An Overview of the Economic Loss Doctrine in New Jersey

The economic loss doctrine is an important legal concept for business owners and their attorneys who are defending against a lawsuit. In New Jersey, this doctrine may limit a plaintiff’s ability to recover additional tort damages in a claim that should be limited to allegations of breach of contract.

To better understand this concept and how it might affect your business, below is an overview of the economic loss doctrine in New Jersey.

What is the Economic Loss Doctrine in New Jersey?

The economic loss doctrine is a legal principle that prevents plaintiffs from bringing tort claims when their losses can be redressed through a breach of contract claim.

In other words, this doctrine prevents plaintiffs from recovering damages twice (i.e., once under tort law and again under contract law) for the same incident or conduct by the defendant.

When Does the Economic Loss Doctrine in New Jersey Apply?

New Jersey adopted the economic loss doctrine in 1985 in Spring Motors v. Ford Motor Co., 98 N.J. 555 (1985). The Supreme Court initially applied the doctrine to large-scale commercial transactions between sophisticated purchasers. However, it was later extended to cover transactions involving individual consumers. Alloway v. General Marine Indust., 149 N.J. 620 (1997).

In Spring Motors, the court held that commercial buyers “seeking damages for economic loss resulting from the purchase of defective goods may recover from an immediate seller and a remote supplier… for breach of warranty under the [Uniform Commercial Code], but not in strict liability or negligence.”

In Alloway, the court commented that “the vast majority of courts across the country likewise have concluded that purchasers of personal property, whether commercial entities or consumers, should be limited to recovery under contract principles.”

To show if, through a written contract, you purchased defective construction materials from a supplier and those materials caused property damage due to their defective nature, then your claim would likely not be subject to the economic loss doctrine. In this example, the plaintiff incurred property damage as well as economic losses.

However, if you are suing to recover the amount paid for the defective constructive materials, your claim may fall under the economic loss doctrine. Your sole remedies would lie in the language of your contract with the seller and/or the UCC. 

Exceptions to The Economic Loss Doctrine

Although courts generally follow this rule when deciding cases involving allegations of negligence or other torts, there are some exceptions that may apply. This, of course, depends on your case’s specific facts and circumstances.

Some examples include cases involving fraud or misrepresentation; product liability cases where personal injury has occurred; cases involving willful misconduct; and certain types of professional liability cases, such as malpractice suits against doctors and lawyers.

It is important to note that each case will be evaluated on its own merits–so it is best to consult with an experienced New Jersey business law attorney who can evaluate your individual situation and determine whether any exceptions may apply in your particular case.

Experienced New Jersey Business Law Lawyers

Understanding how courts interpret and apply the economic loss doctrine in New Jersey can help business owners recognize what their potential liabilities are if a product they sold to a consumer does not perform as expected.

All things considered, being aware of this legal concept should help business owners limit potential liability to claims arising out of the contract and any damages expressly provided in its terms.

Contact the business lawyers at Schiller, Pittenger & Galvin, P.C., at their Scotch Plains office at 908-490-0444 if you believe the economic loss doctrine may apply to your situation. You can also email them here.