In a closely watched case stemming from a restaurant fire caused by a departure from approved construction plans, the Colorado Supreme Court recently reaffirmed the strict boundaries of the economic loss rule. In MidCentury Insurance Co, v. Hive Construction, Inc., No. 23SC267 (April 21, 2025), the court concluded a negligence claim rooted in alleged willful and wanton misconduct was barred because the duty breached was defined entirely by contract. This ruling reinforces the primacy of contract remedies in commercial construction disputes and clarifies that even allegations of reckless misconduct do not automatically convert contract-based claims into actionable torts.
Facts and Procedural History
Hive Construction served as the general contractor for the construction of Masterpiece Kitchen, a restaurant. Under the construction contract, Hive warranted that its work would conform to the contract documents, which included architectural plans requiring two layers of fire-resistant drywall on the kitchen side of a wall separating the kitchen and dining area. Instead, Hive installed one layer of drywall and one layer of combustible plywood without approval. The placement of combustible plywood near the kitchen's broiler eventually led to a fire that caused significant damage and forced the restaurant to close.
Masterpiece Kitchen's insurer, MidCentury Insurance, paid for the losses and subsequently brought subrogation claims against Hive and the architect, alleging negligence. MidCentury claimed Hive had breached its duty to perform its work in a safe and workmanlike manner by installing flammable material in violation of the contract documents. MidCentury characterized this conduct as willful and wanton.
Initially, MidCentury did not assert a breach of contract claim. However, one week before trial, it sought to amend its complaint to replace the negligence claim with a contract-based claim. Although the trial court initially allowed the amendment, it reversed course after Hive objected, finding the late-stage change would cause undue prejudice. The court required MidCentury to proceed under its original negligence theory.
At trial, Hive moved for a directed verdict, arguing that the economic loss rule barred the negligence claims because the alleged misconduct arose from contractual duties. The trial court denied the motion, citing McWhinney Centerra Lifestyle Center LLC v. Poag & McEwen Lifestyle Centers-Centerra LLC, 2021 COA 2, ¶ 67, 486 P.3d 439, 453, and held that the economic loss rule did not bar claims alleging willful and wanton conduct. The jury found in MidCentury's favor, determining that Hive's actions were willful and wanton and had caused the damages.
Hive appealed, and the Court of Appeals reversed. The appellate court held that Hive's alleged duty of care was not independent of its contractual obligations and that the economic loss rule therefore barred MidCentury's negligence claim- even if characterized as willful and wanton. The panel further found that no valid breach of contract claim could be revived since the trial court had denied MidCentury's motion to amend. Concluding that the trial court erred in allowing the negligence claim to proceed, the appellate court instructed the trial court to enter a directed verdict in Hive's favor. MidCentury petitioned the Colorado Supreme Court for review, which granted certiorari.
The Economic Loss Rule in Colorado Construction Law
Under Colorado law, the economic loss rule bars a party from recovering in tort for purely economic damages that stem from the breach of a contractual duty, unless the duty at issue arises independently of the contract. This foundational principle, articulated in Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1264 (Colo. 2000), serves to preserve the boundary between contract and tort law. It encourages parties to define and allocate risk during contract negotiations and fosters predictability in commercial relationships.
The rule is especially significant in the construction industry, where architects, contractors, and other professionals rely on clearly delineated contractual responsibilities to assess risk and set pricing. Courts look not to the type of harm suffered (physical versus economic), but the source of the alleged duty. In other words, it examines whether it arises from the partes' agreement or from common law tort principles. If the duty is contract-based, the plaintiff's remedy must lie in contract, not tort.
To determine whether a duty is independent of the contract, courts consider several factors, as outlined in BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 74 (Colo. 2004)
- Whether the relief sought in tort mirrors that sought under the contract;
- Whether a recognized common law duty of care exists; and
- Whether the tort and contractual duties differ in any meaningful way.
When the parties have agreed to the applicable standard of care within the contract, generally no separate tort duty exists. In such cases, the economic loss rule bars negligence claims.
This case asked the court to assess claims alleging willful and wanton conduct. Although the Colorado Supreme Court has previously indicated that intentional torts may fall outside the rule's scope (see Bermel v. BlueRadios, Inc., 2019 CO 31, ¶ 20 n.6, 440 P.3d 1150, 1154 n.6), it has drawn a clear line between intentional torts and willful and wanton negligence. Intentional torts involve conduct where the actor intends the result or knows it is likely to occur. By contrast, willful and wanton conduct is reckless, or shows disregard for known risks, but without a specific intent to cause harm. Id.
In Pub. Serv. Co. of Colo. v. Van Wyk, 27 P.3d 377, 392 (Colo. 2001), the court emphasized that willful and wanton conduct does not rise to the level of an intentional tort and therefore remains within the reach of the economic loss rule. The rule does not, as an exculpatory agreement might, insulate a wrongdoer from liability. Rather, it governs the form of the claim, such conduct may still be actionable, but only under contract law if it arises from contractual duties.
The court in the current case reaffirmed this distinction and declined to create an exception for willful and wanton negligence. Doing so, it reasoned, would undermine the very purpose the rule is designed to serve- upholding the parties' negotiated risk allocations and preserving the integrity of contract remedies. A party cannot bypass the economic loss rule merely by characterizing its allegations as willful and wanton conduct.
Application of the Economic Loss Rule to MidCentury's Claim
To determine whether the economic loss rule applies, Colorado courts consider the three factors established in BRW as detailed above. Applying this framework, the court concluded that MidCentury's negligence claim against Hive was barred by the economic loss rule.
First, both parties agreed that the damages MidCentury sought for damage to the restaurant were the same whether framed as a tort or a contract claim. MidCentury even sought the same relief when it attempted to amend its complaint to assert a breach of contract claim.
Second, the duty MidCentury claimed Hive violated in tort- to perform construction work safely and completely- was identical to the contractual duty outlined in the agreement between Hive and Masterpiece Kitchen. Since this duty was memorialized in the parties' contract, it could not be considered an independent duty under tort law.
Third, there was no meaningful distinction between the contractual and tort duties. The negligence claim did not meet the exception criteria for avoiding the economic loss rule. The court also rejected MidCentury's argument that its claim should survive because it alleged willful and wanton conduct. As discussed earlier, the court held that such allegations do not remove a claim from the rule's reach if the duty arises solely from the contract.
MidCentury's late-stage argument that property damage should exempt the claim from the economic loss rule was similarly unavailing. The court noted that MidCentury had not raised this argument until its briefing before the Colorado Supreme Court, making it procedurally improper.
Finally, the court rejected MidCentury's contention that the district court's error in allowing the tort claim to proceed was harmless. Since MidCentury never successfully pleaded a contract claim and the jury never considered one, the court declined to assess the outcome based on a hypothetical claim.
In sum, because MidCentury's negligence claim arose entirely from a contractual duty and sought contract-equivalent relief, the economic loss rule applied. The court affirmed the Court of Appeals' decision reversing the judgment and ordered the judgment be entered in Hive's favor.
Moving Forward
The Court's ruling underscores the importance of careful contract drafting and adherence to contractual remedies in the construction industry. By refusing to carve out an exception to the economic loss rule for willful and wanton conduct, the court preserved the predictability and risk allocation that contracts are intended to provide. For insurers and contractors alike, the decision serves as a reminder that the form and framing of a claim that attempts to recharacterize a breach of contract as tortious conduct will face significant legal hurdles.
