Negligence vs. Breach of Contract: The Economic Loss Rule in Texas

When a builder does poor work, homeowners often want to claim both that the builder broke the contract and that the builder was negligent (careless). In Texas, you can sometimes bring both claims, but a legal principle called the economic loss rule often stands in the way of the negligence claim.

The short answer

Yes, Texas recognizes the economic loss rule. If your only injury is that you didn’t receive the home you paid for, your claim is generally a contract claim, not a negligence claim. But you can bring both claims if:

1. the builder broke a duty that exists independently of the contract; and

2. your harm goes beyond simply not getting the benefit of your bargain.

What the economic loss rule says

Not getting what you paid for is a contract problem

In a 1986 case, homeowners sued their builder after receiving a house that did not match what they had been promised. The Texas Supreme Court held that because the injury was only the loss of what they had bargained for, the claim was a contract claim. That meant they could not recover punitive damages based on a negligence-type claim.

Courts look at the source of the duty and the type of injury

The Texas Supreme Court later explained that to decide whether a claim is a contract claim or a negligence claim, courts look at two things:

• Where the duty came from. Does it exist only because of the contract, or would the law impose it anyway?

• What kind of injury occurred. Is it only the loss of what the contract promised, or something more?

The rule has limits

The Texas Supreme Court has also emphasized that the economic loss rule is not a general rule that wipes out negligence claims whenever a contract exists. A person cannot avoid responsibility for carelessly damaging property simply because they had a contract with someone.

When you can bring both claims

The leading example is a 2014 Texas Supreme Court case. A plumbing subcontractor’s faulty work caused water damage to a newly built home. The Court held that the economic loss rule did not bar a negligence claim, because the plumber’s duty not to flood or otherwise damage the house existed independently of the plumbing contract, and the water damage went beyond the loss of what the plumbing contract promised.

That case relied on an older principle: every contract carries a common-law duty to do the work with care and skill. When a contractor’s careless work damages property, the injured party may have a claim in contract, in negligence, or both, depending on the circumstances.

Some practical examples

These are simplified illustrations. Every case depends on its facts.

• Likely a contract claim only: The builder used cheaper windows than the contract required, and the windows work but are not what you paid for.

• Possibly both: A subcontractor’s careless work causes a leak that ruins flooring, drywall and your furniture.

Why the label matters

Whether a claim is treated as negligence or breach of contract can affect:

• The deadline. Negligence claims generally must be filed within 2 years. Contract claims generally have 4 years.

• What you can recover. Some kinds of damages are available for one type of claim and not the other.

• Insurance. Whether a builder’s insurance covers a claim can depend on whether there was physical damage to property beyond the faulty work itself.

The RCLA still applies

For home construction defects, the Texas Residential Construction Liability Act (RCLA) applies to both negligence and contract claims. It requires written notice to the builder at least 60 days before suing, gives the builder a chance to inspect and make an offer, and limits the types of damages you can recover. Under the RCLA, a builder is responsible only to the extent a defect causes actual physical damage to the home, an actual failure of a building component, or a verifiable safety danger. If a builder accepts a repair deal and then refuses to start the repairs, the RCLA’s damage limits no longer apply.

What this means for you

• Document all the damage, not just the defect itself. Damage to other parts of the home or your belongings may matter.

• Keep track of when you first noticed the problem. The negligence deadline is shorter.

• Talk to a lawyer about which claims fit your situation. The right combination can affect your deadline and your recovery.

This article provides general information about Texas law. It is not legal advice, and reading it does not create an attorney-client relationship. Every case depends on its facts and the law can change. If you have a construction defect problem, talk to a Texas lawyer about your situation.