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Calloway v. City of Reno2/29/2000
bility (3d) ยง 60:36, at 66. We have directly or impliedly adopted these correlative principles in all of our cases dealing with this subject.
The primary policy behind the rule articulated in Stern is to:
"shield a defendant from unlimited liability for all of the economic consequences of a negligent act, particularly in a commercial or professional setting, and thus to keep the risk of liability reasonably calculable."
Stern, 98 Nev. at 411, 651 P.2d at 638 (emphasis and footnote added).
The majority in this matter has most ably articulated the history behind the rule and the divergence in scope between tort and contract based recovery. As also noted by the majority, the fundamental policy behind this rule is to restrict parties to commercial transactions to contractual remedies based simply upon the foreseeability of loss of financial expectancies. Unfortunately, beyond Stern, Central Bit and Arco, several of our other cases have obscured the scope of the economic loss rule.
OAK GROVE INVESTORS v. BELL & GOSSETT CO.
In Oak Grove Investors v. Bell & Gossett Co., 99 Nev. 616, 668 P.2d 1075 (1983), a case decided only one year after Stern, this court discussed the economic loss doctrine in the context of a "construction-defect" dispute. A unanimous court concluded that a negligence and strict tort liability claim arising from a defective plumbing fitting should not have been dismissed on statute of limitation grounds, or because of a failure of proof as to whether a defect with regard to the fitting had been shown. Although not necessary to the decision, this court went on to observe via obiter dictum that water leakage caused "substantial leakage of water throughout, and damage to, the apartment within the . . . complex." Oak Grove, 99 Nev. at 625, 668 P.2d at 1080. From this factual pattern, this court concluded that the water damage claim in Oak Grove constituted "property damage" for purposes of an "economic loss" analysis. Thus, a completed entity that "injured itself" caused "property damage," taking the case out of the economic loss doctrine.
NATIONAL UNION FIRE INSURANCE v. PRATT AND WHITNEY
An attempted extension of the policy behind the economic loss doctrine is reflected by our split decision in National Union Fire Insurance v. Pratt and Whitney, 107 Nev. 535, 815 P.2d 601 (1991). In that case, this court embraced the well-accepted rule, noted above, that a plaintiff may not recover in tort for the loss of a product that injures itself. In Pratt and Whitney, this court considered an entire airplane a "product" for the purpose of the economic loss rule. Thus, this court rejected the notion that a readily identifiable component part of the aircraft, namely the engine, was the cause of "property" damage, to wit: the destruction of the entire aircraft. This approach is consistent with that taken by the United States Supreme Court in East River S.S. Corp. v. Transamerica Delaval, 476 U.S. 858 (1986) (a steamship injuring itself causes pure economic loss). However, in its analysis of this issue, the Pratt and Whitney opinion contains several problematic justifications of its result that have serious implications with respect to the scope of the rule in the context of construction defect litigation.
First, the majority attempted to distinguish Oak Grove with the following observation:
"In Oak Grove, however, there was little factual basis for invoking the economic loss doctrine. Indeed, rather than receding from our rulings in Stern and Central Bit Supply, we concluded, by way of dictum, that the factual scenario in Oak Grove did not implicate the economic loss doctrine
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