News & Resources

Caught Between Tort and Contract: Gaps in the Economic Loss Doctrine

In the American Bar Association Forum on the Construction Industry 2 X 4 X10 Fall 2020 Newsletter article, Caught Between Tort and Contract: Gaps in the Economic Loss Doctrine, Smith Pachter McWhorter attorneys Kathryn Muldoon GriffinJacob B. Bolinger and Max G. Terhar discuss the Economic Loss Doctrine and two recent decisions that demonstrate ongoing risks associated with evolving applications of the ELD in different jurisdictions. 

Many states hold that the ability to recover delay, loss of efficiency, and other purely economic damages, i.e., damages not caused by injury to persons or property, is governed solely by contract. Other states reject this “Economic Loss Doctrine” (ELD) in total, allowing for recovery without regard to the existence of a contractual remedy. Still other states allow for recovery under tort-based theories, such as negligence, in the absence of privity of contract.

In its simplest form, the ELD prohibits a party from recovering purely economic damages based solely on tort claims. The doctrine serves as a barrier between contract and tort law without which “contract law would drown in a sea of tort.” The ELD recognizes that contract law generally provides the most appropriate mechanism for allocating risks arising from frustrated economic expectations because the parties to a contract are able to recover for economic losses in accordance with the rights and protections for which they bargained. Competing interpretations of the ELD, however, as well as exceptions and variations among jurisdictions concerning the application of the doctrine, often undercut the goal of honoring the distinction between contract and tort law. Two recent decisions demonstrate ongoing risks associated with evolving applications of the ELD in different jurisdictions.

Access the full article here