Ronald L. Haldy, P.C., lawyers in Flint, MI, Michigan

Doctrine of Economic Loss

The doctrine of economic loss was created to limit the assertion of tort claims in areas where contract law reigned. Therefore, the doctrine generally applies to claims where the parties' rights and responsibilities are governed by a contract. Essentially, a plaintiff cannot recover in tort for a pure economic loss, which includes the cost of repair and replacement for the defective product or corresponding loss of profits, without claiming damage to other property or personal injury.

In the realm of construction defect, the doctrine of economic loss precludes a homeowner from suing a contractor in tort for a defective product where the injury complained of is only to the defective product itself. However, a homeowner may pursue a tort claim under circumstances where other property is damaged. In determining the application of the doctrine of economic loss, some states follow the integrated system approach. This approach states that, if the defective product is part of an integrated system, resulting damage to other parts of the system does not constitute damage to "other property" such that application of the economic loss doctrine is thwarted.

For example, using the integrated system approach, it would appear that a homeowner could not sue a roofer in tort solely for the economic loss associated with the defective installation of roof shingles even if the defective shingle installation resulted in damage to the plywood over which the shingles were placed, which was the work product of the framer, or damage to the sheet rock on the walls, which was the work product of the drywall contractor. The roofer, framer, and drywall contractor all provided components to a single integrated system -- a house. However, the homeowner could bring an action sounding in tort if the defective shingle installation resulted in leakage that caused the roof to collapse and injure an occupant of the home.

The doctrine of economic loss is not universally applied in construction defect matters. Some states reject the doctrine in this arena. In those states that do apply the doctrine, homeowners are not left without a remedy. They may still pursue an action against the contractor based on the breach of a contract or warranty.