SC Supreme Court limits economic loss rule in termite damage case

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SUMMARY

• SC Supreme Court reversed summary judgment in termite damage negligence case
• Economic loss rule does not apply to residential service contracts
• Defendants secretly changed termite treatment method without informing plaintiff
• Court ruled jury must decide if negligence caused the property damage

The South Carolina Supreme Court reversed a summary judgment order that had barred the plaintiff’s negligence claim based on the economic loss rule, holding that the doctrine does not apply to service contracts or claims involving conduct outside the scope of the agreement.

The 12-page opinion is Carroll v. Isle of Palms Pest Control Inc.

The plaintiff contracted with the defendants for termite protection using a bait station system. Although the contract limited liability and specified the treatment method, the defendants secretly stopped maintaining the bait system and began applying liquid termiticide without notifying the plaintiff. Ten years later, significant termite damage was discovered.

The plaintiff sued for both breach of contract and negligence. The trial court granted summary judgment on the negligence claim, reasoning that the economic loss rule barred recovery in tort where the damage arose from a failure to perform under the contract. The court of appeals affirmed. The supreme court reversed, reaffirming that the economic loss rule applies only in product liability cases involving damage to the product itself, and does not apply to residential services or professional duties.

The court found the defendants’ conduct—secretly changing the treatment method—was not contemplated by the contract, nor did it fall within duties defined solely by the parties’ agreement. The application of liquid termiticide could support a negligence claim because the plaintiff could not have allocated the risk of actions taken beyond the contract’s terms. The court concluded that whether the alleged negligent application was the proximate cause of the damage is a factual issue for the jury.

Rejecting a broad application of the economic loss rule, the court held it should remain confined to product liability, leaving questions of duty and causation to define the boundary between tort and contract.

EXTERNAL LINKS

• South Carolina Supreme Court opinion
• Court of Appeals summary
• Supreme Court decision summary