THE MOORMAN DOCTRINE/ECONOMIC LOSS RULE
The economic loss rule, pronounced in the 1982 Illinois Supreme Court case of Moorman Manufacturing Co. v. National Tank Co., generally bars tort recovery of solely economic losses.1 In Moorman, the defendant sold the plaintiff a grain storage tank, which later exploded because of a crack that developed on one of its steel plates.2 There were no injuries to any person or to any property other than the tank itself. The plaintiff brought suit in product liability, alleging design and manufacturing defects and negligence in the tank’s design. The only damages the plaintiff sought were for the damage to the tank.
The Illinois Supreme Court affirmed the trial court’s dismissal of the plaintiff’s tort counts, holding that allegations of product defect belong in contract rather than tort actions. The court held that the plaintiff was merely a disappointed consumer, and as such, could not support a negligence claim based on inferior workmanship. This holding made Moorman the first Illinois case to stand for the basic concept that purely economic damages cannot be recovered in tort.3 The court defined economic losses as "damages for inadequate value, costs of repair and replacement of the defective product, or consequent loss of profits — without any claim of personal injury or damage to other property."4
The Moorman holding is based upon the premise that contract law and the Uniform Commercial Code offer the appropriate remedies for economic losses sustained by disappointed commercial expectations when there is no injury either to any person or to other property, while tort law offers a more suitable remedy for losses sustained from personal injuries or damage to one’s property. Disappointed commercial expectations can result from deterioration, internal breakdown or other non-accidental causes.5 Tort law, on the other hand, is more suited for personal injury or property damage resulting from a sudden or dangerous occurrence.6
While the Moorman case itself was based on product liability, its holding has since been extended to other tort theories such as strict liability, negligence, and negligent misrepresentation. Courts have extended the economic loss rule even further to bar a plaintiff’s recovery of solely economic damages for a defendant’s negligently performed services7 and for claims of professional malpractice.8
There are three exceptions to the economic loss rule: The plaintiff may sue in tort where (1) the plaintiff sustained personal injury or property damage resulting from a sudden or dangerous occurrence; (2) the plaintiff’s damages were proximately caused by the defendant’s intentional, false representation; or (3) the plaintiff’s damages were proximately caused by negligent misrepresentation on the part of a defendant who was in the business of supplying information for the guidance of others in their business transactions.9 This article focuses on what constitutes a sudden or dangerous occurrence.
SUDDEN AND DANGEROUS EVENT EXCEPTION
To fall under this exception to the economic loss rule, a plaintiff must allege personal injury or damage to property from a sudden and dangerous occurrence. Moreover, the property damage alleged must be damage to other property, and not merely damage to the defective product alone.10 Accordingly, a plaintiff’s action does not fall within this exception unless both other damage and a sudden and dangerous event are alleged.
Courts have struggled with what constitutes a sudden and dangerous event under the Moorman doctrine. The Second District held that a sudden and dangerous event arises from "[h]azards peripheral to the product’s [intended] function."11 The Fourth District held that a sudden occurrence is one that is "highly dangerous and presents the likelihood of personal injury or injury to other property."12 There does not appear to be a consensus on a specific definition of "sudden." No matter what definition the courts have chosen to apply in determining if an event is sudden and dangerous, however, the focus has been on the suddenness of occurrence of the event that causes the injury, not the suddenness of the underlying cause leading to the event that finally caused the injury.13 For example, the collapse of a defective roof can be a sudden event despite the fact that the cause of the collapse was a lengthy period of water leakage.14 The suddenness of the event, therefore, is to be distinguished from the suddenness or the length of time in which the defect or cause of the occurrence develops.
Obviously, a sudden event is not one that occurs as a gradual process. Loss due to "deterioration, internal breakdown or nonaccidental cause[s]," is economic loss, and thus the remedy lies in contract, not tort.15 For example, latent building defects, such as damage from the gradual deterioration of siding on a building that split open or fell off over a period of years does not fall within this Moorman exception.16 Nor does gradual leaking from underground storage tanks, or the gradual deterioration of construction work due to poor quality or supervision.17 These examples illustrate the development of a loss over a period of time, which do not fit within an exception to the economic loss rule.
Events that are more instantaneous or develop quickly are likely to be considered "sudden." Courts, for example, have held that events such as fires are sudden and dangerous occurrences. In Scott & Fetzer Co. v. Montgomery Ward & Co., the Illinois Supreme Court held that a fire in a warehouse that turned into a "sudden and dangerous conflagration" that spread to other portions of the warehouse occupied by adjacent tenants was sufficient to constitute a sudden and dangerous event.18 Other sudden events can include the complete collapse of a roof and a tank rupture. In United Airlines, Inc. v. CEI Industries, for example, a roof suddenly and totally collapsed due to leaking water and defects in the roof’s construction, damaging walls, furniture, and furnishings.19 The First District held that the plaintiff made a showing above and beyond disappointed commercial expectations in that the damages incurred were not just that it received less than was bargained for, but that the defect also exposed the plaintiff to an unreasonable risk of injury to its employees and property.20
Not surprisingly, sudden events can be characterized as happening quickly and rapidly, as opposed to gradually and over a period of time. In Bi-Petro Refining Co. v. Hartness Painting, Inc.,21 for example, the plaintiff, much like the plaintiff in Moorman, alleged damages resulting from a defect in a storage tank. The Fourth District, however, distinguished the occurrence from that in Moorman. In Bi-Petro, the tank "suddenly and violently ruptured" while being filled with water, and thereby damaged other property and endangered the safety of persons and property. The court distinguished Moorman on the ground that the complaint there had alleged the occurrence as taking place over the course of months, where a steel tank developed a crack that was not discovered until the contents of the tank had been emptied. The Bi-Petro court concluded that the event was different from that in Moorman because in Moorman, the "occurrence" resulted only in the plaintiff suffering a slow loss of the tank’s contents, while, in Bi-Petro, a "tank with the capacity of 50 thousand barrels of liquid suddenly burst."22
Most recently, in Mars Inc. v. Heritage Builders of Effingham, Inc.,23 the Fourth District held that the collapse of a steel frame support of a building during a thunderstorm was a sudden and dangerous event. The court reasoned that a thunderstorm is a sudden event and that the storm, coupled with the collapse of the frame, presented the likelihood of personal injury or injury to other property.
In determining the suddenness of an event, courts will not consider the fact that there was a history of repairs on a product in deciding whether the event that caused the injury was sudden and dangerous.24 In Vaughn v. General Motors Corp., the plaintiff continued to use a truck despite knowledge of its faulty condition, eventually leading to injury and damage to the truck.25 The court held that the fact that the plaintiff knew of the defect would be relevant to issues such as assumption of the risk and comparative fault, rather than whether the economic loss rule would preclude recovery.
It is also important to note that courts have made the distinction between merely sudden events and events that are both sudden and dangerous as required to fall within the Moorman exception. In Bagel v. American Honda Motor Co., Inc., 26 the court held that the plaintiff did not sufficiently allege an exception to Moorman by claiming that a defect in a motorcycle engine caused the engine to "suddenly" stop and seize. The court did not consider that event to constitute an exception to Moorman because the event did not occur in a dangerous manner that posed an unreasonable risk of injury to the plaintiff or his property.
Generally, the Moorman doctrine precludes recovery in tort for purely economic damages, with one exception being when there is personal injury or damage to other property as a result of a sudden and dangerous event. This exception includes situations in which there was more of an injury than mere disappointed consumer expectations, and thus allows recovery in either contract or tort. While courts have not settled on a definition of "sudden," they will examine the suddenness of the event that causes the injury and not the suddenness of the cause of the product defect. Moreover, an event must be both sudden and dangerous to fall within this exception.
1 In re Chicago Flood Litig., 176 Ill. 2d 179, 198, 680 N.E.2d 265, 274, 223 Ill. Dec. 532, 541 (1997).
2 Moorman Mfg. Co. v. National Tank Co., 91 Ill. 2d 69, 435 N.E.2d 443, 61 Ill.zDec. 746 (1982).
3 Mars Inc. v. Heritage Builders of Effingham, Inc., 327 Ill. App. 3d 346, 350, 763 N.E.2d 428, 433, 261 Ill. Dec. 458, 464 (4th Dist. 2002).
4 Moorman, 91 Ill. 2d at 82, 435 N.E.2d at 449, 61 Ill. Dec. at 752 (quoting Note, Economic Loss in Products Liability Jurisprudence, 66 Colum. L.Rev. 917, 918 (1966)).
5 Moorman, 91 Ill. 2d at 86, 435 N.E.2d at 450, 61 Ill. Dec. at 753.
7 Anderson Electric, Inc. v. Ledbetter Erection Corp., 115 Ill. 2d 146, 503 N.E.2d 246, 104 Ill. Dec. 689 (1986).
8 2314 Lincoln Park West Condo. Ass’n v. Mann, Gin, Ebel & Frazier, Ltd., 136 Ill. 2d 302, 555 N.E.2d 346, 144 Ill. Dec. 227 (1990).
9 Moorman, 91 Ill. 2d at 86-89, 435 N.E.2d at 450-53, 61 Ill. Dec. at 753-56; Chicago Flood Litig., 176 Ill. 2d at 199, 680 N.E.2d at 275, 223 Ill. Dec. at 542.
10 Trans States Airlines v. Pratt & Whitney Canada, Inc. 177 Ill. 2d 21, 42, 682 N.E.2d 45, 54, 224 Ill. Dec. 484, 493 (1997) (holding that the test for what is other property is what was bargained for. In Trans States, an airplane engine malfunctioned, and the court concluded that the damage to the airframe due to the engine failure is not "other" property damage under the Moorman exception because the subject of the bargain was for the entire aircraft, not just the engine). The focus of this article, however, is not on what constitutes "other" property.
11 American Xyrofin, Inc. v. Allis-Chalmers Corp., 230 Ill. App. 3d 662, 671, 595 N.E.2d 650, 657, 172 Ill. Dec. 289, 296 (2d Dist. 1992) (quoting Moorman, 91 Ill. 2d at 97 (Simon, J., specially concurring)).
12 Mars, 327 Ill. App. 3d at 353, 763 N.E.2d at 435, 261 Ill. Dec. at 466 (quoting Stepan Co. v. Winter Panel Corp., 948 F.Supp. 802, 807-08 (N.D. Ill. 1996)) (admitting that the definition in Stepan is circular in its logic).
13 American Xyrofin, 230 Ill. App. 3d at 671, 595 N.E.2d at 657, 172 Ill. Dec. at 296; United Airlines, Inc. v. CEI Industries of Illinois, Inc., 148 Ill. App. 3d 332, 339, 499 N.E.2d 558, 562, 102 Ill. Dec. 1, 5 (1st Dist. 1986).
14 See United Airlines, 148 Ill. App. 3d at 339, 499 N.E.2d at 562, 102 Ill. Dec. at 5.
15 Moorman, 91 Ill. 2d at 82, 435 N.E.2d at 449, 61 Ill. Dec. at 752; see Chicago Flood Litig., 176 Ill. 2d at 200-01, 680 N.E.2d at 275, 223 Ill. Dec. at 542.
16 Foxcroft Townhome Owners Ass’n v. Hoffman Rosner Corp., 105 Ill. App. 3d 951, 958, 435 N.E.2d 210, 216, 61 Ill. Dec. 721, 727 (2d Dist. 1985); see also Redarowicz v. Ohlendorf, 92 Ill. 2d 171, 441 N.E.2d 324, 65 Ill. Dec. 411 (1982).
17 See NBD Bank v. Krueger Ringier, Inc., 292 Ill. App. 3d 691, 696, 686 N.E.2d 704, 708, 226 Ill. Dec. 921, 925, (1st Dist. 1997); Anderson Elec., Inc. v. Ledbetter Erection Corp., 133 Ill. App. 3d 844, 847, 479 N.E.2d 476, 479, 88 Ill. Dec. 863, 866 (4th Dist. 1985).
18 112 Ill. 2d 378, 388, 493 N.E.2d 1022, 1026, 98 Ill. Dec. 1, 5 (1986), followed by American Drug Stores, Inc. v. AT&T Technologies, Inc. 222 Ill.App. 3d 153, 155, 583 N.E.2d 694, 696, 164 Ill. Dec. 778, 780 (2d Dist. 1991).
19 148 Ill. App. 3d at 340, 499 N.E.2d at 563, 102 Ill. Dec. at 6.
21 120 Ill. App. 3d 556, 557, 458 N.E.2d 209, 210, 76 Ill. Dec. 70, 71 (4th Dist. 1983).
23 327 Ill. App. 3d at 353, 763 N.E.2d at 436, 261 Ill. Dec. at 466.
24 Vaughn v. General Motors Corp., 102 Ill. 2d 431, 436-37, 466 N.E.2d 195, 197, 80 Ill. Dec. 743, 745 (1984), overruled on other grounds by Trans State Airlines v. Pratt & Whitney Canada, Inc., 177 Ill. 2d 21, 682 N.E.2d 45, 244 Ill. Dec. 484 (1997); see also American Xyrofin, 230 Ill. App. 3d at 672, 595 N.E.2d at 657, 172 Ill. Dec. at 296; Seegers Grain Co., Inc. v. United States Steel Corp., 218 Ill. App. 3d 357, 366, 577 N.E.2d 1364, 1370, 160 Ill. Dec. 793, 799 (1st Dist. 1991).
25 Vaughn, 102 Ill. 2d at 432-33, 466 N.E.2d at 195, 80 Ill. Dec. at 744.
26 132 Ill.App. 3d 82, 86-87, 477 N.E.2d 54, 58, 87 Ill. Dec. 457, 461 (1st Dist. 1985).
Chrissie Garza is a third-year law student at Northern Illinois University College of Law. She serves as an assistant editor on the Law Review and is a member of the Moot Court Society, the Latino Law Student Association, and Phi Delta Phi. Most recently, she was a summer law clerk at Momkus Ozog & McCluskey LLC, in Downers Grove, Illinois.