Also known as: net economic loss rule · net economic loss · NEL rule · economic loss rule
Written by attorneys — see sources below.
A doctrine that bars a products-liability plaintiff from recovering purely economic losses in tort without accompanying personal injury or property damage.
Noah Nakamura buys a defective water heater that leaks and damages his warehouse. After he sues the manufacturer in tort for lost profits, the court applies the economic loss rule and dismisses the claim because no personal injury or other property damage occurred.
Norton Bank buys a defective data-center component that fails and causes only economic loss. After the bank sues the manufacturer in tort, the court applies the economic loss rule and limits recovery to contract remedies because no personal injury or other property damage occurred.
The rule applies when property is over-insured or when multiple sources of indemnification exist. It caps the insurer's payment at the insured's actual uncompensated loss.
Net economic loss subtracts amounts already recovered from other insurers or sources. Gross loss would allow recovery of the full amount without those offsets.
The tort economic loss rule bars negligence claims for purely economic harm without physical injury. Net economic loss rules operate separately in insurance to limit indemnity to actual uncompensated amounts.