THE ECONOMIC LOSS DOCTRINE
By Attorney Randall J. Andersen
July, 2013
By Attorney Randall J. Andersen
July, 2013
Disclaimer: The information contained on this page is not legal advice. The information provided on this website is for general informational purposes and is not necessarily updated to account for changes in the law. You should consult with an attorney for legal advice regarding your individual circumstances.
The economic loss doctrine is a rule of law which generally provides that when a person buys a product, claims against the seller based on the tort of “negligence” are barred unless the product causes damage to a person or to property other than the product itself. If the economic loss doctrine applies, the buyer will not be permitted to bring a negligence claim, and instead will be limited to bringing a breach of contract claim.
Remedies for breach of contract are often more limited than remedies pursuant to a negligence claim. For example, many contracts include provisions waiving the right to recover consequential damages (which would be available with a negligence claim). Also, the statute of limitations for bringing a breach of contract claim can in some instances be shorter than the statute of limitations for bringing a negligence claim.
In 2012, the Wisconsin Court of Appeals applied the economic loss doctrine to a claim for damages against a design builder, in the case of Kalahari Development, LLC v. Iconica, Inc. The plaintiff sought to hold the design builder liable for leaks and other construction defects at the Kalahari Resort and Conference Center. Almost ten years after substantial completion of the project, Kalahari sued the design builder for construction defects, including allegations of negligent performance of architectural and construction services.
The Court of Appeals concluded that although professional design services were involved, the primary purpose of the contract was the construction of a “product” (the resort facility) and therefore the economic loss doctrine was applicable and a claim for negligence was not available under Wisconsin law.
The plaintiff still could have pursued a claim for breach of contract; however, it had waited more than six years from the date of substantial completion of the project to file suit. The Court concluded that the breach of contract claim was barred by Wisconsin’s six-year statute of limitations. Kalahari had argued that Wisconsin’s ten-year statute of repose for construction defects was applicable. However, the Court of Appeals ruled that because Kalahari was limited to a breach of contract claim, the six-year statute of limitation applied, and dismissed the action.
The scope of the precedent set by the Kalahari case is limited by its facts. The Wisconsin Supreme Court has previously ruled, in the case of Insurance Co. of North America v. Cease Electric, Inc., that if the contract is primarily for a service (as opposed to a contract for a “product”), then the economic loss doctrine will not apply.
Remedies for breach of contract are often more limited than remedies pursuant to a negligence claim. For example, many contracts include provisions waiving the right to recover consequential damages (which would be available with a negligence claim). Also, the statute of limitations for bringing a breach of contract claim can in some instances be shorter than the statute of limitations for bringing a negligence claim.
In 2012, the Wisconsin Court of Appeals applied the economic loss doctrine to a claim for damages against a design builder, in the case of Kalahari Development, LLC v. Iconica, Inc. The plaintiff sought to hold the design builder liable for leaks and other construction defects at the Kalahari Resort and Conference Center. Almost ten years after substantial completion of the project, Kalahari sued the design builder for construction defects, including allegations of negligent performance of architectural and construction services.
The Court of Appeals concluded that although professional design services were involved, the primary purpose of the contract was the construction of a “product” (the resort facility) and therefore the economic loss doctrine was applicable and a claim for negligence was not available under Wisconsin law.
The plaintiff still could have pursued a claim for breach of contract; however, it had waited more than six years from the date of substantial completion of the project to file suit. The Court concluded that the breach of contract claim was barred by Wisconsin’s six-year statute of limitations. Kalahari had argued that Wisconsin’s ten-year statute of repose for construction defects was applicable. However, the Court of Appeals ruled that because Kalahari was limited to a breach of contract claim, the six-year statute of limitation applied, and dismissed the action.
The scope of the precedent set by the Kalahari case is limited by its facts. The Wisconsin Supreme Court has previously ruled, in the case of Insurance Co. of North America v. Cease Electric, Inc., that if the contract is primarily for a service (as opposed to a contract for a “product”), then the economic loss doctrine will not apply.