How To Prove A Texas Economic Loss Rule Defense

 

 

In Texas, a defense of Economic Loss Rule is defined as:

The economic loss rule prevents a party from recovering economic losses in tort (such as negligence or strict liability) for matters that are governed by contract law. It holds that if a party suffers only economic losses‚ such as lost profits, repair costs, or diminished value‚ due to a breach of contract, they cannot recover those losses through tort law claims. Instead, they must seek remedies through contract law.

It simply means:

Where there is a contract between the parties, the plaintiff cannot use a tort claim to recover economic damages.

There are 3 elements of the defense:

• Element 1. The parties had a contractual relationship, or the damages arose from a contractual context. The Economic Loss Rule Defense applies when the parties involved had a contract with each other, meaning any damages or losses that occurred are tied to that agreement rather than being caused by outside factors or negligence.
  

  Facts that might support this element look like:

  * The parties entered into a written agreement outlining the terms of their business relationship, including specific obligations and responsibilities.
  * The plaintiff provided services to the defendant as stipulated in the contract, which included payment terms and deliverable deadlines.
  * The damages claimed by the plaintiff directly relate to the breach of the contractual obligations established between the parties.
  * Both parties acknowledged the existence of the contract through their communications and actions during the course of their business dealings.
  * The plaintiff’s losses stemmed from the defendant’s failure to perform as required by the terms of their agreement.

• Element 2. The damages suffered were purely economic losses, meaning they resulted from a failure of a product or service itself and were limited to the product or service. The damages in this case were only financial losses caused by a product or service not working properly, and they were restricted to issues directly related to that product or service, rather than any broader harm.
  

  Facts that might support this element look like:

  * The plaintiff’s damages arose solely from the malfunction of the product, resulting in no physical injury or property damage beyond the product itself.
  * The service provided failed to meet the agreed specifications, leading to financial losses that were confined to the service’s value.
  * The plaintiff’s claims are based exclusively on lost profits due to the defective product, with no claims for personal injury or property damage.
  * The economic losses incurred were directly tied to the product’s failure, with no collateral damages affecting other assets or individuals.
  * The plaintiff did not suffer any consequential damages outside of the product’s performance, indicating that all losses were purely economic in nature.

• Element 3. There was no physical injury or damage to tangible property beyond the product or service itself. The Economic Loss Rule Defense states that if a product or service fails without causing any physical harm or damage to other property, the buyer cannot sue for damages beyond the cost of that product or service itself.
  

  Facts that might support this element look like:

  * The product in question functioned as intended without causing any harm to surrounding property or individuals.
  * No evidence was presented to show that the service rendered resulted in any physical damage to tangible property.
  * The only loss incurred was related to the product’s performance, with no additional damages to other assets.
  * An inspection confirmed that all surrounding property remained intact and undamaged after the product was used.
  * The plaintiff’s claims are solely based on dissatisfaction with the product, not on any physical injury or property damage.

^{(See Sharyland Water Supply v. City of Alton, 354 SW 3d 407 – Tex: Supreme Court 2011.)}
If you’re representing yourself in court and plan to assert a Defense of Economic Loss Rule, having a Personal Practice of Law at Courtroom5 is essential. You’ll need to make informed decisions about what to file at each phase of your case and prepare legal documents that are supported by thorough legal research and a strong analysis of the facts. Equip yourself with the tools and knowledge necessary to navigate the complexities of your case effectively.

Prove Your TX Economic Loss Rule Defense

U.S. Civil Cases Only