Tennessee Supreme Court Declines To Extend Economic Loss Doctrine Beyond Products Liability Cases

  • Thursday, September 28, 2023
The Tennessee Supreme Court on Thursday ruled that the economic loss doctrine applies only to products liability cases and should not be expanded. The doctrine generally prevents a contracting party who suffers only economic losses from recovering additional damages under tort law principles. Because it limited the doctrine to only certain types of cases, the Court reinstated a jury verdict allowing a construction subcontractor to recover on its tort claims against the general contractor.

The parties’ dispute arose from the construction of a multi-building retirement community in Shelby County. The Weitz Company, LLC contracted with the Commercial Painting Company to install drywall, wall insulation, and ceilings. Commercial Painting alleged that Weitz misled them from the beginning of the relationship by misrepresenting facts about how far behind the project was, other subcontractors’ bids, and the amount of time allowed to complete the project. Commercial Painting also claimed that Weitz wrongfully refused to pay for extra work performed.

A jury found Weitz liable under theories of breach of contract, intentional misrepresentation, and unjust enrichment. The total jury award was $8,359,863.83, which included compensatory and punitive damages, attorney’s fees and litigation costs, and pre-judgment interest.

On Weitz’s appeal, the Tennessee Court of Appeals reversed the award based on the tort theories of misrepresentation and unjust enrichment, holding that the claims were barred by the economic loss doctrine. This rule precludes recovery in tort for a contracting party who buys a product and suffers only monetary loss ? not bodily injury or property damage to anything other than the defective product itself. The economic loss doctrine in Tennessee has only been applied in cases of products liability, not for services as in this case. Here, the Court of Appeals extended the doctrine to bar Commercial Painting’s recovery under tort theories.

A majority of the Tennessee Supreme Court reinstated the jury verdict, holding that the economic loss doctrine should not be expanded beyond products liability cases. The Court reasoned that in cases involving contracts for the sale of goods, the purchaser is adequately protected by the Uniform Commercial Code, and there is no need to also allow for tort recovery. However, in cases involving service contracts, the Uniform Commercial Code does not apply. Thus, the doctrine should not apply to bar a plaintiff from recovering economic losses based on a tort theory. The Court also noted that in states that have extended the economic loss doctrine to service contracts, the results have been confusing and unpredictable. The Court concluded that the law of damages, contracts, and torts is sufficiently developed to prevent the risk of excessive recovery under tort theories.

Justice Sarah K. Campbell, joined by Justice Jeff Bivins, dissented. The dissent concluded that the economic loss doctrine should apply in cases involving contracts for services. The dissent reasoned that application of the doctrine to contracts for services would further the doctrine’s underlying purpose of establishing a boundary line between contract law and tort law. The dissent further reasoned that existing legal principles are not an adequate substitute for the economic loss doctrine and disagreed with the majority’s conclusion that extension of the doctrine would be confusing.

To read the opinion of the Court in Commercial Painting Co., Inc. v. The Weitz Company, LLC et al., authored by Justice Sharon G. Lee, and the dissenting opinion, please visit the Opinions section of TNCourts.gov.

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