Facts
- A Conrail coupling operation punctured a tank car carrying ethylene oxide in the Port Newark freight yard, causing a chemical release and fire.
- The tank car was owned by Union Tank Car Co. and leased to BASF Wyandotte Co., which manufactured/shipped the chemical.
- Authorities ordered an evacuation of the surrounding area, including Newark Airport’s North Terminal, where People Express operated its principal facilities.
- People Express alleges it was barred from using the terminal for about twelve hours, causing flight cancellations, lost reservations, and continuing fixed costs.
- People Express claimed no personal injury and no physical damage to its property; its alleged damages were business interruption and lost profits.
- People Express asserted defendants knew or had reason to know ethylene oxide was highly volatile and that accident-response plans contemplated evacuation-related shutdowns.
Issues
- Whether negligence law permits recovery for purely economic losses unaccompanied by personal injury or property damage.
- Whether defendants owed a duty of reasonable care to avoid economic harm to a plaintiff whose business would foreseeably be disrupted by an evacuation-causing chemical accident.
- What limiting principle can confine liability for economic loss to avoid indeterminate or disproportionate exposure.
Decision
- The Supreme Court of New Jersey held that a defendant may owe a duty of care to avoid causing purely economic loss to a particularly foreseeable plaintiff or identifiable class, even without physical injury or property damage.
- The court rejected a per se bar on negligent infliction of purely economic loss and treated the question as one of duty and proximate cause.
- It concluded People Express could qualify as a member of an identifiable, particularly foreseeable class given its proximity and the predictable operational shutdown from an emergency evacuation.
- The Appellate Division’s judgment was modified and affirmed, and the matter was remanded for further proceedings on liability, causation, and damages.
Legal Principles
- Negligence liability for purely economic loss is permissible when the plaintiff is a particularly foreseeable victim, meaning an identifiable class of persons or entities whose economic expectations are especially likely to be disrupted by the defendant’s conduct.
- Foreseeability must be limited by identifiability: the class should be discrete and definable by factors such as geographic area, the type of economic activity, and the relationship to the risk-creating conduct.
- The duty is not owed to the public at large for ripple-effect economic loss; it is owed only to those whose economic harm is directly and proximately caused and was especially predictable.
- Economic damages, including lost profits, remain subject to ordinary proof requirements and must be shown with reasonable certainty.
Conclusion
The court allowed a negligence claim for business-interruption losses to proceed despite the absence of physical injury or property damage, holding that duty can extend to a particularly foreseeable, identifiable class and thereby limit liability to direct and predictably disrupted economic interests.