James Beck of Reed Smith.

In Dittman v. University of Pittsburgh Medical Center, ___ A.3d ___, 2018 WL 6072199 (Pa. Nov. 21, 2018), in the context of cyberhacking litigation, the Pennsylvania Supreme Court changed, and considerably restricted, the scope of the so-called “economic loss doctrine (ELD). Previously, the ELD meant “no cause of action exists for negligence that results solely in economic damages unaccompanied by physical injury or property damage.” See Excavation Technologies v. Columbia Gas, 985 A.2d 840, 841 n.3 (Pa. 2009). The ELD had been invoked as a defense against down-stream economic loss claims arising from disruption to the operation of employers or public utilities, as in General Public Utilities v. Glass Kitchens of Lancaster, 542 A.2d 567, 570 (Pa. Super. 1998) (Three Mile Island); Moore v. Pavex, 514 A.2d 137 (Pa. Super. 1986) (water main break); Aikens v. Baltimore & Ohio Railroad, 501 A.2d 277, 279 (Pa. Super. 1985) (factory closure).

Other commentators have analyzed Dittman concerning cyberhacking. Cyberhacking poses a quandary for states, like Pennsylvania, that had followed a strong ELD, since the damages caused by such hacking, where any damages exist, are almost always purely economic. Dittman resolved that problem by restricting the ELD to situations of tort claims pleaded between entities in contractual relationships: “The economic loss doctrine … turns on the determination of the source of the duty plaintiff claims the defendant owed. Specifically, if the duty arises under a contract between the parties, a tort action will not lie from a breach of that duty. However, if the duty arises independently of any contractual duties between the parties, then a breach of that duty may support a tort action.”

The court's previous “broad definition” of the ELD in Excavation Technologies was “rejected” as “ancillary.” What had been a “narrow exception” in Excavation Technologies for professional negligence is now “one among many tort claims in Pennsylvania for which the economic loss doctrine does not act as a bar for recovery of purely economic losses.”

Dittman's dramatic expansion of liability for purely economic loss will have repercussions throughout tort law that are potentially even more consequential than its recognition of a duty to prevent cyberhacking—namely the erosion of the broad legal protections historically afforded to defendants in Pennsylvania by the ELD. This article focuses on Dittman's potential impact on products liability litigation.

Strict Liability

The general scope of strict liability in products liability should be unaffected by Dittman, except possibly at the margins. Tincher v. Omega Flex, 104 A.3d 328 (Pa. 2014), reaffirmed that “Pennsylvania remains a Second Restatement jurisdiction,” with strict liability governed by Restatement (Second) of Torts Section 402A (1965). 104 A.3d at 399. Restatement Section 402A is expressly applicable only in situations of “physical harm.”  “One who sells any product in a defective condition unreasonably dangerous … is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property.”

Thus, the core of the ELD has been in products liability. “If products liability remedies were to progress too far, contract law would drown in a sea of tort.” See Duquesne Light v. Westinghouse Electric, 66 F.3d 604, 618 (3d Cir. 1995) (citation and quotation marks omitted). See Jones v. General Motors, 631 A.2d 665, 666 (Pa. Super. 1993) (ELD applies to products liability actions “whether a consumer is a commercial entity or an individual”); Marsulex Environmental Technologies v. Selip, 247 F. Supp.3d 504, 517-18 (M.D. Pa. 2017) (collecting products liability cases applying ELD). That the black letter of Section 402A limits strict liability to “physical harm” means that “the general rule of this Commonwealth [is] that there can be no recovery of damages for injuries resulting from fright or nervous shock or mental or emotional disturbances or distress unless they are accompanied by physical injury or physical impact.” See Simmons v. Pacor, 674 A.2d 232, 238 (Pa. 1996) (strict liability asbestos case); but Schmidt v. Boardman, 11 A.3d 924, 953 (Pa. 2011) (three-justice concurrence would allow purely emotional distress damages in strict liability with “physical manifestation” sufficient “physical injury under Section 402A).

In strict liability causes of action under Restatement Section 402A, given the language of Section 402A itself, Dittman should not have much effect.

Negligence—Contracting Parties

Tincher expressly recognized negligence, strict liability and warranty as distinct products liability theories. Dittman did not address warranty—facially a contract-based claim—but construed negligence extremely broadly. “In scenarios involving an actor's affirmative conduct, he is generally under a duty to others to exercise the care of a reasonable man to protect them against an unreasonable risk of harm to them arising out of the act.” Thus, products liability plaintiffs could well use Dittman to seek purely economic loss in negligence contexts. See Donaldson v. Davidson Brothers, 144 A.3d 93, 102-03 (Pa. Super. 2016) (addressing ELD defense against negligence claims involving a multi-vehicle accident without any pre-existing contracts). For example, the ELD is probably no longer viable against negligence-based medical monitoring claims.

Nevertheless, Dittman's limited contract-based ELD will remain a defense in many products liability cases involving purely economic loss. Historically, the most common application of the ELD has been to preclude tort actions—in strict liability or negligence—where the sole physical harm at issue has been to the product itself, and these cases typically involve disappointed buyers suing product sellers with which they had pre-existing contractual relationships.

The lead case is REM Coal v. Clark Equipment, 563 A.2d 128 (Pa. Super. 1989) (en banc), a buyer-sues-seller case where the ELD precluded recovery of purely economic harm caused by a product failure that could have caused physical injury, but did not: “Allowing a cause of action in tort where the nature of the risk posed by the product is the determinative factor invites and indeed forces courts to enter into a difficult line-drawing process that can only yield inconsistent results. When precisely could it be concluded that a defect posed an unreasonable risk where the risk never materialized?”

Thus tort recovery is appropriate only where a plaintiff suffers actual damage to “other” property besides the product itself.  See Jones, 631 A.2d at 666 (applying ELD to claims brought by individuals); Werwinski v. Ford Motor, 286 F.3d 661, 672 (3d Cir. 2002) (same) (applying Pennsylvania law).

Where, as in these cases, negligence-based products liability claims are brought solely for economic losses, or for physical injury solely to the product the plaintiff purchased, the truncated post-Dittman ELD should continue to apply to those “quintessential” situations: “The quintessential economic loss was lost profits. When a product purchased … failed to perform, that entity's business could be disrupted, resulting in loss of customers, sales, and profits. The economic loss doctrine precluded recovery in tort from the product's manufacturer for these purely economic damages,” 2-J Corp. v. Tice, 126 F.3d 539, 542 (3d Cir. 1997) (applying Pennsylvania law).

Importantly, a footnote in Dittman clarified that the ELD's contract/tort dividing line is not restricted to losses involving contracts only between a plaintiff and defendant. The ELD may still, post-Dittman, be interposed where plaintiffs “attempt to bring negligence claims for damages arising out of the contract/relationship they had with a third party, of which the tortfeasor was unaware,”  2018 WL 6072199, at *14 n.22 (harmonizing Adams v. Copper Beach Townhome Communities, 816 A.2d 301 (Pa. Super. 2003), and Aikens, supra). Thus, after Dittman the door remains open to the ELD precluding tort recovery of purely economic losses arising from nonperformance of contracts between the plaintiff and third persons.

Fraud and Consumer Fraud Claims

Perhaps the most hotly litigated ELD-related issue in recent years is the ELD's applicability to nontraditional products liability claims, such as for fraud and consumer protection violations, brought against product manufacturers. In Werwinski, the U.S. Court of Appeals for the Third Circuit predicted that the Pennsylvania Supreme Court would apply the ELD to bar recovery in these situations. The Superior Court, however, has held the opposite—that the ELD does not apply to such claims,  e.g., Knight v. Springfield Hyundai, 81 A.3d 940 (Pa. Super. 2013). A maze of conflicting federal district decisions has resulted, some declaring themselves bound by Werwinski until the Pennsylvania Supreme Court decides the issue, and some electing to follow contrary Superior Court decisions. Compare, e.g., Landau v. Viridian Energy PA, 223 F. Supp.3d 401, 411-13 (E.D. Pa. 2016) (following Superior Court); with McGuckin v. Allstate Fire & Casualty Insurance, 118 F. Supp.3d 716, 719-20 (E.D. Pa. 2015) (following Werwinski).

Dittman should resolve the debate over Werwinski, but not along the categorical lines adopted by either side of the ongoing debate. As discussed, Dittman held that the ELD applies where a plaintiff-defendant contractual relationship exists, but not otherwise. The post-Dittman ELD should apply in the same manner to fraud and consumer fraud claims as it does to negligence.  Thus, as with negligence, the ELD post-Dittman should bar nontraditional claims where they seek to avoid a contractual relationship, but should permit them where no such contractual relationship existed.

Quite apart from its cyberhacking context, Dittman portends a sea change in the application of the ELD under Pennsylvania law. All types of tort claims will be affected, and the new limits of the ELD will be fleshed out as plaintiffs probe to determine what types of previously barred tort claims for purely economic loss are now permissible.

James M. Beck, a member of the Reed Smith life sciences health industry group, focuses his practice on complex personal injury and products liability litigation. He has experience in developing legal defenses, master briefs and dispositive motions in numerous mass torts, and has prepared amicus briefs on behalf of a variety of national organizations.