The Majority, Intermediate, and Minority Views of the Economic Loss Doctrine

The Economic Loss Doctrine (“ELD”) has been adopted by a majority of states and jurisdictions. The ELD consists of three different views: 1) the traditional/majority (Texas); 2) intermediate (California); and 3) minority (Colorado). With regard to a product which damages itself and only itself, each rule has a different way of assigning liability and sometimes one view may rule a different way than another.

Are damages available for recovery when a product destroys itself and only itself?

In Texas no, but with one exception. Texas courts follow the traditional/majority view, which prohibits a plaintiff in a non-product liability case from recovering in negligence or strict liability for purely economic loss.[1] When a product fails and the damage or loss is limited to the product itself, the ELD applies, and bars recovery in negligence or strict liability. In such cases, recovery is limited to remedies listed in the contract: warranty or contract-based statutory remedies.[2] However, even if economic damages are suffered subject to the contract, an exception to the ELD in the majority/traditional view is when there is a fraudulent inducement, which would allow for recovery in tort.[3] This exception extends to losses where a failure of a product and the damage or loss is limited to the product itself.[4]

In California, no, but with two exceptions. California courts follow the intermediate view, which defines economic losses as “damages for inadequate value, cost of repair and replacement of the defective product or consequent loss of profits, without any claim of personal injury or damages to other property.”[5] The ELD bars recovery in tort for economic damages caused by a defective product, with two exceptions: 1) the loss is accompanied by some form of personal injury or damage to property other than the defective product itself[6], or 2) a “special relationship” exists.[7] For the first exception, the court must first determine what the product at issue is; only then does the court find out whether the injury is to the product itself, for which recovery is barred by the ELD, or to property other than the defective product, for which plaintiffs may recover in tort.[8] The second “special relationship” exception has six factors which must be met in order to be eligible for a tort cause of action:

(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 the plaintiff suffered injury; (4) the closeness of the connection between the defendant's conduct and the injury suffered; (5) the moral blame attached to the defendant's conduct; and (6) the policy of preventing future harm.[9]

The minority rule rejects the application of the ELD altogether. The minority view allows a plaintiff to recover in tort for economic loss without limitation. This view is loosely followed by a limited number of states, who in their own right have begun to change the doctrine at its core. For example, Colorado's minority view is the ELD does not apply if there is injury or damage to persons or property other than the product or thing itself.[10] Additionally, unless there is an independent, professional duty owed, no tort claim can be brought for economic damages from the breach of an express or implied contract.[11]

The ELD and its different variations can be confusing. The best way to approach the doctrine is to determine which view each state incorporates, and then distinguish the specific variations each one has imposed. When it comes to the intermediate and the majority/traditional view, the two are similar with the intermediate providing extra exceptions not included in the majority approach. The minority on the other hand completely abandons the ELD with variances created state by state. When it comes to recovery in instances where the product destroys itself and only itself, the intermediate and the minority views will grant recovery more often than majority/traditional view states.

[1] Equistar Chems. L.P. v. Dresser-Rand Co., 240 S.W.3d 864, 867 (Tex. 2007).

[2] Signal Oil & Gas Co. v. Universal Oil Prods., 572 S.W.2d 320, 327-28 (Tex. 1978).

[3] Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc. 960 S.W.2d 41, 47 (Tex. 1998). 

[4] Equistar, 240 S.W. 3d at 867.

[5] Frank M. Booth, Inc. v. Reynolds Metals Co., 754 F.Supp. 1441, 1449 (E.D. Cal. 1991).

[6] Jimenez v. Superior Court, 58 P.3d 450, 456 (Cal. 2002).

[7] J’Aire Corp. v. Gregory, 598 P.2d 60,63 (Cal. 1979).

[8] KB Home v. Superior Court, 112 Cal.App.4th 1076, 1079-1080 (Cal. App. 2003).

[9] Biankanja v. Irving, 320 P.2d 16, 19 (Cal. 1958).

[10] Jardel Enters., Inc. v. Triconsultants, Inc., 770 P.2d 1301, 1304 (Colo. App. 1988).

[11] Town of Alma v. Azco Const., Inc., 10 P.3d 1256, 1064 (Colo. 2000) (En Banc).