California Supreme Court limits recovery of purely economic damages Porter Ranch lawsuits
You may have heard that the goal of the civil justice system is to make an injured party whole by putting them in the same position they would have been if they hadn’t been injured in the first place. Unfortunately, the truth is that the legal system is restricted by the laws of physics (and time and space) and thus is rarely ever able to actually meet this goal. For example, if you are hit by a car and are paralyzed, the court cannot go back and undo the paralysis. Instead, all that a jury can do is provide you with sufficient money to “make up” for having to live with the injury, such as by providing money for future medical care or for being unable to work – certainly a far cry from being able to walk again.
In addition, there are times when damages are simply not recoverable. A good reminder is the California Supreme Court’s decision in the Southern California Gas Leak Cases on May 30, 2019. In October 2015 there was a massive natural gas leak in Porter Ranch, CA that drove off many residents (and visitors) due to the significant health problems created by the gas leak. This, of course, had a detrimental effect on local businesses who, without any paying customers, suffered significant financial losses. However, the California Supreme Court viewed these as “purely economic losses” and declined to permit these business owners from obtaining relief.
In a nutshell, the Supreme Court found these types of damages could not be reasonably defined and limited in the context of a gas leak. The basic issue is that chains of causation can extend into infinity if they are allowed to – e.g., I hit you with a car, which causes you back pain, which causes you to walk more slowly, which causes you to be late to work, which causes you to miss an important meeting, which causes an important project to fail, which causes your employer to cut costs, which causes it to purchase less from a supplier, which causes the supplier to lose money, and so forth. It is one thing for me to be responsible for the act of hitting you with a car, a discrete, limited event with limited consequences; however, it is quite another thing for me to be responsible for everything that happens to anyone that may happen to be impacted by you being in an accident. This type of unlimited liability is what the Supreme Court declined to allow.
There are two more general takeaways beyond the specifics of the Supreme Court’s decision. First, it is important to have a realistic understanding of what the legal system can and cannot remedy – simply put, it is unlikely you will actually be made whole. And second, and perhaps more critically, it is important to understand that it is always better to try and avoid the legal problem in the first place. For example, a business deal that isn’t properly documented on the theory that if anything goes wrong the court system will fix it is only asking for trouble. It is always going to be better to consult with a qualified, legal professional with expertise in your area of concern to try and avoid the problem in the first place – while that is of course not a guarantee that problems won’t arise, there is a very good chance it will save you many headaches (and heartaches) down the road.
TLDR: The legal system is limited in its ability to make you “whole “again after an injury, so it is always better to avoid that injury in the first place.