakings involving contractually assumed duties.

This Court has applied § 323, and its cousin, § 324A, which governs harm to a third person, in a number of cases. Neither § 323 nor § 324A suggest that the duty stemming from the undertaking cannot be contractually based. Both apply to an undertaking “for consideration,” which is one way to describe a contract. 

The evidence in this case was sufficient for a factfinder to find that the elements of § 323 were established.