Torts - Cases, Principles, and Institutions Fifth Edition, 2016a

Witt & Tani, TCPI 8. Duty Problem
Purely economic losses are typically not available in nuisance cases. See, e.g., Conley v.
Amalgamated Sugar Co., 263 P.2d 705 (Idaho 1953); Innkeepers, Inc. v. Pittsburgh-Des Moines
Corp., 345 N.W.2d 124 (Iowa 1984). Similarly, a number of courts reject pure economic loss
claims in trespass and product liability claims. See, e.g., Dale v. Grant, 34 N.J.L. 142 (1870)
(holding that purely economic damage in an action for trespass is not recoverable); Moore v.
Pavex, Inc., 514 A.2d 137 (Pa. 1986) (refusing to allow business owners to recover for purely
economic damage in a products liability action).
2. Functions of the pure economic loss rule? One role of the pure economic loss rule is to
preserve a boundary between tort cases and contract cases. The U.S. Supreme Court has asserted
that without the pure economic loss rule, “contract law would drown in a sea of tort.” E. River
S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 866 (1986) (holding that a purchaser of
turbines was limited to its contract rights against a manufacturer-seller when the malfunction in
question caused damage only to the product itself). Why does it matter whether the plaintiffpurchaser
had contract rights or tort rights? Tort damages remedies often include consequential
damages such as lost profits while contract damages typically do not. More generally, restricting
parties to their contract rights allows the parties to tailor their rights and responsibilities as they
see fit. Were the pure economic loss rule abandoned, the Uniform Commercial Code’s capacity
to govern the resolution of disputes concerning sale of goods might be undermined by the
application of tort principles. See Vincent R. Johnson, The Boundary-Line Function of the
Economic Loss Rule, 66 WASH & LEE L. REV. 523, 551 (2009). What is at stake in preserving the
place of contract law and the U.C.C.?
3. Business interruption insurance. One of the justifications for the economic loss rule is
that the rule allocates the risk of economic loss to “the party best situated to assess the risk of his
or her economic loss, to assume, allocate, or insure against that risk.” Below v. Norton, 751
N.W.2d 351, 726 (Wis. 2008). But is business interruption insurance really available? Insurers
offering business interruption insurance typically require a showing of damage to physical assets
in order to trigger business interruption coverage. In other words, the insurance policies very
often contain the same limit on recovery under the policy that the courts impose in tort suits.
Courts regularly uphold denials of coverage where the policy excludes payment for business
interruption absent physical damage. See, e.g., Peerless Dyeing Co., Inc. v. Industrial Risk
Insurers, 573 A.2d 541 (Pa. 1990).
4. Brand tarnishment? What about economic losses that arise when the market devalues a
product based on notorious negligent conduct by the manufacturer? This question became central
to a consumer class action against General Motors following a series of headline-grabbing
automobile recalls over the course of 2014. Plaintiff-consumers advanced a broad theory of harm
by “brand devaluation” under which G.M.’s wrongful conduct tarnished its brand and hurt its
customers by “resulting in lower resale values across the board for the brand’s products.” In re
Gen. Motors LLC Ignition Switch Litig., 14-MD-2543, 2016 WL 3920353, at *7 (S.D.N.Y. July
15, 2016) (Furman, J.). Judge Furman rejected this “unprecedented theory of damages,” on the
ground that the theory would mean “that every time a manufacturer sells a product, it vouches not
just for the value and functionality of that product, but also the product’s resale value and the
brand’s continuing good name.” Id. Is it the right decision to immunize manufacturers against a
450