Brief Fact Summary.
A natural gas leak resulted in the en masse relocation of a residential community near Los Angeles. The area’s businesses experienced a pecuniary loss due to the relocation. The local businesses sued the gas company for negligence to recover for the lost income.
Synopsis of Rule of Law.
Generally, a plaintiff cannot recover in tort law for purely economic loss that does not arise from an actionable physical, emotional, or reputational injury.
As we have observed, however, drawing arbitrary lines is unavoidable if we are to limit liability and establish meaningful rules for application by litigants and lower courts.View Full Point of Law
The Southern California Gas Company (“SoCalGas”) stored vast amounts of natural gas in an underground facility near the residential community Porter Ranch. Because natural gas is odorless, SoCalGas added a nausea-inducing chemical to the gas to give people notice when a leak happens. In 2015, a massive leak occurred. A total of 100,000 tons of natural gas escaped the facility over the course of a few months. Porter Ranch residents suffered from headaches, dizziness, and respiratory problems as a result of the leak. The health department directed SoCalGas to establish a relocation program for the Porter Ranch residents who lived within a five-mile radius of the leak site. The relocation program later expanded to include people living outside the initial five-mile boundary. The relocation caused Porter Ranch area businesses to lose considerable earnings. These businesses sued SoCalGas for negligence to recover for the income they lost as a result of the leak and relocation of the area’s residents. None of the businesses alleged they suffered personal injury or property damage.
Whether a company has a tort duty to guard against negligently causing purely economic losses?
No, a plaintiff cannot recover in tort law for purely economic loss that does not arise from an actionable physical, emotional, or reputational injury. SoCalGas had no duty to guard against purely economic loss. The judgment of the appellate court upholding SoCalGas’ demur is affirmed.
In California, the general rule is that a party owes a duty of care to avoid causing harm to others, and will be held liable for an injury resulting from negligence. Some exceptions exist to justify a departure from the usual presumption that a plaintiff can only recover through traditionally compensable forms of injury, such as physical harm to person or property. For instance, a plaintiff can recover purely economic loss if a special relationship existed between them and the defendant. Many jurisdictions, along with the Restatement of Torts, take the view that there is no general duty to avoid inflicting economic loss on a party. Here, no special relationship existed between SoCalGas and the Porter Ranch businesses. The court acknowledges that denying recovery for Porter Ranch businesses may create a result that is seemingly unjust. However, meaningful limitations on tort liability are necessary. If tort law allowed recovery for purely economic loss, then perverse incentives and moral hazard may arise. If a business could recovery purely economic loss, it may ignore reasonable steps of health and safety. Therefore, SoCalGas had no duty to avoid inflicting economic loss on the Porter Ranch businesses.