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What the economic loss doctrine means

inflation dollar

An interesting article in Farm Progress outlines a mysterious legal entity called the economic loss doctrine. I thought I would go into it a bit, if only so I understand it myself.

It’s a legal principle saying that when a party buys a product, “claims against the seller based on the tort of ‘negligence’ are barred unless the product causes damage to a person or to property other than the product itself. If the economic loss doctrine applies, the buyer will not be permitted to bring a negligence claim, and instead will be limited to bringing a breach-of-contract claim.”

Headshot of Richard Smoley

Here is my understanding of this principle: Say a nectarine packer has a conveyor belt in his shed that he has installed and maintained properly. A gross manufacturing defect causes the belt to break down at the peak of the season, injuring a worker. The belt’s failure costs the packer a lot of money in delayed sales, spoiled product, and so on.

By the economic loss doctrine, the manufacturer may be liable for the defects in his product and possibly for the harm to the worker. But the manufacturer is not liable for the packer’s loss of product or sales.

This may look unfair from a certain point of view, but without such a doctrine, a manufacturer might be held liable for an indefinitely large series of unforeseeable consequences, which would create a legal mess.

By the way, the principle applies to the packer too: as a result of the breakdown, a grocery store runs out of nectarines for several days. The grocery store can’t turn around and sue the packer for this loss.

It’s the law, so of course it gets more complicated, especially since the doctrine is applied unevenly in the 50 states. There are long articles in legal journals trying to sort through what is and isn’t covered by the doctrine, and where.

As must be obvious by now, I am not a lawyer or a legal expert, so saying any more here would probably be saying less.

You may think you have an instance where the economic loss doctrine may apply, but only a competent attorney is going to be able to tell you whether it does or not.

The point of this article is simply that such a doctrine exists, and it’s a good idea to be aware of it, even if vaguely.


Richard Smoley, contributing editor for Blue Book Services, Inc., has more than 40 years of experience in magazine writing and editing, and is the former managing editor of California Farmer magazine. A graduate of Harvard and Oxford universities, he has published 13 books.