Pennsylvania Appellate Court Affirms Homeowner’s Recovery Against Developer on Tort Claims, Despite Contract and Challenges Based on Gist of the Action Doctrine, Economic Loss Rule, and Statute of Limitations

Dolan v. Hurd Millwork Co., No. 2951 EDA 2015, 2019 BL 229344 (Pa. Super. Ct. June 21, 2019)

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John J. Gazzola

This cases arises out of defective windows installed in a residential construction project. In 1999, Leo J. Dolan purchased a custom home from Bentley Homes, Ltd. and its affiliates (“Bentley Homes”).  Hurd Millwork Company, Inc. provided many of the home’s windows.   Dolan almost immediately observed issues in the home’s construction, including air and water leaks around the windows.   Bentley Homes, however, led him to believe the issues had been fixed.

In 2005, Dolan noticed rotten wood around a window in his home.  He also learned that in 2002, Bentley Homes had settled with Hurd under an agreement which contained specific admissions that Dolan’s home had window defects and leaks.  Dolan sued Bentley Homes for negligence, negligent misrepresentation, fraud/intentional misrepresentation (collectively, the “Tort Claims”), breach of express and implied warranties, and violations of Pennsylvania’s consumer protection law, and Hurd for breach of warranty and products liability.

Dolan eventually settled with Hurd and proceeded to a bench trial against Bentley Homes.  The parties stipulated that Hurd’s windows were defective and after Bentley Homes failed to present a defense against Dolan’s claims, the court entered a general verdict against them, jointly and severally, for $500,000.00.

Bentley Homes appealed, claiming Dolan’s Tort Claims were barred by: (i) the gist of the action doctrine because any duty owed to him arose out of the parties’ agreement of sale; (ii) the economic loss rule because of no damage to “other property;” and (iii) the statute of limitations because Dolan knew of construction issues in 2000 yet failed to file suit until 2005.  The appellate court affirmed the judgment for Dolan.

The Court explained that the gist of the action doctrine prevents recasting contract claims as tort claims where the duties breached were created, grounded, and arose solely from contract.  The Court explained that the crux of Dolan’s Tort Claims was predicated on Bentley Homes’ actions and representations while investigating Dolan’s complaints about leaks in his home: Bentley Homes led Dolan to believe the problems were isolated and fixed, even though Bentley Homes knew the windows were defective, would cause systemic problems, and needed to be replaced.  The Court concluded that these allegations reached “beyond the contractual obligations” in the agreement of sale which “merely served as the vehicle” establishing the parties’ relationship, during which Bentley Homes committed various torts.

The Court similarly refused to apply the economic loss rule, which prohibits tort actions seeking solely economic damages unaccompanied by injury to person or property.   The Court determined that Dolan sustained damages beyond the repair costs and involved damage to his personal property which did not constitute a complete and integrated part of the property.

Finally, the Court rejected Bentley Homes’ timeliness argument, explaining that while Dolan had observed problems as early as 2001, by 2003, he had been misled to believe the problems had been fixed, and it was not until 2005, the year in which Dolan filed suit, that he noticed rotten wood around a window and learned that Bentley Homes had settled claims against Hurd associated with the defective windows at Dolan’s home.  As such, the record contained sufficient evidence to support the trial court’s conclusion that the discovery rule applied to toll the applicable statute of limitations.

To view the full text of the court’s decision, courtesy of Bloomberg Law, click here.