THE ECONOMIC LOSS DOCTRINE: ARGUING FOR THE INTERMEDIATE RULE AND TAMING THE TORT-EATING MONSTER Gennady A. Gorel*

7/29/2019 THE ECONOMIC LOSS DOCTRINE: ARGUING FOR THE INTERMEDIATE RULE AND TAMING THE TORT-EATING MONSTE

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THE ECONOMIC LOSS DOCTRINE:ARGUING FOR THE INTERMEDIATE RULE AND

TAMING THE TORT-EATING MONSTER

Gennady A. Gorel*

TABLE OF CONTENTS

I.INTRODUCTION ..................................................................................518

II.BACKGROUND ON THE ECONOMIC LOSS DOCTRINE ........................519 A. What Is Economic Loss? ..............................................................520B. Practical Application ...................................................................521C. What Constitutes a Product? .......................................................522D. Policy Considerations..................................................................524

1. Enforcing Contracts Versus Protecting Consumers..................5252. Limiting Corporate Liability Versus Discouraging

Dangerous Defects....................................................................525

III.VARIOUS APPROACHES TO THE ECONOMIC LOSS DOCTRINE .........526A. Recent History..............................................................................527B. The Minority Rule.........................................................................529

1. Santor v. A & M Karagheusian, Inc. ........................................529 2. Variations on the Minority Rule ...............................................531

C. The Majority Rule ........................................................................533

1. Seminal Cases...........................................................................5342. Asbestos Exception...................................................................539D. The Intermediate Rule..................................................................540

* J.D. Candidate, Rutgers University School of LawCamden, May 2006. I would liketo thank J. Michael Kvetan, Esquire, for inspiring my research into the economic lossdoctrine.


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518 RUTGERS LAW JOURNAL [Vol. 37:517

IV.PROBLEMS WITH THE MAJORITY APPROACH..................................541 A. Fails to Protect Consumers Even from Unforeseeable Dangers .541B. Dilutes Tort Policy of Discouraging Dangerous Defects.............544C. Limits Discretion of Courts..........................................................547D. Leads to Arbitrary Results ...........................................................547

V.THE WISDOM OF THE INTERMEDIATE APPROACH............................548 A. Offers Equitable Justice ...............................................................548B. Discourages Dangerous Defects While Sufficiently

Limiting Liability ..........................................................................549C. Promotes Judicial Discretion and Avoids Arbitrary Results .......550

VI.CONCLUSION ...................................................................................550

I. INTRODUCTION

In 1986, the economic loss doctrine was expanded to save contract law

[from] drown[ing] in a sea of tort.1 However, the expansion of the economic

loss doctrine has gone too far. Today, it is tort law that needs protection from

the tort-eating monster.2

The economic loss doctrine is at the center of the struggle to define the

boundaries between tort and contract law principles.3 Its main function is to

limit tort recovery of purely economic losses.4 Various approaches to the

doctrine have emerged, best categorized as the minority, majority and

1. E. River S.S. Corp. v. Transam. Delaval, Inc. (East River), 476 U.S. 858, 866

(1986); see Christopher Scott DAngelo, The Economic Loss Doctrine: Saving ContractWarranty Law from Drowning in a Sea of Torts , 26 U. TOL. L. REV. 591, 593-96 (1995)(discussing the impact of theEast Riveropinion).

2. Charles R. Walker, Moransais v. Heathman and the Florida Economic Loss Rule:

Attempting to Leash the Tort-Eating Monster, 52 FLA.L.REV. 769, 769 (2000); see also PaulJ. Schwiep, The Economic Loss Rule Outbreak: The Monster that Ate Commercial Torts, 69FLA.B.J.34, 34 (1995).

3. Schwiep, supra note 2, at 34 ([I]t is clear that judges, lawyers, and commercial

clients alike are all desperately struggling to define the parameters of the economic lossdoctrine.); see also R. Joseph Barton, Note, Drowning in a Sea of Contract: Application ofthe Economic Loss Rule to Fraud and Negligent Misrepresentation Claims, 41 WM.&MARYL.REV. 1789, 1789 (2000) (The economic loss rule is one of the most confusing doctrines in

tort law.); Christopher J. Faricelli, Wading into the Morass: An Inquiry into theApplication of New Jerseys Economic Loss Rule to Fraud Claims, 35 RUTGERS L.J. 717, 718(2004) (Courts have struggled in their attempts to uniformly apply the economic loss rule.).

4. See DAngelo, supra note 1, at 591.


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2006] TAMING THE TORT-EATING MONSTER 519

intermediate rules.5

The minority rule, applied by a small number of

jurisdictions, allows recovery of purely economic losses in tort.6 The

majority rule, on the other hand, completely bars recovery of economiclosses in tort.7 The intermediate rule takes the middle ground, allowing

recovery of economic loss in tort in limited situations.8

This Note concentrates specifically on product liability cases.9 In product

liability cases, the economic loss doctrine bars tort recovery when a defective

product damages only itself.10

Parts II and III of this Note work on definingthe economic loss doctrine, with Part II developing the necessary background

and Part III discussing various approaches to the doctrine. Part IV then points

out problems with the widely accepted majority approach. Finally, Part V

demonstrates how the intermediate approach can overcome these problems.

This leads to the conclusion that the majority rule has overstepped its bounds

in limiting tort law and that the intermediate approach is more effective atbalancing countervailing policy interests.

II. BACKGROUND ON THE ECONOMIC LOSS DOCTRINE

Before jumping into an in-depth discussion of the economic loss

doctrine, it is important to provide some background. Section A of this partdefines economic loss. Section B provides a simple hypothetical to show

5. See East River, 476 U.S. at 868-71 (discussing the minority, majority, andintermediate approach to the economic loss doctrine).

6. Id. at 868-69.

7. Id. at 868.8. Id. at 869-70.9. The economic loss doctrine has also been applied to limit liability of services

providers. See, e.g., Bristol-Myers Squibb v. Delta Star, Inc., 620 N.Y.S.2d 196, 198-99 (App.Div. 1994) (installation services); Key Intl Mfg., Inc. v. Morse/Diesel, Inc., 536 N.Y.S.2d792, 793-95 (App. Div. 1988) (architectural and engineering services). But cf. Cargill, Inc. v.Boag Cold Storage Warehouse, Inc., 71 F.3d 545, 550 (6th Cir. 1995) (holding that under

Michigan law the economic loss doctrine applies only to transactions in goods).10. See, e.g.,East River, 476 U.S. at 871 (defective ship turbine damaged only itself);

Hininger v. Case Corp., 23 F.3d 124, 126-27 (5th Cir. 1994) (combine contained a defectivewheel, which required replacement); Transp. Corp. of Am., Inc. v. IBM, 30 F.3d 953, 956 (8th

Cir. 1994) (defective computer disc drive crashed damaging only itself); Carstens v. City ofPhoenix, 75 P.3d 1081, 1083-84 (Ariz. Ct. App. 2003) (home was constructed in violation of

construction code, but no damage outside the home itself was caused); Casa Clara Condo.Assn v. Charley Toppino & Sons, Inc., 620 So. 2d 1244, 1245 (Fla. 1993) (home contained

defective concrete that only damaged the home itself); Koss Constr. v. Caterpillar, Inc., 960P.2d 255, 260 (Kan. Ct. App. 1998) (defective hydraulic hose in roller damaged roller only);Stanton v. Bayliner Marine Corp., 866 P.2d 15, 18 (Wash. 1993) (defective boats damagedonly themselves).


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how the economic loss doctrine works. Section C discusses the more

complex concept of what constitutes a product. And finally, Section D

analyzes court policies that affect the development of the economic lossdoctrine.

A. What Is Economic Loss?

Economic loss is the diminution in the value of the product because it

is inferior in quality and does not work for the general purposes for which itwas manufactured and sold.11 It is probably easier to consider which losses

are economic from an exclusive perspective.12 From this view, personal

injury and damage to other property13 are not economic losses.14 All other

losses are, thus, economic.15

Economic loss can be divided into two categories: direct andconsequential.16 A direct economic loss is defined as: out of pocketthe

difference in the value between what is given and receivedor loss of

bargainthe difference between the value of what is received and its value

as represented. Direct economic loss may also be measured by costs of

11. DAngelo, supra note 1, at 592 (quoting Comment, Manufacturers Liability toRemote Purchasers for Economic Loss DamagesTort or Contract?, 114 U.PA.L.REV.539, 541 (1966)).

12. See Barton, supra note 3, at 1793 (defining economic loss in the exclusive);

Faricelli, supra note 3, at 718 (explaining that not all damages are economic losses).13. Other property is meant to distinguish from the defective product itself. Miller v.

U.S. Steel Corp., 902 F.2d 573, 574 (7th Cir. 1990) (distinguishing the cost of replacing the

defective product itself from the damages to plaintiffs person or property); see also Barton,

supra note 3, at 1793 (referring to other property).14. Barton, supra note 3, at 1793; DAngelo, supra note 1, at 592; Reeder R. Fox &

Patrick J. Loftus,Riding the Choppy Waters ofEast River: Economic Loss Doctrine Ten Years

Later, 64 DEF.COUNS.J. 260, 263 (1997).15. Economic losses are sometimes referred to as commercial losses. See, e.g., Seely v.

White Motor Co., 403 P.2d 145, 150-51 (Cal. 1965) (using the term commercial lossesinterchangeably with economic losses); Nobility Homes of Tex., Inc. v. Shivers, 557

S.W.2d 77, 80 (Tex. 1977). It has been suggested that commercial loss is a more appropriateterm. See Miller, 902 F.2d at 574 (suggesting that [i]t would be better to call it a commercial

loss, . . . because personal injuries and especially property losses are economic losses, toothey destroy values which can be and are monetized).

16. See DAngelo, supra note 1, at 592; Note, Economic Loss in Products LiabilityJurisprudence, 66 COLUM.L.REV. 917, 918 (1966) [hereinafterEconomic Loss]; see also A.J.Decoster Co. v. Westinghouse Elec. Corp., 634 A.2d 1330, 1333 (Md. 1994) (stating thatconsequential damages are economic loss).


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replacement and repair.17

Consequential economic loss, on the other hand,

includes losses such as lost profits.18

Most importantly, the economic loss doctrine draws a distinctionbetween incidents resulting in only economic loss and those where other

losses are present.19 Where a defective product injures only itself all losses

are economic.20 Conversely, where a defective product causes personal

injury or damage to other property, non-economic losses are present.21

B. Practical Application

Now that economic loss has been defined, we are ready to examine a

practical application of the economic loss doctrine. The facts of C.A.

Johnson Trenching, L.C. v. Vermeer Manufacturing Co.,22

an unpublished

opinion from the Court of Appeals of Utah, provide a great example. 23 InJohnson Trenching, the plaintiff purchased an allegedly defective trenching

machine from the defendant.24 The defective machine caused lost profits for

the plaintiffs business.25 The plaintiff pursued the case under theories of

strict liability in tort and breach of implied warranty in contract.26

The

17. DAngelo, supra note 1, at 592 (internal quotation marks omitted) (quoting

Economic Loss, supra note 16, at 918).18. Id.;Economic Loss, supra note 16, at 918.19. Mark R. Sullivan, Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co.: Abuse

of Pennsylvanias Products Liability Symmetry, 43 U.PITT.L.REV. 1181, 1195 (1982) (notingthat the distinction determines whether tort recovery is available); see also Steven C. Tourek

et al., Bucking the Trend: The Uniform Commercial Code, the Economic Loss Doctrine,

and Common Law Causes of Action for Fraud and Misrepresentation, 84 IOWA L.REV. 875,897 (1956) (pointing out that the economic loss doctrine hinges on distinction of damages);Michael F. Vitt, Stemming the Tide: Uniformity in Admiralty Commands No Recovery for

Recreational Vessel Losses Under a Marine Products Liability Theory in Maryland Courts

Due to the Economic Loss Rule ofEast River Steamship Corp. v. Transamerica Delaval, Inc.,28 U.BALT.L.REV. 423, 487 (1999) (noting that plaintiffs may face severe penalties basedon the outcome of the distinction in damages).

20. See Wash. Water Power Co. v. Graybar Elec. Co., 774 P.2d 1199, 1207 (Wash.)(The broadest definition . . . encompasses all damages attendant to the failure and loss of useof a product.), amended by sub nom. Wash. Power Co. v. Graybar Elec. Co., 779 P.2d 697(Wash. 1989). SeegenerallyEast River, 476 U.S. 858 (1986).

21. See,e.g.,East River, 476 U.S. at 871.22. No. 20030714-CA, 2005 WL 487881 (Utah Ct. App. Mar. 3, 2005) (mem.).

23. Id. at *1. This case was chosen for its simplicity. It demonstrates the basics ofapplying the economic loss doctrine, without invoking a winded discussion about court policy

and the history of the doctrine.24. Id.25. Id.26. Id.


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defendant invoked the economic loss doctrine to bar the tort claim.27

The

court agreed that the strict liability claim was barred under the economic loss

doctrine since the plaintiff only suffered business interruption, an economicloss.28 This left only the contract remedy for consideration. However, the

court also ruled against the plaintiff on the breach of implied warranty claim

because the agreement of sale expressly and clearly29 disclaimed implied

warranties of merchantability and fitness for a particular purpose.30

In turn,

the plaintiff was left without any opportunity to recover.In Johnson Trenching, the court draws a clear distinction between

contract and tort remedies.31 It further shows how the economic loss doctrine

can conclusively bar a plaintiffs ability to recover damages when there is no

contract remedy available.32

C. What Constitutes a Product?

In more complex cases the boundaries between economic loss and injury

to other property are blurred. In order to draw a distinction between the two,

the courts attempt to define what constitutes a product.33

Economic loss

jurisprudence looks to answer this question by analyzing the context in

which the item at issue was obtained.34 Specifically, courts look to identify

the finished product bargained for by the buyer.35

27. Id.28. Id.

29. Utah law requires that exclusions or modifications of the warranty of

merchantability mention merchantability and be conspicuous. UTAH CODE ANN. 70A-2-316(2) (West 2004).

30. C.A. Johnson Trenching, L.C., 2005 WL 487881, at *1.

31. See DAngelo, supra note 1, at 594 (discussing the distinction between tort andcontract policies).

32. Kenneth L. Carson & Gail E. Horowitz, Software and Computer Law: OldQuestions to Be Answered in the New Millennium , 43 BOSTON B.J. 10, 24 (1999) (The

delineation of tort versus contract may . . . clarify the applicability of contractual limits onliability, [and] the determination of the relevant statute of limitations and other issues.); seeDiIorio v. Structural Stone & Brick Co., Inc., 845 A.2d 658, 661-62 (N.J. Super. Ct. App. Div.2004) (different statutes of limitation apply under tort and contract claims); C.A. Johnson

Trenching, L.C., 2005 WL 487881 at *1 (tort recovery was barred by the economic lossdoctrine, and recovery in contract was limited by a disclaimer of warranties).

33. See Shipco 2295, Inc. v. Avondale Shipyards, Inc., 825 F.2d 925, 928 & n.1 (5thCir. 1987) (looking to determine whether a steering mechanism for a vessel constituted a

component or a product).34. See, e.g., DAngelo, supra note 1, at 599 (In determining whether a product injures

only itself or other property, the courts must look to the product the plaintiff purchasedrather than to what the defendant sold.); see also King v. Hilton-Davis, 855 F.2d 1047, 1051


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This issue is particularly prevalent where a defect in a component part

causes damage to the whole.36 In such cases, plaintiffs may attempt to

recover from the component part manufacturer, claiming that damage to thewhole constitutes other property.37 However, where the component comes

integrated into the whole when purchased, courts reason that the purchaser

bargained for the whole product, not merely a component of it.38 Thus, the

whole is not other property.39

Most courts also consider replacement parts

provided by the original seller as part of the product and not other property.40

(3d Cir. 1998) (reasoning that the bargain determines plaintiffs economic loss); Shipco 2295,Inc., 825 F.2d at 928 (stating that the analysis of what constitutes a product requires the court

to determine what . . . the object of the contract or bargain is).35. King, 855 F.2d at 1052 (quoting Shipco 2295, Inc., 825 F.2d at 930).

36. See Fox, supra note 14, at 264.37. SeeShipco 2295, Inc., 825 F.2d at 928 (attempting to recover from the manufacturer

of a steering mechanism for damage to the boat in which it was a component); MidwayHelicopter Airways, Inc. v. Sikorsky Aircraft, 849 F. Supp. 666, 672 (E.D. Wis. 1994)(attempting to recover based on an argument that a helicopter was other property apart fromits tail rotor drive), affd, 42 F.3d 1391 (7th Cir. 1994) (unpublished table decision).

38. Fox, supra note 14, at 264 (quoting Myrtle Beach Pipeline Corp. v. Emerson Elec.

Co., 843 F. Supp. 1027, 1057 (D.S.C. 1993)); seeKing, 855 F.2d at 1051-52; Shipco 2295,Inc., 825 F.2d at 929. The King court quotes Shipco for the following reasoning:

We see no rational reason to give the buyer greater rights to recover economic losses

for a defect in the product because the component is designed, constructed, or

furnished by someone other than the final manufacturer. The buyer ordinarily has no

interest in how or where the manufacturer obtains individual components. The buyer

is usually interested in the quality of the finished product and is content to let the

manufacturer decide whether to do all the work or delegate part of it to others.King, 855 F.2d at 1051-52 (quoting Shipco 2295, Inc., 825 F.2d at 929).

39. See, e.g., Lexington Ins. Co. v. W. Roofing Co., 316 F. Supp. 2d 1142, 1148 (D.

Kan. 2004) (mesh screens installed for roof drainage during building construction are acomponent part of the building); Wausau Tile, Inc. v. County Concrete Corp., 593 N.W.2d445, 453 (Wis. 1999) (cement is a component part of concrete paving blocks); Bay BreezeCondo. Assn v. Norco Windows, Inc., 651 N.W.2d 738, 746 (Wis. Ct. App. 2002) (windows

are a component part of a house).40. Equistar Chemicals, L.P. v. Dresser-Rand Co., 123 S.W.3d 584, 589 n.27 (Tex.

App. 2003) (citing Petroleum Helicopters, Inc. v. Avco Corp., 930 F.2d 389 (5th Cir. 1991)

(finding that a flotation device and a helicopter were one product for economic loss pruposes,even though the flotation device had been removed, overhauled, and reinstalled several times,

and at the time of its failure the device was installed on a different helicopter than the one ithad been originally sold with); Northland Power v. Gen. Elec., Co., 105 F. Supp. 2d 775, 789-92 (S.D. Ohio 1999) (finding that, under California law, engine blades and a generator were

one product for economic loss purposes, even though the engine blades were refurbished andrecoated); Exxon Shipping Co. v. Pac. Res., Inc., 835 F. Supp. 1195, 1201 (D. Haw. 1993)(finding that a chain and mooring system were one product for economic loss purposes, eventhough the chain was sold as a spare and installed later as a replacement)). A replacement part


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As such, a product is defined based on the bargain made by the

purchaser.41 A component part is within the confines of the product, as long

as it was sold as part of the same bargain or is a replacement provided by theoriginal seller.42

D. Policy Considerations

Courts mold the economic loss doctrine in order to strike an equitable

balance between countervailing public policies.43

The definition of economicloss, for instance, hinges on whether damage to person or other property has

occurred.44 This distinction finds its roots in tort policy, which provides

recourse to victims in personal injury cases.45 The definition of a product, on

the other hand, finds its roots in contract policy.46

By looking to the whole

bargain in order to define a product, courts are applying a contract policy of

may not become part of the product where it is purchased from someone other than the sellerof the original product. See Transco Syndicate # 1, Ltd v. Bollinger Shipyards, Inc., 1 F. Supp.2d 608, 612 (E.D. La. 1998) (holding that the owner of a boat was not barred from pursuingthe boat-engine-installer for damage to the boat where the boat-engine-installer was not the

seller of the boat).41. Linden v. Cascade Stone Co., 687 N.W.2d 823, 830 (Wis. Ct. App. 2004) (pointing

out that a purchaser bargained for the finished product, not for the various components), affd,699 N.W.2d 189 (Wis. 2005).

42. SeeShipco 2295, Inc., 825 F.2d at 928 (steering mechanism and entire boat are a

product);Lexington Ins. Co., 316 F. Supp. 2d at 1148 (mesh screens used for roof drainage

and building are a product);Midway Helicopter Airways, Inc., 849 F. Supp. at 672 (tail rotordrive and entire helicopter are a product); Wausau Tile, Inc., 593 N.W.2d at 453 (cement andconcrete paving blocks are a product); Bay Breeze Condo. Assn, 651 N.W.2d at 746

(windows and house are a product).But see City of Greenville v. W.R. Grace & Co., 827 F.2d975, 977-78 (4th Cir. 1987) (recognizing that where asbestos contaminates the building inwhich it is a component part, the contamination results in damage to other property); Bd. ofEduc. of Chi. v. A, C & S, Inc., 546 N.E.2d 580, 588-91 (Ill. 1989) (same); Detroit Bd. of

Educ. v. Celotex Corp., 493 N.W.2d 513, 518 (Mich. Ct. App. 1992) (same).43. Daniel London, Is the Economic Loss Rule in Peril? Courts, Negligence, and the

Economic Loss Wolves, 71 DEF. COUNS. J. 379, 384 (2004) (noting that economic lossdifficult[ties] are interdependent).

44. See supra Part II.A.45. See Spring Motors Distribs., Inc. v. Ford Motor Co., 489 A.2d 660, 666 (N.J. 1985)

(noting that an objective of strict liability is to protect the consumer); see alsoEast River, 476U.S. 858 866-67 (1986) (recognizing that tort law offers protection from both personal injury

and property damage).46. See Wood v. State, 815 A.2d 350 (Del. 2003) (unpublished table decision) (noting

that the formation of a contract requires a bargain). See supra Part II.C for a discussion oflooking to the essence of the bargain to define the product.


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enforcing agreements between parties.47

In this way, courts balance a variety

of conflicting policies in applying the economic loss doctrine.48 Particularly

notable are the countervailing policies of enforcing liability disclaimersversus providing consumer protection and limiting liability versus providing

greater deterrence for manufacturing defective products.

1. Enforcing Contracts Versus Protecting Consumers

Contract and tort policy diverge when it comes to upholding liabilitydisclaimers and providing consumer protection.49 Tort law, specifically

product liability law, is based on a public policy concern that consumers

need more protection from dangerous products than is afforded by the law

of warranty.50

This places tort policy directly at odds with contract law,

which is more concerned with holding parties to the terms of theiragreements.51 In doing so, contract law enforces agreements that allocate

risk and limit liability, which may estop protections available under tort

law.52 Thus, in creating a boundary between tort and contract law, courts

must reconcile the policy of allowing risk allocation against the policy of

offering extra protection.

2. Limiting Corporate Liability Versus Discouraging Dangerous Defects

Likewise, there are conflicting policies involved in limiting liability and

discouraging product defects. Tort policy, particularly strict liability, is

47. See Rich Prods. Corp. v. Kemutec, Inc., 66 F. Supp. 2d 937, 968 (E.D. Wis. 1999)(Society allows the parties to set the terms of their bargain and only intervenes to enforce or

give meaning to those terms once a dispute develops.), affd, 241 F.3d 915 (7th Cir. 2001).48. Fla. Bldg. Inspection Servs., Inc. v. Arnold Corp., 660 So. 2d 730, 732 (Fla. Dist.

Ct. App. 1995) (en banc) ([L]iability for economic losses . . . requires a balance betweenpublic policy and reallocation of economic risks throughout society.). See London, supra

note 43, at 380-85, for a comprehensive analysis of policy considerations in economic loss.49. See Daanen & Janssen, Inc. v. Cedarapids, Inc., 573 N.W.2d 842, 846 (Wis. 1998)

(acknowledging that contract and tort law policies overlap, but also diverge); Faricelli, supranote 3, at 722 (noting that contract and tort claims can easily arise from the same set of

underlying facts).50. East River, 476 U.S. at 866.

51. Proriver, Inc. v. Red River Grill, LLC, 83 F. Supp. 2d 42, 46 (D.D.C. 1999).52. See Grams v. Milk Prods., Inc., 685 N.W.2d 172, 175 (Wis. Ct. App. 2004)

(unpublished table decision) (As a matter of policy, when commercial parties have allocatedtheir respective risks through contract, the economic loss doctrine directs that it is moreappropriate to enforce that bargain than to allow end runs around that bargain through tortlaw.), affd, 699 N.W.2d 167 (Wis. 2005).


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aimed at discouraging dangerous product defects.53

It requires holding

manufacturers liable when their products cause damage.54 By holding

manufacturers liable in more cases, courts create a greater incentive formanufacturers to make safer products.55 The countervailing policy is to limit

liability. This policy is concerned with hindering productive behavior.56 It

reasons that overextending liability will cause businesses to forego

productive and socially desirable behavior out of fear of unbearable risk.57

Courts applying the economic loss doctrine must weigh the benefits ofenforcing liability limits against the benefits of discouraging product defects.

III. VARIOUS APPROACHES TO THE ECONOMIC LOSS DOCTRINE

The economic loss doctrine has taken different forms throughout the

United States.58 This part explores each of these approaches. It starts with a

brief historic overview and then continues with a discussion of the minorityrule, the majority rule and the intermediate rule of the economic loss

doctrine.

53. Ronen Perry, Relational Economic Loss: An Integrated Economic Justification forthe Exclusionary Rule, 56 RUTGERS L.REV. 711, 731 (2004) (One of the main functions oftort lawat least from an economic perspectiveis to provide incentives for behavioral

changes that may reduce the loss of social welfare caused by human interactions.).

54. East River, 476 U.S. at 866-67 (The manufacturer is [strictly] liable whether or notit is negligent because public policy demands that responsibility be fixed wherever it willmost effectively reduce the hazards to life and health inherent in defective products that reach

the market. (quoting Escola v. Coca Cola Bottling Co. of Fresno, 150 P.2d 436, 441 (Cal.1944) (Traynor, J., concurring))); see Spring Motors Distribs., Inc. v. Ford Motor Co., 489A.2d 660, 666 (1985) (One of the main purposes of strict liability . . . is the allocation of therisk and distribution of the loss to the better risk-bearer[the manufacturer].).

55. Perry, supra note 53, at 731 (Tort liability raises the price of potential injurersactivities and thus encourages them to take further precautions or reduce their level ofactivity.); seeSpring Motors Distribs., Inc., 489 A.2d at 666 (Generally, the manufacturer,who is better able to eliminate defects from its product and who can spread the cost of the risk

among all of customers, is the better risk-bearer.).56. See John H. Boswell & George Andrew Coats, Saving the General Aviation

Industry: Putting Tort Reform to the Test, 60 J.AIR L.&COM. 533, 550-53 (1995) (discussingproblems of over-deterrence in the aviation industry).

57. London, supra note 43, at 381 (noting that if liability was not limited, themagnitude of potential liability in economic loss cases would have a chilling effect on sociallybeneficial conduct).

58. See DAngelo, supra note 1, app. at 609-19.


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A. Recent History

Most modern economic loss jurisprudence in the United States can be

linked to Seely v. White Motor Co.,59 a case decided by the Supreme Court of

California in 1965.60

While the economic loss doctrine has it roots in mid-

nineteenth-century jurisprudence,61

here we only discuss the modern trendsstarting from 1965.

The year 1965 was an important one in the development of the economic

loss doctrine.62 During that year, the high[est] courts of New Jersey63 and

California64

handed down contrasting opinions on the issue.65

The Supreme

Court of New Jersey, in Santor v. A & M Karagheusian, Inc., held that apurchaser could recover in tort for economic loss alone.66 Just a few months

later, the Supreme Court of California, in Seely, held just the oppositethat

a purchaser could not recover in tort for economic losses alone.67

59. 403 P.2d 145 (Cal. 1965).

60. See, e.g., Casa Clara Condo. Assn v. Charley Toppino & Sons, Inc., 620 So. 2d1244, 1245-46 n.2 (Fla. 1993) (citing Seely and noting that the economic loss rule has beenadopted in a majority of jurisdictions); see also, e.g., East River, 476 U.S. 858, 871 (1986)(applying admiralty law and adopting an approach similar to Seely); Lloyd Wood Coal Co. v.

Clark Equip. Co., 543 So. 2d 671, 673-74 (Ala. 1989) (looking at Alabama law and citingSeely); Clark v. Intl Harvester Co., 581 P.2d 784, 792 (Idaho 1978) (applying Idaho law andadopting the reasoning in Seely); Neibarger v. Universal Coops., 486 N.W.2d 612, 618-19(Mich. 1992) (applying Michigan law and adopting the reasoning in Seely).

61. See generally Eileen Silverstein, On Recovery in Tort for Pure Economic Loss, 32

U.MICH.J.L.REFORM 403, 409-22 (1999) (providing a detailed history of the economic loss

doctrine starting from the mid-nineteenth century).62. See Faricelli, supra note 3, at 719-20, 724 (referring to the 1965 cases Seely v. White

Motor Co. and Santor v. A & M Karagheusian, Inc. as among the important cases in economic

loss jurisprudence).63. In Santor, the Supreme Court of New Jersey allowed a purchaser of a defective

carpet to recover from the manufacturer in tort, even when the only damage was to the carpetitself. 207 A.2d 305, 312-13 (N.J. 1965), abrogated by Alloway v. Gen. Marine Indus., L.P.,

695 A.2d 264, 275 (N.J. 1997). Note that this case is no longer good law. SeeAlloway, 695A.2d at 275 (denying recovery in tort to a purchaser of a defective boat which sank whiledocked).

64. In Seely, the Supreme Court of California did not allow the purchaser of a defective

truck to recover from the manufacturer in tort when there was only damage to the truck itselfand business interruption. 403 P.2d 145, 151 (Cal. 1965).

65. DAngelo, supra note 1, at 592 (footnotes added). Seely responded directly toSantor, stating that it was inappropriate to impose liability . . . in the [ Santor] case, for it

would result in imposing liability without regard to what representations of quality themanufacturer made. Seely, 403 P.2d at 151.

66. Seesupra note 63.67. Seesupra note 64.


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It was not until 1986 that the next major economic loss doctrine case

came along.68 In East River S.S. Corp. v. Transam Delaval, Inc. (East River),

the Supreme Court of the United States, applying admiralty law, adopted anapproach similar to Seely.

69 The East River opinion led jurisdictions

throughout the country to either adopt the Seely rule or to, at least, reconsider

their approach to economic loss.70 Even New Jersey first limited71 and then

abrogated Santor.72

Only a small number of jurisdictions today abstain from the Seelyapproach.73 At least one jurisdiction has retained the Santorrule.

74 At least

three others apply Santorin very limited circumstances.75 A growing group,

however, has shown its discomfort with Seely by adopting exceptions to the

strict economic loss rules.76

Today, the question [of] whether a particular jurisdiction recognizes the

economic loss rule is straightforward, [while] issues relating to the

68. See Faricelli, supra note 3, at 719-20 (referring to East Riveras the other seminalcase in economic loss jurisprudence, besides Seely).

69. East River, 476 U.S. 858, 871 (1986) (holding that a manufacturer in a commercialrelationship has no duty under either a negligence or strict products-liability theory to prevent

a product from injuring itself).70. See, e.g., Drexel Props., Inc. v. Bay Colony Club Condo., Inc., 406 So. 2d 515 (Fla.

Dist. Ct. App. 1981); Sharp Bros. Contracting Co. v. Am. Hoist & Derrick Co., 703 S.W.2d901, 903 (Mo. 1986); REM Coal Co. v. Clark Equip. Co., 563 A.2d 128, 132 (Pa. Super. Ct.1989); see also WASH.REV.CODE ANN. 7.72.010(4), (6) (West 1992) (excluding claims for

direct consequential economic loss under the Uniform Commercial Code and discarding the

previous rule established inBerg v. General Motors Corp., 555 P.2d 818 (Wash.1976)).71. See Spring Motors Distribs., Inc. v. Ford Motor Co., 489 A.2d 660, 676 (N.J. 1985)

(limiting the application ofSantorto commercial parties).

72. See Alloway v. Gen. Marine Indus., L.P., 695 A.2d 264, 267 (N.J. 1997) (holdingthat a purchaser is limited to contract remedies to recover for economic loss).

73. Fox, supra note 14, at 262 (noting that a minority of jurisdictions have declined tofollow the economic loss rule and that some jurisdictions have crafted limited exceptions to,

or deviations from, the rule).74. See Thompson v. Neb. Mobile Homes Corp., 647 P.2d 334, 338 (Mont. 1982)

(allowing recovery of economic loss in tort without restriction).75. See Four Corners Helicopters, Inc. v. Turbomeca, S.A., 979 F.2d 1434, 1443-44

(10th Cir. 1992) (non-commercial transactions); Auto Owners Ins. Co. v. Chrysler Corp., 341N.W.2d 223, 224 (Mich. Ct. App. 1983) (non-contractual relationships); Lloyd F. Smith Co.

v. Den-Tal-Ez, Inc., 491 N.W.2d 11, 13-14 (Minn. 1992) (non-commercial transactions).76. See DAngelo, supra note 1, at 601 (noting that some jurisdictions have adopted a

sudden and calamitous event exception); Fox, supra note 14, at 262 (noting that somejurisdictions have adopted an exception when the defect creates a serious risk of death orpersonal injury); Walker, supra note 2, at 785 (noting that Florida has recognized a noalternative theory of recovery exception).


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applicability and scope of the doctrine are more uncertain and continue to

evolve.77

B. The Minority Rule

The minority essentially rejects the economic loss doctrine. It allows a

plaintiff to recover in tort for economic loss without limitation.78Santorwas,

for a long time, the leading case advocating this view.79

However, it

maintained only a limited following.80

Today, there are only a fewjurisdictions following the minority rule, and most of them follow it only

under limited circumstances.81 The remainder of this section discusses the

Santoropinion, as well as current variations in its application.

1. Santor v. A & M Karagheusian, Inc.

The Santorcourt held that a purchaser of a defective product had a cause

of action against the manufacturer for breach of implied warranty of

reasonable fitness, even in the absence of privity of contract and even when a

plaintiffs damages are limited to the loss of value in the defective product

itself.82

The court further held that a tort cause of action also exists in suchcases, regardless of whether damage is limited to the article sold.83

77. Fox, supra note 15, at 260.

78. See Walker, supra note 2, at 776-77.

79. See East River, 476 U.S. 858, 868 (1986).80. See Alloway v. Gen. Marine Indus., L.P., 695 A.2d 264, 267 (N.J. 1997). Even

beforeAlloway abrogated Santor, it was noted that Santor . . . appears today to stand alone

in allowing a products liability action when a product did not create an unreasonable risk ofharm but merely caused economic loss when it failed to meet performance expectations.Id.at 272 (alteration in original) (quotingRESTATEMENT (THIRD) OF TORTS:PRODUCTS LIABILITY 21 cmt. d (Proposed Final Draft Apr. 1, 1997)).

81. See Four Corners Helicopters, Inc. v. Turbomeca, S.A., 979 F.2d 1434, 1443-44(10th Cir. 1992) (applying Colorado law and allowing recovery of economic loss in tort innon-commercial transactions); Auto Owners Ins. Co. v. Chrysler Corp., 341 N.W.2d 223, 224-25 (Mich. Ct. App. 1970)(applying Michigan law and allowing recovery of economic loss in

tort in non-contractual relationships); Lloyd F. Smith Co. v. Den-Tal-Ez, Inc., 491 N.W.2d 11,13-14 (Minn. 1992) (applying Minnesota law and allowing recovery in non-commercial

transactions); Thompson v. Neb. Mobile Homes Corp., 647 P.2d 334, 338 (Mont. 1982)(applying Montana law and allowing recovery of economic loss in tort without restriction).

82. Santor v. A & M Karagheusian, Inc., 207 A.2d 305, 310-11 (N.J. 1965), abrogatedby Alloway v. Gen. Marine Indus., L.P., 695 A.2d 264 (N.J. 1997).

83. Id. at 312-13.


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This case arose out of a purchase of defective carpeting.84

The brief facts

of the case are that the plaintiff purchased carpeting, which was marketed as

Grade #1.85

Shortly after installation, the plaintiff found the carpeting to bedefective.86 Over a period of time, the plaintiff made unsuccessful attempts

to have the carpet replaced by the retailer or the manufacturer.87 The plaintiff

then brought an action against the manufacturer and the distributor, but not

the retailer, to recover for damage to the carpet.88

At trial, the manufacturer conceded that the carpet was, in fact,defective.89 The only issue that remained was whether defendants could be

held liable when there is no privity of contract and when the only damage is

loss of value to the defective product itself.90

The court began its analysis by determining that privity of contract is not

necessary where an action for a defective product is brought against a

manufacturer.91 Prior case law already established that privity was notnecessary where a product was of the type that if defectively manufactured

will be dangerous to life or limb.92 The Santorcourt simply extended this

holding, reasoning that there is

84. Id. at 307.

85. Id. at 306.86. Id. at 307. After installation plaintiff noticed an unusual line in the carpet. Id. The

plaintiff notified the retailer and was assured that the line would walk out. Id. But shortlythereafter additional lines appeared.Id.

87. See id. at 307. About eight months after delivery of the carpet the plaintiff went to

the retailer only to find an out-of-business sign.Id. After some time passed, the plaintiff found

out that the retailer had moved to another state. Id. The plaintiff then made contact with theretailer at the new location, who put the plaintiff in touch with the manufacturer, A & MKaragheusian, Inc.Id. Some three years after the installation, the manufacturer eventually sent

a representative to look at the carpet. Id.88. Id. at 306.89. Id. at 307.90. See id.91. See id. at 307-09 (reasoning that [t]he dealer is simply . . . a conduit on [the

products] trip from manufacturer to consumer, and determining that liability for an impliedwarranty of reasonable fitness should be placed on the person responsible for the existence of

the article and the origin of the marketing process).92. See id. at 308 (discussing Henningsen v. Bloomfield Motors, Inc., 161 A.2d 69, 75

(N.J. 1960)).Henningsen involved a defective automobile. 161 A.2d at 73. The defect caused

the automobile to crash, which caused personal injury to the owners wife. Id. Particularlyimportant is that the wife filed suit under a theory of express and implied warranty against the

dealer and the manufacturer of the automobile, but she did not have privity with either party.Id. at 73, 80. The court allowed her to recover for injuries, reasoning that it was in societysinterest to allow recovery against a manufacturer in the absence of privity when a defectiveproduct is of the type that, if defective, will be dangerous to life or limb. Id. at 81.


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no just cause for recognition of the existence of an implied warranty of

merchantability and a right to recovery for breach thereof regardless of lack

of privity of the claimant in the one case and the exclusion of recovery in the

other simply because of loss of value of the article sold is the only damage

resulting from the breach.93

The court also came to the conclusion that a tort cause of action could be

maintained even for economic loss alone.94

The court reasoned that the law

of strict liability95 exists to insure that the cost of injuries or damage, either

to the goods sold or to other property, resulting from defective products, is

borne by the makers . . . rather than by the injured or damaged persons who

ordinarily are powerless to protect themselves.96

Further, this liability

arises from mere presence of the product [in] the market.97

The Santorholding, thus, determined that plaintiffs can recover against a

manufacturer of a defective product regardless of privity, either in contract or

in tort, even when they have suffered only economic loss.

2. Variations on the Minority Rule

As stated previously, at least three jurisdictions apply the minority rule

under limited circumstances.98 These jurisdictions may apply either the

majority or the intermediate rule when these circumstances are not met.99

93. Santor, 207 A.2d at 309 (It should make no difference that the defect in the productdid not or was not likely to cause harm to the purchaser.).

94. Id. at 312 (stating that the responsibility of the maker should be no different wheredamage to the article sold or to other property of the consumer is involved).

95. The court explained,

Under the strict liability in tort doctrine, as in the case of express or implied warranty

of fitness or merchantability, proof of the manufacturers negligence in the making or

handling of the article is not required. If the article is defective, i.e., not reasonably fit

for the ordinary purposes for which such articles are sold and used, and the defect

arose out of the design or manufacture or while the article was in the control of the

manufacturer, and it proximately causes injury or damage to the ultimate purchaser or

reasonably expected consumer, liability exists.Id. at 313.

96. Id. at 312. Here, the court reasoned that when the manufacturer presents his goods

to the public . . . he accompanies them with a representation that they are suitable and safe forthe intended use.Id. at 311.

97. Id. at 312.98. See cases cited supra note 81.99. See Richard OBrien Cos. v. Challenge-Cook Bros., 672 F. Supp. 466, 471-73 (D.

Colo. 1987); Hiigel v. Gen. Motors Corp., 544 P.2d 983 (Colo. 1975) (barring recovery in tort


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Two of these jurisdictions apply the minority rule when non-commercial

parties are involved; the other one applies the minority rule when a non-

contractual relationship is involved.

a. Non-Commercial Parties Limitation

The non-commercial parties limitation allows application of the minority

rule when the purchaser is a non-commercial party.100

A non-commercial

party is one that is not a merchant in goods of the kind.101

Courts applying

this limitation construe commercial transaction, as it is used in the

Uniform Commercial Code, very narrowly.102 This limitation is sought to

protect unsophisticated consumers.103

b. Non-Contractual Relationship Limitation

The non-contractual relationship limitation allows the application of the

minority rule when there is no contractual relationship between the plaintiff

and the manufacturer. For instance, in Auto Owners Insurance Co. v.

Chrysler Corp.,104 the plaintiff105 purchased a motor home from Sheller-

Globe.106

The motor home consisted of a chassis manufactured by Chrysler

and a body that was manufactured and installed by Sheller-Globe.107

The

motor home was destroyed by fire when a fuel feed that was part of the

Chrysler chassis malfunctioned.108 The court allowed the plaintiffs strict

for economic loss when commercial parties are involved); Great Am. Ins. Co. v. Patys Inc.,397 N.W.2d 853, 855-56 (Mich. Ct. App. 1986); McGhee v. Gen. Motors Corp., 296 N.W.2d

286, 291-92 (Mich. Ct. App. 1980).100. See Four Corners Helicopters, Inc. v. Turbomeca, S.A., 979 F.2d 1434, 1443-44

(10th Cir. 1992) (holding that the Uniform Commercial Code applies only to commercialtransactions); Lloyd F. Smith Co. v. Den-Tal-Ez, Inc.,491 N.W.2d 11, 13-14 (Minn. 1992)

(same).101. Lloyd F. Smith Co., 491 N.W.2d at 17; see also Fox, supra note 14, at 263.102. See Four Corners Helicopters, Inc., 979 F.2d at 1443.103. See Hiigel, 544 P.2d at 989-90 (requiring disclaimers to be clearly brought to the

attention of a non-commercial buyer in order for them to be upheld). 104. 341 N.W.2d 223 (Mich. Ct. App. 1983).

105. The plaintiff was actually the purchasers insurer exercising its subrogationrights. Id. at 223. For purposes of the above discussion the plaintiff is identified as the

purchaser.106. Id. at 224.107. Id. at 223.108. Id. at 224.


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liability suit against Chrysler109

even though the motor home was purchased

as a single item and only the motor home was damaged.110 This decision was

based on the reasoning that contractual remedies do not arise in the absenceof privity.111 Thus, when there is no contract, the manufacturer could not

disclaim liability and may be liable to the plaintiff.112

C. The Majority Rule

On the opposite end of the spectrum is the majority rule. Majority rulejurisdictions do not permit recovery of purely economic losses in tort.113

109. The motor home dealer was not a party to the appeal.Id. at 224.

110. Id. at 223-24.111. The Auto Owners Insurance Co. court contended that there was no recovery intort when the relationship between the parties was contractual and there was no personalinjury or damage to other property. Id. However, the court reasoned that [t]he rationalebehind this holding is that it would be unfair to allow a contracting party to nullify the terms

of the [Uniform Commercial Code] where the only injury is to the property purchased and iscaused by the condition of that property. This rationale fails when there is no contractualrelationship between the parties.Id. The court concluded that where the purchaser bought thedefective product from a dealer there is no privity of contract with the manufacturer.Id.

112. Id. ([T]he [Uniform Commercial Code] has no relevancy in a case . . . in which aconsumer brings a claim against a manufacturer for damage to its product which the consumerpurchased from someone other than the manufacturer.).

113. See, e.g.,Fredonia Broad. Corp. v. RCA Corp., 481 F.2d 781, 797 (5th Cir. 1973)(applying Texas law to strict liability action); Bright v. Goodyear Tire & Rubber Co., 463

F.2d 240, 242 (9th Cir. 1972) (applying California law); Sw. Forest Indus., Inc. v.

Westinghouse Elec. Corp., 422 F.2d 1013, 1019-20 (9th Cir. 1970) (applying Arizona law tostrict liability action); Plainwell Paper Co. v. Pram, Inc., 430 F. Supp. 1386, 1387-88 (W.D.Pa. 1977) (applying Pennsylvania law to strict liability action); Arizona v. Cook Paint &

Varnish Co., 391 F. Supp. 962, 971 & n.9 (D. Ariz. 1975) (concluding that under the law ofeither Arizona, California, Hawaii, Texas or Alaska purely economic losses were notrecoverable in strict liability or negligence actions), affd, 541 F.2d 226 (9th Cir. 1976);Cooley v. Salopian Indus., Ltd., 383 F. Supp. 1114, 1118-19 (D.S.C. 1974) (applying South

Carolina law to strict liability action); Morrow v. New Moon Homes, Inc., 548 P.2d 279, 283-86 (Alaska 1976) (strict liability); Beauchamp v. Wilson, 515 P.2d 41, 44-45 (Ariz. Ct. App.1973) (same); Seely v. White Motor Co., 403 P.2d 145, 151 (Cal. 1965) (same); Anthony v.

Kelsey-Hayes Co., 102 Cal. Rptr. 113, 115-16 (Ct. App. 1972) (strict liability andnegligence); Hiigel, 544 P.2d at 987 (strict liability); Long v. Jim Letts Oldsmobile, Inc., 217

S.E.2d 602, 604-05 (Ga. Ct. App. 1975) (negligence); Alfred N. Koplin & Co. v. ChryslerCorp., 364 N.E.2d 100, 103-04 (Ill. App. Ct. 1977) (same); Rhodes Pharmacal Co. v. ContlCan Co., 219 N.E.2d 726, 730 (Ill. App. Ct. 1966) (strict liability); Hawkins Constr. Co. v.

Matthews Co., 209 N.W.2d 643, 652-53 (Neb. 1973) (same); Avenell v. Westinghouse Elec.Corp., 324 N.E.2d 583, 588 (Ohio Ct. App. 1974) (same); Price v. Gatlin, 405 P.2d 502, 503(Or. 1965) (same); Nobility Homes of Tex., Inc. v. Shivers, 557 S.W.2d 77, 80 (Tex. 1977)(same).


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First, this section discusses the seminal cases advocating this rule. Then, this

section addresses the asbestos exception to the majority rule.

1. Seminal Cases

a. Seely v. White Motor Co.

In Seely, Californias highest court held that a manufacturer of a

defective truck may be liable for breach of warranty, but could not be liable

under tort law when the defect causes only economic losses.114

The facts of Seely revolve around the purchase of a defective truck.115

Numerous attempts to repair the truck by the manufacturer were allegedly to

no avail.116

Eleven months after the purchase, the plaintiff was slowing down

for a turn and found that the brakes did not work, causing the truck tooverturn.117 The plaintiff did not suffer any personal injuries in the

accident.118 However, the plaintiff brought breach of contract and tort actions

against the dealer and the manufacturer to recover for economic losses.119

The trial court awarded damages consisting of the payments made on the

114. 403 P.2d at 151. The court reasoned that a manufacturer cannot be held for thelevel of performance of his products in the consumers business unless he agrees that the

product was designed to meet the consumers demands. Id. Further, [e]ven in actions fornegligence, a manufacturers liability is limited to damages for physical injuries and there isno recovery for economic loss alone.Id.

115. Id. at 147. The truck was purchased for use in plaintiffs heavy-duty haulingbusiness. Id. The plaintiff found that the truck bounced violently, an action known asgalloping.Id.

116. Id. The court took judicial notice of the multiple repairs.

The following changes were made on the truck: five sets of front springs; five drive

line changes; alteration of back springs; replacement of front shock absorbers; fish

plating of frame; replacement of clutch brake; replacement of two clutch release

bearings; replacement of pilot bearing; replacement of two auxiliary transmissions;

reinstallation of new front bearings; front end aligned six times; entire truck and

trailer aligned twice; welded cross member; new cross member installed; replaced

tires five times; moved fifth wheel back and forth.Id. at 150 n.2.

117. Id. at 147.118. Id.

119. Id. at 147-48. The plaintiff sued for damages to the truck, for payment made onthe trucks purchase price, and for lost business income. Id. In doing so, the plaintiff was

suing for payments made because the truck was financed through the dealer.Id. at 147. Afterthe accident, the plaintiff notified the dealer that he would stop making payments. Id. Thedealer repossessed and resold the truck.Id. The plaintiff, therefore, sued for the payments thathe had made on the loan.Id.


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purchase price and lost profits.120

The court did not grant damages for repair

to the truck because it held that the plaintiff failed to prove that the alleged

defect caused the accident.121

On appeal, the Supreme Court of California held that the damages for

lost profits and for money paid on the purchase price were appropriate under

breach of warranty.122 The court reasoned that when the warrantor

repeatedly fails to correct the defect as promised, it is liable for breach of that

promise as a breach of warranty.123

The damages awarded by the trialcourt, the loss directly and naturally resulting in the ordinary course of

events from the breach of warranty, can properly include lost profits as well

as the amount paid on the purchase price.124

The Seely court also determined that the plaintiff could not pursue the

same claim in tort since he suffered only economic loss.125

The court

expressly rejected Santors holding,126 reasoning that contract law is best atdealing with economic expectation and that tort law is best left for dealing

120. Id. at 148.121. Id.

122. Id. The court expressly noted the wording of the truck warranty, which stated thefollowing: The White Motor Company hereby warrants each new motor vehicle sold by it tobe free from defects in material and workmanship under normal use and service, its obligationunder the warranty being limited to making good at its factory any part or parts thereof. Id.

123. Id. (citing Rose v. Chrysler Motors Corp., 28 Cal. Rptr. 185, 189-90 (Ct. App.1963); Allen v. Brown, 310 P.2d 923, 928-29 (Kan. 1957)); see alsosupra note 116 (quotinglist of attempted repairs).

124. Seely, 403 P.2d at 148 (citations omitted) (quoting CAL. CIV. CODE 1789.6

(West 1963)) (citing Grupe v. Glick, 160 P.2d 832, 840 (Cal. 1945); Mack v. Hugh W.Comstock Associates, Inc., 225 Cal. App. 2d 583, 587 (Dist. Ct. of App. 1st Dist. 1964)),

repealed by 1963 Cal. Stat. 1997 (current version at CAL.COM.CODE 2714 (West 1995)).125. Id. at 150. The Seely court noted,

If under these circumstances defendant is strictly liable in tort for the commercial loss

suffered by plaintiff, then it would be liable for business losses of other truckers

caused by the failure of its trucks to meet the specific needs of their businesses, even

though those needs were communicated only to the dealer. Moreover, this liability

could not be disclaimed, for one purpose of strict liability in tort is to prevent a

manufacturer from defining the scope of his responsibility for harm caused by his

products.Id.

126. Id. at 151. The Seely court showed its disapproval, stating:

[I]t was inappropriate to impose liability . . . in the Santorcase, for it would result in

imposing liability without regard to what representations of quality the manufacturermade. It was only because the defendant in [Santor] marketed the rug as Grade #1

that the court was justified in holding that the rug was defective.Id.


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with physical injuries alone.127

Further, the distinction is unaffected by the

strength or bargaining power of the parties.128 After all, manufacturers cannot

disclaim tort liability for non-economic loss,129

because it would be irrationalto require consumers to pay more so that manufacturers could insure the

performance of their products.130

The Seely court, thus, barred tort recovery when a defective product

caused only economic losses.131

Seely has been widely cited for this

proposition and is still good law today.132

b. East River Steamship Corp. v. Transamerica Delaval, Inc.

The United States Supreme Court took the lead in economic loss

doctrine jurisprudence with its decision in East River.133

The East River

Court, applying admiralty law, held that no products liability claim lies in

admiralty when a commercial party alleges injury only to the product itselfresulting in purely economic loss.134

127. Id. The Seely court noted,

The distinction that the law has drawn between tort recovery for physical injuries and

warranty recovery for economic loss is not arbitrary and does not rest on the luck of

one plaintiff in having an accident causing physical injury. The distinction rests,

rather, on an understanding of the nature of the responsibility a manufacturer must

undertake in distributing his products. He can appropriately be held liable for physical

injuries caused by defects by requiring his goods to match a standard of safety

defined in terms of conditions that create unreasonable risks of harm. He cannot be

held for the level of performance of his products in the consumers business unless heagrees that the product was designed to meet the consumers demands.

Id. When referring to physical injuries, the Seely court included both personal injury and

injury to property apart from the defective product. See id. at 152 (Physical injury to propertyis so akin to personal injury that there is no reason for distinguishing them.).

128. Id. at 151.129. Id. at 152. The Uniform Commercial Code expressly recognizes that a limitation

on damage for personal injury is prima facie unconscionable. Id. (citing CAL.COM.CODE 2719 (West 2002)).

130. Id. at 151 (stating that a purchaser can . . . be fairly charged with the risk that theproduct will not match his economic expectations unless the manufacturer agreed that it

will).131. Id.

132. See cases cited supra note 60.133. See DAngelo, supra note 1, at 593 (noting that the majority rule took a giant

step toward the nearly universal acceptance it enjoys today after theEast Riverdecision).134. East River, 476 U.S. 476 U.S. 858, 858 (syllabus) (1986). The East RiverCourt

held that a manufacturer in a commercial relationship has no duty under either a negligenceor strict products-liability theory to prevent a product from injuring itself. Id. at 871.


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The East River case revolved around the manufacture of four oil-

transporting supertankers.135 The issue considered was whether a

manufacturer of defective turbines could be liable for economic loss to theoperator of the ships on which the turbines were installed.136 The defendant

was the manufacturer and installer of turbines for each of these tankers.137

The plaintiffs were operators of the four tankers.138

Once placed into operation, each of the tankers139

turbines

malfunctioned due to design and manufacturing defects.140

Only economicloss resulted.141 The plaintiffs filed a complaint in tort142 based on a products

liability theory and sought damages for the cost of repairing the ships and for

business interruption.143 The district court granted summary judgment in

favor of the defendants.144

The Third Circuit and the U.S. Supreme Court

each affirmed.145

In its holding, the East RiverCourt effectively adopt[ed] an approachsimilar to Seely.

146 The main difference being thatEast Riverdid not decide

whether the economic loss rule would bar recovery when non-commercial

135. Id. at 859.136. Id. at 859-60. The transaction that took place was somewhat complex. See id. The

pertinent facts are that Seatrain Shipbuilding Corp. was in the process of constructing four oil-transporting supertankers. Id. at 859. Transamerica Delaval Inc., the defendant, was engagedto design, manufacture, and supervise the installation of turbines that would drive each of

the supertankers. Id. After the ships were completed, ownership was transferred to a trust

company, which chartered these tankers to the plaintiffs. Id. at 859-60. The plaintiffs are alsosubsidiaries of Seatrain Shipbuilding Corp. Id. at 860. Under the charters, each of theplaintiffs assumed responsibility for all repairs.Id.

137. Id. at 859.138. Id.139. The fourth tanker was manufactured last, after the defects had been corrected.Id.

at 861. However, a certain valve was installed backwards, which caused vibrations and

damaged the tankers turbines.Id.140. Id. at 860-61.141. Id. at 861. The plaintiffs sought damages for the cost of repair and lost income for

the time the ships were out of service.Id.142. Id. Contract law claims were apparently time-barred by the statue of limitations.

See id. The initial complaint alleged breach of contract and breach of warranty causes of

action. Id. The defendant raised a statute of limitations defense. Id. In response, thecomplaint was amended, and the contract claims removed.Id.

143. Id.144. Id. at 861-62.145. Id. at 876.146. Id. at 871.


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parties are involved.147

The Court did, however, expressly reject the minority

rule adopted in Santor148 and the intermediate rule.149

In its reasoning, the East River Court was especially concerned withleaving the floodgates open for indefinite amounts of damages.150 The Court

pointed out that [i]n products-liability law, where there is a duty to the

public generally, foreseeability is an inadequate brake.151 The Court

expressed that the tort concern with safety is reduced when an injury is only

to the product itself.152

Other arguments made were similar to thosepreviously discussed in Seely.

153

The East River Court, thus, barred tort recovery for purely economic

loss.154 Following this opinion, many jurisdictions that were not already

applying the majority rule chose to adopt its application.155

147. See id. The Court stated that [w]e do not reach the issue whether a tort cause ofaction can ever be stated in admiralty when the only damages sought are economic. Id. at 871n.6.

148. Id. at 870-71 (recognizing that the minority rule raise[s] legitimate questions

about the theories behind restricting products liability).149. Id. at 870 (The intermediate positions, which essentially turn on the degree of

risk, are too indeterminate to enable manufacturers to structure their business behavior. Nor dowe find persuasive a distinction that rests on the manner in which the product is injured.); see

also discussion infra Part III.D.150. 476 U.S. at 874. TheEast RiverCourt chose to restrict the application of tort law,

noting that [p]roducts liability [law] grew out of a public policy judgment that people needmore protection from dangerous products than is afforded by the law of warranty. It is clear,

however, that if this development were allowed to progress too far, contract law would drownin a sea of tort. Id. at 866 (citation omitted). The Court further found that a distinctionbetween economic loss and damage to other property was appropriate, reasoning that

[t]he distinction that the law has drawn between tort recovery for physical injuries

and warranty recovery for economic loss is not arbitrary and does not rest on the

luck of one plaintiff in having an accident causing physical injury. The distinction

rests, rather, on an understanding of the nature of the responsibility a manufacturer

must undertake in distributing his products.Id. at 871 (internal quotation marks omitted) (quoting Seely v. White Motor Co., 403 P.2d145, 151 (Cal. 1965)).

151. Id. at 874 (Permitting recovery for all foreseeable claims for purely economic

loss could make a manufacturer liable for vast sums. It would be difficult for a manufacturerto take into account the expectations of persons downstream who may encounter itsproducts.).

152. Id. at 871 (When a product injures only itself the reasons for a tort duty are weakand those for leaving the party to its contractual remedies are strong.).

153. Compare East River, 476 U.S. at 868-75, with Seely v. White Motor Co., 403P.2d 145, 150-52 (Cal. 1965).

154. See East River, 476 U.S. at 871-72.155. See supra note 70.


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2. Asbestos Exception

Even courts applying the majority rule have found it necessary to create

an exception that would allow recovery for purely economic losses,

specifically in asbestos cases.156

These cases involve plaintiffs who seek

recovery for the cost of removal or encapsulation of asbestos within their

buildings.157 Defendants argue that the asbestos is just a component of the

larger productthe building.158 Courts, however, have carved out an

exception, finding that asbestos contamination is a unique circumstance,

which warrants recovery in tort.159

Thus they conclude that the

contamination is harm to other property.160

Courts acknowledge that the asbestos exception is a stretch.161 However,

courts are sufficiently troubled by the dangers of asbestos that they have

molded an exception into the majority rule jurisprudence.162

156. See, e.g., City of Greenville v. W.R. Grace & Co., 827 F.2d 975, 977-78 (4th Cir.1987) (asbestos from fireproofing material contaminated city hall); City of Manchester v.

Natl Gypsum Co., 637 F. Supp. 646, 651 (D.R.I. 1986) (asbestos products causing damage tonumerous schools and other public buildings); Town of Hooksett Sch. Dist. v. W.R. Grace &Co., 617 F. Supp. 126, 130-31 (D.N.H. 1984) (asbestos contained in insulation was releasedinto the schools atmosphere, contaminating the air, the carpeting, the curtains, other school

furnishings, personnel, and occupants); Bd. of Educ. of Chicago v. A, C & S, Inc., 546 N.E.2d580, 588 (Ill. 1989) (asbestos damaged other property by contamination); Detroit Bd. of Educ.v. Celotex Corp., 493 N.W.2d 513, 518-19 (Mich. Ct. App. 1992) (suit by city school boardand several hundred public schools against asbestos manufacturers and sellers); KershawCounty Bd. of Educ. v. U.S. Gypsum Co., 396 S.E.2d 369, 371 (S.C. 1990) (asbestos in

school ceiling tile damaging other property of the plaintiff). But see Catasauqua Area Sch.

Dist. v. Eagle-Picher Indus., Inc., Civ. A. No. 85-3743, 1988 WL 102689, at *3 (E.D. Pa.Sept. 28, 1988) (asbestos cement in schools); Franklin County, slip op. (N.D. Ala. Feb. 13,1986); Pearl v. Allied Corp., 566 F. Supp. 400, 403 (E.D. Pa. 1983) (urea-formaldehyde

insulation in a home).157. DAngelo, supra note 1, at 601; see also supra note 156.158. DAngelo, supra note 1, at 601 (Asbestos suppliers . . . argue forcefully that the

plaintiff has suffered only an economic loss . . . .).

159. Id.; Fox, supra note 14, at 264; see also supra note 156.160. Seesupra note 156.161. See A, C & S, Inc., 546 N.E.2d at 588 ([I]t is difficult, and may appear somewhat

artificial, to fit a claim for asbestos damage within the framework which has been establishedfor more traditional tort or contract actions. Indeed, the nature of the defect and the

damage caused by asbestos is unique from most of the cases we have addressed. . . . [T]heholding in this case should not be construed as an invitation to bring economic loss contractactions within the sphere of tort law through the use of some fictional property damage.); see

alsoNatl Gypsum Co., 637 F. Supp. at 649-50 ([I]t is at best, somewhat artificial to try tocharacterize the damage plaintiff claims as either one or the other, as either physical damageto its property or economic damage. Such pigeon holes may have been useful when tort andcontract suits were less complex, but today in situations where dangers are discovered only


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D. The Intermediate Rule

The intermediate rule is similar to the majority rule under most

circumstances.163 However, courts applying the intermediate rule allow tort

recovery for economic loss where certain limited exceptions are met.164

By

allowing exceptions, intermediate rule courts attempt to differentiatebetween the disappointed users . . . and the endangered ones, and permit

only the latter to sue in tort.165

Exceptions vary from jurisdiction to jurisdiction, but most apply when a

defect renders a product unreasonably dangerous or when the defective

product damages itself in a sudden and calamitous manner.166

Theseexceptions focus of the nature of the defect itself, rather than on the damages,

which are the central focus of the majority rule.167 By focusing on the nature

of the defect, intermediate rule courts are able to address two importantpolicy concerns. First, they are able to provide extra protection for

consumers where a product has the potential to cause personal injury.168

after many years and where the harm caused or to be caused comes from allegedlydangerously defective materials which must be removed so as to avoid further dangers, the

reasons for such divisions are less clear and the ability to make such distinctions isquestionable.).

162. A, C & S, Inc., 546 N.E.2d at 588 (The nature of the defect in [asbestos cases] isthe asbestos fibers, which are toxic and which, it has been determined, may, in certaincircumstances, be harmful.).

163. See,e.g., Moorman Mfg. Co. v. Natl Tank Co., 435 N.E.2d 443, 448 (Ill. 1982)

(adopting the reasoning in Seely, while applying the intermediate rule).164. Salt River Project Agric. Improvement & Power Dist. v. Westinghouse Elec.

Corp., 694 P.2d 198, 207-11 (Ariz. 1984) (unreasonable risk of harm), abrogated by Phelps v.

Firebird Raceway, Inc., 111 P.3d 1003 (Ariz. 2005); Moorman Mfg. Co., 435 N.E.2d at 450(applying the intermediate rule when damage caused by a sudden and dangerous occurrence);Council of Co-Owners Atlantis Condo., Inc. v. Whiting-Turner Contracting Corp., 517 A.2d336, 345-48 (Md. 1986) (clear danger of death or personal injury); Anderson v. Chrysler

Corp., 403 S.E.2d 189, 192-93 (W. Va. 1991) (sudden, calamitous event); see Daitom, Inc. v.Pennwalt Corp., 741 F.2d 1569, 1581 (10th Cir. 1984) (unreasonable dangerousness);AgriStor Leasing v. Meuli, 634 F. Supp. 1208, 1216-18 (D. Kan. 1986), affd, 865 F.2d 1150

(10th Cir. 1988); Berkeley Pump Co. v. Reed-Joseph Land Co., 653 S.W.2d 128, 131-32 (Ark.1983) (unreasonable dangerousness).

165. East River, 476 U.S. 858, 869-70 (1986) (alteration in original) (quoting Russell

v. Ford Motor Co., 575 P.2d 1383, 1387 (Or. 1978)).166. DAngelo, supra note 2, at 601; see alsosupra note 164.

167. See supra note 164.168. See Star Furniture Co. v. Pulaski Furniture Co., 297 S.E.2d 854, 859 (W. Va.

1982) (Tort law traditionally has been concerned with compensating for physical injury toperson or property.).


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Second, they are able to provide greater deterrence against manufacturing

dangerously defective products.169

IV. PROBLEMS WITH THE MAJORITY APPROACH

There are several drawbacks to adopting the majority rules stringent

approach to economic loss. This part points out how the majority rule: fails

to provide victims protection even from unforeseeable dangers; dilutes tort

policy of protecting against personal injury; significantly limits the discretion

of courts; and leads to arbitrary results in certain circumstances.

A. Fails to Protect Consumers Even from Unforeseeable Dangers

The majority rule leaves victims with no opportunity to recover foreconomic loss alone, even in cases of unforeseeable danger.

170The majority

of courts support this outcome by citing the importance of limiting liability

of manufacturers.171 They further reason that purchasers, as opposed to

manufacturers, can best insure against economic losses.172 This reasoning

balances liability of manufacturers against the rights of victims to recover

and errs on the side of the manufacturers in all cases.173

These results are

flawed, especially where the loss creates an unforeseeable danger.

169. See id. at 861.

170. SeeEast River, 476 U.S. at 871 ([A] manufacturer in a commercial relationshiphas no duty under either a negligence or a strict products-liability theory to prevent a productfrom injuring itself.).

171. See, e.g., id. at 874 (expressing concern about making manufacturers liable for

vast sums).172. Alloway v. Gen. Marine Indus., L.P., 695 A.2d 264, 268 (N.J. 1997); see Daanen

& Janssen, Inc. v. Cedarapids, Inc., 573 N.W.2d 842, 849 (Wis. 1998) ([P]urchasers[economic] expectations may be unrealistic or inflated by advertising claims made by

someone else in the distribution chain over whom the manufacturer has no control.);Elizabeth A. Heiner, Sunnyslope Grading, Inc. v. Miller, Bradford, & Risberg, Inc.: What

Recovery for Economic LossTort or Contract?, 1990 WIS.L.REV. 1337, 1345 (Although amanufacturer can assess the possibility of personal injury or property damage, it is more

difficult to assess a buyers disappointed expectation.).173. See Mary J. Davis, The Supreme Court and Our Culture of Irresponsibility, 31

WAKE FOREST L. REV. 1075, 1135 (1996) (suggesting that courts strain[] to immunizeconduct to protect the interest of the institution over the individual).


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This flaw is specifically evident is asbestos cases. In these cases,

consumers were never warned of the dangers of asbestos.174 In fact, it was

not until the 1970s that consumers became aware of the unreasonabledangers of asbestos.175 Asbestos manufacturers, on the other hand, had

known of the dangerous effects of asbestos as early as the 1930s.176 This

scenario stumped majority rule courts because manufacturers here were

clearly better suited than consumers to insure against the dangers of asbestos,

as consumers could not foresee these dangers.177

Most majority courts wereso troubled by the issue that they dubbed it a unique situation.178 These

courts then went out on a limb to recognize an asbestos exception.179

Unfortunately, less daring courts felt bound by the precedent of the majority

rule and foreclosed victims of asbestos contamination from any recovery.180

Asbestos cases, however, are not so unique, as simpler situations

create similar foreseeability problems. For instance, a boat hypothetical maybe used to demonstrate the problem. A boat purchaser certainly has an

economic expectation of quality. If the boats engine were to have a defect

that required repair, then the purchasers expectation would be

disappointed.181

This would be a simple situation of economic loss, asmechanical repairs are well within the realm of foreseeability.182 On the other

hand, if the engine defect was so egregious that it caused the entire boat to be

destroyed by a sudden fire, then the scenario would hardly be the same. This

result is not mere economic disappointment, as it leaves the consumer

174. E.g., Borel v. Fibreboard Paper Prods. Corp., 493 F.2d 1076, 1086 (5th Cir. 1973)

(noting that manufacturers never warned contractors or insulation workers of hazard

associated with asbestos).175. See, e.g., Bd. of Educ. of Chi. v. A, C & S, Inc., 546 N.E.2d 580, 595 (Ill. 1989)

(indicating that the EPA issued a document in 1979 warning school districts of the dangers of

asbestos and that lawsuits on behalf of school districts were initiated in the 1980s).176. Borel, 493 F.2d at 1083 (By the mid-1930s, the hazard of asbestosis . . . was

universally accepted.).177. See DAngelo, supra note 1, at 601 (noting that asbestos cases present a

particularly difficult issue).178. See supra note 159.179. See supra note 161 and accompanying text.180. Catasauqua Area Sch. Dist. v. Eagle-Picher Indus. Inc., Civ. A. No. 85-3743,

1988 WL 102689, at *3 (E.D. Pa. Sept. 28, 1988) (stating that plaintiff failed to prove thatasbestos caused other property damage or contaminated the building).

181. See E. River S.S. Corp. v. Delaval Turbine, Inc., 752 F.2d 903, 908 (3d Cir.1985) (en banc) (finding that defective turbines resulted in dissatisfaction with quality), affd

sub nom.East River, 476 U.S. 858 (1986).182. Daanen & Janssen, Inc. v. Cedarapids, Inc., 573 N.W.2d 842, 849 (Wis. 1998)

(Even if a commercial purchaser cannot detect product failures before they occur, it can atleast anticipate problems . . . .).


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without the benefit of the bargain entirely and potentially places the

consumer in harms way. Further, it is not the type of defect one would

easily foresee. This type of incident poses a foreseeability problem, since thepurchaser may foresee a component defect, but not a defect that destroys the

entire product in a sudden manner.

Where the defect is unforeseeable, the purchasers ability to insure

against the loss is significantly reduced.183

While the possibility of a boat fire

is not quite as remote as the case of asbestos, the boat purchaser,nevertheless, weighs the cost of insurance against the expected loss to decide

whether insurance is justified or whether to bear the burden of future

losses.184 In performing this mental calculus, the purchaser would account for

foreseeable losses, but may not be able to properly account for unforeseeable

ones.185

Manufacturers, on the other hand, are in a better position to foreseeremote dangers.186 In asbestos cases, for example, the manufacturers knew of

the potential dangers of asbestos, but did not warn purchasers.187 In any case,

the manufacturer has the benefit of knowing its product; by virtue of its

status, the manufacturer, not the purchaser, would be alerted first to anyunforeseeable defects that its product may have.188 This information

empowers manufacturers to better deal with unforeseeable dangers.189

183. Deborah A. Stone, Promises and Public Trust: Rethinking Insurance Law

Through Stories, 72 TEX. L. REV. 1435, 1439 (1994) ([T]he very idea of an insurancecontract presumes the parties can specify foreseeable losses that will trigger the insurerspromise to pay. . . . [B]ut in monitoring claims, insurers press the narrow reading of the

contract and their obligation to limit payouts to situations foreseen by the contract.).184. See generally C. ARTHUR WILLIAMS, JR. & RICHARD M. HEINS, RISK

MANAGEMENT AND INSURANCE 737-42 (5th ed. 1985) (explaining the expected utilityapproach to making decisions regarding risk).

185. See Bd. of Educ. of Chicago v. A, C & S, Inc., 546 N.E.2d 580, 594 (Ill. 1989)(noting the plaintiffs allegation that they were induced to use the [asbestos] products whilebeing deprived of information necessary to make a knowledgeable choice).

186. Daanen & Janssen, Inc., 573 N.W.2d at 849 ([A] manufacturer may be better

able than a consumer to assess the possibility of foreseeable personal injury or propertydamage, [although] it is more difficult for that manufacturer to assess a commercial

purchasers disappointed economic expectations.).187. Seesupra note 174.

188. See Michael L. Matula,Manufacturers Post-Sale Duties in the 1990s, 32 TORT &INS.L.J. 87, 105-07 (1996) (discussing ways that manufacturer may be alerted to dangers ofits own product).

189. Seeid. at 106-19.


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Unfortunately, the majority rule requires courts to summarily deny

recovery for economic loss.190 This leaves victims with no possibility of

recovery, even in circumstances of unforeseeable danger and even when themanufacturer is better suited to foresee the potential loss.

B. Dilutes Tort Policy of Discouraging Dangerous Defects

Another limitation of the majority rule is that it dilutes tort policy of

discouraging dangerous product defects.191

This policy is one of the keyaspects behind tort law.192 Tort law promotes it by holding manufacturers

liable when products cause injuries, thereby creating an incentive to reduce

injury.193 By increasing the cost of liability, the law provide[s] reasonable

incentives for balancing productive behavior against safety and

compensation.194The majority rule of economic loss, however, works to decrease the

liability of manufacturers, thus creating a disincentive to eliminate dangerous

defects.195 Majority rule courts argue that where there is no personal injury,

the tort policy of discouraging dangerous defects is weak.196

They figure that

the possibility of liability for injury is deterrent enough.197

This results in

190. Davis, supra note 173, at 1090-91 (stating that in Richard OBrien Cos. v.Challenge-Cook Bros., Inc., 672 F. Supp. 466 (D. Colo. 1987), the court granted summary

judgment for the defendant, disregarding a prior case that allowed recovery for purelyeconomic loss in tort because it was decided prior to East River).

191. See J. Matthew Thompson, Torts: Dutsch v. Sea Ray Boats, Inc.: A Policy Based

Analysis of the Recovery of Economic Loss Under Manufacturers Products Liability inOklahoma, 47 OKLA. L. REV. 397, 398 (1994) ([P]rohibiting recovery of economic loss inmanufacturers products liability is inconsistent with underlying policy goals of strict tort

action.).192. Seeid. at 408.193. Seeid.194. Jay M. Feinman, Un-Making Law: The Classical Revival in the Common Law, 28

U. SEATTLE L.REV. 1, 31 (2004); see also Richard A. Roth, The Essence of the Agent OrangeLitigation: The Government Contract Defense, 12 HOFSTRA L. REV. 983, 1012-14 (1984)(discussing the policy impact of allowing government contractors to avoid product liability).

195. Contra Thompson, supra note 191, at 409 (noting that strict liability provides an

incentive to make safe products).196. East River, 476 U.S. 858, 871 (1986) (reasoning that tort concern with safety is

reduced when only the product itself is injured); Alloway v. Gen. Marine Indus., L.P., 695A.2d 264, 270 (N.J. 1997) (stating that economic loss does not justify increased cost to the

public that would result from holding the manufacturer liable in tort).197. Bocre Leasing Corp. v. Gen. Motors Corp., 645 N.E.2d 1195, 1198 (N.Y. 1995)

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