The Illinois Economic Loss Doctrine can be a roadblock to recovery. However, before you close your file, take a closer look, armed with exceptions that may help you navigate your way to the other side.
The Illinois Economic Loss Doctrine sets out to bar recovery in tort for purely contractual losses or frustrated economic expectations between two contracting parties.
The doctrine sets out to bar recovery in tort for purely contractual losses or frustrated economic expectations between two contracting parties. Under the Economic Loss Doctrine, or the Moorman Doctrine as it is known in Illinois, recovery for solely economic losses in relation to a product may not be had upon the tort theories of negligence or strict liability. Moorman Manufacturing Co. v. National Tank Co., 435 N.E.2d 443(Ill. 1982).
In Moorman, the plaintiff discovered a crack in a grain storage tank manufactured by the defendant. The damages were limited to the storage tank itself, and the plaintiff sought recovery in tort for the cost of repair and loss of use of the tank. The Illinois Supreme Court affirmed the dismissal of the tort claim, holding that a plaintiff may not recover in tort for solely economic losses. The basic rationale behind the holding in Moorman and numerous courts since is that contract law is designed to remedy losses relating to “disappointed expectations due to deterioration, internal breakdown or no accidental cause, whereas causes of action in tort are suited for personal injury or property damage resulting from a sudden or dangerous occurrence…” Moorman at 450.
Economic loss is best described as damages that arise from defect in the qualitative nature of the product, service, or improvement that was bargained for.
Defining economic loss is partially to blame for the confusion the doctrine carries with it. Economic loss is best described as damages that arise from defect in the qualitative nature of the product, service, or improvement that was bargained for. In our touchstone Moorman case, the shoddy grain storage tank did not live up to expectations and the court’s decision reflects that recourse (at least for the tank and its loss of use) is a cause of action in contract, not tort. While the plaintiff in Moorman was not able to proceed in tort, the plaintiff did withstand the motion to dismiss under a breach of an express warranty. For our purposes today, we will focus on withstanding attacks utilizing the doctrine for tort claims.
Like many doctrines we encounter, there are exceptions and courts interpreting these exceptions have listed them as follows:
- A sudden, calamitous, or dangerous occurrence coupled with physical harm to person or other property;
- Intentional misrepresentation; or
- Negligent misrepresentation by a defendant who is in the business of supplying information for the guidance of others in their business transactions.
Exceptions to the Illinois Economic Loss Doctrine
The first of these exceptions is one that is commonly triggered. Had that same grain storage tank in Moorman not only cracked but also fallen over, damaging several nearby commercial vehicles, a cause of action in tort could withstand an Economic Loss Doctrine defense. The reason the action could withstand such a defense is because the vehicles would be characterized as the “other property” contemplated in the exception to the doctrine. Another example of “other property” can be found in the case of Schuster Equipment Co. v. Design Electric Services, Inc., where the defendant argued it should not be held liable in tort when an electric service line constructed and installed by the defendant provided too much voltage to the plaintiff’s computer, resulting in a fire inside the computer. Schuster Equipment Co. v. Design Electric Services, Inc., 197 Ill.App.3d 566, 554 N.E.2d 1097 (2d Dist. 1990). The defendant argued that the electric service line and the computer were part of a single electrical circuit and consequently the computer was not “other property.” The court rejected the defendant’s argument, holding that the computer was an appliance connected to the electrical circuit.
The Economic Loss Doctrine has a storied past with varying interpretation which is why having an understanding of its main tenets can salvage a claim and maximize your recovery.
Defining “other property” is occasionally tricky. This analysis, like others surrounding the Economic Loss Doctrine, asks what was bargained for in the product, service, or improvement and could the consumer foresee the claimed damage in the bargain or allocate risk appropriately. The Economic Loss Doctrine has a storied past with varying interpretation which is why having an understanding of its main tenets can salvage a claim and maximize your subrogation recovery.