The Indiana Supreme Court issued a decision in the wide-ranging litigation involving the Indianapolis-Marion County Public Library. (It seems to be employing so many lawyers, I’m a little put out that I haven’t gotten involved somehow.) Today’s decision provided a thorough discussion of the “economic loss doctrine” in Indiana.
The gist of the economic loss doctrine is that contract law, and not tort law, will govern a case involving “purely economic” losses. Judge Posner has opined that the doctrine is misnamed and ought to be called the “commercial loss” doctrine. Basically if the alleged deficiency has not caused personal injury and has not damaged property (other than the property that was the subject of the transaction), you can’t get tort damages which can be a lot more wide ranging than contract damages.
Plaintiffs often gravitate toward negligence theories when commercial relations sour. Contracts tend to limit the potential for payoffs whereas tort damages tend to encompass the broad spectrum of injuries that are “reasonably foreseeable.”
In these cases where there is no injury to person or property (other than the property which was the subject of the transaction), limiting the plaintiff to contractual damages has been deemed superior “because recovery in tort would allow him to circumvent the seller?s effective limitation or exclusion of warranties under the UCC, and subject[ ] manufacturers to liability for damages of unknown and unlimited scope.” Additionally, “a second justification for the economic loss rule is that “[l]iability should not be imposed when it creates a potential for liability that is so uncertain in time, class, or amount that [a defendant should not] fairly or practically be expected to account for the potential liability when un-dertaking the conduct that gives rise to” it.
Basically, the parties entering into a commercial transaction should be allowed to use their contracts to allocate risk in advance of the transaction.
Leave a Reply