Ralph Anzivino continues his exploration of the economic loss doctrine in a new paper on SSRN. The economic loss doctrine indicates that economic losses resulting from a defective product are recoverable, if at all, under contract law, instead of tort law. In applying this doctrine, however, courts have run into difficulty with damage to other property besides the defective product. For instance, in one case, a ship caught fire and sunk as a result of defective hydraulic equipment, and the court had to decide whether the ship owner could recover the value of other equipment on the ship under a tort theory of strict products liability. Courts have adopted a variety of conflicting and uncertain tests to determine whether such damages to other property are governed by tort or contract law.
In his paper, Ralph proposes a new test that emphasizes contract principles first. Parties should be permitted to allocate the risk of losses between themselves. Thus, if a contract validly addresses losses to other property, Ralph would enforce the contract; otherwise, tort principles would apply. He defends this approach as clearer and more consistent with the underlying purposes of the economic loss doctrine than approaches currently in use.