New Limitations On Missouri Economic Loss Doctrine
In two recent suits, the United States District Court for the Eastern District of Missouri limited the use of the economic loss doctrine, ruling that the doctrine does not apply to claims for negligent misrepresentation. In Bruce Martin Construction, Inc. v. COB, Inc. and in Donnix Painting, LLC v. The Sherwin Williams Company, Judges Limbaugh and Perry, respectively, granted motions for summary judgment and to dismiss claims for negligent misrepresentation where the plaintiffs’ only damages were economic and did not include property damage or bodily injury.
Economic loss is distinguished from harm to a person or damage to property. Economic loss includes costs of repair and replacement of the defective product or property which is the subject of the loss for inadequate value and subsequent loss of profits or use. Groppel Co. v. United States Gypsum Co. For example, there is no recovery in strict liability in tort where the only damage is to the product sold.
The economic loss doctrine was judicially created to protect the integrity of the UCC bargaining process, and to prevent tort law from altering the allocation of costs and risks negotiated by the parties. Missouri’s economic loss doctrine grew out of claims of tort which were alleged against builders of home, or instances where a plaintiff sought to hold a manufacturer or distributor of a product liable in tort. As the courts have recently observed, given the availability of warranties the courts should not ask tort law to perform a job that contract law might perform better.
In Bruce Martin Construction, the issue was whether the plaintiff could bring a cause of action for negligent misrepresentation against the seller of a grain unloading system where the only alleged damage was the failure of the system to properly operate. Judge Stephen M. Limbaugh, Jr. set forth the applicable law regarding Missouri’s economic loss doctrine.
Missouri’s economic loss doctrine “prohibits a cause of action in tort where the losses are purely economic.” The doctrine was set out by the Missouri Supreme Court in Crowder v. Vandendeale, where in an action by a subsequent home purchaser against the home builder to recover damages for latent structural defects, the court held that the purchaser’s suit under a theory of implied warranty was an adequate remedy. The court accordingly barred the plaintiff’s attempt to recover on his second theory of recovery based on the builder’s failure to use ordinary care.
Judge Limbaugh noted that this case involved a merchant-to-merchant sale and the purchase of an allegedly defective product that has caused no injury or damage to other property. Other judges in this District have clarified the application of the economic loss doctrine, so that in an action involving a commercial transaction between merchants, a fraud claim to recover economic losses must be independent of the contract or such claim would be precluded by the economic loss doctrine.
In Donnix Painting, LLC v. Sherwin Williams Company, Judge Catherine D. Perry, applying Missouri law, this case, granted a defendant’s motion to dismiss a claim for negligent misrepresentation for defective paint where there was no resulting bodily injury or property damage, citing the Bruce Martin Construction decision by Judge Limbaugh.
Missouri state courts have not ruled on whether they will recognize a cause of action for negligent misrepresentation for purely economic loss. Missouri courts have recognized rare exceptions to the economic loss doctrine. Examples include cases involving a fiduciary relationship or negligence in providing professional services. In fact, in B.L. Jet Sales, Inc. v. Alton Packaging Corp., the Missouri Court of Appeals recognized a cause of action for negligent misrepresentation for purely economic damages when the defendant failed to observe federal regulations requiring certain disclosures. Therefore, it is not clear that Missouri courts will follow the lead of the district courts in limiting the application of the economic loss doctrine where negligent misrepresentation is alleged.
Missouri courts have recognized further exceptions to the economic loss doctrine allowing a properly pled tort claim where a special or fiduciary relationship existed between the parties to a contract or where there was negligent rendition of professional services.
Significance of the Decisions
The two district court decisions may do a couple of things: (1) Further limit the theories of recovery that a plaintiff may have for purely economic loss; and (2) limit insurance coverage for cases of purely economic loss. Under Missouri law, there is generally insurance coverage for damages arising out of negligent misrepresentation. By removing negligent misrepresentation from a claimant’s options, there is a lesser chance that insurers will be required to defend and indemnify claims where the damages are purely economic in nature. Under the two federal cases, Plaintiffs may no longer attempt to trigger coverage by alleging negligent misrepresentation. It remains to be seen whether the Missouri state courts will follow the district court’s lead.