The Economy of the Economic Loss Doctrine

Recently I was involved in a case representing a component part manufacturer and the product manufactured was alleged to be the ignition source of a fire that destroyed a mobile home.While this case could be defended by traditional means i.e., that the product was not unreasonably dangerous, had been subject to misuse or alteration or something else was the ignition source, the most economical defense was by way of summary judgment utilizing the “economic loss doctrine.”

The economic loss doctrine, which is recognized by Missouri courts, provides that if the only loss related to a defective product is to the product itself, then traditional tort remedies do not apply and the parties must resort to traditional contract, warranty or UCC law for remedies.Usually, the end user’s remedy is limited by way of warranty at the time the product is purchased by limiting the time to bring a cause of action.Even if the product that caused the damage was an integrated component part of an overall product the doctrine usually applies to limit recovery.

In my case, the component part was part of the overall bargain that was reached by the purchaser to buy a mobile home.In other words, the buyer didn’t bargain for a mobile home, a stereo, the wheels and the stove separately.Therefore, the “product” at issue is the mobile home and not the component part that caused the fire.

The economic loss doctrine, when used properly can dramatically limit a manufacturer’s costs and exposure in litigation product liability cases.