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People Express Airlines, Inc. v. Consolidated Rail Corp

    Brief Fact Summary. Plaintiff suffered business interruption losses because Defendant negligently started a fire. No physical damage and no personal injury resulted from the fire. Plaintiff sued Defendant in negligence for the economic harm it sustained.

    Synopsis of Rule of Law. A defendant who has breached his duty of care to avoid risk of economic injury to particularly foreseeable plaintiffs may be held liable for actual economic losses that are proximately caused by its breach of duty.

    Facts. A tank car was punctured during a “coupling” operation, which ignited in the freight yard of Consolidated Rail Corporation (Defendant). Consequently, the evacuation area included the North Terminal building of the Newark International Airport, where People’s Express Airline’s (Plaintiff) was based. Plaintiff’s employees were prohibited from using the terminal for twelve hours. Plaintiff contends that it suffered business-interruption losses as a result of the evacuation. Loses were incurred from canceled scheduled flights, lost reservations, and certain fixed operating expenses. No physical damage and no personal injury resulted from the fire. Plaintiff asserted that at least some of the defendants were aware form prior experiences that ethylene oxide is a highly volatile substance and that emergency response plans in case of an accident had been prepared. The trial court granted summary judgment for D. The Appellate Division reversed.

    Issue. Is recovery for negligently caused economic loss barred by the absence of any property damage or personal injury?

    Held. No. The judgment of The Appellate Division is modified, and, as modified, affirmed. The case is remanded for proceedings consistent with this opinion.
    * It is well accepted that a defendant who negligently injures a plaintiff or his property may be liable for all proximately caused harm, including economic losses. Nevertheless, a virtual per se rule barring recovery for economic loss unless the negligent conduct also caused physical harm has evolved throughout this century. Some courts have viewed this general rule against recovery as necessary to limit damages to reasonably foreseeable consequences of negligent conduct. The physical harm rule also reflects certain deep-seated concerns that underlie courts’ denial of recovery for purely economic losses occasioned by a defendant’s negligence.
    * Judicial discomfiture with the rule of nonrecovery for purely economic loss throughout the last several decades has led to numerous exceptions in the general rule. When the plaintiffs are reasonably foreseeable, the injury is directly and proximately caused by defendant’s negligence, and liability can be limited fairly, courts have endeavored to create exceptions to allow recovery. Defendant owes a duty of care to take measures to avoid the risk of causing economic damages, aside from physical injury, to particular plaintiffs or plaintiffs comprising an identifiable class with respect to whom defendant knows or has reason to know are likely to suffer damages from its conduct.
    * An identifiable class of plaintiffs must be particularly foreseeable in terms of the type of person or entities compromising the class, the certainty or predictability of their presence, the approximate numbers of those in the class, as well as the type of economic expectations disrupted.
    * Liability depends not only on the breach of a standard of care but also on a proximate causal relationship between the breach of the duty of care and resultant losses. We conclude therefore that a defendant who has breached his duty of care to avoid risk of economic injury to particularly foreseeable plaintiffs may be held liable for actual economic losses that are proximately caused by its breach of duty.

    Discussion. The common law judges were historically reluctant to allow any recovery for pure economic losses attributable only to the defendant’s negligence. In this case, the Court permitted Plaintiff to recover because Plaintiff was foreseeable and the damage sustained was proximately caused by Defendant’s breach.


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