Pure Economic Loss

Pure Economic Loss

Economic loss is a term of art which refers to financial loss and damage suffered by a person such as can be seen only on a balance sheet rather than as physical injury to the person or destruction of property. There is a fundamental distinction between “pure economic loss” and “consequential economic loss”, as pure economic loss occurs independent of any physical damage to the person or property of the victim. Usually, "pure economic loss" in tort, particularly in negligence, is not recoverable as damages or otherwise. It has also been suggested that it be called "commercial loss" as injuries to person or property could be regarded as "economic".

Recovery at law for pure economic loss is restricted under some circumstances in some jurisdictions, in particular in tort in common law jurisdictions, for fear that it is potentially unlimited and could represent a "crushing liability" against which parties would find it impossible to insure. In the United States, Chief Judge Benjamin N. Cardozo of the New York Court of Appeals famously described it as, "liability in an indeterminate amount, for an indeterminate time, to an indeterminate class." The rule may also be traced back to Roger Traynor's decision in the Califoria case Seely v. White Motor Co. (1965), and was later adopted by the Supreme Court of the United States in East River Steamship Corp V Transamerica Delaval Inc. (1986).

Examples of pure economic loss include:

• Loss of income suffered by a family whose principal earner dies in an accident. The physical injury is caused to the deceased, not the family.
• Loss of market value of a property owing to the inadequate specifications of foundations by an architect.
• Loss of production suffered by an enterprise whose electricity supply is interrupted by a contractor excavating a public utility.

The latter case is exemplified by the English case of Spartan Steel and Alloys Ltd v. Martin & Co. Ltd Similar losses are also restricted in German law though not in French law beyond the normal requirements that a claimant's asserted loss must be certain and directly caused.

In Australia it is very difficult to recover pure economic loss in negligence if it is not consequent to property damage.

A few state supreme courts in the United States have departed from the majority rule and authorized recovery for pure economic loss through tort causes of action (usually negligence). The first was California in 1979, followed later by New Jersey and Alaska.