No Exception for Willful and Wanton Conduct Under Colorado’s Economic Loss Rule

Introduction

In Mid-Century Insurance Company, as subrogee of Masterpiece Kitchen, v. HIVE Construction, Inc. (2025 CO 17), the Colorado Supreme Court addressed whether the well-established “economic loss rule” yields to allegations of willful and wanton conduct. Mid-Century, the insurer of Masterpiece Kitchen, sued general contractor HIVE Construction for negligence after a fire caused by HIVE’s substitution of combustible plywood in a critical fire-rated wall. Although the insurer alleged that this substitution demonstrated reckless indifference—i.e., willful and wanton conduct—the trial court permitted the negligence claim and a jury awarded damages. The court of appeals reversed, holding that no exception to the economic loss rule exists for claims of willful and wanton conduct. The Colorado Supreme Court granted certiorari to resolve the dispute and affirmed the appellate court’s judgment.

Summary of the Judgment

The Supreme Court unanimously held that:

No carve-out for willful and wanton conduct exists under Colorado’s economic loss rule;
The insurer’s negligence claim was premised on duties established exclusively by contract;
The economic loss rule therefore barred the negligence claim, regardless of the allegation of reckless or wanton behavior; and
Mid-Century was required to pursue its remedy under the contract rather than in tort and could not circumvent that rule by asserting a willful and wanton negligence theory.

The Court affirmed the court of appeals’ reversal of the trial court judgment and directed that a verdict be entered for HIVE Construction.

Analysis

Precedents Cited

Town of Alma v. AZCO Construction, Inc. (2000): Established that economic loss rule bars tort claims for pure economic losses when duty arises from contract.
BRW, Inc. v. Dufficy & Sons, Inc. (2004): Applied the rule in a construction context, identifying a three-factor test to determine whether a duty is independent of contract.
Bermel v. BlueRadios, Inc. (2019): Noted, in dictum, that intentional tortfeasors should not escape liability under the economic loss rule, but did not address willful and wanton negligence specifically.
McWhinney Centerra Lifestyle Ctr. LLC v. Poag & McEwen Lifestyle Centers–Centerra LLC (2021 COA 2): Held that the economic loss rule does not bar certain intentional tort claims, but did not involve willful and wanton negligence.
Berschauer/Phillips Construction Co. v. Seattle School District No. 1 (Wash. 1994): Persuasive authority on risk allocation in construction contracts.
Brown v. Spain (1970): Defined the scope of willful and wanton conduct in Colorado jurisprudence.

Legal Reasoning

The Court began with the bedrock principle that the economic loss rule preserves the line between contract and tort law by requiring that parties enforce contractual duties through contract remedies, unless a duty is truly independent of that contract. To decide if a tort duty is independent, the Court applied the three-factor BRW test:

Whether the relief sought in negligence mirrors the contractual relief;
Whether a common-law duty of care exists independently of the contract; and
Whether the tort duty differs in any material way from the contractual duty.

Here, all three factors weighed in favor of applying the economic loss rule:

Mid-Century sought the same damages—repair of the restaurant and compensation for business interruption—that it could have pursued under contract.
No recognized common-law duty existed beyond the contractual promise to build in a safe, workmanlike manner.
The alleged negligence duty (“build in a safe, careful, competent, workmanlike manner”) was identical to HIVE’s contractual warranty that its work would conform to the contract documents.

The Court rejected Mid-Century’s argument that allegations of willful and wanton conduct fell outside the rule. It distinguished between intentional torts—which require intent to cause harm—and willful and wanton conduct, which involves reckless disregard of known risks. The Court emphasized that allowing a willful and wanton exception would undermine:

The predictability and risk-allocation benefits of the economic loss rule;
The parties’ freedom to bargain for liability limits; and
The integrity of contract law as the primary vehicle for enforcing promises made in commercial transactions.

Impact

This decision clarifies that Colorado contractors, architects, and other parties in the construction industry cannot escape contractual limitations on liability by labeling breaches as willful or wanton. Key takeaways include:

Contract drafting and risk allocation remain paramount. Parties must negotiate and memorialize all critical duties and limitations within the contract.
Insurers and subrogees seeking to recover in construction disputes must pursue breach-of-contract remedies when the duty arises under a contract, even if a contractor’s conduct was reckless.
Willful and wanton conduct still has a role in tort litigation, but only where an independent duty exists outside the contractual framework.

The ruling promotes certainty in construction contracting and discourages circumventing contract terms through tort claims.

Complex Concepts Simplified

Economic Loss Rule: A doctrine that bars tort claims for purely economic losses (or contract-based property losses) when the duties violated are those promised in a contract.
Willful and Wanton Conduct: Reckless behavior showing indifference to the safety and rights of others, less than an intentional tort and more culpable than ordinary negligence.
Subrogation: The insurer’s right to “step into the shoes” of its insured (Masterpiece Kitchen) to recover payments made for losses caused by a third party.
Directed Verdict (C.R.C.P. 50): A judgment entered by the court when no reasonable jury could find for the non-moving party under the law and evidence presented.

Conclusion

The Colorado Supreme Court’s decision in Mid-Century v. HIVE Construction reaffirms that the economic loss rule applies even if a party alleges reckless or wanton deviation from contract specifications. By closing any perceived loophole for willful and wanton conduct, the Court underscored the primacy of contractual duties and the importance of clear risk allocation in commercial and construction agreements. Parties must look to their contracts for remedies, and insurers must structure subrogation claims within that framework. This ruling ensures predictability, upholds the integrity of contract law, and prevents the conversion of all contract disputes into tort cases simply by invoking a heightened standard of fault.