Arizona Supreme Court Limits Economic Loss Rule Application

In Sullivan v. Pulte Home Corp., 306 P. 3d 1 (Ariz. 2013), the Arizona Supreme Court considered whether the economic loss rule should apply to a claim for negligent construction raised by the second purchaser of a house.  

The Sullivans purchased their home from the original purchaser three years after the house was finished and occupied. Six years later, the Sullivans discovered problems with a retaining wall in the backyard.  The Sullivans notified Pulte regarding the issue, but Pulte disclaimed any responsibility for the issue.  In response, the Sullivans sued Pulte and alleged consumer fraud, negligent nondisclosure, negligence per se, negligent misrepresentation, and breach of implied warranty.

The trial court dismissed the entire lawsuit.  According to the trial court, Arizona's eight-year statute of repose barred the warranty claim (which was asserted nine years after the original purchase). The economic loss rule barred the remaining tort claims.  The Court of Appeals reversed the trial court's decision as to certain negligence claims.  

The Arizona Supreme Court agreed with the Court of Appeals, noting that the Sullivans never entered into any contracts with Pulte directly.  Even though the Sullivans had contractual remedies available to them had they filed suit prior to the expiration of the statute of repose, the Sullivans did not have the opportunity to negotiate the scope of any warranties that might otherwise have barred the tort claims.  As a result, the Court held that the proper outcome in this case was to allow the Sullivans' tort claims to proceed to discovery and adjudication.