Defective construction claim dismissed: Economic loss rule bars recovery for negligence; privity rule bars recovery for breach of warranties.

 Long Trail House Condominium Association, v. Engelberth Construction, Inc., 2012 VT 80 (Skoglund, J.)

Plaintiff Condominium Association appeals from the trial court's order granting summary judgment to defendant general contractor Engelberth Construction, Inc. on the Association’s complaint that Engelberth in constructing the project was negligent and breached express and implied warranties. The Association argues that the court erred by: (1) applying the economic loss rule to bar its negligence claim; and (2) dismissing its breach of warranty claim because of lack of privity. We affirm.

The economic loss rule "prohibits recovery in tort for purely economic losses." EBWS,LLC v. Britly Corp., 2007 VT 37, ¶ 30, 181 Vt. 513, 928 A.2d 497. The rule serves to maintain a distinction between contract and tort law. Id. We require actual injury, not simply risk of harm, before one can recover in negligence. Privity, or lack thereof, is not the determining factor. The rule's application does not turn on whether the parties had the opportunity to allocate risks. The existence of a duty, apart from a contractual duty, is a prerequisite to recovery of economic damages in a negligence case. That critical element is lacking in the instant case.  The "professional services" exception to the economic loss doctrine does not apply.  Foreseeability alone is not sufficient to warrant the imposition of a professional duty. We have twice rejected the notion that contractors owed a special duty of care for purposes of this exception, separate and apart from their contractual obligations.  Engelberth presented itself as a contractor and it operated as a contractor, not as a provider of a specialized professional service. 

Our case law plainly contemplates the existence of contractual privity before a breach of implied warranty claim can be raised. The Association's warranty remedy lies against the entity that sold it the condominium units and implicitly warranted through the sale that the units were built in a good and workmanlike manner and that they were suitable for habitation. Its remedy does not lie against Engelberth.

Note: Only two regular members of the Court sat on this case, Skoglund and Burgess, JJ.. These two joined by Davenport, Supr. JJ., formed the majority, with Kupersmit, Supr. JJ., and Johnson, J. (Ret.), dissenting.