People Express Airlines, Inc. v. Consolidated Rail Corp.

Supreme Court of New Jersey · Torts

TortsNegligenceEconomic Losspure economic lossnegligencedutyproximate causeforeseeability

Facts

During a coupling operation in Conrail's Port Newark freight yard, a tank car carrying ethylene oxide was punctured, the chemical escaped and ignited, and municipal authorities evacuated a one-mile radius because of the risk of explosion. The evacuation included the North Terminal at Newark International Airport, where People Express based its operations, and its employees were barred from using the terminal for twelve hours. People Express alleged business-interruption losses from canceled flights, lost reservations, and fixed operating expenses incurred during the closure. No personal injury or physical damage to People Express's property occurred.

Issue

Whether a plaintiff may recover in negligence for purely economic losses caused by a defendant's negligent conduct when those losses are unaccompanied by personal injury or property damage. More specifically, whether defendants may owe a duty to a business forced to evacuate because of a nearby hazardous chemical accident when the business's losses were particularly foreseeable.

Rule

A defendant owes a duty of care to take reasonable measures to avoid causing purely economic damages to particular plaintiffs or to plaintiffs comprising an identifiable class when the defendant knows or has reason to know they are likely to suffer such damages from its conduct. Such economic losses are recoverable when they are proximately caused by the breach, meaning they are the natural and probable consequence of the negligence and were reasonably to be anticipated because the particular plaintiff or identifiable class was demonstrably within the risk created by the defendant's conduct. An identifiable class must be particularly foreseeable in terms of the type of persons or entities involved, the certainty and predictability of their presence, their approximate numbers, and the type of economic expectations likely to be disrupted.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Houston, Gulf Meridian Chemicals negligently releases a toxic vapor from its rail-loading yard. City officials order an eight-hour evacuation of the adjacent building housing Skybridge Data Services, a fixed-location server company whose large equipment bays and round-the-clock operations are obvious from the yard; Skybridge alleges only lost service revenue and continuing payroll costs, with no personal injury or property damage.

If Skybridge sues Gulf Meridian for negligence, which is the best analysis?

Explanation. The majority rejects a per se bar on negligence recovery for purely economic loss. Duty may exist where the defendant knows or has reason to know that a particular plaintiff or identifiable class is likely to suffer such damage, and proximate cause is satisfied when the loss is the natural and probable consequence of the breach and reasonably to be anticipated. Actual knowledge of the precise eventual loss and contractual privity are not required.