2025 CO 17
Mid-Century Insurance Company, a California corporation, as subrogee of Masterpiece Kitchen, Petitioner
v.
HIVE Construction, Inc., a Colorado corporation. Respondent
No. 23SC267
Supreme Court of Colorado, En Banc
April 21, 2025
Certiorari to the Colorado Court of Appeals Court of Appeals
Case No. 21CA1393
Attorneys for Petitioner:
Cozen
O'Connor
Cheri
MacArthur
Denver, Colorado
Spencer Fane LLP
Dean
Neuwirth
Attorneys for Respondent:
Ross-Shannon & Proctor, P.C.
Bradley Ross-Shannon
Gregory F. Szydlowski
Joshua
R. Proctor
Lakewood, Colorado
2
JUSTICE MARQUEZ, JUSTICE BOATRIGHT, JUSTICE HOOD, JUSTICE
HART, JUSTICE SAMOUR, and JUSTICE BERKENKOTTER joined.
OPINION
GABRIEL JUSTICE
3
¶1
This case involves limits on the reach of the economic loss
rule. Mid-Century Insurance Company contends that because it
had alleged willful and wanton conduct by HIVE Construction,
Inc., with which Mid-Century's subrogor, Masterpiece
Kitchen, had contracted to construct a restaurant, the
economic loss rule did not preclude it from asserting a
negligence claim, notwithstanding the existence of the
contract. Mid-Century thus asks us to reverse the ruling of
the division below concluding that the economic loss rule
barred its negligence claim.[1]
¶2
We now conclude that no exception to the economic loss rule
exists for allegations of willful and wanton conduct. We
further conclude, based on longstanding economic loss rule
principles, that the rule barred Mid-Century from asserting a
negligence claim premised on a duty established by the
contract in this case.
¶3
Accordingly, we affirm the judgment of the division below.
4
I.
Facts and Procedural History
¶4
HIVE served as the general contractor for the construction of
Masterpiece Kitchen, a restaurant. In the contract governing
the restaurant's construction, HIVE warranted, among
other things, that "the Work will conform to the
requirements of the Contract Documents." The contract
further specified, "Work not conforming to these
requirements, including substitutions not properly approved
and authorized, may be considered defective."
¶5
As pertinent here, the architectural plans and design for the
restaurant, which were part of the Contract Documents, called
for the construction of a wall separating the kitchen and
dining area. These documents specified that two layers of
drywall, which would increase the wall's fire resistance,
were to be installed on the kitchen side of the wall. When
HIVE constructed the wall, however, it installed one layer of
drywall and one layer of plywood on the kitchen side. HIVE
did not submit a change order asking permission to deviate
from the plans and design in this way.
¶6
The substituted plywood was combustible. Installing the
plywood on the kitchen side of the wall thus placed
combustible material much closer to a heat source (the
broiler in the kitchen) than the plans and design had
prescribed. A fire eventually started within the wall,
causing damage to the restaurant that forced the restaurant
to close.
5
¶7
As Masterpiece Kitchen's property insurer, Mid-Century
made payments to and on behalf of Masterpiece Kitchen for
damages caused by the fire. Mid-Century, as Masterpiece
Kitchen's subrogee, then sued HIVE and the project's
architect, asserting single claims for negligence against
each of them. (Mid-Century settled its claim against the
architect, and that claim is not before us.)
Mid-Century's negligence claim alleged that HIVE
"had a duty to perform its work as general contractor .
. . in a safe, careful, competent, and workmanlike
manner" and that HIVE had breached this duty by
deviating from the architectural plans and design by
installing combustible plywood in the wall, which was
adjacent to heat-producing appliances. Mid-Century further
alleged that HIVE's installation of the combustible
plywood in the wall demonstrated a careless and reckless
disregard for the rights and safety of others, including
Masterpiece Kitchen's owners, and therefore constituted
willful and wanton conduct.
¶8
Mid-Century did not initially assert a breach of contract
claim against HIVE. One week before trial, however, it sought
leave to amend its complaint to assert such a claim, in place
of its negligence claim. In its proposed amended complaint,
Mid-Century alleged that HIVE had breached its duty under the
contract and project-related documents to perform its work as
a general contractor safely and competently when it installed
combustible plywood in the kitchen wall adjacent to
heat-producing appliances.
6
¶9
Over HIVE's objection, the district court initially
granted Mid-Century's motion. But HIVE then renewed its
objection to the amended complaint, contending that it would
suffer substantial prejudice from this "last-second
change" in the nature of Mid-Century's claim. The
court then reconsidered its prior decision, denied
Mid-Century's motion for leave to file an amended
complaint, and ordered Mid-Century to proceed to trial on its
originally pleaded negligence theory.
¶10
A jury trial commenced, and after Mid-Century presented its
case, HIVE moved for a directed verdict, arguing that the
economic loss rule barred Mid-Century's negligence claim.
Relying on McWhinney Centerra Lifestyle Center LLC v.
Poag & McEwen Lifestyle Centers-Centerra LLC, 2021
COA 2, ¶ 67, 486 P.3d 439, 453, in which a division of
the court of appeals had concluded, contrary to other
divisions, that in most instances, the economic loss rule
does not bar intentional tort claims, the district court
concluded that the rule does not apply to allegations of
willful and wanton conduct. Accordingly, the court denied
HIVE's directed verdict motion.
¶11
At the conclusion of the trial, the jury returned a special
verdict, finding that HIVE's conduct was willful and
wanton and caused Mid-Century's damages. The district
court then entered judgment in Mid-Century's favor.
7
¶12
HIVE appealed, arguing, as pertinent here, that the district
court had erred in denying its directed verdict motion on the
ground that the economic loss rule does not apply to willful
and wanton conduct. Mid-Century Ins. Co. v. HIVE Constr.,
Inc., 2023 COA 25, ¶ 1, 531 P.3d 427, 429. A
division of the court of appeals agreed with HIVE and
reversed. Id. at ¶ 2, 531 P.3d at 429-30.
¶13
The division first analyzed the relief that Mid-Century had
sought, its allegations of negligence, and the terms of the
contract between Masterpiece Kitchen and HIVE and concluded
that the duty of care that HIVE had allegedly breached was
not independent of its contractual obligations. Id.
at ¶¶ 29-32, 531 P.3d at 433-34. The division
observed that under such circumstances, the economic loss
rule should bar Mid-Century's negligence claim.
Id. at ¶ 33, 531 P.3d at 434. The division
proceeded, however, to consider Mid-Century's assertion
that the economic loss rule does not apply to negligence
claims involving willful and wanton conduct. Id.
¶14
In this regard, the division acknowledged that in Bermel
v. BlueRadios, Inc., 2019 CO 31, ¶ 20 n.6, 440 P.3d
1150, 1154 n.6, we suggested that the economic loss rule
generally should not apply to shield intentional tortfeasors
from liability for misconduct that happens also to breach a
contractual obligation. Mid-Century, ¶ 35, 531
P.3d at 434-35. The division reasoned, however, that this
comment in Bermel was dicta and, in any event, did
not address the kind of claim at issue in
8
this case, namely, one based on willful and wanton conduct.
Id. at ¶ 36, 531 P.3d at 435. The division
further noted that McWhinney, on which the district
court had relied, similarly did not involve a claim based on
willful and wanton conduct. Id. at ¶ 40, 531
P.3d at 436.
¶15
The division then considered several cases in which other
divisions of the court of appeals had applied the economic
loss rule to bar claims based on intentional or willful and
wanton conduct, and the division perceived no reason to
depart from this "consistent precedent."
Id. at ¶¶ 41-42, 531 P.3d at 436. The
division thus concluded that the district court had erred in
declining to apply the economic loss rule to bar
Mid-Century's negligence claim, notwithstanding the
allegation of willful and wanton conduct. Id. at
¶ 43, 531 P.3d at 436.
¶16
Lastly, the division rejected Mid-Century's contention
that any error in the district court's denial of the
motion for a directed verdict was harmless and should be
remedied by retrial on a contract claim. Id. at
¶ 44 &n.9, 531 P.3d at 436-37, 437 n.9. The division
perceived "clear harm" in allowing the jury to
decide a claim that should have been barred by the economic
loss rule and concluded that a valid contract claim did not
exist because the district court had denied Mid-Century's
motion for leave to amend its complaint and substitute a
contract claim for the negligence claim. Id.
9
¶17
Accordingly, the division reversed the judgment and remanded
this case to the district court with instructions to direct a
verdict in HIVE's favor. Id. at ¶ 45, 531
P.3d at 437.
¶18
Mid-Century then petitioned this court for a writ of
certiorari, and we granted its petition.
II.
Analysis
¶19
We begin by setting forth the applicable standard of review.
We then discuss the basic principles of the economic loss
rule and conclude that willful and wanton conduct is not
excepted from that rule. Finally, we apply these principles
to the facts before us and conclude that the economic loss
rule barred Mid-Century's negligence claim.
A.
Standard of Review
¶20
C.R.C.P. 50 allows a party to move for a directed verdict at
the close of an opponent's evidence or at the close of
all of the evidence. A court may grant a directed verdict
motion only when the evidence, viewed in the light most
favorable to the non-moving party, "compels the
conclusion that reasonable persons could not disagree and
that no evidence, or legitimate inference therefrom, has been
presented upon which a jury's verdict against the moving
party could be sustained." Burgess v. Mid-Century
Ins. Co., 841 P.2d 325, 328 (Colo.App. 1992).
10
¶21
We review a district court's ruling on a motion for a
directed verdict de novo. People in Int. of L.S.,
2023 CO 3M, ¶ 13, 524 P.3d 847, 851. Similarly, the
application of the economic loss rule presents a question of
law that we review de novo. Engeman Enters., LLC v. Tolin
Mech. Sys. Co., 2013 COA 34, ¶ 11, 320 P.3d 364,
367.
B.
The Economic Loss Rule
¶22
Under the economic loss rule, "a party suffering only
economic loss from the breach of an express or implied
contractual duty may not assert a tort claim for such a
breach absent an independent duty of care under tort
law." Town of Alma v. AZCO Constr., Inc., 10
P.3d 1256, 1264 (Colo. 2000). This rule serves several
purposes, including maintaining a distinction between
contract and tort law, holding parties to the terms of their
bargain, and encouraging parties to allocate risks and costs
during bargaining without fear of unanticipated future
liability that would negate the parties' efforts to build
cost considerations into their contract. Id. at
1262. By promoting these purposes, the rule "serves to
ensure predictability in commercial transactions."
Id.
¶23
The precise allocation of risk through contracting is of
particular importance in the construction industry. BRW,
Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 74 (Colo.
2004) (citing and deeming persuasive Berschauer/Phillips
Constr. Co. v. Seattle Sch. Dist. No. 1, 881 P.2d 986,
992 (Wash. 1994)). This is because architects, contractors,
11
and other construction industry professionals determine the
fees to be charged based on their expected liability exposure
as bargained and provided for in their contracts.
Berschauer/Phillips, 881 P.2d at 992.
¶24
Whether the economic loss rule applies depends not on the
nature of the damages-physical or economic-but rather on the
source of the duty allegedly breached-the contract or some
other source. Town of Alma, 10 P.3d at 1262. Thus, a
breach of duty arising from a contract must be redressed
under the parties' contract, and a tort action will not
lie. Id. Conversely, a breach of duty arising
independently of the parties' contractual duties may
support a tort action. Id. at 1262-63.
¶25
In determining the source of the duty at issue, courts
consider whether (1) the relief sought in negligence is the
same as the contractual relief; (2) there exists a recognized
common law duty of care in negligence; and (3) the negligence
duty and contractual duty differ in any way. BRW, 99
P.3d at 74. If the parties have memorialized the applicable
duty of care in their contract (i.e., if the duty is
contained within or imposed under the contract), then no duty
exists independent of the contract, and the economic loss
rule will apply to bar a tort claim. City of Aspen v.
Burlingame Ranch II Condo. Owners Ass'n, 2024 CO 46,
¶ 43, 551 P.3d 655, 664.
12
¶26
We have never excepted willful and wanton tort claims from
the economic loss rule. In Bermel, ¶ 20 n.6,
440 P.3d at 1154 n.6, however, we noted that the economic
loss rule generally should not apply to intentional
tort claims:
[J]ust as we have held that "[u]nder no circumstances
will an exculpatory agreement be permitted to shield against
a claim of willful and wanton negligence," we note that
the economic loss rule generally should not be available to
shield intentional tortfeasors from liability for misconduct
that happens also to breach a contractual obligation.
Id. (second alteration in original) (quoting
McShane v. Stirling Ranch Prop. Owners Ass'n,
2017 CO 38, ¶ 20, 393 P.3d 978, 983).
¶27
This statement regarding intentional tort claims does not
convince us that willful and wanton tort claims lie outside
the reach of the economic loss rule. An intentional tort
claim is distinct from a willful and wanton tort claim.
Intentional conduct requires that the actor intend the result
of the conduct or know that the conduct is likely to bring
about that result. See Pub. Serv. Co. of Colo. v. Van
Wyk, 27 P.3d 377, 392 (Colo. 2001); Culpepper v.
Pearl St. Bldg., Inc., 877 P.2d 877, 882 (Colo. 1994);
CJI-Civ. 24:2 (2024). Willful and wanton conduct, in
contrast, refers to acts or omissions committed purposely but
without regard to the consequences of those acts or
omissions. § 13-21-102(1)(b), C.R.S. (2024); CJI-Civ.
9:30 (2024). Thus, as we said long ago, "[W]illful and
wanton conduct is that which approaches but does not include
an intentional tort nor can it be classified as such."
Brown v. Spain, 466 P.2d 462, 465 (Colo. 1970).
13
¶28
Furthermore, our discussion in Bermel, ¶ 20
n.6, 440 P.3d at 1154 n.6, of agreements purporting to
exculpate a party from liability for willful and wanton
negligence does not support removing willful and wanton
negligence claims from the economic loss rule's reach.
Application of the economic loss rule, unlike an exculpatory
agreement, does not shield anyone from a claim asserting
willful and wanton conduct. It merely dictates the nature of
that claim-contract, rather than tort.
¶29
In short, our statement in Bermel did not create an
exception to the economic loss rule for tort claims asserting
willful and wanton conduct, and we decline to adopt one now.
Indeed, in our view, such an exception would undermine the
purposes of the rule because it would allow a party to evade
the rule's application simply by alleging willful or
wanton conduct. Nor do we deem such an exception necessary to
deter willful and wanton conduct or to compensate plaintiffs
when such conduct occurs because a remedy already exists in
contract.
¶30
For these reasons, we conclude that willful and wanton
conduct is not excepted from the economic loss rule, and we
turn to the facts now before us.
C.
Application
¶31
As described above, the three factors that we identified in
BRW, 99 P.3d at 74, guide our determination of the
source of the duty at issue and, in turn, whether the
economic loss rule applies. These factors, again, are whether
(1) the relief
14
sought in negligence is the same as the contractual relief;
(2) there exists a recognized common law duty of care in
negligence; and (3) the negligence duty and contractual duty
differ in any way. Id. We address each of these
factors in turn.
¶32
First, the parties do not dispute that the relief that
Mid-Century sought by way of its negligence claim (i.e.,
damages to the restaurant caused by the fire) is the same
relief that it could have sought by way of a contract claim.
Indeed, when Mid-Century belatedly attempted to amend its
complaint to assert a contract claim, it demanded exactly
that relief.
¶33
Second, Mid-Century alleged in its complaint a duty of care
in negligence "to perform its work as general contractor
. . . in a safe, careful, competent, and workmanlike
manner" and that HIVE had breached this duty when it
deviated from the plans and design and installed combustible
plywood in the wall.
¶34
Third, notwithstanding the possible existence of this duty of
care in negligence, such a duty does not differ in any way
from HIVE's duty under the contract, in which HIVE
warranted that "the Work will conform to the
requirements of the Contract Documents" and specified
that "substitutions not properly approved and
authorized" did not conform to the requirements. Indeed,
when Mid-Century sought to amend its complaint to assert a
breach of contract claim, it described HIVE's contractual
duty as a duty to perform its work as a
15
general contractor safely and competently, and it alleged
that HIVE breached this duty when it installed combustible
plywood in the kitchen wall adjacent to heat-producing
appliances. This duty and the alleged breach are identical to
those allegedly arising under tort law.
¶35
The parties thus memorialized in their contract the same duty
that Mid-Century contended HIVE breached by deviating from
the plans and design, and thus, the alleged tort duty was not
independent of the duty set forth in the parties'
contract. Accordingly, the economic loss rule required
Mid-Century to pursue its claim in contract, rather than
tort. City of Aspen, ¶ 43, 551 P.3d at 664;
Town of Alma, 10 P.3d at 1264. The fact that
Mid-Century alleged that HIVE had engaged in willful and
wanton conduct does not alter this conclusion.
¶36
We are not persuaded otherwise by Mid-Century's assertion
that the economic loss rule does not apply because
Mid-Century suffered property damage, rather than pure
economic loss. Mid-Century raised this argument for the first
time in its briefing in this court. Accordingly, the issue is
not properly before us. See Est. of Stevenson v.
Hollywood Bar & Cafe, Inc., 832 P.2d 718, 721 n.5
(Colo. 1992) ("Arguments never presented to, considered
or ruled upon by a trial court may not be raised for the
first time on appeal.").
¶37
Nor are we persuaded by Mid-Century's argument that the
error in allowing its tort claim to proceed was harmless
because it could have alleged the
16
same damages in contract. Ultimately, Mid-Century did not do
so (even though it belatedly tried to do so). Although we
"must disregard any error or defect in the proceeding
which does not affect the substantial rights of the
parties," C.R.C.P. 61, we do not believe that
harmlessness may be measured against a claim that Mid-Century
never asserted and that the jury never considered.
III.
Conclusion
¶38
For these reasons, we conclude that the economic loss rule
does not except allegations of willful and wanton conduct
from its reach. Applying, then, the economic loss rule to the
facts before us, we conclude that the rule barred
Mid-Century's negligence claim here.
¶39
Accordingly, we affirm the judgment of the division below.
---------
Notes:
[1] Specifically, we granted certiorari to
review the following issue:
Whether the division erred in concluding that
Colorado's economic loss rule precludes Mid-Century
Insurance Company's negligence claim alleging that HIVE
Construction, Inc.'s willful and wanton conduct resulted
in a fire and property damage.