The Subrogation Strategist

In Safeco Ins. Co. of Ill. v. LSP Prods. Grp., 2022 U.S. Dist. LEXIS 139566, the United States District Court for the District of Idaho (District Court) considered whether the plaintiff's tort claims against the manufacturer of an allegedly defective toilet water supply line were barred by the economic loss rule. The defendant filed a motion for summary judgment arguing that, since the supply line was a part of the home when the plaintiff's insureds purchased it, the plaintiff was barred by the economic loss rule from bringing tort claims against the manufacturer. The District Court granted the defendant’s summary judgment motion, ruling that the supply line was a part of the home, which was the subject of the transaction, at the time it was purchased. Thus, the District Court held that the economic loss rule barred the plaintiff’s tort claims.

In 2012, Melissa Norris and Richard Meyers (collectively, the Homeowners) purchased a newly built home in Eagle, Idaho. In 2016, a toilet supply line in one of the bathrooms began leaking, causing water damage to the home as well as to window blinds, an oven and dishwasher. The Homeowners also incurred a loss of rental income. The Homeowners submitted a claim to Safeco Insurance Company (Insurer), their property insurance carrier, who ultimately covered the Homeowners’ losses.

Insurer brought a subrogation action against LSP Products Group, Inc. (LSP) the manufacturer of the water supply line, which Insurer alleged was defective and caused the water leak. Specifically, Insurer alleged that a plastic coupling was defectively designed, making it prone to fracture during the ordinary and intended use of the product. Insurer’s complaint contained counts of strict liability, negligence and breach of warranty.

LSP filed a motion for summary judgment, arguing that Insurer’s torts claims were barred by the economic loss rule and that its' warranty claim failed as matter of law because there was no privity of contract between LSP and the Homeowners. Insurer agreed to dismiss the warranty claim, which left the court to decide one issue: whether the economic loss rule barred Insurer’s tort claims.

The District Court acknowledged that Idaho’s economic loss rule generally prohibits the recovery of economic loss in strict products liability and negligence cases. The court also recognized that previous Idaho courts defined economic loss to include the cost to repair and replace defective property that was the subject of the transaction, as well as commercial loss for inadequate value and consequential loss of profits/use.  Essentially, Idaho’s economic loss rule bars tort claims for damage to property that was part of a contractual transaction which, in this instance, LSP argued was the purchase of the home.

Insurer argued that the subject of the transaction was the house, not the water supply line. More particularly, Insurer argued that the small, replaceable plumbing product was not integrated into the whole house, and, thus, its’ tort claims should not be subjected to the economic loss rule.  Alternatively, Insurer argued that some of the damaged property, such as the blinds, oven and dishwasher, may not have been purchased as part of the house and, thus, the economic loss rule did not apply to bar claims based on damage to those items. Insurer also claimed that the loss of rental income was recoverable because such expenses were “parasitic to an injury.”

As part of its consideration into whether the water supply line was part of the subject of the transaction, the District Court deferred to the Supreme Court of Idaho’s conclusion that the “subject of the transaction” is synonymous with the “subject matter of the contract.” Rather than focus on the size, purpose or functionality of the water supply line, the court simply considered the subject matter of the contract and whether the supply line was part of the subject matter at the time of the sale. The court determined that the house was the subject matter of the transaction, and as a result, the economic loss rule applied to anything that was a part of the house when it was purchased. Since the water supply line was part of the house when it was sold, any tort claims related to the supply line were barred by the economic loss rule.

In addition, the District Court held that, although the economic loss rule does not apply to damage to property that was not the subject of the transaction, since Insurer did not provide evidence that the contents of the house, including the damaged blinds, oven and dishwasher, were purchased after the Homeowners’ bought the home, the court found that claims for those damages were also barred by the economic loss rule. Finally, the District Court ruled that the loss of rental income claim was barred by the economic loss rule since, under Idaho law, the definition of economic loss includes loss of profits from a property.

This case establishes that, in Idaho, tort claims by a property owner for damage to any items that are inside a property when purchased may be barred by the economic loss rule. This case is also an important reminder that, in Idaho, the economic loss rule applies to claims for loss of rental income or profits as well. Subrogation professionals handling property losses in Idaho should keep this case in mind when determining whether the economic loss rule poses challenges to recovery.