Brandon R. Clark | Saul Ewing
In Mid-Century Ins. Co. v. HIVE Constr., Inc., 2025 CO 17, 567 P.3d 153, the Supreme Court of Colorado denied an insurer, as subrogee, damages in tort for its willful and wanton conduct after a contractor’s deliberate deviation from architectural design plans led to a restaurant fire and significant damages to its insured. The court held that willful and wanton conduct is no basis for avoiding the Economic Loss Rule and held that any remedies for the contractor’s conduct must lie in contract.
Case Background
HIVE Construction agreed to build a restaurant kitchen in accordance with architectural plans provided to it, which called for two layers of drywall separating the kitchen and dining area for fire safety. Then, without authorization, it installed only one layer of drywall and one layer of plywood—an error it compounded by placing the combustible plywood immediately adjacent to a heat source. As to be expected, eventually a fire started in this wall, which caused significant damage to the restaurant, which forced its closure.
The restaurant’s insurer, Mid-Century, paid the claim and then pursued its subrogation rights against HIVE, but sued in negligence. Mid-Century alleged that HIVE’s installation of the combustible plywood in the wall demonstrated careless and reckless disregard for the rights and safety of others and therefore constituted willful and wanton conduct. The subrogee did not initially assert a breach of contract claim but later sought leave to amend its complaint to include one. The court initially granted leave, but then reconsidered, as the amendment came on the eve of trial.
During the trial, HIVE moved for a directed verdict on the basis that Mid-Century’s tort claim was barred by the economic loss rule. The trial court denied that motion, basing its decision on a minority view (within Colorado) that the economic loss doctrine does not bar tort claims that arise from willful and wanton conduct. On appeal, the Colorado Supreme Court reversed and ruled that willful and wanton conduct does not avoid the effect of the economic loss rule.
Court’s Analysis
The Colorado Supreme Court reasoned that the application (or not) of the economic loss rule should turn on an examination of the source of the duty allegedly breached. Specifically, courts should consider whether: (1) the relief sought in negligence is the same as the contractual relief; (2) there is a recognized common law duty of care in negligence; and (3) the negligence duty and contractual duty differ in any way.
Unfortunately for Mid-Century, all these factors weighed in favor of the economic loss doctrine. First, the relief Mid-Century sought in negligence—damages to the restaurant caused by the fire—is identical to the relief it could have sought under a breach of contract claim. Second, the court did not specifically determine that there was not a common law duty of care applicable to this situation, but it certainly appeared skeptical – i.e., “notwithstanding the possible existence of this duty of care ….” (emphasis added). Third, whether such a duty exists a common law, the court was satisfied that the contractual and common law duties would be effectively same – to perform the Work “to the requirements of the Contract Documents.”
Applying this test, the court held that Mid-Century’s negligence claim was duplicative of the contract claim it could have brought; that its relief would be the same under either claim; and HIVE’s duty to perform the work safely was the same under either theory. As such, the court ruled the economic loss rule barred Mid-Century’s recovery in negligence.
Take Away
This decision demonstrates the strong presumption that disputes between parties in contractual privity will be resolved through recourse under the contract. This decision leaves open the possibility of recovery in tort for intentional torts between parties to a contract, but any conduct short of an intentional tort will have to be pled as a breach of contract claim. From a policy standpoint, this prevents aggrieved parties from bringing what ought to be a breach of contract claim as a tort claim in order to potentially obtain greater damages that it would be entitled to under contract. It also seeks to protect the parties’ negotiated terms and expectations – essentially the courts are seeking to respect the parties’ allocations of risk and cost established by their contract.
These sorts of situations are common in the construction industry where so much risk is present, so much forethought goes into allocating it, and such minor mistakes can cause so much damage. In such situations, the desire to throw the contract out and sue in tort is sometimes attractive, but as this decision demonstrates, such a course is problematic.
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