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California Supreme Court confirms an exception to the Economic Loss Doctrine

4/1/25

By: Gaia T. Linehan

In Rattagan v. Uber Technologies Inc. (2024) 17 Cal.5th 1, the California Supreme Court recently answered a question posed to it by the 9th Circuit Court of Appeals: May a plaintiff assert a tort claim based on conduct occurring in the course of a contractual relationship? 

The Court answered with “It depends.”  

If (i) the tortious conduct exposes the plaintiff to a risk of harm beyond the reasonable contemplation of the parties when they entered into the contract, (ii) the elements of the claim can be established separately from the parties’ contractual rights and obligations, then the answer is “yes.” Otherwise, it is “no.” 

This means that in scenarios where (i) a breach of contract caused personal injury or property damage in excess of the economic losses caused by the breach, and (ii) the defendant violated an independent and legally recognizable duty in tort, the Economic Loss Doctrine, which generally prevents a party from recovering in tort when they suffered only economic loss in contract, will not apply.  

However, the court’s holding only applies to affirmative acts of fraud and misrepresentation, with the reasoning being that California public policy strongly supports imposing a tort duty on parties to a contract, to refrain from fraudulent deceit and favors prosecution of valid fraud actions.  

What does this mean for contractual parties in California or applying California law? Affirmative acts of fraud and misrepresentation that result in any harm will probably be allowed. Yet, the parties can try to limit their liability to contract-only remedies by including a clause in their agreement that states that intent. Such a clause can be proven useful in limiting recovery under breach of fiduciary duties’ causes of action.  

For any questions or further clarification, please contact Gaia T. Linehan at gaia.linehan@fmglaw.com or your local FMG attorney.