The Supreme Court of Kansas refused to extend the economic loss doctrine to homeowners suing their contractor for purely economic losses in Daid v. Hett, 270 P.3d 1102 (2011), a case decided in December of last year.  In the case, the plaintiffs were inexperienced in construction, and hired a general contractor to perform work on their home.  Contractor Hett performed excavation, basement, and concrete work, after which plaintiffs began experiencing settling in the garage and basement.  The homeowners brought suit for, among other claims, negligence, and the trial court granted summary judgment, dismissing the negligence case under the economic loss doctrine.  The court of appeals upheld the ruling, but the Kansas Supreme Court reversed.  In doing, so, the court reversed an earlier decision issued in 2004, which applied the economic loss doctrine to homeonwers' claims against a residential contractor. 

Recognizing that construction defect claims can sound in tort as well as contract, and the line between the two is often blurred, the Kansas Supreme Court refused to expand the economic loss doctrine to negligence claims, holding that in the case of residential construction, the inquiry must lie not in the nature of the damage, but in the nature of the duty that is breached.  The question should be whether the contractor has breached a duty independent of the contract and if the contractor has done so, a cause of action in tort exists regardless of the existence of the contract. 

This reasoning is very interesting, most notablybecause of  its contrast with Hawaii law, which has gone in a different direction entirely.  Hawaii courts have expanded the scope of the economic loss doctrine under the theory that in construction especially, the parties carefully allocate their risk in their agreements, and to allow the parties to sue in tort does injury to their ability to allocate their exposure in contracts, which is the fundamental basis of their relationship.   Also, the recent Group Builders insurance decision was predicated upon the existence of a contract when the ICA ruled that because the construction defect claims at issue in the case arose out of a contract for construction, they did not constitute the type of injury envisioned by the contractors' insurance policy.  The courts' reasoning in both instances is subjecct to the criticism leveled by the Kansas Supreme Court:  "the economic loss doctrine's application to home construction [is] troubling because it focused on the consequence of damages, rather than the duty breached." 

Contributed by Anna Oshiro