Lincoln General Insurance Co. v. Detroit Diesel Corp.
293 S.W.3d 487, 2009 WL 2568190, 2009 Tenn. LEXIS 512 (2009)
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Rule of Law:
Under Tennessee law, the economic loss doctrine bars recovery in tort for a defective product that damages only itself, even if the product defect rendered it unreasonably dangerous and the damage occurred through a sudden, calamitous event.
Facts:
- Senators Rental, Inc. purchased a bus manufactured by Prevost Car (US) Inc.
- The bus's engine was produced by Detroit Diesel Corporation.
- On May 8, 2006, the bus was traveling on Interstate 65 when it caught fire due to an alleged engine defect.
- The fire resulted in the total loss of the bus.
- The fire did not cause any personal injury or damage to any property other than the bus itself.
- Lincoln General Insurance Company, as the insurer for Senators Rental, paid $405,250 for the fire damage.
Procedural Posture:
- Lincoln General Insurance Company filed a complaint against Prevost Car (US) Inc. and Detroit Diesel Corporation, alleging claims including negligence and strict products liability.
- The defendants removed the case to the United States District Court for the Middle District of Tennessee.
- Prevost filed a Rule 12(b)(6) motion to dismiss, arguing that Lincoln General's tort claims were barred by the economic loss doctrine.
- The U.S. District Court certified a question of law to the Supreme Court of Tennessee to determine the scope of the economic loss doctrine under state law.
- The Supreme Court of Tennessee accepted the certified question.
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Issue:
Does Tennessee law recognize an exception to the economic loss doctrine that would permit recovery in tort for damage to a defective product itself when the defect renders the product unreasonably dangerous and causes the damage by means of a sudden, calamitous event?
Opinions:
Majority - Chief Justice Janice M. Holder
No. Tennessee law does not recognize an exception to the economic loss doctrine for unreasonably dangerous products that cause damage to themselves in a sudden, calamitous event. The court adopted the 'majority approach' articulated in East River Steamship Corp. v. Transamerica Delaval, Inc., which establishes a bright-line rule precluding tort recovery when a product damages only itself. The court reasoned that such damage represents a failure of the product to meet the purchaser's expectations, which is the core concern of contract and warranty law, not tort law. Allowing tort recovery would blur the line between tort and contract, disrupt the parties' allocation of risk, and subject manufacturers to indeterminate liability. The court concluded that the Tennessee Products Liability Act's reference to 'property damage' means damage to property other than the defective product itself, thereby limiting recovery to contract-based remedies for purely economic losses.
Analysis:
This decision formally adopts the bright-line majority rule of the economic loss doctrine in Tennessee, as established in the U.S. Supreme Court case East River. By rejecting the 'intermediate approach,' the court provides certainty for manufacturers regarding the scope of their tort liability, limiting it to cases involving personal injury or damage to other property. The ruling solidifies the conceptual wall between contract law, which governs economic expectations between commercial parties, and tort law, which addresses safety and unforeseen harm to persons and property. This holding reinforces that commercial purchasers must protect themselves against product failure through negotiation, warranties, and insurance, rather than relying on tort remedies.
