The Economic Loss Rule

What is the Economic Loss Rule?

“[T]here is not one economic loss rule broadly applicable throughout the field of torts, but rather several more limited rules that govern recovery of economic losses in selected areas of the law.” Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d  407, 415 (Tex. 2011)(citations omitted). Generally, “the prevailing rule in America [is that] a plaintiff may not recover for his economic loss resulting from bodily harm to another or from physical damage to property in which he has no proprietary interest.”  See, e.g., Fleming James, Jr., Limitations on Liability for Economic Loss Caused by Negligence: A Pragmatic Appraisal, 25 Vand. L. Rev. 43, 43 (1972)   “In actions for unintentional torts, the common law has long restricted recovery of purely economic damages unaccompanied by injury to the plaintiff or his property - a doctrine we have referred  to as the economic loss rule. The rule serves to provide a more definite limitation on liability than foreseeability can and reflects a preference for allocating some economic risks by contract rather than by law. But the rule is not generally applicable  in every situation; it allows recovery of economic damages in tort, or not, according to its underlying principles.”  Lan/STV v. Martin K. Eby Constr. Co., 435 S.W.3d 234, 235 (Tex. 2014)(footnotes omitted).  One of "[t]he underlying purpose[s] of the economic loss rule is to preserve the distinction between contract and tort theories in circumstances where both theories could apply."  Lan/STV, 435 S.W.3d at 240 (citing Vincent R. Johnson, The Boundary-Line Function of the Economic Loss Rule, 66 ash. & Lee L. Rev. 523, 546 (2009)(footnotes omitted) (quoting Stewart I. Edelstein, Beware the Economic Loss Rule, Trial, June 2006, at 42, 43 (2006))).  “The economic loss rule is a doctrine that limits the recovery of purely economic damages in an action for negligence.  Lan/STV v. Martin K. Eby Constr. Co., 435 S.W.3d 234, 235 (Tex. 2014) ("In actions for unintentional torts, the common law has long restricted recovery of purely economic damages unaccompanied by injury to the plaintiff or his property[.]"); see also Sharyland Water Supply Corp. v. City f Alton, 354 S.W.3d 407, 415 (Tex. 2011)("[P]arties may be barred from recovering in negligence or strict liability for purely economic losses.").  Texas courts have generally applied the economic loss rule in cases involving defective products and in cases involving the failure to perform a contract.”  Clark v. PFPP, Ltd. Partnership, 455 S.W.3d 283, 288 (Tex. App. – Dallas 2014, no pet.).