Virginia's Economic Loss Rule

Virginia's Economic Loss Rule

 A plaintiff filing a lawsuit usually wants to demand as much money as possible, both for the intimidation value and because in Virginia state court, you cannot recover damages in an amount greater than what you asked for in the complaint, even if the jury awards it. Plaintiffs are thus often tempted to include demands for punitive damages, which can add as much as $350,000 to a recovery. (Punitives are capped at $350,000 in Virginia). Punitive damages, however, are not available in contract disputes. This creates a situation where the plaintiff's attorney often tries to craft the complaint in such a way as to make it appear that the defendant not only breached a contract but committed one or more related torts as well, such as fraudtortious interference with contract, or business conspiracy. Enter the "economic loss rule."

Designed to maintain the distinctions between contract claims and tort claims, the economic loss rule provides that where the plaintiff is a party to a contract and has suffered only disappointed economic expectations, such as damages for inadequate value, the cost to repair a defective product, or lost profits (as opposed to damage to persons or property), his remedy sounds in contract and not tort. In other words, if the plaintiff did not receive the benefit that he bargained for, his losses will be deemed merely economic and he will not be permitted to recover on a tort theory. An exception would apply if the contract itself was fraudulently induced.

Sometimes the line is not easy to draw. Perhaps the most accurate way to determine whether a court will permit a tort claim is to determine the source of the duty that was violated: is the duty a "common law" duty designed for the protection of persons and property for the benefit of society as a whole, or does the duty exist solely because the contract requires it? If the duty violated is purely a contractual duty, then the plaintiff is limited to a breach-of-contract claim and will not be entitled to recover punitive damages. If the duty arises independent of the parties' contract, a tort claim may be pursued for violation of that duty.

 Read the rest of the article at the Virginia Business Litigation Lawyer Blog.

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