If you regularly read this column, you know that one of the things we spend a lot of time discussing is working appropriate protections into your contracts. Plaintiffs’ attorneys understand that, and often try to work around those protections by restyling breach of contract or breach of warranty actions as tort claims – that is, claims for negligence or fraud or the like.
One bulwark we have against those efforts is the economic loss doctrine. Here in Missouri, the economic loss doctrine generally forbids a tort action for frustrated commercial expectations; that is, it forbids a plaintiff from bringing a breach of contract claim masquerading as a tort claim.
But the economic loss doctrine itself is defined differently in various states, and is subject to different exceptions in various states. One exception that typically applies, however, is that the economic loss doctrine does not bar tort claims when a defect in the product supplied causes damage to something other than the product itself. So, for example, if your widget starts a fire that burns down your customer’s building, your customer could bring a tort claim for the damage to its building.
Recently, the Eighth Circuit Court of Appeals was asked to predict the contours of North Dakota’s economic loss doctrine and, specifically, whether it would stand to bar tort claims even when the goods cause damage to other property when such damage was or should have been reasonably foreseen by the buyer.[1] The decision is interesting for two reasons. It’s interesting first because it held such claims would be barred by the economic loss doctrine, which is a fairly expansive view of the doctrine. It’s more interesting, though, for the means by which the Court reached its decision.
The North Dakota state courts haven’t said much about the economic loss doctrine when there’s damage to other property. But they have said a little. In one case discussed by the Eighth Circuit, the North Dakota Supreme Court mentioned in passing that the distinction between damage to the goods sold and damage to “other property” is a matter of consequence under North Dakota law, which seems to suggest on its face that North Dakota would not extend the economic loss doctrine to cases involving “other property.” Interestingly, one of the reasons the Eighth Circuit declined to rely on that case in reaching its opinion was because the definition of “other property,” as that term was used by the North Dakota Supreme Court, could itself hinge on whether the damage that occurred was foreseeable by the buyer.
This is a matter that sometimes can be overlooked by manufacturers and the attorneys who advise them. The “other property” exception is so well-entrenched in many jurisdictions that we can forget to analyze its contours. If the purpose of the economic loss doctrine is to prevent tort from intruding into matters properly considered through the prism of contract law, doesn’t it follow that foreseeable damages that can be addressed through contract would fall within the scope of the economic loss doctrine? Indeed, this is an issue that sometimes is considered by courts applying Missouri law, though typically not in much detail. If you find yourself in a situation where the “other property” exception to the economic loss doctrine may apply, challenge your counsel to evaluate what truly constitutes “other property.” You might be pleasantly surprised with what you learn.
[1] Arena Holdings Charitable, LLC v. Harman Professional, Inc., — F.3d –, 2015 WL 2115857 (8th Cir. May 7, 2015).