Economic Loss Doctrine Broadened in Tennessee
The Economic Loss Doctrine may bar tort claims when a defective product causes injury only to the product itself and not to other property or persons. In many jurisdictions there are exceptions to the doctrine, including when the damage is caused by a “sudden calamitous event.”Recently, the Supreme Court of Tennessee considered the application of this exception.
In Lincoln General Ins. Co. v. Detroit Diesel Corp., a bus caught fire due to an allegedly defective engine. The fire did not cause personal injuries or property damage to anything other than the bus. The subrogating insurer argued that the economic loss doctrine should not bar a products liability claim because the harm was caused by a “sudden calamitous event.” The court rejected the exception, instead following a “bright line rule” completely barring tort claims when a product causes damage only to itself. The court reasoned that certain products “expose a product owner to an unreasonable risk of injury during an abrupt and disastrous occurrence" while others "merely disappoint a product owner’s expectations.” The court explained that it would be difficult for parties and courts to apply a rule that focuses on the degree of risk and the manner in which the product was damaged, as opposed to a rule that hinges on the harm a plaintiff actually sustains.
Despite Tennessee's reluctance to carve out an exception, many states have successfully modified the application of the Economic Loss Rule by:
- Creating component part exceptions. (California)
- Confining the doctrine to products liability or very similar situations. (Florida);
- Statutorily providing for new home warranty laws against construction defects.(Connecticut, Indiana, Louisiana, Maryland, Minnesota, Mississippi, New Jersey, New York, and Virginia);
- Statutorily providing for notice and right to repair and associated actions (California, Nevada);
- Finding that builders have a duty in tort to act without negligence in the construction of residences (Colorado, South Carolina), or
- Recognizing exceptions, such as an independent duties (Utah, Colorado), special relationships or foreseeability of plaintiff (Alaska, Delaware, West Virginia).
The Economic Loss Doctrine varies in its application from state to state. If you have a large loss involving a product, it is prudent to review your jurisdiction’s interpretation of the doctrine, and exceptions to the same, prior to embarking on recovery efforts.
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In Fosse Motor Engineers Ltd v Conde Nast (2008), Fosse, the owner of a warehouse, asserted negligence against its tenant and an employment agency that supplied workers in the building for that tenant. A fire occurred at the warehouse when only the workers and a security guard were present. Expert evidence could not identify which of several possible causes led to the fire. The possible causes were: a cigarette discarded by either Fosse’s employees or the agency workers; an electrical fault; or arson by an intruder. Fosse claimed the fire was caused by one of the agency workers carelessly discarding a cigarette or, if it was an intruder, because a door had been left open by the agency workers allowing the intruder access. .jpg)
In Drake v Harbour (2008), the lack of proof of an exact cause did not prevent recovery. The claimant engaged the defendant electrician to rewire her home. She was away from the property during the work when a fire started in the loft where Harbour had been working. The Court of Appeal held that the fact that the claimant was unable to demonstrate the precise mechanism that led to the fire was not a bar to recovery; if a claimant proved that a defendant was negligent and a loss was caused that was of a kind likely to have resulted from such negligence, that would ordinarily be enough to infer that it was probably so caused. Further, as Harbour was suggesting that it was not his negligence that caused the fire, then it was his burden to suggest what the probable cause was, and to properly plead it. 
