The recent Restatement Third of Torts divides U.S. tort law into separate categories of harm. Liability for physical injury is governed, on the one hand, by the Restatement Third of Torts: Liability for Physical and Emotional Harm. Liability for economic loss, on the other hand, is governed by the Restatement Third of Torts: Liability for Economic Harm. In the case of physical harm, default rules permit generous liability and recovery. In the case of economic losses, liability is quite limited. So it is no surprise that issues arise at the border of these two subjects. Specifically, what happens when the defendant’s conduct creates not actual physical harm, but a risk of physical harm that occasions the need for the plaintiff to incur economic expenses that will prevent it? Should the more liberal rules of physical harm recovery apply because the defendant’s conduct created a risk of physical harm? Or should the more restrictive rules of economic loss recovery apply because the actual damage is, after all, purely economic?
In his recent article, Preventive Damages, Professor Donal Nolan of Oxford University confronts this thorny issue, which, as he notes, “has been the subject of surprisingly little analysis by common law scholars.” Professor Nolan begins his article with the general principle of preventative damage recovery outlined in the Principles of European Tort Law. Specifically, Article 2.104 provides that “Expenses incurred to prevent threatened damage amount to recoverable damage in so far as reasonably incurred.” This general principle apparently captures the preventative damage rules of a number of civil jurisdictions, including Germany and France. But Nolan suggests that “most common lawyers would struggle to answer” whether this principle represents the law in their jurisdictions. The cases Nolan highlights seem to warrant that legal uncertainty as they pull in both directions.
Professor Nolan’s goal is not necessarily to put forth a firmly held position, but to identify problems in the area and begin to sketch some “tentative” solutions. His illustrations alone make the article worth the read. What if B negligently starts a fire and A pays firefighters to prevent the spread of fire to A’s land? What if B’s workers cut through a power company’s cable and A, who owns a frozen food facility, has to transfer food to another facility at considerable expense? What if B manufactures a crane that collapses and kills the operator, and the owner of a similar crane finds structural defects and has to repair them? What if B negligently builds an apartment with an inadequate foundation, and A, who bought an apartment in the building from a third party, has to undertake expensive repairs?
Professor Nolan reveals how commonwealth courts have resolved these and similar cases, and expresses his own opinions about their resolution. Although he does not propose a firm rule, Professor Nolan suggests that preventative damages should be allowed at least some of the time. He would adopt reasonableness as one general limit. However, he acknowledges that there are further issues “that a test of reasonableness may not resolve.” For example, if the general threat of burglary warrants A’s purchase of security locks, A may not be able to tag a particular burglar B with the expenses for prevention.
Professor Nolan’s article begins a crucial conversation. But as he acknowledges, this piece marks the beginning and not the end of the analysis. In many places a reader would welcome further analysis of principle and policy concerns. For example, Professor Nolan suggests that liability of a defendant for preventative damages is a “logical corollary of the law of contributory negligence and causation. After all, if a person who complains that they are the victim of a wrong can have their damages reduced because they failed to take reasonable steps to avert the wrongful interference, then it seems only right that if they do in fact take such steps, they should be able to recover the cost of doing so from the person responsible for the danger.” But there are problems with this argument. First, there seems to be a significant legal difference between being “the victim of a wrong” and being put at risk by a “person responsible for the danger.” As Nolan himself recognizes, the wrong underlying negligence law has not been “unreasonable risk creation,” but rather “negligently causing injury.” In the preventative damages hypotheticals there has been no negligently caused injury—no tortious wrong. Although Nolan discusses a number of possible ways to address this concern, he admits that “none of the potential solutions is straightforward.” For example, suppose B is an actor who created a risk of harm to another. Suppose also that A, the actor who was put at risk of harm by B, pays for preventive measures to avoid the risk. B cannot be seen as unjustly enriched by A’s expenditures for preventative measures because A’s actions were not undertaken with the predominant intention of benefitting B. Indeed, A undertook those actions to benefit A. Moreover, B— who put A at risk but did not harm her—would not traditionally have a duty of repair to A, so A’s repair would not discharge a liability owed by B.
Even if the plaintiff must take steps to reduce the possibility of injury in order to recover in tort, this does not necessarily imply that those steps must be paid for by the defendant. For example, if my neighbor builds a pool that could pose a danger to my toddler and I decide to fence my backyard or hire a babysitter, whether those precautions are reasonable, or not taking them unreasonable to the point a jury could tag me with partial comparative fault, seems a separate matter from whether my neighbor must build the fence or pay the sitter. The latter issue would invoke concepts of duty as well as those of negligence.
In favor of preventative damages recoveries, Professor Nolan also notes the policy of making such awards “serves to encourage those threatened with wrongful injury to take reasonable steps to reduce or eliminate the danger when best placed to do so… whereas refusing such claims creates an incentive for them to sit back and wait for the injury to occur.” However, he does not address the policy interests in tort redress for only actual injuries rather than threats of injury. For example, perhaps plaintiffs need no further encouragement to take protective measures. Many, if not most, threatened injuries will never become actual physical injuries. A fire on B’s property may not spread to A’s property, with or without reasonable preventative action by A. Providing A with recovery for preventative damages may give A too great an interest in taking steps to eliminate the danger. Moreover, it could be said that tort recovery in every case of negligence without physical harm would encourage defendants to create fewer threats of danger. Why allow recovery in this subset of negligence cases and not simply abolish the actual harm requirement entirely? If courts blur the line between recovery for actual physical harm and threatened physical harm, what will be the burden on courts (and in the U.S., juries) of legal process in every case to decide how imminent or likely and severe each threatened harm was?
An equally important issue to explore would be available alternatives to tort recovery for preventative damages. Could it be more efficient to leave these economic costs to first-party insurance or contract law rather than third-party tort liability? For instance, one can easily imagine that the owner of a freezer facility could insure against power outages either by purchasing business interruption insurance or providing backup generators. Similarly, the defective crane might be covered by some type of warranty, whether negotiated or implied.
This is not to say that any particular issue of principle and policy should decide the rule, but only that readers should take seriously Professor Nolan’s invitation to common law scholars to add to the analysis in this important area.