South Carolina Supreme Court Clarifies Limits of Economic Loss Rule under South Carolina Law

By Drennan Quattlebaum on August 22, 2025 | Torts

On July 23, 2025, the South Carolina Supreme Court issued a significant opinion, Caroll v. Isle of Palms Pest Control, Inc.,[1] providing much needed clarification on the application of the economic loss rule under South Carolina.

The Court began by discussing the evolution of the economic loss rule as it emerged in the product liability context and served to distinguish between recovery under contract law rather than tort.  In Kennedy v. Columbia Lumber & Mfg. Co (1989),[2] the Court recognized a narrow exception to the rule in finding that it does not apply in the residential home building context where a builder violates industry standards or other regulated conduct such as building codes thereby creating a serious risk of physical harm or property damage to a homeowner.  Such an exception aligns with the strong South Carolina public policy of protecting homebuyers, as a person’s home is likely their largest investment.  Then in Colleton Preparatory Academy v. Hoover Universal (2008),[3] the Court expanded the exception to commercial construction context.  Sapp v. Ford Motor Co. (2009),[4] expressly narrowed the rule again, overruling Colleton Preparatory Academy, explaining that Kennedy was a “very narrow” exception.

Next, the Court examined the national development of the economic loss rule, highlighting the doctrinal confusion that has emerged over time.  Initially rooted in products liability law, the rule was intended to distinguish between recoverable contract remedies and nonviable tort claims where a product defect resulted solely in economic loss—such as diminished value or repair costs—without physical injury or damage to other property.  Under this framework, tort recovery was limited to cases involving physical harm or damage beyond the product itself.

Over time, however, courts across the country have introduced various exceptions, leading to significant inconsistency.  South Carolina jurisprudence has similarly contributed to the confusion.  The South Carolina Supreme Court carved out the residential homebuilding exception in Kennedy.  Later, Sapp suggested that the economic loss rule applies whenever the loss was within the contemplation of the contracting parties, thus shifting the focus from the defendant’s conduct to the nature of the resulting damages. Further complicating the doctrine, South Carolina has acknowledged that tort liability may still arise in cases involving duties independent of contractual obligations, such as in the context of professional services rendered by architects, engineers, accountants, or attorneys.

As Justice Hill aptly observed in Carroll, “anyone who can explain the economic loss rule does not truly understand it.”

The Carroll decision definitively clarifies the rule’s limits: the economic loss rule applies only in the products liability context—for example, where a product has been manufactured or sold.  The rule is inapplicable in non-product cases.  In such contexts, defendants can no longer invoke the economic loss rule as a shield to limit liability to contractual remedies, even where damages are purely economic in nature.  Where a party breaches a duty independent of the underlying contract and engages in negligent or wrongful conduct outside the contract’s terms, tort liability may be appropriate.  Furthermore, this decision expressly overrules Sapp, to the extent Sapp stands for the proposition that tort claims are prohibited where the damage is contemplated by the parties’ contract.

 

[1] — S.E.2d –, 2025 WL 2055721 (S.C. July 23, 2025)

[2] 299 S.C. 335, 384 S.E.2d 730 (1989)

[3] 379 S.C. 181, 666 S.E.2d 247 (2008)

[4] 386 S.C. 143, 687 S.E.2d 47 (2009)

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