Colorado Supreme Court Declares No Willful-and-Wanton Exception to the Economic Loss Rule

Introduction

In Mid-Century Insurance Company v. HIVE Construction, Inc., 567 P.3d 153, 2025 CO 17 (Colo. Apr. 21, 2025), the Colorado Supreme Court resolved a recurring question at the intersection of tort and contract law: whether allegations of willful and wanton conduct create an exception to the economic loss rule. The dispute arose from a restaurant construction project where the general contractor, HIVE Construction, deviated from approved plans by installing combustible plywood instead of a second layer of drywall on a kitchen wall. A fire ensued, generating significant property damage and business interruption losses. Mid-Century Insurance Company, as subrogee of the restaurant (Masterpiece Kitchen), sued HIVE for negligence asserting, among other things, willful and wanton conduct.

A jury found HIVE’s conduct willful and wanton and the district court entered judgment for Mid-Century. On appeal, the Colorado Court of Appeals reversed, holding that the economic loss rule barred the negligence claim because the duty at issue was defined by contract. The Supreme Court granted certiorari and affirmed, holding that willful and wanton allegations do not remove a claim from the reach of the economic loss rule when the asserted duty is not independent of the parties’ contract.

The case clarifies Colorado law by expressly rejecting a willful-and-wanton carveout to the economic loss rule and reinforcing the centrality of the “source of duty” inquiry in determining whether a plaintiff may pursue tort remedies where a contract governs the relationship.

Summary of the Opinion

No exception: The Court holds there is no exception to the economic loss rule for negligence claims alleging willful and wanton conduct.
Source-of-duty controls: The rule’s application depends on whether the duty alleged arises independently of the contract, not on the nature of damages (physical vs. economic).
Contract vs. tort: Where the contract memorializes the duty, tort claims are barred and the remedy lies in contract.
Application: Mid-Century’s alleged duty (to perform work safely, carefully, competently, and in a workmanlike manner, including adherence to plans and approvals) was coextensive with HIVE’s contractual warranty that the work would conform to contract documents and that unapproved substitutions may be defective. The economic loss rule therefore barred the negligence claim.
Willful/wanton vs. intentional: The Court distinguishes willful and wanton negligence from intentional torts; its prior dictum suggesting the economic loss rule “generally should not” shield intentional tortfeasors does not extend to willful and wanton claims.
Preservation: A late-raised argument that property damage renders the rule inapplicable was not preserved and thus not addressed.
Remedy: The Court affirms the Court of Appeals’ direction to enter a directed verdict for HIVE; a negligence verdict on a claim barred by the economic loss rule cannot be deemed harmless by reference to a contract claim the plaintiff did not timely assert.

Detailed Analysis

Precedents Cited and Their Influence

Town of Alma v. AZCO Construction, Inc., 10 P.3d 1256 (Colo. 2000): The foundational statement of Colorado’s economic loss rule: a party suffering only economic loss from breach of a contractual duty may not assert a tort claim absent an independent duty of care under tort law. The rule’s purposes include maintaining the tort/contract boundary, enforcing the bargain, encouraging ex ante risk allocation, and ensuring predictability in commercial transactions. Town of Alma supplies the governing framework and policy rationales.
BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66 (Colo. 2004): Provides the three-factor guide to identifying the source of duty: (1) whether relief sought in negligence is the same as the contractual relief; (2) whether a recognized common-law duty exists; and (3) whether the negligence and contractual duties differ. BRW is the operative test applied in the opinion.
City of Aspen v. Burlingame Ranch II Condo. Owners Ass’n, 2024 CO 46, 551 P.3d 655: Reinforces that if the parties have memorialized the applicable duty of care in their contract, then no independent tort duty exists, and the economic loss rule bars the tort claim. The Court relies on this recent articulation to emphasize that duties “contained within or imposed under the contract” are not independent.
Bermel v. BlueRadios, Inc., 2019 CO 31, 440 P.3d 1150: Footnote 6 suggested that the economic loss rule generally should not shield intentional tortfeasors for misconduct that also breaches a contract. The Court treats this as dicta and inapposite to willful and wanton negligence, thereby limiting any broad reading of Bermel’s dictum.
McWhinney Centerra Lifestyle Center LLC v. Poag & McEwen Lifestyle Centers-Centerra LLC, 2021 COA 2, 486 P.3d 439: A Court of Appeals division had concluded, contrary to other divisions, that intentional tort claims are generally not barred by the economic loss rule. The trial court relied on McWhinney to let the willful-and-wanton negligence claim proceed. The Supreme Court clarifies that McWhinney dealt with intentional torts, not willful and wanton negligence, and accordingly does not support a willful-and-wanton exception.
McShane v. Stirling Ranch Property Owners Ass’n, 2017 CO 38, 393 P.3d 978: Establishes that exculpatory agreements cannot shield against claims of willful and wanton negligence. The Court distinguishes exculpatory-clause law from the economic loss rule, emphasizing that the latter does not “shield” tortfeasors but channels claims to contract when duties arise from the contract.
Berschauer/Phillips Construction Co. v. Seattle School District No. 1, 881 P.2d 986 (Wash. 1994): Cited approvingly in BRW to emphasize the importance of precise contractual risk allocation in the construction industry. Supports the policy rationale for enforcing the economic loss rule robustly in construction disputes.
Public Service Co. of Colo. v. Van Wyk, 27 P.3d 377 (Colo. 2001); Culpepper v. Pearl St. Bldg., Inc., 877 P.2d 877 (Colo. 1994): Clarify the mental state required for intentional torts. The Court uses these to distinguish intentional conduct (intent or knowledge that result is likely) from willful and wanton conduct (purposeful acts done without regard to consequences).
Brown v. Spain, 466 P.2d 462 (Colo. 1970): Historic statement that willful and wanton conduct approaches but does not include an intentional tort. This distinction is central to the Court’s refusal to extend Bermel’s dictum to willful and wanton negligence.
Statute and Jury Instructions: The definition of willful and wanton in section 13-21-102(1)(b), C.R.S. (2024), and CJI-Civ. 9:30 (2024) supports the Court’s articulation of the standard for willful and wanton conduct and its difference from intentional torts (CJI-Civ. 24:2 (2024)).
Standards and Preservation: - Burgess v. Mid-Century Ins. Co., 841 P.2d 325 (Colo. App. 1992) (directed verdict standard).
- People in Interest of L.S., 2023 CO 3M, 524 P.3d 847 (de novo review).
- Engeman Enterprises, LLC v. Tolin Mechanical Systems Co., 2013 COA 34, 320 P.3d 364 (economic loss rule application is a legal question reviewed de novo).
- Estate of Stevenson v. Hollywood Bar & Cafe, Inc., 832 P.2d 718 (Colo. 1992) (issues not raised below cannot be raised for the first time on appeal).

The Court’s Legal Reasoning

The Court begins with first principles. The economic loss rule prevents a party from recasting a breach-of-contract claim as a tort claim unless the tort duty is independent of the contract. The rule’s aims are to preserve the distinction between tort and contract, enforce negotiated allocations of risk and cost, and promote predictability in commercial dealings—policies that loom especially large in the construction industry where fees, insurance, and responsibilities are priced and allocated through contracts (Town of Alma; BRW; Berschauer/Phillips).

Applying BRW’s source-of-duty framework, the Court emphasizes that the question is not whether the damages are “economic” or “physical,” but whether the duty arises from the contract or independently under tort law. If the duty is “contained within or imposed under the contract,” the economic loss rule bars tort claims (City of Aspen).

Turning to the asserted attempt to bypass the rule via willful and wanton allegations, the Court squarely holds: there is no willful-and-wanton exception to the economic loss rule. The Court carefully distinguishes willful and wanton negligence from intentional torts. While Bermel suggested the rule “generally should not” shield intentional tortfeasors, that dictum is inapplicable here and does not extend to willful and wanton negligence, which “approaches but does not include” intentional torts (Brown v. Spain).

The Court also clarifies that the economic loss rule is not akin to an exculpatory clause: it does not immunize misconduct. It channels claims grounded in contractual duties to contract remedies. Creating a willful-and-wanton exception would invite artful pleading and threaten the predictability and risk allocation the rule is designed to protect.

Application to the Facts

Using BRW’s three factors:

Relief sought: Mid-Century sought damages for the fire loss—relief equally available under a breach-of-contract theory. Indeed, Mid-Century tried (too late) to amend to a contract claim seeking the same damages.
Common-law duty: Mid-Century alleged a duty to perform construction work safely, carefully, competently, and in a workmanlike manner.
Comparison of duties: The alleged negligence duty does not meaningfully differ from HIVE’s contractual promise that “the Work will conform to the requirements of the Contract Documents,” coupled with the specification that unapproved substitutions may be defective. The breach was the same in both frames: deviating from plans by installing combustible plywood without an approved change order.

Because the duties are coextensive and memorialized in the contract, the tort claim is barred. Allegations of willful and wanton conduct do not alter that conclusion.

Procedural Posture and Preservation

Directed verdict: The Court reviews de novo and agrees that, as a matter of law, the negligence claim was barred by the economic loss rule. The district court’s reliance on McWhinney to deny the motion was misplaced because that case addressed intentional torts, not willful and wanton negligence.
Property damage argument: Mid-Century’s contention that the presence of property damage (as opposed to “pure” economic loss) should avoid the rule was raised for the first time in the Supreme Court and therefore not considered (Estate of Stevenson). The Court also reiterates the general principle that the rule turns on source of duty, not the type of damage.
Harmless error: The error was not harmless because the jury decided a claim that should have been barred. Harmlessness cannot be measured against a contract claim that was never tried, especially where the district court denied leave to amend one week before trial due to prejudice.
Remedy: The Court affirms the Court of Appeals’ directive to enter a directed verdict for HIVE.

Clarifications Regarding Bermel and McWhinney

Bermel’s dictum confined: The Court treats the statement that the economic loss rule generally should not shield intentional tortfeasors as dicta and explicitly declines to apply it to willful and wanton negligence.
Intentional versus willful/wanton: The opinion stresses the doctrinal difference: intentional torts require intent or knowledge that results are likely; willful and wanton negligence involves purposeful conduct done without regard to consequences.
Open question: The Court does not decide whether, or to what extent, intentional tort claims may avoid the economic loss rule. That issue remains guided by existing precedent and dicta but is not resolved here.

Impact and Practical Implications

This decision strengthens the boundary between contract and tort in Colorado, particularly in construction and other commercial contexts where parties extensively negotiate duties, change-order procedures, warranties, and risk allocation.

No pleading workaround via willful/wanton allegations: Plaintiffs cannot evade the economic loss rule simply by characterizing conduct as willful and wanton if the duty allegedly breached is embedded in the contract.
Emphasis on contract remedies: Where the contract supplies the duty, plaintiffs must proceed in contract. Strategic efforts to preserve both contract and tort remedies must confront the independent-duty requirement head-on.
Risk allocation in construction preserved: Contractors, owners, architects, and insurers receive greater predictability. Deviations from plans (and change-order mechanisms) are contractual concerns with contractual remedies.
Punitive damages exposure: Because willful and wanton allegations cannot independently sustain a tort where the duty is contractual, the path to exemplary damages that hinges on tort theories narrows. Plaintiffs should not expect to obtain punitive damages merely by pleading willful and wanton conduct when the asserted duty is not independent of the contract.
Subrogation posture: Subrogees stand in the shoes of the insured. They cannot assert tort claims that the insured could not have brought due to the economic loss rule’s bar.
Pleading and timing discipline: The opinion underscores the importance of timely pleading contract claims and pursuing amendments early. Plaintiffs should expect courts to enforce prejudice-based denials of late amendments and to reject post-verdict attempts to reframe claims as “harmless error.”
Unresolved contours: The Court leaves intact the question flagged in Bermel’s dictum concerning intentional torts. Future cases will likely explore the extent to which truly intentional misconduct (e.g., fraud) can proceed in tort notwithstanding overlapping contractual obligations.

Complex Concepts Simplified

Economic loss rule: A doctrine preventing parties from turning contract disputes into tort lawsuits. If the duty breached exists because of the contract, then the claim must be brought as a breach of contract unless there is a separate, independent duty recognized by tort law.
Independent duty: A legal obligation arising from common law (or statute) that exists regardless of any contract. If the duty exists independently, a tort claim may proceed even if a contract also addresses similar subject matter.
Willful and wanton conduct: Purposeful acts done without regard to the consequences (as defined in section 13-21-102(1)(b)). It is more blameworthy than ordinary negligence but not the same as an intentional tort.
Intentional tort: Wrongful conduct undertaken with the intent to cause a result, or with knowledge that the result is substantially certain to occur. Examples include fraud or intentional interference, as contrasted with negligent conduct.
Directed verdict: A ruling that no reasonable jury could find for the non-moving party on the evidence presented, so the court enters judgment as a matter of law without sending the issue to the jury.
Subrogation: The legal mechanism by which an insurer that has paid a loss steps into the insured’s shoes to pursue recovery against responsible parties, subject to all defenses that would apply against the insured.

Conclusion

Mid-Century v. HIVE Construction cements a key boundary in Colorado law: allegations of willful and wanton conduct do not create an exception to the economic loss rule where the asserted duty is grounded in contract. The decision reinforces a predictable, contract-centered regime for commercial parties—especially in construction—who rely on negotiated documents to allocate duties and risks, including change orders and warranties. It also clarifies doctrinal lines by distinguishing intentional torts from willful and wanton negligence and by emphasizing that the economic loss rule concerns the source of duty, not the nature of damages.

Key takeaway: When the contract memorializes the duty, tort is out and contract is in—regardless of how egregious the negligence is alleged to be. Plaintiffs seeking tort-based remedies, such as exemplary damages, must identify a truly independent duty or pursue their remedies in contract. The Court’s opinion thus advances predictability and enforces negotiated risk allocation while leaving for another day the contours of any intentional-tort pathway around the rule.