Manufacturers and lessors of equipment and other products doing business in Missouri can take heart that the Eighth Circuit has issued its third opinion in the past year applying Missouri’s economic loss doctrine to bar negligent misrepresentation claims in cases involving allegedly defective or unsuitable products. Each of those cases involved alleged misrepresentations by the manufacturer or lessor about the suitability of a product for its intended use.
The most recent opinion, Graham Construction Services, Inc. v. Hammer & Steel Inc., 2014 WL 2619717 (C.A.8 (Mo.)), issued June 13, 2014, involved a dispute between a Lessor of drilling equipment and its Lessee over a drill rig leased for use in the construction of an underground water shaft. Ultimately, after several attempts to drill the shaft were thwarted by a key part of the drill rig breaking due to torque and pressure, the Lessee was forced to locate a replacement drill rig to drill a new shaft. *1-2. The Lessee brought several claims against the Lessor as a result of the unsatisfactory performance of the drilling equipment, including, relevant to this comment, a claim for negligent misrepresentation based on the Lessor’s alleged assurances that the drilling equipment would be sufficient “…to do the job.” Id.
The Lessor contended that the Lessee’s negligent misrepresentation claim was barred by Missouri’s economic loss doctrine because the Lessee’s remedies are contractual in nature and limited to those contained in the equipment rental agreement. The Lessee argued that Missouri Courts permit recovery of economic losses under the tort of negligent misrepresentation.
As the Eighth Circuit explained, the economic loss doctrine prohibits a party from seeking to recover in tort for economic losses that are contractual in nature. *3. (internal citations and quotations omitted). The rationale supporting the doctrine is that contract law, in particular the law of product warranty, is better suited for dealing with purely economic losses in commercial disputes than tort law because it permits parties to specify the terms of their bargain and to protect themselves from commercial risk through the bargaining process. Id. Under Missouri law, recovery in tort for purely economic losses are limited to cases where there is no personal injury, damage to property other than that sold or leased, or destruction of the property at issue due to some violent occurrence. Id.
The Lessee sought to get around the economic loss doctrine by arguing that the Lessor’s “assurances and representations” about the suitability of the drill rig for the project led directly to its losses. The Eighth Circuit was not persuaded – holding that Lessee’s claim – that the Lessor failed to exercise reasonable care in assuring the suitability of the drilling rig - is the essence of a warranty action, through which a contracting party could recoup the benefit of its bargain. Allowing the Lessee to maintain a tort claim would, in the Eighth Circuit’s view, effectively rewrite the parties’ contract – which the Eighth Circuit declined to do.
This developing line of decisions from the Eighth Circuit refusing to rewrite contract terms by allowing tort claims in contract disputes involving purely economic losses should be welcomed by product manufacturers doing business in Missouri – but certainly underscores the importance of prudent contract negotiation and drafting.