Liability for Pure Financial Loss in Europe: An Economic Restatement

Abstract

As generally understood in the law and economics literature, the economic loss rule states that a plaintiff cannot recover damages for a pure financial loss. The comparative study of the recoverability in tort of pure economic losses, however, reveals that the recognition and significance attributed to the economic loss rule and to the notion of "economic loss" varies considerably across Western legal systems. This paper therefore revisits recent findings of comparative law about the recoverability of pure economic losses, and demonstrates that legal notions of pure economic loss encompass several types of situations, with little or no correspondence with the relevant economic taxonomy. In terms of economic analysis, several situations of economic loss are easily distinguishable and have very different significance for social welfare analysis. What appears to be erratic judicial applications of a single economic loss rule are in fact justifiable and often valid applications of different underlying economic principles. From an economic perspective, it may in fact be necessary to have more than one category for the treatment of economic loss, given the inability for a single legal instrument to address the variety of cases that may fall within such an iconoclastic rule.

Note: This abstract was previously published under the title "The Comparative Law and Economics of Pure Economic Loss."