Analysis: I received a question from a reader of this
blog asking if Tennessee has adopted the “economic loss doctrine”. The short answer is yes, Tennessee courts have adopted the “economic
loss doctrine” for product liability cases.
The Tennessee Court of Appeals decision of Messer Griesheim Indus., Inc. v. Cryotech of Kingsport, Inc.,
131 S.W.3d 457, 463 (Tenn. Ct. App. 2003), found that:
The Tennessee
Supreme Court has noted that “Tennessee has joined those jurisdictions which
hold that product liability claims resulting in pure economic loss can be
better resolved on theories other than negligence.” The economic loss doctrine provides that
“[i]n a contract for the sale of goods where the only damages alleged come
under the heading of economic losses, the rights and obligations of the buyer
and seller are governed exclusively by the contract.” Consequently, a plaintiff
may not maintain a claim for purely economic losses absent contractual privity
with the party charged with responsibility for those losses.
(citations omitted). The more recent Tennessee
Supreme Court decision of Lincoln Gen. Ins. Co. v. Detroit Diesel Corp., 293 S.W.3d 487,
489 (Tenn. 2009) dealt with the question or whether to apply an
exception to the economic loss rule when the product is unreasonably
dangerous. The Tennessee Supreme Court
rejected this exception and held:
We agree with the
United States Supreme Court that the owner of a defective product that creates
a risk of injury and was damaged during a fire, a crash, or other similar
occurrence is in the same position as the owner of a defective product that
malfunctions and simply does not work. It follows that the remedies available
to these similarly situated product owners should derive from the parties'
agreements, not from the law of torts, lest we disrupt the parties' allocation
of risk.
The Lincoln
case provides an excellent discussion of the “economic loss doctrine” and the
approach several different states have on this issue. A
Tennessee Federal District Court has further
stated that “the economic loss doctrine, adopted by the Tennessee courts, prohibits purchasers of
products from recovering purely economic damages under negligence or products
liability theories.” Americoach Tours, Inc. v. Detroit Diesel Corp., 59 UCC
Rep.Serv.2d 547, 2005 WL 2335369, at *2 (W.D. Tenn. Sept. 23, 2005).
Therefore, the next question is what
constitutes “economic loss”. In the Lincoln case, the Tennessee Supreme Court discussed two
types of economic loss. Lincoln at 489.
The Court found that “two types of economic loss, direct and
consequential, occur when a defective product is damaged. Direct economic loss may be measured by the
defective product's cost of repair or replacement. Consequential economic losses, such as lost
profits, result from the product owner's inability to use the product.” Lincoln at 489.
As a result, the “economic
loss doctrine” applies in Tennessee. This doctrine basically restricts the ability
of a plaintiff to recover for purely economic losses in a product liability
action to remedies in contract, not in tort.
This is an important defense to consider whenever there is an economic
loss involving a defective product. It
is especially important when there is a purely economic loss and your client is
sued by a party to whom there is no contractual privity.