South Carolina Supreme Court Creates New Exception to the Economic Loss Rule

Last month, in Colleton Preparatory Academy, Inc. v. Hoover Universal, Inc., the South Carolina Supreme Court addressed the following certified question: “Can the user of a defective product recover in tort when only the product itself has been injured and when the product either violated generally accepted industry standards or posed a serious risk of bodily harm?”

In a 3-2 decision, the court answered this question “‘no’ if there is merely a breach of industry standards without an accompanying breach of a legal duty owed, and ‘yes’ if there is a breach of duty accompanied by a clear, serious, and unreasonable risk of bodily injury or death.” In order to determine whether this “serious threat of physical harm” exception to the economic loss rule applies, the court adopted Maryland’s test of balancing “the nature of the damage threatened and the probability of damage occurring to determine whether the two, viewed together, exhibit a clear, serious, and unreasonable risk of death or personal injury.”

The dissent sharply criticized this ruling as “work[ing] a wholesale revision of the law of products liability, and eras[ing] important distinctions between contract (warranty) and negligence (tort).”