What Is the Economic Loss Doctorine and How Does It Apply to My Case?

Free Consultation

A lawyer explains the economic loss doctrine and how it applies to his client's personal injury case.If you have been involved in a product liability or construction defect case, you may have come across the term “economic loss doctrine” or “economic loss rule” and wondered how this legal rule might apply to you and your case. Unfortunately, the economic loss doctrine is a commonly misunderstood legal rule riddled with exceptions. If you have experienced an economic loss and are seeking recovery, contact the experienced attorneys at the CEO Lawyer Personal Injury Law Firm to determine if you have a viable case.

Contact Ali Awad, ‘the CEO Lawyer,’ and his team of experienced personal injury attorneys at the CEO Lawyer Personal Injury Law Firm by calling  (833) 254-2923 or contacting us online to receive your free and confidential case evaluation. Attorney Ali Awad, ‘the CEO Lawyer,’ established the CEO Lawyer Personal Injury Law Firm and quickly turned it into one of the fastest-growing law firms in the country. If we take your case, you won’t pay anything until we win.

While the economic loss doctrine bars financial recovery from purely economic loss as a general rule in tort cases, there are many exceptions to this rule. Read more about which scenarios the economic loss doctrine applies to and circumstances in which it may not below.

What is Economic Loss?

In legal terms, economic losses refer to monetary loss and damage suffered by an individual, as opposed to physical damages (injuries) to property or a person. For instance, if you have purchased a new vehicle and the car breaks down, and no one is injured, the diminished value of the non-operating vehicle may be considered a purely economic loss. Legally, economic losses are referred to as intangible losses which do not arise from tangible physical harm to persons or property. Therefore, if you have been physically injured or have sustained damage to your personal property while you have incurred monetary damages, this is not considered an economic loss.

What is the Economic Loss Doctrine?

The economic loss rule or economic doctrine is a legal rule established to prevent recovery for purely economic loss in both tort law and contract law without demonstrating separate injury or property damage. This common law rule limits parties that have engaged in a contract to look to their contractual remedies if no separate physical injury or property damage exists. Historically, this rule has been limited to product liability and construction defect cases. Courts uphold this rule when parties should seek recovery in contract negotiation and breach of contract suits rather than through tort recovery.

The economic loss doctrine is a powerful common law rule designed to limit and eliminate damages in a tort lawsuit when there is no privity of contract between parties. This rule clearly provides that a party who has suffered only economic loss due to another negligence has not been injured in a manner that is legally compensable, as tort law is not designed to compensate parties whose economic losses have come as a result of a breach of duties by agreement. Therefore, when it comes to economic losses, these losses are not recoverable as tort damages but only as contract damages. This is because when two parties engage in a contract, they should reasonably anticipate any potential injuries that may occur from a breach of that contract.

Therefore, tort damages on top of contract damages are not allowed. Contract law is a field of law that recognizes the freedom of parties to govern their own affairs when engaged in a commercial transaction. The economic loss doctrine provides protection to companies that would otherwise be exposed to devastating liability claims if tort damages for economic loss were allowed for product defects. The economic loss doctrine is a judicially created principle that bars a party from recovering damages under tort theory who has only suffered economic loss. Whereas a party who enters a contractual agreement should be bound by the terms of that contract or contract law as opposed to tort law.

It is essential to recognize that the economic loss doctrine does not bar injured individuals who have sustained physical injuries or property damage from recovering economic losses but only bars economic recovery in such claims when the only injury results from the product defect itself.

When Does the Economic Loss Rule Apply?

The economic loss doctrine applies, and claims for purely economic loss may be barred when:

  •   Neither property damage nor physical injury occurred, only economic loss
  •   A claim stems from simple negligence.
  •   There is no written contract between the parties.
  •   There is no sufficient nexus between the parties to substitute for the lack of a written contract.
  •   There is no third-party beneficiary under the subject contract to substitute for lack of privity

When Can There Be Exceptions to the Economic Loss Doctrine?

The economic loss doctrine may be inapplicable in the following circumstances, allowing recovery of pure economic loss:

  •   The claim involves negligent misrepresentation (the contract was entered based on false, fraudulent, or misleading representations)
  •   The claim relates to the inducement
  •   The claim involves an intentional tort.
  •   In claims other than product liability or construction defect
  •   There is a written contract between the parties.
  •   There is a sufficient nexus between the parties to substitute for the lack of a written contract.
  •   The defendant exhibited a sufficient degree of power and control over the project.
  •   There was a third-party beneficiary under the subject contract.
  •   The policies of tort law favor allowing for the claim to proceed
  •   A few state supreme courts in the United States have departed from the majority rule and authorized recovery for pure economic loss through tort causes of action (usually negligence). The first was California in 1979, followed later by New Jersey and Alaska.

What Are Sufficient Nexuses (Substitutes for Privity)?

The economic loss doctrine is applicable, barring parties who have experienced purely economic loss from financial recovery, except in cases in which there is a limited exception or written contractual agreement, except in cases in which there is a sufficient nexus or substitute for privity. ‘Nexus’ is a legal term that refers to a sufficient connection, and ‘Privity’ is a legal term that refers to the direct connection parties have to a contract. In certain cases where a party has experienced an economic loss without a contractual relationship, they may be eligible to seek financial compensation without being barred by the economic loss doctrine. If there is a sufficient nexus between parties in the absence of a contract, the economic loss doctrine may be held inapplicable. Courts have found that ‘excessive control may serve as a substitute for privity’ and that whether or not a sufficient nexus exists depends on the defendant’s degree of control. For example:

  • A sufficient nexus exists when a subcontractor gives orders and exercises substantial authority. The economic loss doctrine may be avoided, despite there being no contractual relationship between parties.
  • When a subcontractor has the power to stop a project. If a subcontractor has the ability to control a contractor or has the power to stop or give orders regarding a project, the economic loss doctrine may be avoided, despite there being no contractual relationship between the parties, and the subcontractor may be held liable.

In the absence of a contractual relationship between parties, the degree of power and control a party has over the overall project, the more a court may find sufficient nexus between parties to substitute the privity of a contractual relationship. However, the mere knowledge of a project, the ability to make minor changes to a plan, or attendance at meetings regarding the project doesn’t create a nexus sufficient to establish privity.

Third-Party Beneficiary

If there was a third-party beneficiary to a contract, the privity of the contract may be established. When a third party benefits from a contract from the intentions of a promisee, then that third party shall be considered as an intended beneficiary who has enforceable rights under the contract. However, if a third party simply incidentally benefits from the performance of a particular contractual promise, then the incidental beneficiary will have no enforceable rights on the contract. Therefore, if a third party is an intended beneficiary by a promisee to a contractual agreement, they may seek compensation for economic loss via sufficient nexus in place of a contractual agreement.

Limited Exceptions

Most tort claims are subject to the economic loss doctrine, except for torts generally referred to as negligent misrepresentation and intentional torts. If a party entered the contract under false, fraudulent, or misleading representations upon inducement, the economic loss doctrine may not be applicable, and the party who sustained an economic loss may seek recovery.

Experienced Georgia Personal Injury Attorney

Economic loss lawsuits are often complex cases that are best left in the hands of an experienced attorney with extensive knowledge of Georgia law. Call Ali Awad, ‘the CEO Lawyer,’ and his experienced team of personal injury accident attorneys today to receive a free, no-obligation consultation. We can assist you with exploring your legal options and avenues to ensure that you receive the compensation you deserve. Contact the CEO Lawyer Personal Injury Law Firm by calling (833) 254-2923 or contacting us online. If we take your case, you won’t pay anything until we win.

Find Out What Your Case Is Worth Here

Tell Us More About Your Injury Below So That We Can Get You The Most Money

All Fields Required *

Step 1 of 7

How did you get hurt?

How did you get hurt?(Required)

Frequently Asked Questions

After a personal injury, you're bound to have legal questions. The CEO Lawyer Ali Awad can provide you with answers to these questions, just as he's given answers to his millions of curious social media followers. Take a look at some of the most common personal injury law questions for general information, and then reach out to one of our seasoned attorneys for specific guidance on your case!

Contact us now (833) 254-2923.

Help Negotiating with Insurance Carriers

To quickly resolve matters following an accident, insurance companies will offer you less than you deserve in compensation for your injuries. Many victims feel pressured to accept these offers as the bills begin to pile up, but that is rarely a good idea. The insurance company is looking to protect its bottom line; and will offer injured victims less than they deserve. An experienced personal injury attorney understands how to negotiate with the insurance company and can look out for your best interests by getting you the compensation you deserve after an injury. If you or a loved one has been injured in an accident, it is important to avoid negotiating or providing recorded statements to the insurance company without first seeking help from a qualified personal injury attorney.

Do You Have a Personal Injury Case?

The best way to determine if you have a personal injury case is to speak with a knowledgeable attorney. Our legal professionals have the expertise to evaluate your case and determine a strong legal strategy so that you can obtain the greatest amount of compensation possible under the law. We will enlist investigators, assistants, and other specialists to collect accident reports, speak with witnesses to your accident, and put together a plan. While you focus on your physical recovery, we will remain committed to fighting for the compensation that you deserve.

Georgia's Personal Injury & Accident Firm

Accident victims have a limited time to file a personal injury lawsuit. This time period is referred to as the statute of limitations, and in Atlanta, it lasts only two years. This means that if you or a loved one has been injured in an accident, you have only two years to pursue a personal injury suit. If you wait too long to reach out to an experienced attorney, you might be forever barred from seeking the compensation you deserve.

What to Expect From Your Initial Consultation With a Personal Injury Attorney?

During your initial consultation with CEO Lawyer team, we will go over the important details of your personal injury accident, which include the nature and extent of your injuries, how your injuries have impacted your ability to earn a paycheck, the cost of your medical treatment, and whether further medical treatment will be required. We will answer any questions you might have, as well, in regards to our experience, our track record of success, and what to expect from the legal process. Many personal injury victims wonder if they will be able to afford the legal fees required to pursue a lawsuit. CEO Lawyer injury and accident attorneys will not ask for any type of upfront fee unless we are successful in obtaining compensation for you. That means that if you have been harmed in a motor vehicle accident, slip and fall accident, defective product accident, or any other type of personal injury accident, you can absolutely afford to contact our law office today for assistance. In fact, you cannot afford to wait. Reach out today. We understand that some accident victims might have already obtained the assistance of an attorney but may be dissatisfied with the services provided. We are standing by and prepared to help you change legal representation, regardless of where you are in the process.

Speak to an Experienced Personal Injury Attorney Today

If you or a loved one has been injured in any type of personal injury accident, you should not hesitate to speak with the experienced attorneys at CEO Lawyer personal injury law firm. Call, email, or fill out our online contact form today so that we can begin helping you pursue the compensation you deserve.