economic loss rule in California

2024Opinion of the Court by Corrigan, J. rule: “[t]he economic loss rule requires a [contractual party] to recover in contract for purely economic loss due to disappointed expectations, unless [the party] can demonstrate harm above and beyond a broken contractual promise.” (Robinson, supra, 34 Cal.4th at p. 988 .) As we explain in greater detail below, under the economic loss rule, tort recovery for breach of a contract duty is generally barred (but see generally, fns. 3 & 5 at pp. 10–11, ante, & 17, post) unless two conditions are satisfied.

2024(Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988, 990 [Economic loss rule “‘prevent[s] the law of contract and the law of tort from dissolving one into the other’”; thus, a party alleging fraud or deceit in connection with a contract must establish tortious conduct independent of a breach of the contract itself, that is, violation of “‘some independent duty arising from tort law’”]; see also Tenzer v. Superscope (1985) 39 Cal.3d 18, 30 [“‘something 21 more than nonperformance is required to prove the defendant’s intent not to perform his promise’”].) Plaintiff’s fraud in

2024Legislative History and Governing Law In Aas v. Superior Court (2000) 24 Cal.4th 627 , the California Supreme Court “held that the economic loss rule [barred] homeowners suing in negligence for construction defects from recovering damages where there is no showing of actual property damage or personal injury.” (McMillin Albany LLC v. Superior Court (2018) 4 Cal.5th 241, 246 (McMillin).) In response to this ruling, homeowner and construction interest groups lobbied the Legislature for reform, and “[t]he major stakeholders on all sides of construction defect litigation participated in developing

2022(Gas Leak Cases, supra, 7 Cal.5th at p. 400 ; see also Aas, supra, 24 Cal.4th at p. 636 [“In actions for negligence, a manufacturer’s liability is limited to damages for physical injuries; no recovery is allowed for economic loss alone. [Citation.] This general principle [is] the so-called economic loss rule”]; Seely v. White Motor Co. (1965) 63 Cal.2d 9, 18 (Seely) [similar]; Rest., § 1 [“An actor has no general duty to avoid the unintentional infliction of economic loss on another”].) The economic loss rule has been applied in various contexts.

2020(See Jimenez, supra, 29 Cal.4th at p. 482 [discussing the economic loss doctrine].) But the comment goes on to explain that if the defect in the product "causes harm to other property or to persons," it is the proper subject of a product liability action.

2016The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise. [Citation.] Quite simply, the economic loss rule ‘prevent[s] the law of contract and the law of tort from dissolving one into the other.’ [Citation.]” (Robinson Helicopter Co. v. Dana Corp. (2004) 34 Cal.4th 979, 988 .) 22 The application of the economic loss rule in construction defect actions is examined in Aas v. Superior Court (2000) 24 Cal.4th 627 (Aas) and Jimenez v. Superior Court (2002

2022Under the economic loss rule, “there is no recovery in tort for negligently inflicted ‘purely economic losses,’ meaning financial harm unaccompanied by physical or property damage.” (Sheen v. Wells Fargo Bank, N.A. (2022) 12 Cal.5th 905 , 922 (Sheen); see Seely v. White Motor Co. (1965) 63 Cal.2d 9, 18 [“Even in actions for negligence, a manufacturer’s liability is limited to damages for physical injuries and there is no recovery for economic loss alone.”].) Where the parties are in contractual privity, “the rule functions to bar claims in negligence for pure economic losses in deference to a

2022(Gas Leak Cases, supra, 7 Cal.5th at p. 400 ; see also Aas, supra, 24 Cal.4th at p. 636 [“In actions for negligence, a manufacturer’s liability is limited to damages for physical injuries; no recovery is allowed for economic loss alone. [Citation.] This general principle [is] the so-called economic loss rule”]; Seely v. White Motor Co. (1965) 63 Cal.2d 9, 18 (Seely) [similar]; Rest., § 1 [“An actor has no general duty to avoid the unintentional infliction of economic loss on another”].) The economic loss rule has been applied in various contexts.

2023(Erlich, supra, 21 Cal.4th at p. 554 .) Accordingly, we conclude that the economic loss rule did not foreclose Martin’s fraud claims.

2023But such claims are barred when they arise from — or are not independent of — the parties’ underlying contracts.” (Sheen, supra, 12 Cal.5th at p. 923 [the economic loss rule does not bar fraud and intentional misrepresentation claims because they are independent of the defendant’s breach of contract]; see Erlich v. Menezes (1999) 21 Cal.4th 543, 551-552 [explaining that tort damages have been permitted in contract cases where conduct amounting to a breach of contract also violates a duty independent of the contract arising from principles of tort law].) When the plaintiff and defendant are in

2017In a comprehensive discussion, the court concluded SoCalGas owed a duty to business plaintiffs and they could proceed with their action: "The economic loss rule thus does not apply in a context like this one: a classic mass tort action where high transactions costs precluded transactions, where the risk of harm was foreseeable and was closely connected with [SoCalGas's] conduct, where damages were not wholly speculative, and where the injury was not part of the plaintiff's ordinary business risk. ( J' Aire, supra , 24 Cal.3d [at p.] 808 [ 157 Cal.Rptr. 407 , 598 P.2d 60 ].)" After the hearing,

2017In a comprehensive discussion, the court concluded SoCalGas owed a duty to business plaintiffs and they could proceed with their action: "The economic loss rule thus does not apply in a context like this one: a classic mass tort action where high transactions costs precluded transactions, where the risk of harm was foreseeable and was closely connected with [SoCalGas's] conduct, where damages were not wholly speculative, and where the injury was not part of the plaintiff's ordinary business risk. ( J' Aire, supra , 24 Cal.3d [at p.] 808 [ 157 Cal.Rptr. 407 , 598 P.2d 60 ].)" After the hearing,

2017Thus, for example, in a suit premised on a manufacturer’s negligent act or omission, the manufacturer may assert traditional common law defenses to negligence actions, such as comparative negligence and primary assumption of risk, to the extent that such defenses are ‘applicable’ (§ 936) to the plaintiff’s claim.” (Greystone, supra, at pp. 1216-1217 , italics added & omitted, fns. omitted.) We also relied on the “Act’s explicit adoption of a negligence standard for claims against product manufacturers” (Greystone, supra, 168 Cal.App.4th at p. 1216, fn. 14 ) in rejecting the manufacturer’s argu

2016The economic loss rule provides that “ ‘ “ ‘[w]here a purchaser’s expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only “economic” losses.’ ” . . .’ [Citation.] The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise.” (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988 [ 102 P.3d 268 , 22 Cal.Rptr.3d 352 ].) Under the rule

2013Accordingly, neither the Right to Repair Act nor the economic loss rule applies as a matter of law to bar Irena from its award of ―carrying costs.‖ 4 See for example: Zamora v. Shell Oil Co. (1997) 55 Cal.App.4th 204, 208-211 [barring recovery for homeowners in negligence or strict liability for the cost of replacing water pipes known to be defective, but which had not yet leaked]; Fieldstone v. Briggs Plumbing Products, Inc. (1997) 54 Cal.App.4th 357, 363-367 [rejecting an award of damage based on strict liability for a general contractor who replaced defective sinks that rusted and chipped p

2000(Cf. Stearman v. Centex Homes (2000) 78 Cal.App.4th 611, 615, 622-623 , 92 Cal.Rptr.2d 761 .) In Fieldstone, the developer filed an action against the manufacturer of defective bathroom sinks installed in the developer's mass-produced residences. ( Fieldstone, supra, at p. 362 , 62 Cal.Rptr.2d 701 .) However, the only damage alleged was to the defective sinks, which the developer replaced. ( Ibid. ) The Court of Appeal affirmed summary judgment for the manufacturer in part because the manufacturer could not be held strictly liable for economic damages only (i.e., damage only to the defective p

2013(See Jimenez v. Superior Court (2002) 29 Cal.4th 473, 484 [holding that the economic loss rule did not bar a homeowner’s recovery in tort based on strict products liability for damage that a defective window caused to the other parts of the home in which it had been installed]; Stearman v. Centex (2000) 78 Cal.App.4th 611 , 623 [holding that a defective product—a defective foundation— resulted in damages to the walls, ceilings and countertops throughout the home, recovery of strict liability damages is not barred by the economic loss rule].) Here USG’s defective topping compound caused damage

2003(Accord, Stearman v. Centex Homes (2000) 78 Cal.App.4th 611, 622 [ 92 Cal.Rptr.2d 761 ] [“[c]ourts of this state have fully examined the economic loss rule, drawn the line of demarcation between such loss and physical injury to property, including to the defective product itself, and allowed recovery of strict liability damages in the latter instance”].) 7 In Jimenez the Supreme Court held a manufacturer of windows installed in a mass-produced home during its construction could be strictly liable in tort for injuries to other parts of the structure in which the defective windows were installed

2016“The economic loss rule requires a purchaser to recover in contract for purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise.” (Robinson Helicopter Co. v. 2 Dana Corp. (2004) 34 Cal.4th 979, 988 .) Under the rule, a plaintiff is permitted to recover purely economic losses due to negligence in the performance of a contract if a “„special relationship‟” exists (Greystone Homes, Inc. v. Midtec, Inc. (2008) 168 Cal.App.4th 1194, 1215 ), which may arise when the plaintiff, though not in privity to the contract, is a thir

2008(Cf. Ratcliff Architects, supra, 88 Cal.App.4th at p. 604 [“A duty of care may arise through statute, contract, the general character of the activity, or the relationship between the parties.” (italics added)].) Midtec contends that “[t]he economic loss doctrine is a common law defense to negligence and strict liability claims” (italics added), and thus, that the provision in section 936 that an “individual product manufacturer . . . may . . . offer common law . . . defenses as applicable to any claimed violation of a standard” allows Midtec *1216 to assert the economic loss doctrine as a defe

2002(Sacramento Regional Transit Dist. v. Grumman Flxible (1984) 158 Cal.App.3d 289, 294 [ 204 Cal.Rptr. 736 ].) Most recently, in Aas v. Superior Court (2000) 24 Cal.4th 627, 632 [ 101 Cal.Rptr.2d 718 , 12 P.3d 1125 ], we applied the economic loss rule in a negligence action by homeowners against the developer, contractor, and subcontractors who built their dwellings.

2002Grace & Co. (1995) 37 Cal.App.4th 1318, 1327-1330 , 44 Cal.Rptr.2d 305 ; Sacramento Regional Transit Dist. v. Grumman Flxible, supra, 158 Cal.App.3d at pp. 293-298, 204 Cal.Rptr. 736 .) To apply the economic loss rule, we must first determine what the product at issue is.

2026Only one of the cases Seaker relies on, Southern California Gas Leak Cases (2019) 7 Cal.5th 391 , discusses the economic loss rule.

2026Gibbs alleged no contract between her and defendants, and the damages she seeks—compensation for having to delay retirement, for not being timely enrolled in CalPERS, and for not being able to mitigate her injury by purchasing credits through an SPM 10 Similarly, we need not address Gibbs’s other alternative argument that she should have been allowed to allege a “breach of [an] implied contract and the covenant of good faith and fair dealing.” 20 request—involve “a traditionally compensable form of harm” and do not “threaten[] indeterminate and disproportionate liability.” (Southern California

2006(Seely v. White Motor Co. [(1965)] 63 Cal.2d [9], 18-19 [ 45 Cal.Rptr. 17 , 403 P.2d 145 ] [Seely].) Since Seely was announced 30 years ago, other California courts have applied the same reasoning to other tort causes of action, such as negligence.” (SFUSD, supra, 37 Cal.App.4th at p. 1327 .) Seely’s “reasoning ultimately outlined the framework of our economic loss rule, which the United States Supreme Court later adopted in large part for purposes of tort liability under admiralty jurisdiction.” (Jimenez, supra, 29 Cal.4th at p. 482 .) The economic loss rule—as outlined more than forty years

2006Grace & Co., supra, 37 Cal.App.4th at pp. 1325, 1328-1329, 44 Cal.Rptr.2d 305 .) Under Aas , however, physical injury to a building cannot be established by evidence that the defects pose a physical danger to human beings. ( Id. at pp. 1328-1329.) Aas explicitly rejected the notion that "serious defects . . . posing a significant risk of death, personal injury, or considerable property damage" could constitute physical injury for purposes of a negligence *341 or strict liability cause of action. ( Aas v. Superior Court, supra, 24 Cal.4th at p. 649 , 101 Cal.Rptr.2d 718 , 12 P.3d 1125 .) "[W]he

2022Robinson, supra, 34 Cal.4th at p. 988 [“Quite simply, the economic loss rule ‘prevent[s] the law of contract and the law of tort from dissolving one into the other’ ”]; Aas, supra, 24 Cal.4th at pp. 635–636; accord, Erlich v. Menezes (1999) 21 Cal.4th 543 , 550–551 (Erlich); Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 398 (Bily); Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683 (Foley).) Regarding this latter branch of the doctrine, one scholar has stated, “Using contract law to govern commercial transactions lets parties and their lawyers know where they stand and what they can

2022(Foley, supra, 47 Cal.3d at p. 690 .) Similar considerations distinguish this case from the recognized exception to the economic loss rule for consumers who contract for certain kinds of professional services.

2025Among other arguments, Nationstar maintained that it did not owe Courtois any duty of care, following the line of cases recognizing “that a financial institution owes borrowers no duty of care ‘when the institution’s involvement in a loan transaction does not exceed the scope of its conventional role as a mere lender 9 of money.’ ” (See, e.g., Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 63 (Lueras).) Additionally, Nationstar asserted that Courtois’s negligence claim was barred by the economic loss rule.3 In opposing the motion for summary judgment, Courtois relied on Cali

2023Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1096 (Nymark), adapting the economic loss rule to the lender-borrower context: a “‘financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.’” (Sheen, at p. 927 [citing Nymark, at p. 1096]; see also Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 67 [“[A] loan modification is the renegotiation of loan terms, which falls squarely within the scope of a lending institution’s conventional role as a

2022(See Erlich v. Menezes (1999) 21 Cal.4th 543, 554-555 [“a preexisting contractual relationship, without more, will not support a recovery for mental suffering where the defendant’s tortious conduct has resulted only in economic injury to the plaintiff”]; see also Butler-Rupp v. Lourdeaux (2005) 134 Cal.App.4th 1220, 1228 [“The Erlich holding is consistent with the economic loss rule reviewed in [Robinson Helicopter].”].) There are no material allegations 27 these circumstances, the economic loss rule properly functions “to bar claims in negligence for pure economic losses in deference to a con

2022(Erlich v. Menezes (1999) 21 Cal.4th 543 , 554–558 (Erlich) [disallowing emotional distress damages for breach of contract to construct a house resulting in only economic injury and property damage].) In the absence of a physical injury, therefore, allowing recovery of emotional distress damages on a tort theory for negligence in the performance of a contractual relationship “would blur the distinction between contract and tort, thereby violating the policy underlying the economic loss rule.” (Butler-Rupp v. Lourdeaux (2005) 134 Cal.App.4th 1220, 1229 [reversing award of damages for negligent

2022(See also Jacoves v. United Merchandising Corp. (1992) 9 Cal.App.4th 88, 103-104 [denying summary judgment to hospital on negligent infliction of emotional distress claim because triable issues existed as to whether negligent doctor was hospital’s agent].) Turning to the economic loss rule, NWL does not cite any authority applying the rule to damages awarded on a financial elder abuse claim.

2022(See also Jacoves v. United Merchandising Corp. (1992) 9 Cal.App.4th 88, 103-104 [denying summary judgment to hospital on negligent infliction of emotional distress claim because triable issues existed as to whether negligent doctor was hospital’s agent].) Turning to the economic loss rule, NWL does not cite any authority applying the rule to damages awarded on a financial elder abuse claim.

2002Tort law has not traditionally protected strictly economic interests related to product quality—in other words, courts have generally refused to create a duty in tort to prevent such economic losses. [Citation.]" ( Calloway v. City of Reno (2000) 116 Nev. 250 , 993 P.2d 1259, 1265-1266 ( Calloway ).) Accordingly, "the economic loss doctrine serves to define the scope of duty and `shield[s] a defendant from unlimited liability for all of the economic consequences of a negligent act, particularly in a commercial or professional setting, and thus ... keep[s] the risk of liability reasonably calcu

2002We therefore discern no reason to impose, in tort law, a general societal duty to prevent such economic losses." ( Ibid. ) The majority proffers no rationale—in terms of either strict products liability or the economic loss rule—for rejecting the reasoning of East River, Calloway, and other decisions (from a majority of jurisdictions that have addressed the issue) barring tort recovery for home damage caused by defective parts.

2025(Id. at p. 937, citing Biakanja, supra, 49 Cal.2d at p. 650 .) More specifically, the court concluded that a lender does not owe its borrower a tort duty sounding in general negligence principles to modify or consider modifying the borrower’s loan where the borrower suffers purely “economic losses—i.e., pecuniary losses unaccompanied by property damage or personal injury[.]” (Sheen, supra, 12 Cal.5th at p. 915.) Such a negligence claim arises from the mortgage contract between a borrower and its lender and therefore “falls within the ambit of the economic loss doctrine.” (Ibid.) As explained i

2025(Id. at p. 937, citing Biakanja, supra, 49 Cal.2d at p. 650 .) More specifically, the court concluded that a lender does not owe its borrower a tort duty sounding in general negligence principles to modify or consider modifying the borrower’s loan where the borrower suffers purely “economic losses—i.e., pecuniary losses unaccompanied by property damage or personal injury[.]” (Sheen, supra, 12 Cal.5th at p. 915.) Such a negligence claim arises from the mortgage contract between a borrower and its lender and therefore “falls within the ambit of the economic loss doctrine.” (Ibid.) As explained i

2025Opinion of the Court by Liu, J. contract ‘even where the defendant’s conduct in breaching the contract was wilful, fraudulent, or malicious.’ ” (Id. at p. 516.) There are mechanisms for ensuring that parties cannot proceed in tort for what are essentially breaches of contract. “ ‘ “ ‘[A]n omission to perform a contract obligation is never a tort, unless that omission is also an omission of a legal duty.’ ” ’ ” (Rattagan, supra, 17 Cal.5th at p. 19.) And under the economic loss rule, contractual parties may not recover in tort “ ‘unless [the party] can demonstrate harm above and beyond a broken

2014In a related argument Berkeley Hall contends that Van Halen and Rogers’ “fraud claim . . . must fail because it is based entirely on their breach of contract claim” and therefore is barred by the economic loss rule, which “limits a plaintiff to contract damages ‘unless he can demonstrate harm above and beyond a broken contractual promise.’” “[T]he economic loss rule . . . in some circumstances bars a tort action in the absence of personal injury or physical damage to other property . . . .” (Robinson Helicopter Co., Inc. v. Dana Corp., supra, 34 Cal.4th at p. 984 .) The rule precludes recovery

2002There, companies that chartered oil-transporting supertankers brought an action under maritime law seeking to hold a turbine manufacturer strictly liable in tort for income losses and repair costs resulting when a defective part of the supertankers' turbines damaged other parts of the turbines. ( Id. at pp. 859-860, 106 S.Ct. 2295 .) Adopting an economic loss rule similar to the one this court had articulated in Seely v. White Motor Co. (1965) 63 Cal.2d 9 , 45 Cal.Rptr. 17 , 403 P.2d 145 , the high court held that "a manufacturer in a commercial relationship has no duty under either a negligen

2002There, companies that chartered oil-transporting supertankers brought an action under maritime law seeking to hold a turbine manufacturer strictly liable in tort for income losses and repair costs resulting when a defective part of the supertankers' turbines damaged other parts of the turbines. ( Id. at pp. 859-860, 106 S.Ct. 2295 .) Adopting an economic loss rule similar to the one this court had articulated in Seely v. White Motor Co. (1965) 63 Cal.2d 9 , 45 Cal.Rptr. 17 , 403 P.2d 145 , the high court held that "a manufacturer in a commercial relationship has no duty under either a negligen

2003When the defect and the damage are one and the same, the defect may not be considered to have caused physical injury. [Citation.]” (Ibid.) Division Two of this court applied this understanding of the economic loss rule to permit tort recovery for physical injury to the defective product itself in International Knights of Wine, Inc. v. Ball Corp. (1980) 110 Cal.App.3d 1001, 1005 [ 168 Cal.Rptr. 301 ], which held that the purchaser of bottled wine was entitled to seek tort damages for the loss of wine caused by corrosion of the metal caps sealing the bottles.

2003When the defect and the damage are one and the same, the defect may not be considered to have caused physical injury. [Citation.]” (Ibid.) Division Two of this court applied this understanding of the economic loss rule to permit tort recovery for physical injury to the defective product itself in International Knights of Wine, Inc. v. Ball Corp. (1980) 110 Cal.App.3d 1001, 1005 [ 168 Cal.Rptr. 301 ], which held that the purchaser of bottled wine was entitled to seek tort damages for the loss of wine caused by corrosion of the metal caps sealing the bottles.

2003Similarly, in Gherna v. Ford Motor Co. (1966) 246 Cal.App.2d 639, 649-650 [ 55 Cal.Rptr. 94 ], the court recognized the plaintiff’s right to recover in tort for fire damage to an automobile caused either by defective wiring or the defective placement of the transmission dipstick.

2003Similarly, in Gherna v. Ford Motor Co. (1966) 246 Cal.App.2d 639, 649-650 [ 55 Cal.Rptr. 94 ], the court recognized the plaintiff’s right to recover in tort for fire damage to an automobile caused either by defective wiring or the defective placement of the transmission dipstick.

2023Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1096 (Nymark), adapting the economic loss rule to the lender-borrower context: a “‘financial institution owes no duty of care to a borrower when the institution’s involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money.’” (Sheen, at p. 927 [citing Nymark, at p. 1096]; see also Lueras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 67 [“[A] loan modification is the renegotiation of loan terms, which falls squarely within the scope of a lending institution’s conventional role as a

2022Savings & Loan Assn. (1991) 231 Cal.App.3d 1089 (Nymark).

2022Robinson, supra, 34 Cal.4th at p. 988 [“Quite simply, the economic loss rule ‘prevent[s] the law of contract and the law of tort from dissolving one into the other’ ”]; Aas, supra, 24 Cal.4th at pp. 635–636; accord, Erlich v. Menezes (1999) 21 Cal.4th 543 , 550–551 (Erlich); Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 398 (Bily); Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 683 (Foley).) Regarding this latter branch of the doctrine, one scholar has stated, “Using contract law to govern commercial transactions lets parties and their lawyers know where they stand and what they can

2017The dissenting justices instead relied on the general duty rule in Rowland and concluded there was no justification to exempt the Bily auditors from it. ( Bily, supra, 3 Cal.4th at pp. 419-420, 11 Cal.Rptr.2d 51 , 834 P.2d 745 (dis. opn. of Kennard, J.).) Contrary to business plaintiffs' argument, application of the economic loss doctrine is not limited to the product liability arena: " 'Judicial hostility to the use of tort theory to recover purely economic losses predates the twentieth-century battle over product liability.