State Court Reaffirms Economic Loss Doctrine

The Pennsylvania Supreme Court last week issued an interesting little opinion on the economic loss doctrine. Excavation Technologies, Inc. v. Columbia Gas Company Of Pennsylvania, No. 32 WAP 2008 (Pa. S.Ct. Dec. 29, 2009).

In the context of products liability actions, economic loss generally refers to damages that occur through the loss of the value or use of the goods sold or the cost of repair, when there has been no claim of personal injury or damage to property other than the product. The economic loss doctrine has held that such damages, a product injuring itself in essence, is a claim about a breach of the commercial relationship, and thus must be brought in contract/warranty, and not a tort claim sounding in negligence or strict liability. As the Pennsylvania court put it, the economic loss doctrine provides, “no cause of action exists for negligence that results solely in economic damages unaccompanied by physical injury or property damage.” Adams v. Copper Beach Townhomes Communities, 816 A.2d 301, 305 (Pa. Super. 2003).

The theory is that tort policy concerns with safety are less present when a product damages only itself; damage to only the product really means that the product has not met customer expectations, a natural warranty claim; that warrant y law is best suited to deal with disagreements over product quality, as the parties can negotiate the terms, within limits, of warranty scope, remedies, etc.; and warranty law with its built-in limits on privity and the requirement of forseeability of consequential damages better reflects society’s traditional concern with the fulfillment of reasonable economic expectations. Tort law, on the other hand, protects a product consumer’s interest in being free of injury regardless of the existence of any direct agreement with the product maker.

Most states have adopted some form of the economic loss rule, although with some variation in detail. Some carve out exceptions for sudden calamitous events (that feel like a tort?), or where there is a “special relationship” (isn’t that special?) between the parties, or in a post-sale duty to warn tort claim. This case involved another possible exception. Appellant sued appellee on a theory of negligent misrepresentation under § 552 of the Restatement (Second) of Torts, which generally holds that one who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information. The state Supreme Court granted an appeal to determine whether § 552 imposes tort liability for economic losses to a contractor caused when a gas utility company fails to mark or improperly marks the location of gas lines.

The Court acknowledged that some lower courts had noted an exception for claims of negligent misrepresentation under § 552, which allows such claims to evade dismissal even if they assert purely economic losses. Bilt-Rite Contractors, Inc. v. Architectural Studio, 866 A.2d 270 (Pa. 2005) (finding negligent misrepresentation claim against architect for economic loss viable under § 552). But the economic loss doctrine is well-established in tort law, said the court. See Aikens v. Baltimore and Ohio Railroad Company, 501 A.2d 277, 278-79 (Pa. Super. 1985) (roots of economic loss doctrine first recognized in Robins Dry Dock and Repair Company v. Flint, 275 U.S. 303 (1927)).  The court distinguished Bilt-Rite as a case involving someone who is in the business of giving information for pecuniary gain, and rejected tort liability for anyone not a professional information provider, including one who is under a public duty to give the information (thus rejecting Section 3 of § 552).

This will help prevent plaintiffs from dressing up warranty claims against typical product sellers as negligent misrepresentation claims evading the doctrine of economic loss.  Readers of MassTortDefense know that it does often matter whether a plaintiff can proceed in tort:  warranty claims may involve defenses like privity and puffing and reliance; there may be limitations on remedies, disclaimers on warranties; a different statute of limitations and accrual date.