The Subrogation Strategist

In Carroll v. Isle of Palms Pest Control, Inc., No. 28291, 2025 S.C. LEXIS 98, the Supreme Court of South Carolina (Supreme Court) clarified the scope of the economic loss rule and, in doing so, created new opportunities for subrogating carriers to pursue tort recovery in cases involving negligent service providers.

James E. Carroll, Jr. (Carroll) contracted with Isle of Palms Pest Control (IPPC) for termite protection using a bait station system. The contract capped liability at $250,000 and specified that treatment would consist solely of installing and monitoring bait stations. Unbeknownst to Carroll, the company abandoned the bait system and began applying liquid termiticide—allegedly in a negligent manner. Carroll continued renewing the bait station contract for ten years, unaware of the change. His home was eventually found to be severely damaged by termites.

Carroll sued IPPC for breach of contract and negligence. The trial court granted summary judgment on the negligence claim, applying the economic loss rule, and the Court of Appeals of South Carolina affirmed. However, the Supreme Court reversed this decision.

The Supreme Court held that the economic loss rule applies only in product liability cases, where the damage is to the product itself. Further, the court clarified that the rule does not apply to residential homes or professional services, does not bar tort claims when a party breaches a duty independent of contractual obligations and does not apply where loss relates to the subject matter of the parties’ contract outside of the product liability context. Here, the court found that the pest control company’s conduct—applying termiticide outside the scope of the contract, i.e. beyond the parties’ bargain—constituted undertaking a separate act, triggering a common law duty of care. This independent duty supported Carroll’s negligence claim.

Importantly, the Supreme Court limited the economic loss rule to hold that it applies only in product liability cases. Here, however, the court reaffirms that tort remedies remain available when a defendant’s conduct goes beyond the parties’ bargain. For subrogation professionals, this decision underscores the importance of investigating whether a service provider’s actions breached duties independent of the contract. Where such a breach exists, tort recovery may be pursued—potentially exceeding contractual limitations and enhancing recovery prospects.