The economic loss doctrine is a judicially crafted rule that defines the remedies of a purchaser of a product who suffers only economic harm when that product fails to perform up to expectations. Economic harm is defined as damage caused by the allegedly defective product, including its diminished value and any lost profits caused by the product’s failure to perform as expected. In essence, the economic loss doctrine provides that a purchaser of a defective product who suffers only economic harm is limited to a contract remedy against the seller of the product, including an action for breach of any express or implied warranty. The economic loss doctrine does not apply to limit a purchaser’s remedy if the defective product causes personal injury or harms some other property of the purchaser. The purpose of the doctrine is to prevent tort law, specifically including negligence and strict product liability, from supplanting contract law when only economic harm has been suffered. Virtually every state has adopted some version of the economic loss doctrine. However, its application varies greatly between states. And while the doctrine is almost universally understood to preclude a purchaser of a defective product from suing the manufacturer for negligence or strict product liability, there is much less agreement as to whether the doctrine bars claims for torts such as negligent misrepresentation and fraud.
The current trend suggests more jurisdictions are applying the doctrine to bar negligent misrepresentation claims. In the case of Dannix Painting, LLC v. Sherwin-Williams Co., 2013 WL 5677043, applying Missouri law, the Eighth Circuit held that a commercial painting contractor’s negligent misrepresentation claim against the paint manufacturer was barred by Missouri’s version of the economic loss doctrine. Dannix Painting, the painting contractor, alleged that Sherwin Williams, the paint manufacturer, negligently recommended that a certain type of paint was appropriate to paint both the interior and exterior of certain buildings at Eglin Air Force Base in Florida. Dannix relied on Sherwin Williams’ recommendation as to the appropriate type of paint to use and followed Sherwin Willaims’ instructions in applying the paint. Nevertheless, the paint ultimately failed to stick to the surfaces to which it was applied. Dannix incurred significant costs in removing the failed paint and refinishing all of the surfaces with a different brand of paint.
Seeking to recoup its losses, Dannix subsequently sued Sherwin Williams in Missouri state court for negligent misrepresentation in recommending the paint that failed. Dannix alleged that Sherwin Willaims “failed to exercise reasonable care or competence in investigating the accuracy of its recommendation and in specifying the recommended product.” After removing the case to the United States District Court for the Eastern District of Missouri, Sherwin Williams argued that Dannix failed to state a claim for relief because Dannix’s negligent misrepresentation claim was barred by Missouri’s economic loss doctrine.
The trial court agreed and dismissed Dannix’s case. Dannix appealed to the Eighth Circuit Court of Appeals. The Eighth Circuit explained that Missouri’s economic loss doctrine prohibits a commercial buyer of goods from seeking to recover in tort for economic losses that are contractual in nature. “Economic” losses include the cost of repair and replacement of defective products, as well as any consequent loss of profits or use. The court explained that such economic losses are essentially the failure of a purchaser to receive the benefit of its bargain, which traditionally is better left to contract law, and in particular product warranty law, rather than tort. Going further, the Eighth Circuit held that remedies for economic loss sustained as a result of defects in products sold are limited to those under the warranty provisions of the Uniform Commercial Code (“UCC”).
Dannix argued that the economic loss doctrine was not applicable, because its claim was based on SherwinWillaim’s recommendation, rather than its product. The Eighth Circuit rejected Dannix’s argument, explaining that Dannix’s negligent misrepresentation claim “derives from its disappointed commercial expectations – the paint it bought ‘didn’t stick’”.
The Dannix decision demonstrates that courts are reluctant to allow commercial buyers of allegedly defective products to circumvent the economic loss doctrine by alleging the manufacturer negligently represented how well its product will work. Courts increasingly recognize that the only proper remedy for the failure of a product to perform as expected is under contract warranty law – not tort law.