Kinsman Transit Co. [No. 2]

United States Court of Appeals for the Second Circuit
388 F.2d 821 (1968)

ELI5:

Rule of Law:

A negligent actor is not liable for purely economic damages that, while a foreseeable consequence of their negligence, are deemed too remote and indirect because the claimant suffered no physical damage to their person or property.

Facts:

Due to the negligence of Kinsman Transit Company and Continental Grain Company, the S.S. Shiras broke loose from its moorings in the Buffalo River.
The Shiras struck the S.S. Michael K. Tewksbury, causing it to also break loose from its moorings.
Both vessels drifted downstream and crashed into the Michigan Avenue Bridge, causing the bridge to collapse.
The wreckage of the ships and the bridge created a dam and an ice jam, which blocked all traffic on the river for approximately two months.
Cargill, Inc. had wheat stored on a ship, the S.S. Gillies, which was trapped below the collapsed bridge and could not be moved to Cargill's elevators located above the bridge for unloading.
To fulfill its contractual obligations, Cargill was required to purchase replacement wheat from other sources, incurring extra transportation and storage costs.
Cargo Carriers, Inc. was unloading corn from the S.S. Merton E. Farr above the bridge when the Farr was struck by one of the drifting vessels.
While the Farr's cargo was undamaged, an ice jam formed that made normal unloading impossible, forcing Cargo Carriers to rent special equipment to complete the task at additional expense.

Procedural Posture:

After a maritime accident, Cargill, Inc. and Cargo Carriers, Inc. filed claims for damages in a limitation of liability proceeding in the United States District Court.
Following a trial on liability, the District Court appointed a Special Commissioner to determine the damages owed to the various claimants.
The Commissioner recommended that awards be granted to both Cargill and Cargo Carriers for their economic losses.
The District Court judge reviewed the Commissioner's findings and refused to confirm the awards, ruling that the damages were unrecoverable as they stemmed from negligent interference with contractual relations.
Cargill and Cargo Carriers, as claimant-appellants, appealed the District Court's denial of their claims to the United States Court of Appeals for the Second Circuit.

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Issue:

Does a party have a right to recover for purely economic losses that were a foreseeable consequence of a defendant's negligence, when those losses resulted from an inability to use a public waterway and were not caused by any direct physical damage to the party's own property?

Opinions:

Majority - Kaufman, J.

No. A party cannot recover for purely economic damages when the connection between the defendant's negligence and the claimant's damages is too tenuous and remote. The court rejected the trial court's reasoning based on 'negligent interference with contract,' preferring to analyze the claims under traditional tort principles of proximate cause. Although the court conceded that disruption of river traffic and resulting economic losses were foreseeable consequences of the defendants' negligence, it held that foreseeability alone is not enough to establish liability. Citing the need for a practical limit on the scope of liability, the court determined that the economic losses claimed by Cargill and Cargo Carriers, which were not accompanied by physical damage to their property for which recovery was sought, were too indirect. The court drew a policy line, stating that at some point the causal link becomes 'too tenuous,' and that 'the law does not spread its protection so far.'

Analysis:

This case is a landmark decision limiting recovery for purely economic loss in American tort law. It establishes that even if economic harm is a foreseeable consequence of negligence, public policy requires a cutoff point to prevent limitless liability. The court uses the concept of proximate cause not just as a test of foreseeability, but as a pragmatic tool to deny recovery for damages that are too indirect or 'remote.' This principle, often associated with the economic loss rule, significantly impacts commercial litigation by barring claims for financial losses (like lost profits or extra expenses) that do not arise from physical injury to the claimant's own person or property.

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