Economic Loss Doctrine - Does the economic loss doctrine apply in Tennessee?

Posted on Oct 25 2012 9:07PM by Attorney, Jason A. Lee

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.

TAGS: Defenses, Contracts, Products Liability
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Jason A. Lee is a Member of Burrow Lee, PLLC. He practices in all areas of defense litigation inside and outside of Tennessee.

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Jason A. Lee, Member of Burrow Lee, PLLC
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