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

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

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

http://lawjournal.rutgers.edu/sites/lawjournal.rutgers.edu/files/issues/v37/2/gorel.pdf

2006
THE ECONOMIC LOSS DOCTRINE:
ARGUING FOR THE INTERMEDIATE RULE AND
TAMING THE TORT-EATING MONSTER
Gennady A. Gorel*

http://lawjournal.rutgers.edu/sites/lawjournal.rutgers.edu/files/issues/v37/2/gorel.pdf

2006

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 517
THE ECONOMIC LOSS DOCTRINE:ARGUING FOR THE INTERMEDIATE RULE ANDTAMING THE TORT-EATING MONSTER
Gennady A. Gorel
*
 
T
ABLE OF
C
ONTENTS
 I.
 
I
NTRODUCTION
..................................................................................518
 
II.
 
B
ACKGROUND ON THE
E
CONOMIC
L
OSS
D
OCTRINE
........................519
 
 A. What Is Economic Loss?..............................................................
520
 
 B. Practical Application...................................................................
521
 
C. What Constitutes a Product?.......................................................
522
 
 D. Policy Considerations..................................................................
524
 
1. Enforcing Contracts Versus Protecting Consumers..................525
 
2. Limiting Corporate Liability Versus DiscouragingDangerous Defects....................................................................525
 
III.
 
V
ARIOUS
A
PPROACHES TO THE
E
CONOMIC
L
OSS
D
OCTRINE
.........526
 
 A. Recent History..............................................................................
527
 
 B. 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...........................................................................534
 
2. Asbestos Exception...................................................................539
 
 D. The Intermediate Rule..................................................................
540
 
* J.D. Candidate, Rutgers University School of Law–Camden, May 2006. I would liketo thank J. Michael Kvetan, Esquire, for inspiring my research into the economic lossdoctrine.
 
 518
 RUTGERS LAW JOURNAL
[Vol. 37:517IV.
 
P
ROBLEMS WITH THE
M
AJORITY
A
PPROACH
..................................541
 
 A. Fails to Protect Consumers Even from Unforeseeable Dangers.
541
 
 B. Dilutes Tort Policy of Discouraging Dangerous Defects.............
544
 
C. Limits Discretion of Courts..........................................................
547
 
 D. Leads to Arbitrary Results...........................................................
547
 
V.
 
T
HE
W
ISDOM OF THE
I
NTERMEDIATE
A
PPROACH
............................548
 
 A. Offers Equitable Justice...............................................................
548
 
 B. Discourages Dangerous Defects While Sufficiently Limiting Liability..........................................................................
549
 
C. Promotes Judicial Discretion and Avoids Arbitrary Results.......
550
 
VI.
 
C
ONCLUSION
...................................................................................550
 
I. I
NTRODUCTION
 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 economicloss 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 theboundaries between tort and contract law principles.
3
Its main function is tolimit tort recovery of purely economic losses.
4
Various approaches to thedoctrine 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 D’Angelo,
The Economic Loss Doctrine: Saving Contract Warranty Law from Drowning in a Sea of Torts
, 26 U.
 
T
OL
.
 
L.
 
R
EV
. 591, 593-96 (1995)(discussing the impact of the
 East Rive
opinion).2. Charles R. Walker, Moransais v. Heathman
and the Florida Economic Loss Rule: Attempting to Leash the Tort-Eating Monster 
, 52 F
LA
.
 
L.
 
R
EV
. 769, 769 (2000);
see also
PaulJ. Schwiep,
The Economic Loss Rule Outbreak: The Monster that Ate Commercial Torts
, 69F
LA
.
 
B.J.
 
34, 34 (1995).
 
3. Schwiep,
supra
note 2, at 34 (“[I]t is clear that judges, lawyers, and commercialclients 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 of the Economic Loss Rule to Fraud and Negligent Misrepresentation Claims
, 41 W
M
.
 
&
 
M
ARY
L.
 
R
EV
. 1789, 1789 (2000) (“The economic loss rule is one of the most confusing doctrines intort law.”); Christopher J. Faricelli,
Wading into the “Morass”: An Inquiry into the Application of New Jersey’s Economic Loss Rule to Fraud Claims
, 35 R
UTGERS
L.J. 717, 718(2004) (“Courts have struggled in their attempts to uniformly apply the economic loss rule.”).4.
See
D’Angelo,
supra
note 1, at 591.
 
 2006]
TAMING THE TORT-EATING MONSTER
519intermediate rules.
5
The minority rule, applied by a small number of  jurisdictions, allows recovery of purely economic losses in tort.
6
Themajority rule, on the other hand, completely bars recovery of economiclosses in tort.
7
The intermediate rule takes the middle ground, allowingrecovery of economic loss in tort in limited situations.
8
 This Note concentrates specifically on product liability cases.
9
In productliability cases, the economic loss doctrine bars tort recovery when a defectiveproduct damages only itself.
10
Parts II and III of this Note work on definingthe economic loss doctrine, with Part II developing the necessary backgroundand Part III discussing various approaches to the doctrine. Part IV then pointsout problems with the widely accepted majority approach. Finally, Part Vdemonstrates how the intermediate approach can overcome these problems.This leads to the conclusion that the majority rule has overstepped its boundsin limiting tort law and that the intermediate approach is more effective atbalancing countervailing policy interests.II. B
ACKGROUND ON THE
E
CONOMIC
L
OSS
D
OCTRINE
 Before jumping into an in-depth discussion of the economic lossdoctrine, 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 servicesproviders.
See, e.g.
, Bristol-Myers Squibb v. Delta Star, Inc., 620 N.Y.S.2d 196, 198-99 (App.Div. 1994) (installation services); Key Int’l 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 underMichigan 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 (8thCir. 1994) (defective computer disc drive crashed damaging only itself); Carstens v. City of Phoenix, 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.Ass’n v. Charley Toppino & Sons, Inc., 620 So. 2d 1244, 1245 (Fla. 1993) (home containeddefective 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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