For decades, the Colorado Supreme Court has recognized that some civil liability claims like negligence are meant to protect all citizens from harm without the need for an agreement or contract. On the other hand, parties can enter into contracts and litigate breach of contract lawsuits when someone fails to respect the bargain.

To reinforce that distinction, the Supreme Court has adopted the “economic loss rule,” meaning litigants who suffer financial losses from a breach of contract must stick to that claim, and cannot sue on other grounds unless the law provides grounds for doing so.

On Tuesday, the Supreme Court heard oral arguments about whether to recognize an exception to the economic loss rule. Specifically, can a construction contractor be sued for negligence that was “willful and wanton” as a result of a Denver restaurant fire?

If such an exception existed, “I would be concerned about completely undermining the parties’ expectation under their contract. ‘We thought we had a contract, we had detailed specification, we thought we covered it all. Now, you come and say, “Here’s my (negligence) claim for X million dollars”,'” said Justice Richard L. Gabriel.

He added that even if the distinction might not have mattered greatly to the case of Masterpiece Kitchen, it would set a precedent for litigants to sue regardless of their meticulously negotiated contracts in the future.

In April 2017, a fire damaged Masterpiece Kitchen in Denver’s Lowry neighborhood. During a renovation, the contractor, HIVE Construction, Inc., had substituted combustible material into a wall next to the kitchen. The material caught fire from a broiler placed too close to the wall.

The restaurant received a nearly $483,000 payout from its insurer, Mid-Century Insurance Company, which then went after HIVE. Mid-Century alleged the contractor was negligent in constructing the wall with improper material. A Denver jury sided with Mid-Century in 2021, finding HIVE’s conduct was “willful and wanton.”

Colorado law defines willful and wanton as purposeful behavior, almost certainly realized to be dangerous, done recklessly without regard to consequences or safety of others. The state’s Court of Appeals has ruled that the economic loss rule does not block intentional liability claims — meaning actions intended to cause harm. But it was unclear whether Mid-Century’s willful and wanton negligence claim was allowed, or if the company should have sued for breach of contract instead.

The trial judge believed the economic loss rule did not prohibit Mid-Century’s claim, but a three-judge panel for the Court of Appeals disagreed.

“The parties agree that the relief Mid-Century sought under its negligence claim was identical to the relief it could have sought under a breach of contract claim — purely economic damages,” wrote Judge Jaclyn Casey Brown, overturning the jury’s verdict.

Mid-Century appealed to the Supreme Court, insisting claims for willful and wanton behavior are grounded separately in Colorado law. Moreover, HIVE’s duty to not make an unauthorized change of materials pursuant to the contract was not the same as its duty to prevent a fire, Mid-Century argued.

“Mid-Century had a contractual remedy and could have brought a breach of contract claim against HIVE for its alleged economic damages,” responded HIVE’s lawyers, “but, for its own strategic reasons, Mid-Century elected not to do so.”

Gabriel and Justice William W. Hood III appeared the most concerned about opening the door to civil lawsuits in which plaintiffs can work around a contract they have negotiated. The American Institute of Architects has warned about the possibility of “numerous unforeseeable and unexpected claims for economic losses” in the absence of the economic loss rule’s safeguard.

“This is a very thorough contract entered into between two sophisticated parties,” Hood said. “It had specific provisions about not substituting materials and, as I recall, spoke to this very issue.”

“Under the contract, HIVE’s duty is to the owner of the restaurant to build it as designed. But they also have a duty for public safety,” said Cheri MacArthur, the attorney for Mid-Century. She also disputed that Mid-Century’s damages were “purely economic” in the first place, given that the fire destroyed physical property.

Justice Melissa Hart did not attend the arguments due to illness. Chief Justice Monica M. Márquez said Hart “will be participating in the decision.”

The case is Mid-Century Insurance Company v. HIVE Construction, Inc.