In Wisconsin, the economic loss doctrine is a remedies principle that simply tells us which theory of recovery is available, either contract or tort, in a given situation. If the doctrine applies to a situation, the parties are limited to the remedies in their contract and may not sue in tort.
One of the requirements for the economic loss doctrine to apply is that the loss or damages must be solely economic. Economic loss is generally defined as damages due to the inadequate value of a product because it is inferior and does not work for the general purposes for which was it manufactured or sold. Economic loss is limited to damage to the product itself or monetary loss caused by the defective product, including both direct and indirect loss. Loss or damages that cause personal injury or damage to other property are not “economic” and fall outside the doctrine’s scope.
“Direct” economic loss is loss in value of the product itself whereas “indirect” economic are other economic losses attributable to the product defect. Direct economic loss is damage based on insufficient product value and constitutes the difference between the value of the product as represented and the value of the actual product, also known as the benefit of the bargain. Indirect economic losses are consequential losses; that is, they flow from the loss of the product and include lost profits resulting from the inability to use the defective product.
The economic loss doctrine’s application can be seen in a routine transaction, for example, someone purchases a new car. With the new car comes a factory warranty with a duration typically based on either a set amount of time or number of miles (usually whichever is first). If the transmission fails within the warranty period causing the vehicle to stop moving, and if there is no personal injury or damage to other property, what recourse does the consumer have against the vehicle manufacturer? The consumer can have the vehicle towed to dealership and the vehicle’s transmission repaired (or replaced), typically at no charge. The consumer is not, however, permitted to sue the manufacturer under a tort theory – those remedies are precluded and the consumer is limited to the remedies in the warranty that came with the car and (in theory) included as part of its purchase price.
