Nebraska Supreme Court Puts Flesh on Bones of Economic Loss Doctrine in Nebraska

February 7, 2012 by John C. Brownrigg

In Lesiak v. Central Valley AG Cooperative, 283 Neb. 103, __ N.W.2d __ (2012), decided on January 27, the Nebraska Supreme Court took the opportunity to clarify the circumstances under which the economic loss doctrine applies to prohibit claims in tort.  The court noted that the doctrine, which it adopted in a 1983 opinion and which is recognized by the courts in most other jurisdictions, has been described as a confusing morass that has been compared to the ever-expanding and all-consuming alien life form in the 1958 movie classic, The Blob, which could consume much of tort law if left unchecked.  Acknowledging that it had never before addressed the exact contours of the doctrine, particularly outside the products liability context, the court set about the task of clarifying the doctrine’s scope and application in Nebraska.

The economic loss doctrine is a judicially created doctrine that sets forth the circumstances under which a tort action is prohibited if the only damages are economic losses.  It originated in products liability cases in the mid-1960s, and all of the Nebraska appellate decisions that addressed the doctrine before Lesiak involved allegedly defective products.  The court observed that the primary rationale of the doctrine is to maintain the line of demarcation between tort and contract law, recognizing that if a party could simply avoid its contractual bargain by suing in tort, which often offers more generous terms of recovery, then the effectiveness of contract law would be reduced.

The court in Lesiak first reaffirmed its prior decisions holding that in the products liability context, where a defective product causes harm only to the product itself, unaccompanied by either personal injury or damage to other property, the doctrine mandates that contract law provides the exclusive remedy to the plaintiff.  The reasoning for the application of the doctrine in this setting, the court said, is that where the damage is done only to the product itself, the buyer has experienced only a loss of the benefit of its bargain, which is the essence of a warranty action.

The court then took a further step and created new law in Nebraska by holding that application of the doctrine is not limited to products liability claims and that it also applies where the alleged breach is only of a contractual duty and no independent tort duty exists.  In other words, the court said, when the alleged breach is of a purely contractual duty - a duty which arises only because the parties entered into a contract - only contractual remedies are available.  Acknowledging that this conclusion was somewhat at odds with prior decisions of the court, the court indicated that application of the doctrine in this setting would serve to weed out cases involving nothing more than an allegedly negligent failure to perform a contractual duty - a duty that would not exist but for the contractual relationship.

The court’s opinion in Lesiak put flesh on the bones of the economic loss doctrine by delineating its parameters as follows:

… the economic loss doctrine precludes tort remedies only where the damages caused were limited to economic losses and where either (1) a defective product caused the damage or (2) the duty which was allegedly breached arose solely from the contractual relationship between the parties.  And economic losses are defined as commercial losses, unaccompanied by personal injury or damage to other property.      

Thus, the application of the doctrine is limited to cases in which only economic losses are caused by a defective product or are caused by breach of a contractual duty where no tort duty exists independent of the contract itself.  In such cases, Lesiak requires that the exclusive remedy in Nebraska courts will henceforth be under contract law rather than tort law.

 





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