The economic loss doctrine does not bar negligent misrepresentation claims in Kansas

On July 26, 2013, the Kansas Supreme Court refused to expand the economic loss doctrine from its origins in product liability litigation to act as a bar to tort claims for economic recovery in the context of a negligent misrepresentation claim.

In Rinehart v Morton Buildings, Inc., the Rineharts contracted with Morton to build a building for their personal use and for the use of their business, Midwest Slitting. During construction, disputes arose as to the quality and timeliness of the construction. Midwest Slitting, not a party to the contract, sued[1] Morton for negligent misrepresentation, alleging Morton misrepresented that the building would be completed in a timely fashion, would accommodate Midwest Slitting’s business operations, and would meet industry standards. The jury found for Midwest Slitting and awarded it $150,000.

On appeal, Morton argued that the economic loss doctrine, which bars tort claims for economic recovery when the only alleged injury resulted from damage to the product itself, barred Midwest Slitting’s claims. The Court of Appeals disagreed and held that that the economic loss doctrine did not apply, because of the lack of privity between Midwest Slitting and Morton. 

The Kansas Supreme Court held the economic loss doctrine did not bar Midwest Slitting’s negligent misrepresentation claims for different reasons noting that the bright-line “lack of privity” rule proposed by the lower court would conflict with the existing application of the doctrine as a bar in product liability claims even where no contract exists. The Court did not apply the doctrine to dismiss Midwest Slitting’s claim, because, absent a claim for negligent misrepresentation, Midwest Slitting would have no remedy at all.[2] Second, the court reasoned that the elements of the negligent misrepresentation tort in Kansas impose a duty in limited circumstances when a defendant supplies information to guide others in the course of defendant’s business and limits the universe of those who may pursue such claims to those for whose benefit the defendant supplied the information.

For those reasons, the Kansas Supreme Court held that the economic loss doctrine did not bar a claim for negligent misrepresentation. Noting the limited nature of the judicially created economic loss doctrine, the Court “left for another day” whether it would extend the economic loss doctrine to other areas of the law.