The Supreme Court of Ohio Affirms Economic Loss Rule in Victory for Subs

By Donald W. Gregory

In a case of great importance to Ohio subcontractors, the Ohio Supreme Court has ruled in a 5-2 decision dated October 26, 2005 that a project owner cannot generally sue a subcontractor directly for economic loss, as there is no "privity of contract" between the owner and the subcontractor Corporex Development & Construction Management, Inc. v. Shook, Inc., 106 Ohio St.3d 412, 2005-Ohio-5409.

The Court said that the project owner's sole remedy should be to sue the contractor for breach of its contractual duties, who could then sue the subcontractor for any breach of its subcontractual duties. No independent tort duty exists which would justify a tort claim by the owner against the subcontractor.

This situation arose because the owner and contractor were closely related entities and the subcontractor, Shook, assumed duties similar to a general trades contractor. Shook had wisely deleted responsibility for delay damages in its subcontract, yet the owner was attempting to circumvent that fact by suing in tort. The Court emphasized that the subcontractor could have no greater duties (in tort or otherwise) than those expressly set forth in the subcontract.

The American Subcontractors Association (ASA), in an amicus brief authored by our firm, successfully argued that a subcontractor's duties should be limited to those assumed under their subcontract and should not be extended to third parties or enlarged in scope. This decision will allow subcontractors and others in the construction industry to rely upon the express terms of their contracts and rest more easily once those duties are satisfied.

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Kegler, Brown, Hill & Ritter's Construction Law Newsletter is prepared by Donald W. Gregory for the Construction Law practice group.

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