Not All Damages Are Created Equal – the Proper Application of the Economic Loss Doctrine

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In William Lansing v. Doe, 2019 Ore. App. LEXIS 1564, the Court of Appeals of Oregon considered whether the Economic Loss Doctrine (ELD) applied to the plaintiff’s claims based on purportedly faulty construction work in a home. In determining that damage to persons or property is not a purely economic loss in the context of the ELD, the court concluded that the plaintiff could proceed with a negligence claim against a contractor that performed work on the home.

In William Lansing, a credit union that owned a foreclosed home hired CR Services, Inc. (CR) to repair and replace water-damaged drywall in the home. After the plaintiff purchased the home and discovered water-damaged drywall, the plaintiff filed suit against CR for failing to identify the original water leak and repair it prior to installing drywall over the piping. CR filed a motion to dismiss the claim, asserting that the plaintiff’s negligence claim was barred by the ELD. The trial court agreed that the ELD applied and dismissed the action. The plaintiff appealed the decision to the Court of Appeals of Oregon.

The ELD is a legal principle that precludes a party from bringing negligence claims for purely economic losses. The principle is most commonly used in the area of products liability. Specifically, if a failed product only causes damage to itself, most jurisdictions will limit a plaintiff to contractual remedies. Some jurisdictions have expanded the ELD to interpret a home as a product, and as such, apply the ELD where damage is solely to the home and not to other property or persons.

In William Lansing, Oregon’s Court of Appeals rejected the idea that the ELD can apply to the construction of a home. Specifically, it found that the ELD only applies to financial losses, which are purely economic losses. It further confirmed that, while injuries to persons or property may have a financial component, they are not purely economic losses. As the court determined that damage to property is not a purely economic loss, it concluded that the ELD did not apply and, therefore, reversed the trial court’s dismissal of the action.

This case serves as a good reminder that when dealing with a construction loss, a subrogation professional should understand the application of the ELD within the loss location’s jurisdiction. Absent that understanding, a subrogation professional may file the wrong type of claim, which can lead to dismissal of the action.

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