Negligence - Claims for pure economic loss

Learning Outcomes

This article explains negligence claims for pure economic loss, including:

• Identifying when a plaintiff’s loss is purely economic rather than consequential to physical injury or property damage, and accurately labeling losses as pure, consequential, or relational on MBE questions.
• Applying the economic loss rule as a duty limitation that bars negligence and strict products liability claims, even where financial loss is foreseeable, and recognizing its central role in exam fact patterns.
• Distinguishing pure economic loss from consequential economic loss flowing from physical harm, and explaining why the latter is generally recoverable while the former is presumptively excluded absent a recognized exception.
• Pinpointing the narrow exceptions that permit recovery for pure economic loss, especially negligent misstatements, professional malpractice, and information-based special relationships, and determining when a plaintiff falls within the protected class.
• Evaluating products liability scenarios to decide when damage to “other property” opens the door to tort recovery and when the plaintiff must rely solely on contract and warranty remedies.
• Analyzing relational economic loss problems—such as disrupted utilities, damaged roads, or injured employees—and concluding when businesses’ lost profits remain unrecoverable in negligence despite clear causation and foreseeability.
• Connecting the economic loss rule to related limits on recovery for pure emotional harm (NIED), reinforcing how courts use categorical rules to confine negligence liability.
• Practicing issue-spotting and answer-choice elimination techniques tailored to common MBE patterns involving professional advice, defective products, and utility interruptions that generate only financial loss.

MBE Syllabus

For the MBE, you are required to understand negligence-based claims for financial loss and the limits on recovery, with a focus on the following syllabus points:

• The general rule that a plaintiff cannot recover in negligence for purely economic loss unconnected to personal injury or property damage.
• The policy justifications for the economic loss rule.
• The distinction between pure economic loss and consequential economic loss.
• The interaction between negligence, products liability, and contract/warranty when only economic loss is alleged.
• The narrow exceptions based on special relationships or negligent misrepresentation by professionals.
• How these principles apply to exam fact patterns involving disrupted utilities, defective products, and professional advice.
• The relationship between the economic loss rule and other “pure harm” limits (such as negligent infliction of emotional distress).

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is generally true regarding claims for pure economic loss in negligence?
   1. They are always recoverable if the defendant was careless.
   2. They are recoverable only if there is physical damage.
   3. They are not recoverable unless an exception applies.
   4. They are recoverable if the loss was foreseeable.
2. A builder negligently damages a power cable, causing a factory to lose production for a day but suffer no physical damage. Can the factory recover its lost profits in negligence?
   1. Yes, always.
   2. No, unless an exception applies.
   3. Yes, if the builder was insured.
   4. No, because the loss was not foreseeable.
3. Which of the following is most likely to be an exception to the rule against recovery for pure economic loss?
   1. Loss suffered by a competitor due to lawful competition.
   2. Loss caused by a negligent misstatement by a professional advisor.
   3. Loss of profits due to a general market downturn.
   4. Loss caused by a stranger’s breach of contract.

Introduction

Negligence claims for purely financial loss are heavily tested on the MBE and are a classic trap area. Many tort fact patterns involve money losses, but not every financial loss is recoverable in negligence.

Modern U.S. law follows the economic loss rule: when the plaintiff suffers only financial loss, unaccompanied by personal injury or property damage, negligence and strict products liability usually do not provide a remedy. Instead, the plaintiff’s remedy (if any) is typically in contract, warranty, or under a separate economic tort such as intentional interference with contract or fraud.

Key Term: Pure Economic Loss
Financial loss suffered by a plaintiff that does not result from physical injury to a person or physical damage to property, but arises independently (for example, lost profits, lost business opportunities, or the cost of fixing a defective product that has not caused any other damage).

This article focuses on:

• The basic economic loss rule.
• Why courts limit negligence recovery for pure economic loss.
• How to distinguish pure economic loss from consequential economic loss.
• The narrow exceptions that allow recovery of pure economic loss, especially in professional and information-based contexts.
• How these ideas connect to other “pure harm” limits, such as the rules on negligent infliction of emotional distress (NIED).

Understanding these distinctions is essential for choosing the correct option on MBE negligence questions.

What is Pure Economic Loss

Pure economic loss encompasses a wide range of financial harms where no one is physically injured and no property (apart from the defective product itself) is damaged. Common examples include:

• Lost profits due to interruption of a utility supply.
• Loss of business because a nearby road is negligently damaged and closed.
• The cost of repairing or replacing a defective product that has not injured anyone or damaged other property.
• Money lost because of inaccurate professional advice or reporting, where no physical harm occurs.
• Lost profits when another person’s property is damaged and your business depends on that property.

Contrast this with situations where the plaintiff first suffers physical harm and then financial consequences.

Key Term: Consequential Economic Loss
Financial loss that directly results from physical injury to a person or damage to property (for example, lost wages due to personal injury, rental costs while a damaged building is repaired, lost profits while a damaged factory is rebuilt). Consequential economic loss is generally recoverable in negligence.

On MBE questions, ask yourself:

• Did some person or property of the plaintiff suffer physical harm?
• Is the claimed financial loss a consequence of that physical harm?

If the answer to the first question is “no,” you are likely dealing with pure economic loss and the economic loss rule comes into play. If the answer is “yes” and the money loss flows from that physical harm, you are dealing with consequential economic loss, which is generally recoverable if the usual negligence elements are satisfied.

Key Term: Relational Economic Loss
Economic loss suffered because of physical damage to another person’s person or property (for example, lost profits when a third party’s property is damaged and your business depends on it). This kind of loss is usually treated as pure economic loss and is not recoverable in negligence.

Notice how both pure and relational economic loss focus on the absence of injury to the plaintiff’s own person or property. That is the key dividing line.

The General Rule: The Economic Loss Rule

U.S. courts generally apply the economic loss rule in negligence and strict products liability.

Key Term: Economic Loss Rule
The principle that a plaintiff who suffers only economic loss, without any related personal injury or damage to property other than the defective product itself, cannot recover in negligence or strict products liability.

From the MBE standpoint:

• If the plaintiff’s loss is purely financial and there is no personal injury or damage to other property, a negligence claim is usually barred.
• The plaintiff’s remedy, if any, lies in contract (for example, warranty, UCC remedies) or in a different tort (such as intentional misrepresentation or intentional interference with contract).

The Themis outline summarizes the rule this way:

• A plaintiff who suffers only economic loss without any related personal injury or property damage cannot recover in negligence.

Treat that as the default rule unless the facts clearly invoke a recognized exception.

Economic Loss Rule and Products Liability

The economic loss rule is especially important in products cases.

• If a defective product injures someone or damages other property, the plaintiff can sue in negligence or strict liability for both the physical harm and resulting economic loss (for example, medical bills, lost earnings, lost profits while repairs are made).
• If the defect causes harm only to the product itself and the plaintiff’s loss is purely economic (for example, repair or replacement costs, lost use, lost profits), tort recovery is barred; the plaintiff must proceed under contract and warranty theories.

This is a favorite MBE pattern: an expensive machine fails and destroys itself, but nothing else. When you see “only the product itself was damaged,” that almost always signals the economic loss rule.

Policy Reasons

The economic loss rule is driven by several policy concerns that sometimes appear in answer choices:

• Preventing indeterminate liability to an indeterminate class: If every business indirectly affected by a negligent act could sue, liability could extend to an unlimited group of plaintiffs, with no logical stopping point.

• Encouraging risk allocation by contract and insurance: Parties engaged in commercial activity can—and should—allocate economic risks through contracts (price, warranties, limitation of liability clauses) and insurance. Tort law is not meant to guarantee every business expectation.

• Maintaining the boundary between tort and contract: Tort law is primarily concerned with protecting bodily integrity and tangible property. Contract law is the main tool for enforcing financial expectations between parties.

• Managing proof and speculation: Purely financial losses can be highly speculative and difficult to prove with certainty. Limiting recovery reduces the risk of speculative or collusive claims.

On the MBE, an answer choice that refers to limiting liability for “remote or speculative losses,” or that mentions preserving the distinction between contract and tort, is often articulating these policy reasons and is likely to be the correct justification.

Distinguishing Pure from Consequential Economic Loss

A recurring exam task is to classify the plaintiff’s losses. Use this checklist:

• Step 1: Identify physical injury or property damage:

  • If the plaintiff (or the plaintiff’s property) has been physically harmed, there is a basis for negligence.
  • If not, you are probably dealing with pure economic loss.

• Step 2: Ask whether the financial loss flows from that physical harm:

  • If yes, the loss is consequential and recoverable, subject to usual rules on duty, causation, and foreseeability.
  • If no, it is pure (or relational) economic loss and presumptively barred.

Examples:

• Doctor’s negligence injures a patient; the patient sues for medical bills and lost earnings.

  • Physical injury + money losses resulting from the injury = consequential economic loss → recoverable if duty, breach, causation, and damages are proven.

• Contractor negligently damages a bridge; a nearby shop loses business while the bridge is closed but the shop itself is undamaged.

  • Shop’s loss is relational pure economic loss → no negligence recovery.

• Truck driver negligently crashes into a factory, damaging the building and shutting the business for three weeks.

  • The factory owner can recover for property damage to the building and consequential lost profits during the shutdown. These are not “pure” economic losses: they flow from physical damage to the plaintiff’s property.

The key is to tie the financial loss back to physical harm suffered by this plaintiff. If you cannot do that, expect the economic loss rule to block recovery.

Worked Example 1.1

A contractor negligently cuts a power cable, causing a blackout. A nearby bakery loses a day’s profits but suffers no physical damage to its premises or equipment. Can the bakery recover its lost profits from the contractor?

Answer:
No. The bakery’s loss is pure economic loss: it lost profits but suffered no personal injury or property damage. Under the economic loss rule, negligence recovery is barred unless a recognized exception applies, and none does here.

Worked Example 1.2

An accountant carelessly prepares a financial report for a client, knowing the client will show it to a specific potential investor. The investor relies on the report, buys shares, and suffers financial loss when the company’s true position emerges. Can the investor recover from the accountant?

Answer:
Yes, likely. The investor’s loss is pure economic loss, but this is a classic exception: negligent misstatement by a professional who knew a specific investor (or a narrow class of investors) would rely on the report. The special, information-based relationship can give rise to a duty to avoid causing pure economic loss.

Main Exceptions

Although the economic loss rule is strict, courts and the Restatement recognize narrow exceptions. On the MBE, you should assume no recovery unless the facts clearly fit one of these patterns.

1. Negligent Misstatement and Professional Advice

Key Term: Negligent Misstatement
A false or misleading statement made without due care, by someone who owes a duty of care in giving information or advice, which causes pure economic loss to a person who reasonably relies on it.

Key Term: Professional Negligence (for Economic Loss)
Negligent performance of professional services (for example, by lawyers, accountants, architects, engineers, investment advisors) that causes clients purely financial loss.

Professionals who undertake to provide information or advice for the guidance of others in business or financial decisions owe a duty of reasonable care. That duty can support negligence liability for pure economic loss where:

• The defendant is in the business of supplying information or professional services.
• The defendant knows, or intends, that a specific person or a limited, identifiable group will rely on the information.
• The plaintiff’s reliance is reasonable and causes financial loss.

Common exam situations:

• Lawyer negligently misses a filing deadline, making the client’s claim time-barred. The client’s lost recovery is purely economic but recoverable in legal malpractice.
• Accountant issues an audit report knowing it will be shown to a named bank to secure a loan. The bank reasonably relies and suffers loss; the accountant may be liable.
• Structural engineer prepares calculations for a particular project, knowing that a specific contractor will rely on them in formulating a bid.

In contrast, professionals are not usually liable in negligence to an indeterminate class of investors or lenders who happen to see and rely on a publicly available document, such as an annual report posted online. MBE questions often hinge on whether the plaintiff was part of the limited group the defendant contemplated.

Key Term: Special Relationship (Economic Loss)
A relationship—often professional or advisory—in which one party undertakes to provide information or services for the economic guidance of another, creating a limited duty to avoid causing pure economic loss (for example, lawyer–client, auditor–named lender).

2. Assumption of Responsibility

Closely related to negligent misstatement is the idea that a defendant may expressly or impliedly assume responsibility for another’s economic interests.

Key Term: Assumption of Responsibility (Economic Loss)
A situation in which a defendant, by words or conduct, undertakes to safeguard a plaintiff’s economic interests in a specific transaction, thereby creating a limited duty in negligence to avoid causing pure financial loss.

This often occurs where:

• The defendant gives specific assurances about economic matters.
• The plaintiff is clearly identified and known to be relying on those assurances.
• The defendant’s undertaking is more than a casual opinion and resembles professional or quasi-professional advice.

On an exam, this will look very similar to the professional scenarios, but it can also arise informally—for instance, a real estate agent providing valuation advice to a known buyer and encouraging reliance, or a surveyor preparing a report knowing a particular purchaser will rely on it to decide whether to buy.

In practice, on the MBE, you should treat “assumption of responsibility” as part of the same cluster of exceptions as professional negligence and negligent misstatement; it is another way of describing the special relationship that justifies recovery.

Worked Example 1.3

A lender hires an appraiser to value a specific property in connection with a proposed loan to a particular buyer. The appraiser negligently overvalues the property. The lender, relying on that appraisal, makes the loan and later suffers a shortfall when the buyer defaults and the property sells for far less than the appraised amount. There is no physical damage to anything. Can the lender recover the shortfall from the appraiser in negligence?

Answer:
Yes. This is a classic information-based relationship. The appraiser knew exactly who would rely (this particular lender) and why (to decide whether to loan money on this property). The lender’s loss is pure economic loss, but the duty arises from the appraiser’s undertaking to provide careful, transaction-specific information.

3. Defective Products or Services: The Economic Loss Rule in Products Liability

A very important application of the economic loss rule is in products liability.

• If a defective product injures someone or damages other property, the plaintiff can sue in negligence or strict liability for:

  • Physical injury to persons.
  • Physical damage to “other property.”
  • Consequential economic loss tied to that physical harm (for example, lost profits while repairs are made).

• If the defect causes harm only to the product itself and the plaintiff’s loss is purely economic—repair costs, replacement costs, lost use, lost profits—tort recovery is barred. The plaintiff must proceed under contract and warranty.

This is sometimes called the “products economic loss rule.” It ensures that commercial disputes about product quality and performance are handled through the agreed contractual allocation of risk, not through open-ended tort liability.

Examples:

• A defective furnace explodes, damages the building, and shuts the business for a month. The owner can sue in negligence or strict liability for damage to the building and consequential lost profits.
• A commercial machine fails internally due to a manufacturing defect, ruins itself, and causes downtime but does not damage anything else. The owner’s loss is the cost of repair or replacement and lost profits—pure economic loss. Tort claims are barred; contract remedies govern.

Worked Example 1.4

A manufacturer sells a large industrial freezer to a grocery store. Due to a defect, the freezer stops working overnight. The freezer itself is damaged and all the stored food spoils. The store sues in negligence for the cost of the freezer, the spoiled food, and lost profits while the freezer is replaced. What is recoverable in negligence?

Answer:
The spoiled food and the consequential lost profits are recoverable; they arise from damage to “other property.” The cost of replacing or repairing the freezer itself is pure economic loss attributable to the defective product and is generally not recoverable in tort. The store must rely on contract or warranty for that part of the loss.

4. Third-Party or “Relational” Economic Loss

Sometimes a defendant’s negligence physically injures a third party, and the plaintiff suffers purely financial loss as a result—for example:

• A contractor negligently damages a public road; nearby businesses lose customers while the road is closed.
• A shipping company negligently sinks a cargo vessel; downstream businesses depending on that cargo lose profits.
• A negligently caused explosion damages a supplier’s plant; another company that buys components from the supplier suffers shutdowns and lost profits.

These are relational economic loss cases. Under the general rule, plaintiffs who suffer only financial harm because someone else’s person or property was damaged cannot recover in negligence.

There are limited, specialized exceptions in particular fields (for example, certain maritime cases or statutorily created claims), but on the MBE you should assume no recovery unless the question explicitly invokes such a special rule.

Also be careful not to confuse these negligence scenarios with the separate intentional tort of intentional interference with contract. That tort requires deliberate, improper interference with a known contract or business expectancy and has its own elements. It is not a negligence-based pure economic loss claim.

Worked Example 1.5

Someone negligently damages a major access road. A restaurant located on that road loses half its customers for several weeks while the road is repaired but suffers no physical damage to its own premises. The restaurant sues the negligent driver for its lost profits. Can it recover in negligence?

Answer:
No. The restaurant’s loss is pure, relational economic loss: its own property was not damaged, and it suffered only financial harm because a third party’s property (the road) was damaged. The economic loss rule bars negligence recovery.

5. Economic Loss Rule and Pure Emotional Harm

The MBE also tests another important limitation on recovery: negligent infliction of emotional distress (NIED). Historically, plaintiffs could not recover for purely emotional harm absent physical injury, and modern law allows NIED only in narrow, defined situations (for example, zone-of-danger and bystander rules).

The rule on pure economic loss is parallel: just as courts restrict recovery for pure emotional harm, they restrict recovery for pure financial harm. Both rules serve similar policies:

• Preventing limitless liability.
• Limiting recovery to harms that courts and juries can evaluate with some objectivity.
• Reserving tort law for serious invasions of bodily integrity and property interests.

On the MBE, you may see a question where a plaintiff suffers only emotional distress from property damage, such as a homeowner who watches a cherished home burn due to a utility’s negligence. Under the NIED rules, pure emotional distress from property loss is generally not compensable in negligence. And if that same homeowner suffered only financial loss (for example, purely lost rental income but no physical damage), the economic loss rule would also bar recovery.

Recognizing that pure emotional loss and pure economic loss are treated similarly will help you eliminate wrong answer choices that assume “any foreseeable harm is recoverable.”

Exam-Focused Applications

Interaction with Duty, Foreseeability, and Causation

Students often think that if a defendant’s negligence foreseeably causes financial loss, that is enough for liability. For pure economic loss, that is wrong. The economic loss rule operates as an independent limit on duty.

On an exam:

• Do not be misled by the fact that the defendant could easily foresee the plaintiff’s lost profits.
• Ask whether the plaintiff’s loss is tied to physical injury or property damage to the plaintiff, or falls within a recognized professional/information-based exception.
• If not, the safest conclusion is “no duty to avoid pure economic loss” and therefore no negligence liability.

This explains why, in the common “cut cable” or “damaged road” hypotheticals, the businesses’ lost profits are not recoverable even though those losses were plainly foreseeable.

Professional Relationships: How Far Does the Duty Extend

The key exam question with professional defendants is: to whom does the professional owe a duty of care for pure economic loss?

The usual pattern is:

• Duty to the client:
  A lawyer, accountant, engineer, or other professional will almost always owe a duty to the client with whom they are in privity. Pure economic loss to the client caused by professional negligence is recoverable.

• Duty to a limited, known group of third parties:
  Liability may extend to non-clients where the professional:

  • Knows the non-client will rely.
  • Intends the non-client to rely.
  • Provides information or services for the specific purpose of guiding the non-client’s economic decision.

• No duty to the investing public at large:
  A professional typically owes no duty to strangers who happen to rely on public filings or widely circulated reports. This avoids “indeterminate liability to an indeterminate class.”

Worked Example 1.6

An accounting firm audits a company’s financial statements and issues a report, knowing that the company will use the report only in negotiations with a specific bank to obtain a credit line. Instead, the company also posts the report on its public website. A stranger in another state reads the report, buys stock, and later loses money when the company’s true position is revealed. The stranger sues the accounting firm for negligence. The stranger’s loss is purely economic. Is the firm liable?

Answer:
No. The firm owed a duty to the company (its client) and possibly to the specific bank it knew would rely. It did not assume responsibility to an indeterminate class of public investors who might read the report online. The stranger is outside the limited class contemplated; the economic loss rule, combined with the limited scope of the professional’s duty, bars recovery.

Utility Interruptions and Service Disruptions

Another common pattern involves interruptions of public utilities or services: electricity, water, telephone, internet, or data networks. Often:

• The defendant negligently damages infrastructure or negligently operates the network.
• Many downstream users lose business or suffer other financial harms.
• There is no physical damage to their own persons or property.

These are classic economic loss rule scenarios. Unless a specific contract or statute creates liability, negligence recovery for these purely economic losses is barred, even though the harms are foreseeable and potentially substantial.

When you see many possible plaintiffs after a service interruption, that is a strong signal the examiners want you to invoke the economic loss rule.

Relational Loss from Injury to Employees or Suppliers

Relational economic loss also appears when:

• An employee is injured by the defendant’s negligence, and the employer sues for lost profits due to the worker’s absence.
• A supplier’s facility is damaged, and a purchaser sues for lost profits from interrupted supply.

In both cases, the plaintiff’s loss is purely economic and relational: it stems from injury to someone else’s person or property.

The injury victim (the employee or the supplier) can sue for personal injury or property damage and consequential losses. But the employer’s or purchaser’s independent economic losses are not recoverable in negligence.

Worked Example 1.7

A driver negligently injures a construction worker employed by a contractor. The worker is out of work for six months. The contractor sues the driver in negligence for lost profits and increased costs caused by the worker’s absence. There is no damage to the contractor’s property. Can the contractor recover?

Answer:
No. The contractor’s loss is relational pure economic loss: it arises because someone else (the employee) suffered personal injury. The contractor’s own property was not damaged. Under the economic loss rule, the contractor cannot recover its financial losses in negligence.

Economic Loss and Products: Clarifying the Boundaries

Because products and sales contracts appear in many MBE questions, it is worth sharpening how the economic loss rule interacts with Article 2 and warranty.

• If only the product itself fails:

  • Tort: No negligence or strict products liability recovery.
  • Contract/warranty: Buyer may recover for nonconforming goods, breach of express or implied warranty, and consequential damages if not effectively disclaimed.

• If the product causes other property damage:

  • Tort: Recovery available for damage to “other property” and consequential economic loss.
  • Contract: Still available, but the plaintiff can choose how to proceed (subject to overlap issues and economic pragmatic choice).

• If the product endangers safety but fails before causing injury:

  • Many courts treat the cost of repair to avoid potential injury as pure economic loss governed by contract, not tort.
  • On the MBE, if the question emphasizes only potential danger and purely preventative costs, assume the economic loss rule bars tort recovery.

Worked Example 1.8

A city buys a fleet of buses from a manufacturer. The brake systems are defectively designed, making the buses prone to brake failure. Before any accidents occur, the city discovers the defect and takes all buses out of service, incurring:

• The cost of replacing the brakes.
• Lost fare revenue while the buses are being repaired.

No accidents have happened, and no property was damaged. The city sues the manufacturer in negligence. Can it recover in tort?

Answer:
No. The city’s losses are the cost of fixing the product itself and lost revenue from not using the buses. These are pure economic losses. Even though the defect threatens serious physical harm, tort recovery is typically unavailable until actual physical injury or property damage occurs. The city’s remedy lies in contract and warranty.

Exam Warnings and Strategy

Typical Traps

Some common traps in MBE questions involving economic loss:

• Foreseeability trap:
  An answer choice focuses only on foreseeability and ignores the economic loss rule. For pure economic loss, foreseeability of financial harm is not enough.

• Duty trap:
  An answer choice suggests that because the defendant owed some general duty of care (for example, to drive carefully), any foreseeable economic harm is recoverable. Correct reasoning must consider the scope of the duty, which generally does not extend to pure economic loss to remote parties.

• Products trap:
  An answer choice treats damage to the product itself as property damage that supports tort recovery. For the economic loss rule, “property” means property other than the defective product itself.

• Professional liability trap:
  An answer choice extends liability for negligent misstatement to anyone who happened to rely, not just to a limited, known group. Remember: professionals are not insurers of the entire market.

• Relational loss trap:
  An answer choice allows recovery to parties who suffer only financial loss from injury to someone else’s person or property (for example, employer of injured worker, customers of damaged bridge, downstream businesses affected by utility outage). These are classic relational economic losses barred in negligence.

Practical Exam Approach

When you see a negligence or products question involving money loss:

• Step 1: Identify whether the plaintiff or the plaintiff’s property suffered physical harm.

  • If yes, classify the loss as consequential economic loss and analyze duty, breach, causation, and damages.
  • If no, proceed to Step 2.

• Step 2: Ask whether the defendant is a professional or information provider who knew the plaintiff (or a very small group) would rely on the information for a specific economic decision.

  • If yes, consider the negligent misstatement/professional exception and analyze duty and reliance.
  • If no, you likely have pure economic loss, and the economic loss rule bars recovery.

• Step 3: In products cases, ask whether any property other than the product itself was damaged.

  • If only the product is damaged, think contract and warranty, not tort.
  • If “other property” is damaged, tort recovery is possible for that damage and resulting economic loss.

Worked Example 1.9

A chemical plant negligently discharges pollutants into a river. The pollution kills fish and damages the nets of local fishers, who suffer lost profits during the cleanup and repair period. A nearby riverside restaurant, which serves fish but suffers no physical damage, loses business during the same period because tourists avoid the polluted area. Both the fishers and the restaurant sue the plant in negligence for lost profits. Which plaintiffs can recover?

Answer:
The fishers can recover their lost profits because they also suffered physical damage to their property (nets) and loss of catch; their lost profits are consequential to that physical damage. The restaurant suffered only relational pure economic loss—no damage to its own property—so its lost profits are barred by the economic loss rule.

Worked Example 1.10

A seller hires a termite inspection company to inspect a home it is about to sell. The inspector knows the report is being obtained solely to facilitate the sale of the house to a particular named buyer, who will receive the report before deciding whether to buy. The inspector negligently reports that there is no termite problem, when in fact there is major termite damage. The buyer relies on the report, buys the house, and later discovers the termite damage, incurring substantial repair costs and diminished resale value. There is no personal injury. The buyer sues the termite company in negligence. Is the buyer likely to recover?

Answer:
Yes. The termite company is a professional information provider in this context. It knew a specific buyer would rely on the report to make a purchase decision. The buyer’s loss is pure economic loss (repair costs and diminished value), but this falls within the professional/information exception to the economic loss rule.

Key Point Checklist

This article has covered the following key knowledge points:

• Pure economic loss is generally not recoverable in negligence under the economic loss rule.
• Consequential economic loss that follows physical injury to person or property is recoverable in negligence, subject to duty, causation, and foreseeability.
• The economic loss rule is central in products liability: when a defect harms only the product itself, tort claims for pure economic loss are barred; the plaintiff must look to contract or warranty.
• Relational economic loss—financial harm arising from damage to a third party’s person or property—is almost never recoverable in negligence on the MBE.
• Professionals and others in special information-based relationships may be liable in negligence for pure economic loss caused by negligent misstatements or professional negligence, but only to clients and a limited, intended group of third-party users.
• Assumption of responsibility and special relationships are the key concepts that justify exceptions for pure economic loss in professional and information-based contexts.
• Pure economic loss and pure emotional harm (NIED) are treated similarly: both are subject to strict limitations and are only recoverable in defined categories.
• Foreseeability of financial loss alone does not establish liability where the economic loss rule applies; duty is limited to protecting bodily integrity and property, not every economic expectancy.
• In utility interruption and public infrastructure cases, widespread lost profits with no physical damage to the plaintiff are textbook pure economic loss; negligence recovery is barred.
• On the MBE, always classify the loss (pure vs consequential), check for physical harm to the plaintiff, and then look for a clear professional or special relationship before recognizing an exception.

Key Terms and Concepts

• Pure Economic Loss
• Consequential Economic Loss
• Economic Loss Rule
• Relational Economic Loss
• Negligent Misstatement
• Professional Negligence (for Economic Loss)
• Special Relationship (Economic Loss)
• Assumption of Responsibility (Economic Loss)