## Facts

- Southern California Gas Company (SoCalGas) operated the Aliso Canyon underground natural-gas storage facility near the Porter Ranch area of Los Angeles.
- In October 2015, a well at the facility suffered a blowout, causing a major natural-gas leak that continued for months.
- Public authorities directed or facilitated the relocation of about 15,000 residents living within roughly five miles of the leak site.
- The relocation and related disruption sharply reduced customer traffic and harmed the local economy.
- Businesses located in the affected area (including First American Wholesale Lending Corporation and others) sued SoCalGas for negligence, seeking to recover lost income and other purely financial losses.
- The business plaintiffs did not allege personal injury or property damage to themselves, and they did not rely on any direct contractual or comparable relationship with SoCalGas as the basis for recovery.
- SoCalGas demurred, arguing that California law generally bars negligence recovery for purely economic losses absent physical harm or a recognized exception.
- The trial court overruled the demurrer, reasoning that SoCalGas should bear the full costs caused by the leak.
- The Court of Appeal reversed and directed that the demurrer be sustained.
- The California Supreme Court granted review to decide whether SoCalGas owed a negligence duty to these businesses for purely economic losses.

## Issues

1. Whether SoCalGas owed a duty in negligence to nearby businesses to avoid causing purely economic losses (lost revenue and profits) resulting from the gas leak and relocation, when the businesses alleged no personal injury or property damage.
2. Whether, absent a “special relationship” or other recognized exception, California law permits negligence recovery for such purely economic losses arising from an industrial accident.

## Decision

- The California Supreme Court held that SoCalGas did not owe a tort duty to the business plaintiffs to protect them from purely economic losses caused by the leak and resulting relocation.
- The Court affirmed the Court of Appeal’s judgment, which required sustaining SoCalGas’s demurrer to the businesses’ negligence claims.
- The Court reasoned that recognizing a duty for purely economic losses in this setting would create major line-drawing problems about who could sue (which businesses, within what geographic area, and for what downstream losses) and could expose defendants to liability out of proportion to their fault.
- The Court found no special relationship between SoCalGas and the business plaintiffs that would justify an exception; the businesses were part of the general community affected by the leak, and SoCalGas had not undertaken a duty aimed at protecting their economic interests.
- The Court also noted that denying duty to this class of plaintiffs did not remove incentives for safety, because SoCalGas still faced extensive costs and exposure tied to physical injury, property damage, remediation, regulatory action, and other claims arising from the same event.

## Legal Principles

- Negligence law in California generally does not allow recovery for purely economic losses unaccompanied by personal injury or property damage.
- Courts limit negligence duties for pure economic loss to avoid indeterminate liability and difficult administration, including problems defining the class of potential plaintiffs and the reach of economic ripple effects.
- A duty to avoid purely economic loss may arise when a special relationship or similar basis shows the defendant assumed responsibility for the plaintiff’s financial interests (for example, certain professional or transactional settings).
- For economic harm claimed by businesses affected by an industrial accident through loss of customers—without physical harm to the plaintiff’s person or property—California courts generally decline to impose a negligence duty.
- Broader compensation schemes for widespread economic disruption are typically matters for legislative action or private ordering (such as insurance), not expansion of ordinary negligence duty.

## Conclusion

The California Supreme Court concluded that SoCalGas owed no negligence duty to nearby businesses seeking only lost profits and other purely financial damages from the Aliso Canyon gas leak and related relocation orders. Because the plaintiffs alleged no personal injury or property damage and could not show a special relationship with SoCalGas that would justify an exception, their negligence claims were barred and the demurrer was properly sustained.


Southern California Gas Co. v. Superior Court of Los Angeles County, 441 P.3d 881, 7 Cal.5th 391, 247 Cal.Rptr.3d 632 (2019)