In its broadest sense, the economic loss rule “prevents a party from recovering purely economic losses in a tort action.”[1] However, courts throughout the country use the term in various contexts, making it difficult to delineate a uniform application. As one commentator has explained:
In an effort to resolve its uncertainties, tort scholars and jurists have recently focused on what is often called “the economic loss rule.” According to some authorities, the rule holds that tort law offers no redress for negligence that causes only economic losses unaccompanied by personal injuries or property damages. However, whether a rule so expansive is part of American tort law is still open to doubt. There are many variations of the rule, and courts often discuss its parameters only in relationship to products liability or contractual performance. As one scholar remarked, the law of tort liability for purely economic losses is “much less well settled and less uniform than one might wish it to be.”[2]
Accordingly, as Professor Johnson points out, as applied state by state, the rule is often not so broad.[3]
Nevertheless, the economic loss rule always takes one of three forms:
1. Barring tort recovery when a product defect or failure causes damage to the product itself (resulting in only economic loss), but does not cause personal injury or damages to any other property.
2. Barring tort recovery for purely economic damages when there is a contract between or among the parties covering the subject matter of the dispute; and
3. Barring tort recovery (negligence) for any purely economic loss between strangers. In other words, the broad form of the rule enunciated above – barring negligence that causes only economic losses unaccompanied by personal injuries or property damages, even between strangers.
With respect to #3, “the operation of the economic loss rule is not well mapped, and whether there is a “rule” at all is a subject of contention.”
In summary, whether or not the economic loss rule may impact your case will depend on the particular facts, as well as the state in which your suit is filed or where the claims arose.
Written by*:
Travis C. Headley
WATTS GUERRA LLP
4 Dominion Drive, Bldg 3, Suite 100
San Antonio, Texas 78257
Office (210) 447-0500
Email: theadley@guerrallp.com
[1] J.D. Lee & Barry Lindahl, Modern Tort Law: Liability and Litigation § 2.5 (2d ed).
[2] Vincent R. Johnson, The Boundary-Line Function of the Economic Loss Rule, 66 Wash. & Lee L. Rev. 523, 524-26 (2009) (emphasis added) (internal citations omitted).
[3] 66 Wash & Lee L. Rev. at 526 – 528.
*This information is provided to supply relevant information concerning the economic loss rule and should not be received as legal advice. Legal advice is only given to persons or entities with whom Watts Guerra LLP has established an attorney-client relationship.
© Watts Guerra LLP 2015
