Why are the courts more willing to accept an economic loss caused by a negligently made statement than one resulting from a negligent act or omission?


To understand the economic loss rule, it is instructive to understand its origins. Although some believe that the economic loss rule first developed in the context of products liability in the 1960s, the historical roots of the rule run much deeper. As far back as the nineteenth century, plaintiffs have tried to cast their contract claims as torts to avoid being denied recovery because of technical contract law reasons, such as an expired statute of limitations or the lack of private between the parties. Judges developed the economic loss rule to police the boundary between tort and contract and “ensure that contract claims are resolved by contract law.” To separate contract claims from tort claims, the economic loss rule bars a plaintiff from bringing a tort claim when the matter would be better resolved in contract. The law of negligence has been developed by judges in a piecemeal fashion over the centuries.[1]

In vocabulary terms Economic loss refers to ‘financial loss and damage suffered by a person such as can be seen only on a balance sheet rather than as physical injury to the person or destruction of property. There is a fundamental distinction between “pure economic loss” and “consequential economic loss” – Pure economic loss occurs independent of, or in the absence of, any physical damage to the person or property of the victim. Usually, “pure economic loss” in tort, particularly in negligence, is not recoverable as damages or otherwise.[2] There are two main reasons for the traditional reluctance to compensate pure economic loss. The first is that, traditionally, contract was the means by which economic loss was compensated, and the courts were reluctant to disturb this. Contract was seen as offering certainty; defendants could only be liable for losses caused by their own failure to fulfill a freely undertaken agreement, and this clearly had benefits in the commercial world. The second reason, linked to the first, is the much-quoted ‘floodgates’ argument. This reasons that while, as a general rule, an act or omission can only cause personal injury or property damage to a limited number of people, the possible economic loss from the same act may be vast and in practice incalculable.[3]

The tort and contract differ itself in regards of the acceptance an economic loss caused by a negligently made statement and one resulting from a negligent act or omission. However the economy loss has also one more sense in the action.  The time period is not used in order to cover losses, that – less significantly, where an applicant suffered has, that itself out of the injury or that in the characteristic – those, where a bought product proves itself to be deficiently, but really the injury or that in the other characteristic caused.

Concept Amplification

The economic loss rules “is one of the most confusing doctrines in tort law,” according to one commentator.  Simply, the rule is this: Damages for economic loss are not recoverable based on tort theory when unaccompanied by physical property damage or personal injury.[4]

Many losses resulting from tort could be described as economic; if the claimant’s house is burnt down because of the defendant’s negligence, the loss is economic in the sense that the claimant no longer has an asset they used to have. Similarly, a claimant who suffers serious injury which makes them unable to work suffers a financial loss. The law of tort has always been willing to compensate for these losses with damages.[5]

There are two traditional abhorrence in order to balance the pure economy loss.  First one is it the contract, of which the economy loss was balanced, and the courts were that in confusion to bring.  The contract was seen only stick likes the certainty offering; accused the losses caused by its own fiasco, undertaken is an agreement freely to that and if these advantages clearly had in the trade world.  The second reason that is bound the first is the argument “lock of gates” many – city.  That brings to the reason that, an action or an omission can, that economy loss of the same action are far as a rule general, who only can cause injury or that of a limited number of people, and in unpredictable practice.  In steel of Spartiate, for example, had the accused, threatened to balance the profit lost as a result of the current barrier, the number and the claim quantity theoretically, being astronomically. A case which illustrates the difference between the types of loss is Spartan Steel v Martin (1972). Here the defendants had negligently cut an electric cable, causing a power cut that lasted for 14 hours. Without electricity to heat the claimants’ furnace, the metal in the furnace solidified, and the claimants were forced to shut their factory temporarily. They claimed damages under three heads: The defendants owed the claimants a duty not to damage their property, and therefore to pay for any loss directly arising from such damage, as well as for the damage itself, but they did not owe them any duty with regard to loss of profit.[6]

 Negligently Made Statement versus Negligent Act or Omission

Negligence is committed when there has been a failure to take proper care and loss results. Conduct is judged by the ordinary everyday standards of humanity. What would an ordinary careful person have done in the circumstances? There must be a duty of care in the circumstances and there must have been a breach of that duty of care. In general, anyone who has been negligent and has caused loss can be sued. Examples of people who have been sued for negligence are manufacturers, retailers, professional people, drivers of motor vehicles, occupiers of premises and even Governments. Virtually anybody can be sued if he/she has been negligent. Lord Atkins, in the leading case of Donoghue v. Stevenson mentioned above, had this to say about liability for negligence.[7] . Negligence is the most important tort in modern law. It concerns breach of a legal duty to take care, with the result that damage is caused to the claimant. Just a few examples of the type of case which might be brought in negligence are people injured in a car accident who sue the driver, businesses which lose money because an accountant fails to advise them properly, or patients who sue doctors when medical treatment goes wrong.

(1) Not doing something which a reasonable person would do, or
(2) doing something which a reasonable person would not do.

The most important decision was the case of Donoghue v. Stevenson that was locked of the British house of gentlemen 1932.  Donoghue woman entered Kashmir in Scotland with its friend in coffee into the subject.  Its friend bought it, intoxicated that on the basis of ginger.  If Donoghue of woman the majority of the contents, a snail had drunk, took apart the bottle.  It tolerated that and externally.  It pursued the manufacturers previously, would make the yard on the basis of ginger, intoxicated.  The manufacturers have the case.  The defense ground was that there was no contract under Donoghue of manufacturers and woman.  It has, really, a purchase contract under the manufacturers and what given beer.  But there was no direct sale contract under Donoghue of manufacturers and woman.  Therefore the manufacturers demanded that Donoghue of woman he is not sunk and taxable was in certain type no care duty been, tone and is sunk conversed to suffer around.  The house of gentlemen decided however differently.  They held the responsible manufacturers in order to pay Donoghue of balance woman.  They locked that is not unconditionally, that there a direct contractual connection under the person, who caused that and the person, that that suffered

Thus negligence can involve acts of commission and acts of omission.[8] In order to succeed in a negligence case, the plaintiff, or person suing, must generally satisfy the court of the following four elements:

  1. Duty of care
  2. Breach of standard of care
  3. Injury or loss
  4. Causation, ie, the causal link between the defendant’s act and the injury or loss.

1. Duty of care

A person who practices in a health profession owes the patient a duty. The duty of care involves applying skill, knowledge, diligence and caution when caring for patients.

2. Breach of standard of care

That care enormous is determined through the general practice of the occupation.  Practitioner does not need separate arrange to answer on the standards rather the allowed and standards the occupation.  That suffer be right also the in order to anticipate a standard of the worry of the students medical services, that treat it.  Therefore the students should be under the inspection in entire moment.  They should these tasks sicker only – bound, carried away become are that it enough and meets are a competence standard.

3. Injury or loss

For negligence to occur, the patient must have experienced injury or loss of some kind due to the negligent act.

4. Causation

The most common test is the “but for” test. That is, if the accident would not have occurred but for the defendant’s negligence, then the conduct is the cause of the injury. There must be a clear direct connection between the negligent act and the harm caused to the patient.

Criminal Negligence

That more criminally result from actions or out of omission if the accused to make under a legal duty around the renounced action.  In order to meet the standard the criminal, the action or the omission should one or careless life or the security of the other people show.  For example a nurse was found into the USA more indebted more criminally (the careless in order to hide an empty pocket of blood after it became the bad person.

Torts other than negligence are normally identified by the particular interest of the claimant that they protect. For example, nuisance protects against interference with the claimant’s use and enjoyment of land, while defamation protects against damage to reputation. By contrast, negligence protects against three different types of harm:

  • personal injury;
  • damage to property;
  • Economic loss.
  • In practice, the rules of the tort may differ according to which type of harm has been suffered, but
  • All of them are protected by negligence.
  • The tort of negligence has three main elements:
  • the defendant must owe the claimant a duty of care;
  • the defendant must breach that duty of care;
  • That failure must cause damage to the claimant.

Negligence is essentially concerned with compensating people who have suffered damage as a result of the carelessness of others, but the law does not provide a remedy for everyone who suffers in this way. One of the main ways in which access to compensation is restricted is through the doctrine of the duty of care. Essentially, this is a legal concept which dictates the circumstances in which one party will be liable to another in negligence: if the law says you do not have a duty of care towards the person (or organization) you have caused damage to, you will not be liable to that party in negligence, no matter how serious the damage. [9]

It is interesting to note that in the vast majority of ordinary tort cases which pass through the court system, it will usually be clear that the defendant does owe the claimant a duty of care, and what the courts will be looking at is whether the claimant can prove that the defendant breached that duty – for example, in most of the road accident cases that courts hear every year, it is already established that road users owe a duty to other road users, and the issues for the court will generally revolve around what the defendant actually did and what damage was caused. Because the contract was seen like the method, around disputes to that the pure economy loss imply, was thought become it of the beginning that, where two parties had made a contract, one not used around in this contract to.

A case that become is proposed, it, a responsibility expansion the economy loss shows, is the security of v (1994).  The applicant, Mr. Printemps, had been needed by the accused, but sacked was.  A new post seeking, it a reference needed, but said on, who is supplied by the accused, that M Printemps was incompetent and dishonest.  It did not receive any astonishing thing from the new post.  It pursued the accused before court because of that, which caused economy loss requesting in that it the work would not receive.  The attempt judge found that the M Printemps was not dishonest and really had believed the accused that, that he had written, was correct he in the type was being, he this conclusion reached has.  The house of gentlemen was therewith agreed that a duty of existed worry that accused and it had injured.  The action of “is connected” in much that “in that it prescribes the responsibility on the accused, around which one makes, on which that in tone or its damage has.

civil negligence lawsuit involves private individuals suing someone for a negligent act that violates their private rights. Civil negligence generally involves careless or ignorant behavior but not intent, e.g., carelessly ramming a car stopped at an intersection.

Criminal negligence is more serious and involves committing a crime against society and intending to commit it. Criminal cases arise in which the local legal authorities (the Crown with the help of the police) charge a person with an offense under the criminal code, e.g., manslaughter. Criminal negligence involves wanton disregard for the safety or lives of others. Both civil and criminal cases may result from a single act of negligence.

  • Any person, by whom a negligent act or a negligent omission causes serious injury or serious illness to a person, commits an offence.
  • Any person, other than an employer or employee, who, by a negligent act or by a negligent omission, endangers the health and safety of a person at a mine, commits an offence.


Perhaps  the  most  basic  principle  in  the  law  of negligence  is  that  one is liable  for  negligent  conduct  which  causes  foreseeable  injury  to  the  person or property  of another. It is perhaps surprising, therefore, that courts have shown great reluctance  to impose similar liability for negligent  conduct which causes  foreseeable  injury  to  the  economic  interests  of another, at least  in cases  in  which  the  injury  is  limited  to  economic  interests. The critical distinction between tort law and contract law is the source of the duty. Contractual duties arise from agreements between the parties. The key assumption in contract law is that in the course of bargaining, contracting parties are able to allocate The law of negligence is part of the common law. There is no written.  That is in almost all English speaking homogeneous.  However, into the USA, there is a tendency in order to find indebted, that there in the other.  That was developed by the judges in a fashion on the centuries.  A number of the boundary sign decisions had given.

Courts  have  applied  general  rules  denying recovery  for  negligent  infringement  of contract  and  other  economic  interests  in  a  wide  variety  of factual circumstances.  A common scenario involves a negligent injury to the person or property of one party which in turn causes economic loss to a third party. Courts  have  denied  recovery  where  a  personal  injury  to  an  initial  victim results  in economic  loss to the victim’s  employer  through loss  of the victim’s services, or  to  one  who  had  a  contractual  obligation  to  provide  medical care  to  the  victim, or  to  an  insurance  company  that  insured  the  victim’s life  or  health.

Likewise,  courts  have  denied  recovery  in  numerous  cases where  the  defendant  negligently  cut  a utility  company’s  power  cable  or  gas line  thereby  depriving  plaintiff  of gas  or  electricity. Courts  have  also  refused  to  impose  tort  liability  in  cases  in  which  the defendant  negligently  failed  to  perform  some  obligation  (usually  contract) owed  to  one  party  and  this  failure  in  turn  caused  economic  injury  to  the plaintiff.  Perhaps  the most common  situation  in which  courts  deny recovery  in tort for  purely  economic  loss,  however,  arises  in  products  liability  cases.  When a  purchaser  or  user  of a  defective  product  suffers  economic loss  as  a result of the  product’s  failure  to function  properly the  overwhelming  majority  of courts  refuse  to  permit  recovery  from  the  manufacturer  on  a  negligence theory. Frequently the injured  party has  not  acquired  the  defective  product directly from  the  defendant  and  courts  often  cite lack  of private  as  a reason for denying recovery.

Indeed,  a  common  statement  of  the  general  rule  is  that  there  can  be  no recovery  for  economic  loss  in  the  absence  of some  physical  injury. Even  where  the  plaintiff  suffers  exclusively  economic  loss,  courts  permit recovery  in negligence  where  there  is some  special  relationship  between  the parties. A sufficient relationship is found most easily where  the  defendant stands  in  a  fiduciary  or  professional  relationship  to  the  plaintiff. ‘Thus  a trustee  may  be  liable  if  in  fulfilling  his  trust  he  negligently  injures  the economic  interests  of  a  beneficiary. Similarly  an  accountant, attorney, architect, engineer or  other  professional”  may  be  liable  to  his  client  for malpractice  even  though  the  damages  are  purely  economic. Moreover, liability for  economic loss caused  by negligent  performance  of services  is not limited  to  professional  malpractice  actions  but  rather  may  extend  to  other service  transactions  as well. Occasionally  courts  have  imposed  liability  for  purely  economic  loss  even in the  absence  of any  contractual  relationship  between the parties.  Although the  traditional  rule  was  to  the  contrary, a  number  of  courts  have  now held  that  an  accountant  who  negligently  prepares  an  erroneous  financial statement for a client may be liable  not only for losses suffered  by the client, but  also  for  economic  loss  suffered  by  a  third  party  who  relies  upon  the erroneous  statement.


In an effort to resolve its uncertainties, tort scholars and jurists have recently focused on what is often called “the economic loss rule.” to some authorities, the rule holds that tort law offers no redress for negligence that causes only economic losses unaccompanied by personal injuries or property damages. However, whether a rule so expansive is part of American tort law is still open to doubt. There are many variations of the rule and courts often discuss its parameters only in relationship to products liability or contractual performance. As one scholar remarked, the law of tort liability for purely economic losses is “much less well settled and less uniform than one might wish it to be.”[10]

Without this tort of fraud available to them, contracting parties could never fully trust each other. This lack of trust would create an uncertain marketplace because it is impossible to draft contract provisions to sufficiently guard against intentional misrepresentations. In light of Eastwood’s new independent duty doctrine, Washington’s economic loss rule should not bar fraud claims because the duty not to commit fraud is independent of any contract. Thus,  it is imperative that Washington’s courts hold that the economic loss rule does not bar fraud claims. Some courts  have  imposed  similar  liability  upon attorneys, surveyors, abstractors, and  others who  provide  information for  the  guidance  of others.  In  most  of these  cases,  however,  the  defendants furnished  the  information  for  the  specific  purpose  of inducing  reliance  by the  plaintiffs,  or  at  least  with  the  knowledge  that the information  would  be used  for  that  purpose. As with liability to one’s own client, liability to third parties is not limited to  cases  of  negligent  misrepresentation,  but  may  extend  to  negligent  performance  of other services  so long as there is  a sufficient relationship between.

[1] See Katherine Heaton (2011)The Economic Loss Rule Should Not Bar Fraud Claim: Washington Law Review Association

[2] See Springer(2004) Pure Economic Loss: pp115

[3] See Negligence: elements of the tort available at http://catalogue.pearsoned.co.uk/assets/hip/gb/uploads/M02_ELLI8149_08_SE_C02FINAL.pdf

[4] See Beware the Economic Loss Rule(October 2006): Cohen and Wolf available at http://cohenandwolf.com/?t=40&an=4619&format=xml&p=3199

[5] See chapter 2; Negligence Elements Of The Tort: Available at http://catalogue.pearsoned.co.uk/assets/hip/gb/uploads/M02_ELLI8149_08_SE_C02FINAL.pdf

[6] See chapter 2; Negligence Elements Of The Tort: Available at http://catalogue.pearsoned.co.uk/assets/hip/gb/uploads/M02_ELLI8149_08_SE_C02FINAL.pdf


[7] See ‘Taxation and business services’, http://members.iinet.net.au/~patrick6/default.html

[8] See Division of Medical Laboratory Science University of Alberta, 1999, http://www.ualberta.ca/~medlabsc/courses/negligence.html

[9] See ‘Negligence: elements of the tort’, http://catalogue.pearsoned.co.uk/assets/hip/gb/uploads/M02_ELLI8149_08_SE_C02FINAL.pdf


[10] See Indem. Ins. Co. of N. Am. v. Am. Aviation, Inc., 891 So. 2d 532, 543 (Fla. 2004) (holding that cases falling outside of the products liability or contracts context “should be decided on traditional negligence principles of duty, breach, and proximate cause”).