The Economic Loss Doctrine as an Obstacle to Claims of Contractual Strangers

reed-rickRichard L. Reed (and Richard L. Reed, Jr.)

The article was first published in the St. Mary’s Law Journal (Vol, 46:3)

The most basic underlying purpose of the economic loss doctrine (or “economic loss rule”) is to separate the application of tort law and contract law. More specifically, in the past, the doctrine has been the basis for precluding negligence claims in tort for purely economic losses arising from the failure of a contractual expectation associated with a product or service, if the loss is unaccompanied by any physical property damage or personal injury.

Allowing a contracting party or a stranger to a contract to impose tort liability for purely economic losses on another contracting party for its negligent performance undermines the risk allocation that parties related to the transaction should be managing contractually.

Construction contracts are particularly prone to situations where disputes arise over economic losses due to someone’s negligent performance of a contract.  One who acquires or sells goods or services on a construction project may become harmed by the negligent performance of a construction contract between two other project participants.  Several recent Texas cases have analyzed the economic loss doctrine and held that it bars a project participant who is a “stranger” to the contract between two other project participants from claiming in negligence for pecuniary losses arising from the negligent performance of the contract.

To access the accompanying paper, please click here.

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