Supreme Court Clarifies Scope of Economic Loss Doctrine
Today's economic loss decision from the Supreme Court is significant.
As readers of this site know, the economic loss doctrine states that a plaintiff may not sue in tort for recovery of purely economic losses (rather than personal injury or property damage). Instead the plaintiff is limited to whatever remedies might be available under the written contract between the parties. The purpose of the doctrine is to induce parties to pay attention to what they sign -- and if they don't like the contract as is, negotiate additional provisions to make the contract acceptable. Freedom of contract, in other words.
But what happens when a contract exists but doesn't speak to the issue of who is liable for what -- or even what the standard of care should be? What if the contract is instead silent in key issues such as whether a warranty exists or whether the builder is required to install the work per approved plans and specifications? In such a case, can the plaintiff resort back to tort law because the contract contains no governing clauses?
As we predicted back in October, the answer is no. The Court's message in the industry seems pretty clear: if you want something from the other party, put it in the contract. Don't ask the courts to make new remedies under tort law for purely economic loss. And by the way, while the Supreme Court goes out of its way to stress that residential homeowners are also covered by this rule, the pending legislation summarized on this site on February 20th would abrogate the doctrine for residential buyers.
