One secret weapon of defense lawyers is known as the “economic loss doctrine.” The economic loss doctrine bars parties to a contract from bringing tort claims for purely economic losses related to their contractual relationship. So for example, if Company A buys a defective machine from Company B, it cannot sue Company B for negligence but rather must sue for breach of contract or breach of warranty. If, on the other hand, an employee of Company A gets injured trying to operate the defective machine, the employee can sue Company B for negligence.
The logic of the economic loss doctrine is that it allows the parties to a contract to negotiate the scope of performance and applicable warranties in their contract. Courts believe contract and warranty claims are better suited to deal with purely economic claims.
The economic loss doctrine is alive and well in North Dakota and should not be overlooked by defense lawyers. In Cooperative Power Association v. Westinghouse Electric Corporation, 493 N.W.2d 661, 666 (N.D. 1992), the North Dakota Supreme Court applied the doctrine to damages to a transformer caused by failure of one of its component parts. There, the court rejected negligence and strict liability claims brought by the plaintiff. In addition, parties to business contracts should be cognizant of the importance of warranties as their sole remedy for economic losses from defective products or performance.