Also known as:pure economic loss · economic loss doctrine · economic loss rule · PEL doctrine
Written by attorneys · grounded in primary & secondary sources — see below
A rule of tort law that bars recovery in negligence for purely economic losses not arising from physical injury to person or property. The doctrine channels such claims into contract remedies rather than open-ended tort liability. It applies most strictly in products liability settings but does not automatically preclude independent tort claims arising from contractual relationships outside that context.
Sources & Authorities
How it applies
Common Examples
2
Service Contract Negligence Claim
Prime Logistics contracts with Pulse Media for cloud hosting services. Pulse Media negligently deploys a software update that causes repeated outages. Prime Logistics incurs extra overtime wages and rush shipping costs to meet its fixed-price delivery contracts with clients, but suffers no physical damage to its trucks or injury to employees. Prime Logistics sues Pulse Media in negligence for those added expenses. Because the claim arises from a service contract rather than a defective product, the economic loss doctrine does not bar the tort action.
Auditor Report Reliance Loss
Phoenix Technologies hires Arthur Young to audit its financial statements. Arthur Young negligently prepares the report. Patricia Patel, a prospective investor who is not in privity with the auditor, reads the report and invests heavily. The company later collapses and Patel loses her entire investment. She sues the auditor in negligence for her purely financial loss. Because the claim arises from a service contract rather than a defective product, the economic loss doctrine does not bar the tort action.
Select any source to read its text and confirm it supports the definition.
Cases
Casebooks
Bily v. Arthur Young & Co.834 P.2d 745 (Cal. 1992)
Common questions
Frequently Asked
4
Does the pure economic loss doctrine bar all negligence claims that produce only financial harm?+
No. The doctrine bars recovery only when the plaintiff alleges purely pecuniary loss without accompanying physical injury or property damage. When a special relationship or independent tort duty exists, courts may permit the claim to proceed.
Supporting sources
Does the doctrine apply to bar tort claims arising from service contracts outside the products liability context?+
In Florida the economic loss rule is now limited to products liability cases and does not automatically bar tort claims arising from contractual relationships in other settings. Parties remain subject to traditional contract principles and independent tort doctrines.
Supporting sources
Why do courts refuse negligence recovery for lost profits caused by negligent interference with a contract?+
Courts limit recovery to avoid indeterminate liability to an open class of parties indirectly affected by operational mistakes. The proper avenue for addressing increased performance costs or lost expectancies is through contractual arrangements rather than open-ended negligence actions.
Supporting sources
Can a plaintiff recover in negligence for economic loss when the defendant negligently published an erroneous public report?+
No. When the only harm is lost profits or added expenses flowing from a third party's decision not to contract, and no physical injury or property damage occurs, the economic loss doctrine bars the negligence claim.
Supporting sources
834 P.2d 745 (Cal. 1992)Torts
…and credit decisions — introduces further uncertainties into the negligence suit against the auditor. An award of damages for pure economic loss suffered by third parties raises the spectre of vast numbers of suits and limitless financial exposure. Investment and credit decisions are by their nature complex and multifaceted.…