SW Legal studies in Business

Economic Loss Doctrine Prevents Suit in Tort for Losses Due to Defective Product
Description

Tennessee high court held that the owner and insurer of a defective bus, which caught fire and was destroyed by the fire, could not sue the maker of the bus in tort for product liability for the loss suffered. Purely economic losses cannot be recovered in tort; the parties must look to contract law for possible remedies.

Topic Torts
Key Words

Negligence; Third Parties; Alcohol; Duty

C A S E   S U M M A R Y
Facts

Senators Rental bought a bus made by Prevost. The engine was made by Detroit Diesel. When the bus was going down a highway, it caught fire due to an alleged engine defect. The only damage was the destruction of the bus. Senators’ insurance company, Lincoln, paid Senators $405,250 for the loss. Lincoln then sued Prevost and Detroit Diesel to recover the loss, claiming product liability. Defendants filed a motion to dismiss for failure to state a claim on which relief could be granted. The federal district court certified a question of law to the Tennessee supreme court about product liability: “Does Tennessee law recognize an exception to the economic loss rule doctrine under which recovery in tort is possible for damage to the defective product itself when the defect renders the product unreasonably dangerous and causes the damage by means of a sudden, calamitous event?”

Decision

Question answered. Tennessee law does not recognize an exception to the economic loss doctrine under which recovery in tort is possible for damage to the defective product itself when the defect renders the product unreasonably dangerous and causes damage by means of a sudden calamitous event. Hence, the economic loss doctrine precludes Lincoln from recovering damages in tort against the Prevost or Detroit Diesel for damage to the bus due to defect in the engine that caused it to catch fire. The parties must look to the contracts that covered the agreements among the makers and buyer of the bus.

Citation

Lincoln General Insurance v. Detroit Diesel, ---S.W.3d--- (2009 WL 2568190, Sup. Ct., Tenn., 2009)

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