Understanding Economic Loss in Negligence Cases
The concept of economic loss in negligence cases involves seeking damages for financial losses distinct from physical injuries. This type of loss, whether consequential or pure, can pose challenges in proving liability and recovering compensation. Examples illustrate scenarios where economic loss may arise, highlighting the complexities involved. Legal cases like Murphy v Brentwood District Council and Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd provide insights into the nuances of economic loss claims within the framework of negligence law.
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Liability in negligence for injury to people and damage to property Negligence: Economic Loss
Learning Objectives By the end of the session you should be able to: Define economic loss. 1. Distinguish between consequential economic loss and pure economic loss. 2. Explain when damages are payable for economic loss. 3.
Introduction The tort of negligence aims to pay damages for the injury or physical loss experienced by the claimant. Sometimes a claimant may wish to seek damages for those losses which are not physical injuries or physical losses but financial losses. These types of loss can usually only be seen on a balance sheet. These are known as economic losses.
Examples of Economic Loss Example One: A car crashes into the window of a shop because of the negligence of the driver. The shop owner will be entitled to damages to pay for the repair to the window. However, the shop owner has also experienced an economic loss in that he or she has lost profits while the shop is closed during the repair of the window. Example Two: A man is killed by the negligence of his employer. His widow will have experienced an economic loss in the form of lost income that her husband would have contributed to the family.
Two Types of Economic Loss Consequential economic loss: this is the economic loss that results from a physical injury such as your loss of income if you lose both your legs and can no longer work. This type of economic loss is usually recoverable. Pure economic loss: this is all other types of economic loss that do not arise from a physical injury. This type of economic loss is not recoverable.
Murphy v Brentwood District Council [1991] Facts: The claimant had bought a house. When the building became unstable, the claimant had to sell the house at a considerable loss. He claimed that the local authority failed to inspect the foundations of the house adequately when it was being built. He sought to recover his loss from the local authority. Held: The House of Lords held that the loss was pure economic loss and was not recoverable.
Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] Facts: The claimants had a factory in Birmingham, which obtained its electricity by a direct cable from the power station. The defendants were doing work on the ground with an excavator and negligently damaged that cable (they did not own the cable). As a result, the factory was deprived of electricity for a number of hours which caused physical damage to the factory s furnaces and metal, lost profit on the damaged metal and lost profit on the metal that was not melted during the time the electricity was off.
Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] Do you think damages were payable for: The physical damage to the factory s furnaces and metal? 1. The lost profit on the damaged metal? 2. The profit lost on the metal that was not melted during the time the electricity was off? 3.
Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] The Court of Appeal held that: For the physical damage to the factory s furnaces and metal, damages were payable because the damage was physical. 1. For the lost profit on the damaged metal, damages were payable as they were a direct consequence of the physical damage. 2. For the profit lost on the metal that was not melted during the time the electricity was off, damages were not payable because they constituted pure economic loss. 3.
Economic Loss and the Courts The courts have limited the amount of economic loss payable in cases of negligence. Why do you think that there are limits on economic loss?
Economic Loss and the Courts Why do you think that there are limits on economic loss? Answer: The courts have been reluctant to allow damages for pure economic loss as the potential claims could be limitless. For instance, if every driver who negligently crashed his or her car on the motorway was held to be liable to employers for everyone of their employees being late for work because of the subsequent traffic jam, driving a car would become uninsurable.
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