Contract Claims That Overlap With Tort Claims in Colorado Likely Bar the Latter

(The second in our series of three articles on the Economic Loss Rule in Colorado)

By Michael T. Mihm, Esq. and Nicole M. Quintana, Esq.

A recent Colorado Court of Appeals decision, Engeman Enterprises, LLC v. Tolin Mechanical Systems¹, provides a good example of a case that, on its face, appeared to be a routine property damage tort claim, but the court ruled that the Economic Loss Rule barred the tort claims. The lesson from Engeman Enterprises and similar cases is that if the defendant’s actions can be characterized either as a breach of a duty of care or a breach of a contract, there is a significant likelihood that a trial court will treat the plaintiff’s resulting claims as a breach of contract, and any tort claims pled will be barred by the Economic Loss Rule.

In Engeman, the plaintiff operated a cold-storage facility cooled by an ammonia-charged cooling system. The plaintiff called in the defendant, Tolin Mechanical Systems, to make an emergency repair to the system. Employees inspected the cooling system and recommended adding ammonia to lower the temperature while making the repairs. The defendant’s employees began the repair work, and the plaintiff’s employees signed two service agreements—a Service Report and a Refrigerant Report—both of which stated that the defendant would perform its work in a “prudent and workmanlike manner.”

The defendant’s employee attached a portable tank filled with ammonia to the plaintiff’s cooling system intending to transfer ammonia from the tank to the system. However, the defendant’s employee mistakenly attached the tank which caused the ammonia to flow backward from the cooling system into the tank. Several hours later, the tank overfilled and exploded, spewing ammonia throughout the facility. This cost the plaintiff hundreds of thousands of dollars in property damage, clean-up costs, and lost profits².

The plaintiff filed a lawsuit asserting claims of negligence, vicarious liability and negligent supervision. However, the plaintiff did not bring a breach of contract claim³. The defendant filed a motion for summary judgment based upon the Economic Loss Rule. The trial court ruled that as the defendant’s duty of care under a common law negligence claim was not different the defendant’s contractual duty to perform its work in a “prudent and workmanlike manner,” the Economic Loss Rule applied, and thus barred the plaintiff’s tort claims. The Court of Appeals affirmed.

The results can seem unfair when legal doctrine clashes with real life. For example, the parties in the Engemen Enterprises decision appear to have given little or no thought to negotiating the allocation of risks and costs amongst themselves. Rather, their respective employees appear to have hurriedly signed a pre-printed service agreement to address an emergent situation.

1. Engeman Enterprises, LLC, 320 P.3d 364 (Colo. App. 2013).
2. Id., supra, at 367.
3. Id., supra.