The Economic Loss Rule and Liability Insurance
20 Pages Posted: 14 May 2010
Date Written: 2006
In tort law, the "economic loss rule" that once played only a provincial role in products liability has become a crucial rule in all sorts of tort litigation over economic loss. Now, tort defendants routinely invoke the rule in arguing that there should be no tort liability for many forms of economic loss, even if a defendant could be said to have acted "negligently" - that is, without using reasonable care. The boundaries of the rule remain unclear and contested in much of the caselaw.
The economic loss rule is a tort law rule, but it implicates principles of liability insurance as well. Some of the theoretical underpinnings of the economic loss rule relate to considerations that also bear on the insurability of such a loss or the mechanism for its insurance. And the boundaries of the economic loss rule will affect tort liabilities and, therefore, the insurance regime that is structured in light of those tort liabilities. Finally, how effectively the insurance regime translates the economic loss rule - through coverage language and other doctrines - will affect the fairness and efficiency of the economic tort insurance regime.
This Article identifies, and tries to explain, how the liability insurance regime fails to effectively translate, via insurance language and coverage litigation, the structure and purposes of the economic loss rule. The article reaches some conclusions about how to reduce the dissonance between the economic loss rule and the liability insurance regime.
Keywords: tort, economic loss, liability insurance, insurance
JEL Classification: K13, K41
Suggested Citation: Suggested Citation