Also known as: economic-loss rule · economic loss doctrine · ELR
Written by attorneys — see sources below.
A tort doctrine that bars recovery in negligence or strict liability for purely economic losses unaccompanied by personal injury or damage to property other than the defective product itself. The rule preserves the boundary between contract and tort by channeling disappointed commercial expectations into warranty or contract claims. In some jurisdictions the doctrine is confined to products liability actions and does not block independent tort claims arising from contractual relationships outside that setting.
River Therapeutics hired Ridge Bio under a services contract to manage clinical trial data. Ridge Bio negligently mis-recorded patient responses, delaying FDA approval and causing River Therapeutics to miss a marketing window and suffer lost sales and a valuation drop. Because the claim arose from a contractual relationship outside products liability, the economic loss rule did not bar the negligence action for the resulting financial harm.
Saratoga Fishing purchased a fishing vessel from Martinac and later added nets and a skiff to the boat. When a defect in the vessel caused it to sink, the added equipment was lost along with the vessel itself. The economic loss rule prevented tort recovery for damage to the vessel but allowed recovery for the separately added equipment treated as other property.
In the early 1970s, J. M. Martinac & Co. constructed the fishing vessel M/V Saratoga, installed a hydraulic system designed by Marco Seattle Inc., and sold the completed ship to Joseph Madruga. Madruga subsequently equipped the vessel with a skiff, a seine net, and spare parts for use in tuna fishing operations. In 1974, Madruga sold the outfitted ship to Saratoga Fishing Co., which continued to operate it for fishing purposes. In January 1986, the M/V Saratoga sank following an engine room fire and flood. Saratoga Fishing Co. filed a tort suit in admiralty against J. M. Martinac & Co. and Marco Seattle Inc. in 1987, alleging that a defect in the hydraulic system had caused the accident. The District Court determined that the hydraulic system was defectively designed and awarded damages to Saratoga Fishing Co., adjusted to account for Saratoga Fishing Co.'s partial fault in the incident, including compensation for the loss of the equipment that Madruga had added to the vessel after its initial purchase. On appeal, the Ninth Circuit concluded that the District Court should not have included damages for the added equipment in its award. The Supreme Court granted certiorari to address the treatment of such added equipment under applicable admiralty principles.
View caseIn Florida the rule is limited to products liability actions and does not bar tort claims arising from contractual relationships in other contexts. Parties remain subject to contract principles and independent tort doctrines, but the economic loss rule itself no longer prevents recovery of pure economic loss in those settings.
Supporting sources
Property added to a defective product by a prior owner in the chain of title can qualify as other property, allowing tort recovery for its loss even when the product itself is damaged only economically.
Supporting sources
The rule bars tort recovery when the claimed loss is purely economic and stems from the failure of a product or service to meet contractual expectations without accompanying physical injury or damage to separate property.
…by the plaintiff, not the product sold by the defendant”); see also Fox & Loftus, Riding the Choppy Waters of East River: Economic Loss Doctrine Ten Years Later, 64 Def. Couns. J. 260, 264, n. 29 (1997) (citing numerous other cases and observing that “[t]he trend in defining ‘economic loss’ is to focus on what the plaintiff…