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Mid-Century Insurance Co. v. HIVE Construction, Inc.

2023 COA 25. No. 21CA1393. Negligence—Willful and Wanton Conduct—Economic Loss Doctrine—Invited Error—Motion for Directed Verdict.

March 16, 2023

Masterpiece Kitchen Lowry, LLC (Masterpiece Kitchen) entered into contracts with HIVE Construction, Inc. (HIVE) and LIV Studio (LIV) for a build-out of a restaurant. HIVE served as the general contractor for the project and LIV was the architect. LIV’s project design included a wall to separate the restaurant’s kitchen from the dining room. The architectural drawings and specifications called for installing two layers of drywall on the kitchen side of the wall, but HIVE instructed its drywall subcontractor to substitute a layer of fire-resistant (but combustible) plywood for one of the layers of drywall on the kitchen side of the wall. A fire subsequently broke out in the wall next to the broiler. Mid-Century Insurance Company’s (Mid-Century) fire expert opined that the fire was caused by ignition of the substituted plywood due to heat that was radiated and conducted through the wall from the broiler. Masterpiece Kitchen made a claim on its insurance policy with Mid-Century, which paid $482,508.22 for fire-related damage. Mid-Century, as subrogee of Masterpiece Kitchen, filed a complaint seeking to recover economic damages from HIVE and LIV, asserting a single negligence claim against HIVE. HIVE denied the allegations and asserted, among other defenses, that the economic loss rule barred Mid-Century’s claim. After Mid-Century finished presenting its evidence at trial, HIVE moved for a directed verdict, arguing that Mid-Century’s negligence claim was barred by the economic loss rule. The district court denied the motion. The jury returned a verdict for Mid-Century, finding that HIVE had engaged in willful and wanton conduct and that LIV, as a designated nonparty at fault, had been negligent. It determined that Mid-Century’s damages were $482,508.22 and allocated 85% of the fault to HIVE, 15% of the fault to LIV, and 0% of the fault to Mid-Century.

As an initial matter on appeal, Mid-Century contended that HIVE invited the district court to err by opposing Mid-Century’s motion to amend the complaint to substitute a contract claim for its tort claim. The invited error doctrine applies narrowly to prevent a party from complaining on appeal of an error that the party invited or injected into the case. Here, HIVE did not invite the district court to erroneously conclude that the economic loss rule does not apply to willful and wanton negligence claims, nor did HIVE assert that a tort rather than a contract claim was the right claim for Mid-Century to pursue to recover its economic damages. HIVE did not have to concede to an otherwise prejudicial amendment to preserve whatever defenses it already had to Mid-Century’s tort claim. Therefore, HIVE did not invite the claimed error.

Mid-Century also argued that HIVE waived the right to seek a directed verdict based on the economic loss rule because it did not include it as a defense in the trial management order as required by CRCP 16(f). However, there is no blanket rule that failing to list a defense in a trial management order as required by CRCP 16(f) waives the defense. And waiver is an intentional relinquishment of a known right. Here, Mid-Century had notice that the economic loss rule was an issue because HIVE asserted it as a defense in its answer, and the record shows no intent by HIVE to relinquish the economic loss rule as a defense. Therefore, HIVE did not waive the claimed error.

HIVE contended that the court erred by extending McWhinney Centerra Lifestyle Center LLC v. Poag & McEwen Lifestyle Centers-Centerra LLC, 2021 COA 2, to conclude that the economic loss rule does not apply to bar claims alleging willful and wanton conduct. The economic loss rule generally provides that a party suffering only economic loss from the breach of a contractual duty may not assert a tort claim for such breach absent an independent duty of care under tort law. Application of the economic loss rule depends on the nature of the duty owed by the defendant, not on the nature of the defendant’s conduct. Neither McWhinney nor the case on which it relied, Bermel v. BlueRadios, Inc., 2019 CO 31, preclude application of the economic loss rule to bar common law negligence claims involving willful and wanton conduct, so the economic loss rule may apply to such claims. Here, the contractual provisions show that HIVE expressly assumed the duty to perform its work as a general contractor in conformity with the contract, so the tort duty HIVE was alleged to have breached is indistinguishable from its duty under the contract. Because Mid-Century’s negligence claim was based solely on the breach of a contractual duty resulting in purely economic loss, it is barred by the economic loss rule. Accordingly, the district court erred by failing to apply the economic loss rule to bar Mid-Century’s negligence claim.

Mid-Century asserted that any error in denying HIVE’s motion for a directed verdict should be remedied by a remand for retrial under a contract theory, because the damages it sought under its negligence claim were the same damages it would have sought under a breach of contract claim. However, because the court ultimately denied Mid-Century’s request to substitute a contract claim in place of its negligence claim, no such contract claim exists.

The judgment was reversed and the case was remanded with instructions to direct a verdict in favor of HIVE.

Official Colorado Court of Appeals proceedings can be found at the Colorado Court of Appeals website.

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