Economic loss rule in action

In Golden Spread Electric Co-op v. Emerson Process Management, the Fifth Circuit affirmed the dismissal of business-tort claims under Texas’s economic loss rule.

Golden Spread, a public utility, contracted with Emerson to provide “a new, customized control system” for a steam turbine generator. During testing of the new system, the software installed by Emerson issued a mistaken command that caused the turbine to overheat and become damaged.

The Fifth Circuit reviewed Golden Spread’s claims in light of two policy considerations identified by Texas cases in the area.  First, “[p]urely economic harms proliferate widely and are not self-limiting in the way that physical damage is ….” Second, “the risk of economic harms are better suited to allocation by contract” because the parties “usually have a full opportunity” to negotiate such risks before finalizing a contract.

The Court’s reasoning may prove relevant to future lawsuits involving business issues arising from the current COVID-19 crisis.