SACRAMENTO - In a 5-2 decision, the California Supreme Court has upheld existing law and ruled that emotional damages cannot be recovered in a construction contract dispute. The important decision reversed a Second District Court of Appeal decision in which justices by a 2-1 vote upheld a jury award for emotional distress and pain and suffering in a dispute over a residential construction contract.

John H. Sullivan, president of the Civil Justice Association of California (CJAC), said: "It is hard to exaggerate how much good news this decision brings to future homeowners and the California building industry. The court's decision today is also an elegant statement of current law and the sound reasoning behind it. We hope that attorneys and judges alike will rely on our Supreme Court's statement to rule out any future schemes to turn contract cases into big tort liability lawsuits."

The Association's general counsel Fred Hiestand argued against the emotional damages theory when the court heard oral arguments in the case on June 2 in San Francisco. In the CJAC amicus curiae brief (filed before the Association changed its name from the Association for California Tort Reform), Hiestand wrote: "If not reversed, this opinion will severely impact the construction industry and increase future housing prices to the detriment of potential home buyers as a class."

In today's opinion (Barry Erlich v. John Menezes S068325), written by Justice Janice Brown, the court shared this fear, noting that "...adding an emotional distress component to recovery for construction defects would increase the already prohibitively high costs of housing in California, affect the availability of insurance for builders, and greatly diminish the supply of affordable housing."

A jury had awarded the Erlich's $406,700 for the cost of repairing the custom-built home and $165,000 in lost wages, emotional distress, and pain and suffering. Barry Erlich claimed the new house literally made him sick and that he had to be transported by ambulance after he learned the house was structurally unsound.

The Supreme Court decision noted that negligent construction of the Erlich's house did not cause physical injury. "No one was hit by a falling beam. Although the Erlich's state they feared the house was structurally unsafe and might collapse in an earthquake, they lived in it for five years. The only physical injury alleged is Barry Erlich's heart disease, which flowed from the emotional distress and not directly from the negligent construction."

The decision noted that building a home is more often than not a stress-filled experience. . ."the cause of bankruptcy, marital dissolution, hypertension and fleeting fantasies ranging from homicide to suicide. However," the court noted, "foreseeability alone is not sufficient to create an independent tort duty. . .foreseeability is not synonymous with duty; nor is it a substitute."

And the court restated the reasons for denying tort recovery in contract cases. . .insuring the freedom to bargain over special risks, the importance of predictability in assuring commercial stability in contractual dealings, the potential of converting every contract breach into a tort with accompanying punitive damage recovery.