At first blush, you might think that there should be no practical difference under the law whether you sustained property damage or personal injury as the result of exposure or use of a defective product. Either way, you should be able to try to recover your consequential damages, right?

Guess again. Absolutely wrong.

And the reason is a relatively little-known provision of New York law called the "Economic Loss Rule," which has been summarized by New York's courts as follows:

"The economic loss rule provides that tort recovery in strict products liability and negligence against a manufacturer is not available to a downstream purchaser where the claimed losses flow from damage to the property that is the subject of the contract and personal injury is not alleged or at issue" (Atlas Air, Inc. v General Elec. Co., 16 AD3d 444, 445; see Bocre Leasing Corp. v General Motors Corp. [Allison Gas Turbine Di v.], 84 NY2d 685, 694; New York Methodist Hosp. v Carrier Corp., 68 AD3d 830; Weiss v Polymer Plastics Corp., 21 AD3d 1095; Amin Realty v K & R Constr. Corp., 306 AD2d 230). The rule is applicable to economic losses to the product itself, as well as consequential damages resulting from the defect (see Bocre Leasing Corp. v General Motors Corp. [Allison Gas Turbine Div.], 84 NY2d at 693; Weiss v Polymer Plastics Corp., 21 AD3d at 1096)."

In other words, once the nature of the relationship between the parties with regard to the product is governed by contract, a downstream purchaser can only pursue the manufacturer directly if the claim is for personal injury, as the doctrine of strict products liability may be applicable under those circumstances. That exception, however, is limited to the injury realm; it is not extended to other types of claims, such as property damage.

Jonathan Cooper
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Non-Compete, Trade Secret and School Negligence Lawyer