The economic loss rule is the major impediment to use of either a strict liability or negligence claim in consumer warranty cases. This rule restricts damages on those tort claims to personal injury or damage to property other than the defective goods purchased, and denies recovery for “economic loss.”
Supporters of the economic loss rule emphasize its importance as “the fundamental boundary between contract law, which is designed to enforce the expectancy interests of the parties, and tort law, which imposes a duty of reasonable care and thereby encourages citizens to avoid causing physical harm to others.”24 They argue that allowing tort liability would disrupt the UCC statutory scheme of rights and remedies covering economic expectations.
A number of courts award tort economic injury damages in consumer cases when they would not in commercial cases29 Other courts, while not reaching the question directly, stress that the particular buyer was a commercial entity with bargaining power equal to the seller’s, thereby implying that the rule might not apply to ordinary consumers30 But other courts reject any distinction between consumer and commercial cases31
Some jurisdictions recognize an exception to the economic loss rule when the economic damage to the product occurred in a “sudden and calamitous” manner.36 This exception distinguishes “disappointed” users of a product from “endangered” users.
As noted in , supra, some courts base their adoption of the economic loss rule on the view that allowing recovery of these losses on strict liability and negligence claims would disrupt the UCC statutory scheme. These courts may reach the parallel conclusion that, if UCC remedies are not available in a particular case, the economic loss doctrine does not apply to an alleged tort claim in that case.47 Otherwise the plaintiff might be left without a remedy.
Some courts look to the source of the duty breached when they apply the economic loss doctrine. They examine the tort action to find whether the duty alleged to have been breached was the contractual promise itself, or some larger social duty,53 on the grounds that tort law is an appropriate remedy for breaches of the latter.
Many jurisdictions allow recovery of economic losses when the parties have a special relationship.58 California courts hold that the determination whether a special relationship exists is a matter of policy and involves the balancing of various factors, including: (1) the extent to which the transaction was intended to affect the plaintiff; (2) the foreseeability of harm to the plaintiff; (3) the degree of certainty that the plaintiff suffered injury; (4) the closeness of the connection between the defendant’s conduct and the injury suffered; (5) the moral bl
A tort recovery may be had by characterizing the injury not as economic damage, but as property damage or personal injury. In most jurisdictions the damage that a product causes to itself is considered economic loss, so neither the diminution in value nor repair costs can be recovered on a strict liability or negligence theory, unless some other exception to the economic loss doctrine applies.61 But tort recovery is available for damage the defective product causes to “other property.”62
When a defective component damages the larger product into which it was installed, is this damage to the product itself or damage to other property? The United States Supreme Court has addressed this question twice in the context of maritime law. In the first case, East River Steamship Corp. v. Transamerica Delaval, Inc.,65 a manufacturer sold a turbine that had defective components. When the components malfunctioned, they damaged the turbine.
The definition of “other property” in East River and Saratoga Fishing is not universally accepted, however. Some courts follow a more complex test, allowing recovery when one component of a product damages other components if the defective part is a sufficiently discrete element of the larger product so that it is not reasonable to expect that its failure will invariably damage other components.73
Denying recovery for damage caused by a component that was installed in the product when the consumer bought it can be particularly unjust when the “product” is a home or condominium. For example, a defectively installed roof that allows water to enter a home may cause great damage to the home. If the home is treated as the integrated product that the consumer bought, the economic loss doctrine would deny tort recovery for this damage.
The basic premise of strict liability in tort is that the manufacturer, by marketing its product for use and consumption, implicitly represents that the product is not unreasonably dangerous to person or property, and that the manufacturer should be liable if the product does prove to be unreasonably dangerous.
Manufacturers and other indirect sellers can be strictly liable in tort. The Restatement (Second) of Torts section refers to the “ultimate user or consumer,” and the very purpose of the section is to avoid privity entanglements.91 The manufacturer of a non-defective component part may be also liable if it substantially participates in the negligent integration of the part into the final product.92
Strict liability can extend to any kind of product that is recognizably dangerous to those who may come in contact with it.102 The products at issue in decisions range from automobiles and airplanes to cinder building blocks, glass doors, and roller skates.103 Some courts hold that houses and buildings,104 or products incorporated into houses or buildings,105 are products that are covered by the doctrine of strict liability.
The language of the Second Restatement provides that “any product” includes used goods as well as new.106 Reaching the original manufacturer of the used goods may pose a problem because of the Second Restatement’s requirement that the goods reach the consumer “without substantial change in the [goods’] condition.”107 However, a manufacturer may be liable for a good that has been substantially changed if that change was reasonably foreseeable.108 Some courts hold that a retailer
Strict liability does not apply to the sale of services,114 so negligence may be the appropriate tort claim.115 Nevertheless, strict liability may apply to mixed transactions involving both goods and services, such as the sale and installation of home improvement products.116 In such a case the seller can be strictly liable for defects arising from improper installation or repair even if the goods were not defective.117 In the case of health care services that inv
According to comment 2 to section 402A of the Second Restatement, a product is defective if it is “at the time it leaves the seller’s hands, in a condition not contemplated by the ultimate consumer.” This standard is similar to UCC unmerchantability119 (not fit for its ordinary purpose based upon the reasonable consumer’s expectations), and the same general principles apply.120
In most jurisdictions the consumer must show that the defect rendered the product unreasonably dangerous.126 Historically, the definition of “unreasonably dangerous” was that a product was “dangerous to an extent beyond that which would be contemplated by the ordinary consumer who purchases it, with the ordinary knowledge common to the community as to its characteristics.”127
In addition to liability for manufacturing defects and design defects, a manufacturer may be strictly liable if its failure to warn the buyers of defects renders the product unreasonably dangerous.156 The duty to warn extends to all reasonably foreseeable uses of a product.157 The court will evaluate the warning from the perspective of an ordinary user of the product, as opposed to someone completely unfamiliar with the product.158 When the product is provided by an int
Proximate causation is an element of any tort claim: was the defect the legal cause of the damage or was the damage caused by something else, such as the consumer’s improper maintenance or abnormal use, or an outside factor?163 Causation for strict liability is quite similar to causation for breach of warranty.
As a policy matter, the manufacturer cannot be held strictly liable for damage arising from abnormal, unforeseeable use of the product, such as using a rocking chair as a stepladder. Abnormal use is closely related to the issue of causation. Improper use can bar recovery, but only if it was not a foreseeable use by an ordinary consumer; it may be, and often is, foreseeable that a consumer will use a product improperly.170
The elements of a negligence claim are:
Proof of the standard of normal care—the skill and knowledge normally possessed in the trade or profession—often requires expert testimony.191 Nonetheless, three significant exceptions to this general rule exist. First, when the jurisdiction has already established a standard of conduct by case law, the court should rule as a matter of law whether the seller violated this duty.
A manufacturer is under a duty to use reasonable care to design and make a product, at least to make it reasonably safe for its intended use and for other reasonably foreseeable uses.197 Shoddy work can create liability for a negligent manufacturer. In Nobility Homes of Texas, Inc. v.
As part of the duty to act reasonably in placing goods in the stream of commerce, a manufacturer has a duty to inspect the final product.202 This duty extends to inspecting component parts used in the finished product.203 Application of this holding to a manufactured home would mean the manufacturer would be liable in negligence for defects in the appliances or furnishings installed in the manufactured home if the manufacturer did not perform a reasonable inspection of those items before delivering the home.