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Calloway v. City of Reno2/29/2000
e district court." Mullis v. Nevada National Bank, 98 Nev. 510, 512, 654 P.2d 533, 535 (1982).
II. Application of the economic loss doctrine
A. Overview of the economic loss doctrine
"The economic loss doctrine marks the fundamental boundary between contract law, which is designed to enforce the expectancy interests of the parties, and tort law, which imposes a duty of reasonable care and thereby encourages citizens to avoid causing physical harm to others." Sidney R. Barrett, Jr., Recovery of Economic Loss in Tort for Construction Defects: A Critical Analysis, 40 S.C. L. Rev. 891, 894 (1989)[hereinafter Construction Defects]. In determining whether a claim sounds in contract or in tort, the pleadings and the alleged facts must be considered.
"A breach of contract may be said to be a material failure of performance of a duty arising under or imposed by agreement. A tort, on the other hand, is a violation of a duty imposed by law, a wrong independent of contract. Torts can, of course, be committed by parties to a contract. The question to be determined . . . is whether the actions or omissions complained of constitute a violation of duties imposed by law, or of duties arising by virtue of the alleged express agreement between the parties."
Bernard v. Rockhill Dev. Co., 103 Nev. 132, 135, 734 P.2d 1238, 1240 (1987) (quoting Malone v. University of Kansas Medical Center, 552 P.2d 885, 888 (Kan. 1976)).
Under the economic loss doctrine "there can be no recovery in tort for purely economic losses." American Law of Products Liability (3d) § 60:39, at 69 (1991). Purely economic loss is generally defined as "the loss of the benefit of the user's bargain . . . including . . . pecuniary damage for inadequate value, the cost of repair and replacement of the defective product, or consequent loss of profits, without any claim of personal injury or damage to other property." Id. § 60:36, at 66. The economic loss doctrine arose, in large part, from the development of products liability jurisprudence. Early American courts embraced the doctrine of caveat emptor, under which a seller was not liable to the buyer in contract or tort for product defects, unless the seller engaged in fraud or provided an express guarantee. Express and implied warranty theory later developed within the parameters of contract law. See W. Page Keeton et al., Prosser and Keeton on the Law on Torts § 95A, at 679-80 (5th ed. 1984)[hereinafter Prosser and Keeton]. Thus, liability for economic losses was viewed as contractual, and privity of contract was required. Additionally, fairly negotiated disclaimers on liability were enforceable. Id. at 681. With the subsequent introduction of negligence liability for defective products, buyers could recover from sellers for personal injury and later, property damage. Id. § 96, at 681-82 (citing MacPherson v. Buick Motor Co., 111 N.E. 1050 (N.Y. 1916)).
Negligence was often difficult to prove, however, and courts viewed the manufacturer as being in a better position to pay for injuries. Consequently, courts created the doctrine of strict liability of warranty. After some preliminary decisions from other jurisdictions, the New Jersey Supreme Court decided Henningsen v. Bloomfield Motors, Inc., 161 A.2d 69 (N.J. 1960), in which both an automobile manufacturer and dealer were held liable to the purchaser's wife on a theory of implied warranty of safety. "What followed was the most rapid and altogether spectacular overturn of an established rule in the entire history of the law of torts." Prosser and Keeton § 97, at 690. Under the strict liability of warranty doctrine, the seller became the insurer of the ultimate user's safety, and th
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