Economic Loss Rule Does Not Bar Tort Recovery If Tort Claim is Based on Duty that Exists Independent of Parties’ Contract

Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 979 (2004)

In this case, helicopter manufacturer Robinson Helicopter Co., Inc. sued parts supplier Dana Corporation after Dana delivered nonconforming parts to Robinson.  Dana had contracted to supply Robinson with clutches for Robinson’s helicopters.  Dana provided the parts according to Robinson’s specifications for roughly twelve years, but then changed its manufacturing process without notifying Robinson.  For the next sixteen months, Dana delivered nonconforming parts which failed at a much higher rate than the conforming parts.  Robinson notified Dana of the higher failure rate and Dana subsequently switched to a conforming manufacturing process.  Although there were no accidents that lead to physical injury or property damage, Robinson was required to recall and replace the defective parts. 

Robinson sued Dana and the trial awarded Robinson $1.5 million in compensatory damages and $6 million in punitive damages, based on Dana’s knowing misrepresentation or concealment of material facts with the intent to defraud.  Dana appealed.  The court of appeals affirmed the award of compensatory damages but reversed the award of punitive damages, finding that Robinson could not recover in tort when it had only suffered economic loss.

Robinson appealed to the California Supreme Court, arguing that the economic loss rule does not bar claims for fraud and misrepresentation.  The Supreme Court reversed the appellate court’s decision, finding that the fraud and misrepresentation claims were distinct from the breach of contract claims.  The court distinguished the case from Aas v. Superior Court, 24 Cal. 4th 627 (2000) (finding that the economic loss rule bars recovery for construction defects that do not cause property damage) on the grounds that there was no independent tort, such as fraud or misrepresentation, in Aas.