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  • October 10, 2016

    Wisconsin’s Economic Loss Doctrine Not Affected by Wis. Statute 895.447(1)

    Whether or not you like the economic loss doctrine, in construction circumstances it appears here to stay – after a recent and well-reasoned decision in Milwaukee County Circuit Court regarding Wis. Stat. section 895.447.

    Eric J. Meier

    In a recent summary judgment decision in Milwaukee City Housing Authority v. Zimmerman Design Group, Milw. Co. Cir. Ct., Case No. 12-CV-11532, Milwaukee County Circuit Court Judge David A. Hansher dismissed an argument presented by the owners of a building in a construction defect case relating to the economic loss doctrine (ELD).

    The plaintiffs argued that Wis. Stat. section 895.447(1) evinces a legislative intent that contractors and manufacturers remain liable in tort and that the court cannot step in to accomplish what the legislature has sought to prevent.

    For some context, the pertinent portion of section 895.447 reads as follows:

    895.447 Certain agreements to limit or eliminate tort liability void.

    (1) Any provision to limit or eliminate tort liability as a part of or in connection with any contract, covenant or agreement relating to the construction, alteration, repair or maintenance of a building, structure, or other work related to construction, including any moving, demolition or excavation, is against public policy and void …

    Plaintiff’s Argument

    Plaintiffs’ counsel argued that when the Wisconsin Legislature enacted this statute in 1977, the ELD was not in effect. Thus, parties to construction contracts could pursue tort claims for purely economic losses. Further, counsel asserted that the statute unambiguously established that it was against the “public policy” of Wisconsin for a contractor to attempt to limit or eliminate their tort liability. Counsel further raised the question “[i]f the Wisconsin Legislature and Executive prohibit a construction contractor or supplier from limiting its tort liability through contract, then how can the Wisconsin judiciary step in and do so as a surrogate of the contractor or supplier?”

    Supplier Defendant Response

    The supplier defendant, who filed for summary judgment seeking to dismiss the negligence claim asserted against it, responded to plaintiffs’ argument by pointing to the long history of the ELD established in common law through the various courts in Wisconsin. Further, defendant’s counsel pointed out that the statute at issue merely provided that parties could not contract away liability in tort.

    The statute did not, however, make any changes to the elements necessary for there to be liability in tort. In other words, the statute did not create tort liability where tort liability did not exist under the common law. Moreover, nothing in the language of section 895.447 added to, subtracted from, or revised the elements of tort liability, including when, where, or how the ELD would be applied.

     Eric J. Meier Eric J. Meier, U.W. 2002, is a Partner with Husch Blackwell LLP in Milwaukee, where he is a member of the firm’s Real Estate, Development & Construction industry team.

    Counsel for the supplier defendant also noted that the plaintiffs were unable to cite to any case law discussing section 895.447, nor any legislative history to support their proffered explanations of its intent and underlying policy. The ELD was first adopted by Wisconsin courts in 1989 (some 12 years after the Wisconsin statute was enacted) and first applied to bar a construction-based tort claim in 2002. Defendant’s counsel posed the question: why didn’t the legislature change the language the substance of this statute when it was updated in 2005, if the Wisconsin courts had misconstrued the legislative intent for so many years?

    Court’s Decision

    In its decision, the court noted that the problem with the plaintiffs’ argument was that it assumed that the only way a contractor or manufacturer could be liable in tort was through negligent workmanship. This, the court submitted, ignored the fact that the ELD does not prevent tort claims for personal injury or damage to other property. See, e.g., Linden v. Cascade Stone Co., 2005 WI 113, ¶ 6. It is those types of damages and liability that the statute precludes from being contracted away. The court confirmed that this statute can run in parallel with the ELD.

    The court found significant that defendant did not contend that it was absolved of liability based on a contract or agreement with plaintiffs. Rather, defendant’s position was that plaintiffs were merely trying to get tort damages for a contract claim.

    Ultimately, the court re-affirmed the logic set forth by Federal Judge Barbara Crabb, “the statute is irrelevant if there is no tort claim to begin with … If Wisconsin courts would apply the economic loss rule to preclude plaintiff’s tort claim in this case, § 895.49 [later renumbered 895.447] will not resurrect the claim.” Wausau Paper Mills Co. v. Chas. T. Main, Inc., 789 F.Supp. 968, 974 (W.D. Wis. 1992).

    The decision of the Milwaukee County Circuit Court was well reasoned, and consistent with the long legacy of Wisconsin ELD case law. While plaintiff’s counsel in future cases may continue to attempt to circle back to section 895.447 to attempt to circumvent the ELD in construction cases, this decision shows that there is not an appetite for lower courts in Wisconsin to do so. Whether you like the ELD or not, in construction circumstances, it appears here to stay.

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    The Construction & Public Contract Law Section Blog is published by the State Bar of Wisconsin; blog posts are written by section members. To contribute to this blog, contact Mark Schmidt and review Author Submission Guidelines. Learn more about the Construction & Public Contract Law Section or become a member.

    Disclaimer: Views presented in blog posts are those of the blog post authors, not necessarily those of the Section or the State Bar of Wisconsin. Due to the rapidly changing nature of law and our reliance on information provided by outside sources, the State Bar of Wisconsin makes no warranty or guarantee concerning the accuracy or completeness of this content.

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