IN THE SUPREME COURT OF IOWA

No. 09–0905

Filed July 8, 2011

ANNETT HOLDINGS, INC.,

Appellant,

vs.

KUM & GO, L.C.,

Appellee.

Appeal from the Iowa District Court for Polk County, Joel D. 

Novak, Judge.

Annett Holdings, Inc. appeals the district court’s grant of summary 

judgment dismissing its negligence and third-party beneficiary contract 

claims against Kum & Go, L.C. AFFIRMED.

Bruce E. Johnson and James M. Ballard of Cutler Law Firm, P.C., 

West Des Moines, for appellant.

Michael A. Dee and Haley R. Van Loon of Brown, Winick, Graves, 

Gross, Baskerville & Schoenebaum, P.L.C., Des Moines, for appellee.
2

MANSFIELD, Justice.

A dishonest employee of a trucking company put money in his 

pocket while claiming to be buying fuel for his fellow employees. This 

fraud was perpetrated at a truck stop, where the employee used his 

company credit card to obtain cash while reporting purchases of fuel. 

The truck stop paid out the cash, accepting the employee’s bogus 

explanation that the money was for other employees’ fuel purchases, and 

was reimbursed pursuant to its contract with the card issuer. The card 

issuer in turn was reimbursed under a separate contract with the 

trucking company’s parent. After the fraud had been ongoing for several 

years, it was discovered, and the employee was arrested and convicted of 

theft.

The trucking company’s parent now seeks to reverse the 

contractual flow of dollars by suing the truck stop both for negligence 

and as an alleged third-party beneficiary of the contract between the card 

issuer and the truck stop. We agree with the district court that the 

economic loss rule bars the negligence claim and that the trucking 

company’s parent was not a third-party beneficiary of the contract 

between the card issuer and the truck stop. Accordingly, we affirm the 

summary judgment granted to the truck stop below.

I. Background Facts and Proceedings.

Annett Holdings, Inc. is an Iowa holding company. One of its 

subsidiaries is TMC Transportation, a trucking company that employed 

Michael Vititoe as a shag driver at the Clow Valve plant in Oskaloosa. 

Vititoe’s duties as a shag driver consisted of moving empty and loaded 

semi-tractor trailers within the yard of the Clow Valve plant, facilitating 

the loading and unloading of trailers, and facilitating the transportation 

of Clow Valve products by other TMC drivers to outside destinations. 
3

TMC provided Vititoe a truck along with a Comdata credit card to

purchase fuel for the truck.

Annett and Comdata had a written agreement. Under the 

agreement, Comdata provided cards that could be used by authorized 

Annett employees to purchase fuel and obtain cash advances at any 

Comdata authorized service center locations. Annett agreed to accept 

full responsibility for all purchases made with those cards and also to be 

“fully responsible for the unauthorized or fraudulent use thereof until 

such time as Comdata has received such notification from [Annett] 

provided that each fraud or misuse is not attributed to Comdata.” 

Annett also agreed to “hold Comdata harmless from any and all liability 

resulting from the acts of any employees or agents of [Annett] which acts 

shall include but are not limited to negligent acts of such persons.” A 

separate schedule, signed by both parties, clarified that the 

Annett/Comdata agreement extended to Annett’s TMC subsidiary.

Comdata in turn had a written contract with Kum & Go, L.C. that 

enabled a particular Kum & Go store in Oskaloosa to handle Comdata 

transactions. The agreement provided that this Kum & Go service center 

would lease a Comdata terminal for $80 per month, which would then be 

utilized for Comdata card transactions. Comdata would reimburse Kum 

& Go for those transactions after deducting certain fees. The agreement 

contained detailed procedures that Kum & Go promised to follow in 

processing Comdata transactions. The Comdata/Kum & Go agreement

was governed by Tennessee law.

From November 2002 to April 2006, while Vititoe was employed by 

TMC, he went to the Kum & Go in Oskaloosa on an almost daily basis. 

Store personnel allowed Vititoe to operate the Comdata terminal himself. 

Vititoe managed to steal money by entering fuel purchases on the 
4

Comdata machine and submitting cash advance slips printed out by the 

machine to the store clerks—who then paid Vititoe in cash. Kum & Go 

personnel wondered why Vititoe was getting cash back while reporting 

fuel purchases. He claimed he was doing so because he was a “regional 

supervisor” and needed cash to pay for other employees’ fuel purchases

because the other employees did not have cards of their own.

Vititoe’s Comdata transactions were reported, reviewed, and 

validated daily by TMC’s fuel manager. For reasons that are not clear, 

the pre-March 2006 fuel manager never noticed (or at least never did 

anything about) Vititoe’s suspicious activity. In March 2006, a new fuel 

manager took over. Almost immediately, he noticed Vititoe’s pattern of 

“buying” fuel every day, even on weekends when he was supposedly not 

working and despite the fact Vititoe was only a local shag driver.

On April 10, 2006, a TMC employee followed Vititoe and observed 

him using the Comdata card, but not putting any gas in his truck. The 

police were contacted, and they interviewed Vititoe, who admitted he had 

stolen money from his employer by misusing the gas card. Vititoe was 

arrested and charged with first-degree theft. He was subsequently 

convicted of theft, sentenced to one month incarceration, and ordered to 

pay restitution of $298,524.79.

Annett filed a petition against Kum & Go alleging, among other 

theories, negligence and breach of contract for the monetary losses it 

suffered through Vititoe’s theft. Annett’s negligence theory asserted that 

Kum & Go was negligent in providing cash to Vititoe and that Vititoe did 

not have actual or apparent authority to receive cash back on Comdata 

transactions. In its breach of contract claim, Annett alleged it was an 

intended third-party beneficiary of the contract between Kum & Go and 
5

Comdata, and Kum & Go had breached the terms of the contract by 

failing to comply with its procedures.

Kum & Go moved for summary judgment. Kum & Go argued it 

could not be liable in negligence due to the “economic loss rule” and 

because it owed no duty to Annett. Kum & Go also denied Annett was a 

third-party beneficiary of its contract with Comdata.

The district court granted summary judgment to Kum & Go. It 

found the negligence claim barred by the economic loss rule. It rejected 

the breach of contract claim on the ground that Annett was not an 

intended beneficiary of the Comdata/Kum & Go contract. Annett 

appeals.

II. Standard of Review.

The district court disposed of the case on summary judgment. We 

review rulings on summary judgment motions for errors at law. Ranes v. 

Adams Labs., Inc., 778 N.W.2d 677, 685 (Iowa 2010). “We examine the 

record to determine whether a material fact is in dispute and, if not, 

whether the district court properly applied the law.” Id.

III. Analysis.

A. Economic Loss Rule. In this case, Annett seeks to recover an 

economic loss. No one was injured; no property was damaged or 

destroyed. Rather, Vititoe made unauthorized withdrawals of cash that 

were charged to Comdata and ultimately to Annett. Annett now claims 

that Kum & Go was negligent in failing to prevent this unauthorized 

activity, which resulted, indirectly, in economic losses to Annett.

Notably, Annett had entered into a contract with the card provider, 

Comdata, which in turn had entered into a contract with Kum & Go. In 

the contract with Comdata, Annett assumed responsibility for 

unauthorized or fraudulent use of Comdata cards by its own employees. 
6

Annett does not dispute that this contract bars it from recovering against 

Comdata, but seeks now to recover in tort from the remote party with 

which Comdata contracted—Kum & Go.

We are unaware of a parallel to this claim in our reported case law, 

but other appellate courts have recently addressed and rejected similar 

claims. In Cumis Insurance Society, Inc. v. BJ’s Wholesale Club, Inc., 918 

N.E.2d 36 (Mass. 2009), the Massachusetts Supreme Judicial Court 

considered claims brought by credit unions and their insurer against a 

retailer (BJ’s) that had improperly stored credit card data in a manner 

that allowed thieves to access the data, resulting in fraudulent use of the 

credit cards. The credit unions and their insurer had to absorb the 

losses from the fraudulent use, so they sued BJ’s, alleging that its 

negligence and its failure to follow the express terms of its own 

agreement with its merchant bank had enabled this criminal activity. 

Cumis, 918 N.E.2d at 39–40. The court found the economic loss rule 

barred the negligence claims, rejecting the plaintiffs’ attempt to overcome 

that rule by arguing that tangible personal property damage (in addition 

to economic loss) was involved because the compromised credit cards 

had to be replaced and reissued. Id. at 46–47; accord Sovereign Bank v. 

BJ’s Wholesale Club, Inc., 533 F.3d 162, 176–77, 179–80 (3d Cir. 2008) 

(reaching the same result in a case filed against BJ’s under Pennsylvania 

law); see also Azur v. Chase Bank, USA, Nat’l Ass’n, 601 F.3d 212, 213–

14 (3d Cir. 2010) (holding that Pennsylvania law barred a credit card 

account holder from suing a bank for negligently allowing the holder’s 

personal assistant to misappropriate over $1 million through fraudulent 

transactions); In re TJX Cos. Retail Sec. Breach Litig., 564 F.3d 489, 498–

99 (1st Cir. 2009) (applying Massachusetts law); Huggins v. Citibank, 

N.A., 585 S.E.2d 275, 276–77 (S.C. 2003) (holding an individual could 
7

not bring a negligence claim against credit card issuer for negligently 

issuing a card to a person who had stolen the individual’s identity).1

As a general proposition, the economic loss rule bars recovery in 

negligence when the plaintiff has suffered only economic loss. Neb.

Innkeepers, Inc. v. Pittsburgh-Des Moines Corp., 345 N.W.2d 124, 126

(Iowa 1984). In Nebraska Innkeepers, we acknowledged “[t]he wellestablished general rule is that a plaintiff who has suffered only 

economic loss due to another’s negligence has not been injured in a 

manner which is legally cognizable or compensable.” Id. (citing Robins 

Dry Dock & Repair Co. v. Flint, 275 U.S. 303, 309, 48 S. Ct. 134, 135, 72 

L. Ed. 290, 292 (1927)).

Robins, an admiralty decision authored by Justice Holmes, is 

perhaps the first noteworthy decision on the economic loss rule, but it is 

not the starting-point of the doctrine. See Restatement (Second) of Torts 

§ 766C, reporter’s note and cross references through December 1977 

(1981), available at http://www.westlaw.com (citing various pre-Robins

cases). As one commentator has said:

For well over a century, it has been a settled feature of 

American and English tort law that in a variety of situations 

there is no recovery in negligence for pure economic loss, 

that is, for economic loss unrelated to injury to the person or 

the property of the plaintiff.

Peter Benson, The Problem with Pure Economic Loss, 60 S.C. L. Rev. 823, 

823 (2009).

 1In In re Hannaford Bros. Co. Customer Data Security Breach Litigation, 613 F.

Supp. 2d 108, 126–28 (D. Me. 2009), a federal district court sitting in Maine ruled that 

grocery store customers could sue a grocery store owner for alleged negligence in 

handling their electronic payment data. Hannaford rests on a view that the economic 

loss doctrine in Maine is limited to situations where an alleged defect in a product 

causes damage to the product itself. Id. at 127–28. We believe Hannaford is 

inconsistent with Iowa law, since Hannaford recognizes general negligence recovery for 

pure economic loss even when parties are in contractual privity.
8

This rule is partly intended to prevent the “Death of Contract,” see

Grant Gilmore, The Death of Contract (2d ed. 1995), or the tortification of 

contract law. When two parties have a contractual relationship, the 

economic loss rule prevents one party from bringing a negligence action 

against the other over the first party’s defeated expectations—a subject 

matter the parties can be presumed to have allocated between 

themselves in their contract. See Determan v. Johnson, 613 N.W.2d 259, 

262–63 (Iowa 2000) (claim by home buyer against home sellers); Nelson 

v. Todd’s Ltd., 426 N.W.2d 120, 125 (Iowa 1988) (claim by butcher 

against manufacturer of a defective meat curing agent); see also Audio 

Odyssey, Ltd. v. United States, 373 F.3d 870, 872–73 (8th Cir. 2004) 

(applying Iowa law) (claim by borrower against loan guarantor). This is 

sometimes referred to as “the contractual economic loss rule.” See Dan 

B. Dobbs, An Introduction to Non-Statutory Economic Loss Claims, 48 Ariz. 

L. Rev. 713, 723 (2006) [hereinafter Dobbs]. Courts reason that when a 

party enters into a contract, that document should control the party’s 

rights and duties. Id.

But the doctrine is by no means limited to the situation where the 

plaintiff and the defendant are in direct contractual privity. For example, 

in Nebraska Innkeepers, plaintiffs sought recovery from a bridge 

contractor for purely economic loss that occurred when the bridge had to 

be closed because of the contractor’s negligence. 345 N.W.2d at 128–29. 

This is an example of what is sometimes called “the stranger economic 

loss rule.” See Dobbs, 48 Ariz. L. Rev. at 715. This aspect of the 

economic loss rule has several underlying justifications. In a complex 

society such as ours, economic reverberations travel quickly and widely, 

resulting in potentially limitless liability. As Professor Dobbs puts it, 
9

“Stand-alone economic loss often spreads without limit.” Id. Also, the 

rule encourages parties to enter into contracts. Id. at 716–17.

Another case where this court applied “the stranger economic loss” 

rule, although without so describing it, is Anderson Plasterers v. 

Meinecke, 543 N.W.2d 612, 613 (Iowa 1996). There, two workers were 

injured by a negligent third party. The employer sued the third party for 

its economic losses, e.g., loss of the workers’ time and the expense of 

hiring replacement workers. We refused to recognize the claim. Id. at 

613–14. Likewise, in State ex rel. Miller v. Philip Morris Inc., 577 N.W.2d 

401, 406–07 (Iowa 1998), we held the State could not recover certain 

economic losses (i.e., Medicaid expenses) it had incurred because of 

smoking-related illnesses allegedly caused by the defendant tobacco 

companies.

The economic loss rule is subject to qualifications. For example, 

purely economic losses are recoverable in actions asserting claims of 

professional negligence against attorneys and accountants. Van Sickle 

Constr. Co. v. Wachovia Commercial Mortg., 783 N.W.2d 684, 692 n.5

(Iowa 2010). Also, negligent misrepresentation claims fall outside the 

scope of the economic loss rule. Id. at 694. In addition, when the duty 

of care arises out of a principal-agent relationship, economic losses may 

be recoverable. Langwith v. Am. Nat’l Gen. Ins. Co., 793 N.W.2d 215, 222 

(Iowa 2010).

We need not attempt to delineate the precise contours of the

economic loss rule in Iowa. For present purposes, it is enough for us to 

note that Annett’s cause of action bears a number of characteristics that 

bring it within the scope of the economic loss rule. The claim does not 

fall under any of the recognized exceptions or qualifications to the 

economic loss rule. See id.; Van Sickle Constr. Co., 783 N.W.2d at 692 
10

n.5. It is a remote economic loss claim, similar in that respect to the 

claims we rejected in Nebraska Innkeepers, Anderson Plasterers, and 

Philip Morris, but with the additional twist that this case does not even 

involve an initial personal injury or damage to property.

Also, although Annett did not have a direct contractual 

relationship with Kum & Go, it had a contract with Comdata which in 

turn had contracted with Kum & Go. When parties enter into a chain of 

contracts, even if the two parties at issue have not actually entered into 

an agreement with each other, courts have applied the “contractual 

economic loss rule” to bar tort claims for economic loss, on the theory 

that tort law should not supplant a consensual network of contracts. 

See Dobbs, 48 Ariz. L. Rev. at 726; Mark P. Gergen, The Ambit of 

Negligence Liability for Pure Economic Loss, 48 Ariz. L. Rev. 749, 764–65

(2006) [hereinafter Gergen] (noting that liability has been precluded when 

the claimant could have obtained redress for the harm from the actor by 

contract with the actor “or through a chain of contracts reaching back to 

the actor”).2

An illustration of this principle is Richards v. Midland Brick Sales 

Co., Inc., 551 N.W.2d 649, 650–52 (Iowa Ct. App. 1996), in which the 

court of appeals found that the economic loss rule barred a tort claim by 

a homeowner against a brick supplier. The homeowner there had 

contracted with a builder, which in turn had contracted with the brick 

supplier. Richards, 551 N.W.2d at 650. Similarly, in Tomka v. Hoechst 

 2Professor Gergen, building on the work of another scholar (Professor Jane 

Stapleton), describes two general criteria to determine when an actor is not subject to 

negligence liability for pure economic loss: (1) negligence liability would expose an actor 

to a risk of indeterminate liability; and (2) other mechanisms (e.g., contract law) exist to 

regulate the actor’s unreasonable conduct or to prevent or redress the harm. Gergen, 

48 Ariz. L. Rev. at 763–65. In a big picture sense, these two categories resemble 

Professor Dobbs’s two categories of “stranger economic loss” and “contractual economic 

loss.”
11

Celanese Corp., 528 N.W.2d 103, 106–07 (Iowa 1995), we rejected 

economic loss claims by a cattle feeder against a manufacturer of 

synthetic growth hormones, even though the feeder had no contract with 

the manufacturer, having purchased the hormones through local 

veterinarians.

Here Annett agreed with Comdata that it would be “fully 

responsible” for the fraudulent or unauthorized use of credit cards. 

Annett knew that Comdata would be entering into agreements with 

service centers, that Comdata would be reimbursing service centers for 

charges made to the credit cards, and that Comdata would in turn expect 

reimbursement from Annett. Also, Annett had the capacity to prevent

fraudulent or unauthorized use by its employee: Its subsidiary TMC 

received a daily report of Vititoe’s transactions, and as soon as a new fuel 

manager took over, that person noticed the suspicious activity 

immediately. It is difficult to see why a tort remedy is needed here. 

Annett contracted to assume certain risks of financial loss and had the 

ability to minimize those risks.

Even a recent critic of some applications of the economic loss rule 

concedes the doctrine can be applied when the plaintiff is in a 

contractual chain of distribution leading to the defendant. See Vincent 

R. Johnson, The Boundary-Line Function of the Economic Loss Rule, 66 

Wash. & Lee L. Rev. 523, 556–57 (2009) (“[A] purchaser seeking purely 

economic losses should not be permitted to complain, under tort 

principles, against anyone in the chain of distribution that the product 

bought was not better . . . than what the plaintiff bargained for under the 

law of contract. . . . With respect to purely economic loss, it is ordinarily 

fair to bind the plaintiff by the terms of the agreement to which the 

plaintiff assented.”) The chain of contracts here involved services rather 
12

than a product, but that does not compel a different result. Robins itself 

concerned two linked service agreements. In Robins, a group of 

individuals had chartered a ship from its owner which in turn contracted 

with a dry dock for repair of the ship. When negligent repairs at some 

point resulted in damage to the ship and losses to the charterers, they 

sued the dry dock. Robins, 275 U.S. at 307, 48 S. Ct. at 134, 72 L. Ed at 

292. The U.S. Supreme Court denied relief. Id. at 308–10, 48 S. Ct. at 

135–36, 72 L. Ed. at 292–93. As Justice Holmes explained, “The law 

does not spread its protection so far.” Id. at 309, 48 S. Ct. at 135, 72 L. 

Ed. at 292.

We cited Robins with approval in Nebraska Innkeepers. 345 

N.W.2d at 126. As noted above, we summarized the rule in broad terms. 

Id. We did not confine the economic loss rule to situations where the 

defendant was supplying a product. See also Audio Odyssey, 373 F.3d 

at 872–73 (applying Iowa’s economic loss rule to a service relationship).

Additionally, in Determan and Nelson, we announced a series of 

factors to be considered in applying the economic loss rule. We focused 

on “ ‘the nature of the defect, the type of risk, and the manner in which 

the injury arose’ ” as well as “the type of damages that the plaintiff seeks 

to recover.” Determan, 613 N.W.2d at 263 (quoting Nelson, 426 N.W.2d 

at 124). Those cases involved product defect claims in which there had

been some physical consequences—i.e., a sagging roof in Determan and 

spoiled meat in Nelson. It is not clear to us that the Determan/Nelson

factors are relevant when the claim is for negligence resulting only in 

financial harm. But in any event, those factors favor the application of 

the economic loss rule here. There was no risk of physical harm; there 

was no “defect”; and the “injury” (loss of money) occurred gradually and 

over a long period of time.
13

Annett tries to analogize this case to Waukon Auto Supply v. 

Farmers & Merchants Savings Bank, 440 N.W.2d 844 (Iowa 1989) and 

Phariss v. Eddy, 478 N.W.2d 848 (Iowa Ct. App. 1991), but we find the 

comparison unpersuasive. In those cases, banks that cashed checks 

and handed out funds based on forged or unauthorized endorsements 

were found liable to the actual payees of those checks. However, the 

liability in those cases was based on conversion under Article 3 of the 

Uniform Commercial Code, not negligence. Waukon Auto Supply, 440 

N.W.2d at 849; Phariss, 478 N.W.2d at 851. If anything, those decisions 

provide another justification for the application of the economic loss rule

here. If parties could simply bring negligence claims whenever financial 

transactions went awry, there would be little need for the elaborate 

payment system rules set forth in Articles 3 and 4 of the U.C.C.

Lastly, as we noted earlier, this claim resembles tort claims that 

have been rejected recently by state and federal appellate courts in 

Massachusetts and Pennsylvania. No persuasive reason has been offered

for us to depart from those decisions here in Iowa. Accordingly, we 

affirm the grant of summary judgment to Kum & Go on Annett’s 

negligence claim, and now turn to its third-party beneficiary claim.3

 3In our view, it does not advance the analysis to assert that Kum & Go owed an

“independent duty” to Annett to use ordinary care. This rephrases the question, but 

does not answer it. We have said “the existence of a duty is a policy decision, based on 

the relevant circumstances, that the law should protect a particular person from a 

particular type of harm.” Van Essen v. McCormick Enters. Co., 599 N.W.2d 716, 719

(Iowa 1999). The economic loss rule says, in effect, under some circumstances, a party 

does not owe a duty to another party to protect it from pure economic losses. Whether 

the issue is framed in terms of the economic loss rule or the scope of an actor’s duty, we 

still need to make the underlying determination whether tort law affords a potential 

remedy.

At a minimum, before one can claim the existence of an “independent duty”

running from Kum & Go to Annett, it is necessary to identify the source of that duty. 

The federal district court decision in Hannaford does not help in that regard. The court 

there found a duty based on an implied contract between the grocery store customer 
14

B. Third-Party Beneficiary Claim. In the alternative, Annett 

claims it was a third-party beneficiary of the contract between Comdata 

and Kum & Go. That contract had a Tennessee choice-of-law provision. 

Both parties therefore agree that Annett’s claim to third-party beneficiary 

status is governed by Tennessee law.

Under Tennessee law, “contracts are presumed to be ‘executed for 

the benefit of the parties thereto and not third persons.’ ” OwnerOperator Indep. Drivers Ass’n, Inc. v. Concord EFS, Inc., 59 S.W.3d 63, 68

(Tenn. 2001) (quoting Oman Constr. Co. v. Tenn. Cent. Ry., 370 S.W.2d 

563, 572 (Tenn. 1963)). Tennessee follows the general rule that a third 

party must be an “intended beneficiary” of a contract to have the right to 

enforce it. Id. There must be “ ‘the clear intent to have the contract 

operate for the benefit of a third party.’ ” Id. at 68–69 (quoting First 

Tenn. Bank Nat’l Ass’n v. Thoroughbred Motor Cars, Inc., 932 S.W.2d 928, 

930 (Tenn. Ct. App. 1996)).4

In the Owner-Operator case, the Tennessee Supreme Court held 

that individual credit card holders were not third-party beneficiaries with 

the right to enforce contracts between the card issuers and merchants 

prohibiting surcharges on credit card transactions. Id. at 65. We believe 

the reasoning of that decision controls here. Here, as in the OwnerOperator case, the agreement did not expressly provide that there would 

be no third-party beneficiaries, but there was an anti-assignment 

provision, which in the Tennessee court’s view tended to weigh against a 

__________________________

and the grocery store. 613 F. Supp. 2d at 118–19. There was no contract between 

Kum & Go and Annett.

4Tennessee, like Iowa, follows the third-party beneficiary principles set forth in 

the Restatement (Second) of Contracts. See Restatement (Second) of Contracts § 302, 

at 439–40 (1981); see also RPC Liquidation v. Iowa Dep’t of Transp., 717 N.W.2d 317, 

319–20 (Iowa 2006); Owner-Operator Indep. Drivers Ass’n, 59 S.W.3d at 69–70.
15

finding of third-party beneficiary status. Id. at 71. Also, while the 

contract between Comdata and Kum & Go imposed detailed processing 

requirements on Kum & Go, it did not indicate those requirements were 

to benefit Annett; rather, they appear from the contract simply intended 

to protect Comdata. Id. at 73 (noting terms of contract made clear card 

issuer’s intent was to maximize its own profits, not to confer benefits on 

third-party beneficiaries).

As the district court pointed out, the intent to benefit Comdata 

rather than third parties is made manifest by the structure and wording 

of the agreement. Subsections 4(a) and 4(b) set forth the processing 

requirements. Subsection 4(c) then provides that Comdata shall have 

the “right to refuse” or (having accepted) to reverse any transaction where 

those requirements were not followed. This stands as an explicit 

statement that the intended beneficiary of subsections 4(a) and 4(b) is 

Comdata and not anyone else. As the district court explained:

Such language evinces Comdata’s intent to reserve the right 

to enforce the transaction procedures itself, and as a 

necessary corollary, the right to determine when a service 

center has failed to appropriately follow the transaction 

procedures. To allow a third party to make its own 

determination as to when a service center has failed to abide 

by the procedures, and to further attempt to enforce said 

procedures in a court of law, would be contrary to the intent 

of the parties under the contract.

We agree with the district court’s views on this matter.

IV. Conclusion.

For the reasons stated herein, we affirm the district court’s order 

granting summary judgment to Kum & Go.

AFFIRMED.

All justices concur except Wiggins and Hecht, JJ., who dissent, 

and Appel, J., who takes no part.
16

#09–0905, Annett Holdings, Inc. v. Kum & Go, L.C.

WIGGINS, Justice (dissenting).

I dissent. While I agree with the majority that Annett Holdings, 

Inc. was not a third-party beneficiary, I cannot support the conclusion 

that we should bar its claim because of the economic loss rule. To 

understand the basis for my dissent, I believe it is first necessary to 

review the development of the economic loss rule in Iowa. 

Iowa appeared to adopt the economic loss rule in Nebraska 

Innkeepers, Inc. v. Pittsburgh-Des Moines Corp., 345 N.W.2d 124 (Iowa 

1984). There, a group of Nebraska business owners sued Pittsburgh-Des 

Moines for purely economic loss due to negligence of Pittsburgh-Des 

Moines in the construction of a bridge over the Missouri River connecting 

Iowa and Nebraska. Neb. Innkeepers, Inc., 345 N.W.2d at 125–26. After 

reviewing cases with similar facts from other jurisdictions, this court 

barred the claims of the business owners. Id. at 126–28. 

My review of the cases relied on by this court, when it decided 

Nebraska Innkeepers, is that in an action in which a bridge is negligently 

damaged, the courts generally relied on the theory that economic 

damages resulting from damage to the bridge are too remote to allow a 

recovery. See Leadfree Enters., Inc. v. U.S. Steel Corp., 711 F.2d 805, 807 

(7th Cir. 1983) (“ ‘[E]ven where the chain of causation is complete and 

direct, recovery may sometimes be denied on grounds of public policy 

because: (1) The injury is too remote from the negligence; or (2) the 

injury is too wholly out of proportion to the culpability of the negligent 

tort-feasor; or (3) in retrospect it appears too highly extraordinary that 

the negligence should have brought about the harm; or (4) because 

allowance of recovery would place too unreasonable a burden on the 

negligent tort-feasor; or (5) because allowance of recovery would be too 
17

likely to open the way for fraudulent claims; or (6) allowance of recovery 

would enter a field that has no sensible or just stopping point’ ”) (quoting 

Hartridge v. State Farm Mut. Auto. Ins. Co., 271 N.W.2d 598, 602 (Wis. 

1978)); Petitions of Kinsman Transit Co., 388 F.2d 821, 825 (2d Cir. 1968) 

(“Under all the circumstances of this case, we hold that the connection 

between the defendants’ negligence and the claimants’ damages is too 

tenuous and remote to permit recovery.”); In re Complaint of Marine 

Navigation Sulphur Carriers, Inc., 507 F. Supp. 205, 209 (E.D. Va. 1980) 

(“Inherent in the concept of proximate or legal cause is the recognized 

need to limit the compensability of indirect and remote consequences of 

the negligent act.”); Gen. Foods Corp. v. United States, 448 F. Supp. 111, 

113 (D. Md. 1978) (“Courts which have addressed this issue have 

repeatedly expressed concern that a contrary rule would open the door to 

virtually limitless suits, often of a highly speculative and remote 

nature.”); Rickards v. Sun Oil Co., 41 A.2d 267, 270 (N.J. Sup. Ct. 1945) 

(“It is obvious that the alleged wrong was not the natural and proximate 

result of defendant’s negligence, and the defendant is not liable.”). In 

other words, these authorities hold as a matter of law any damages 

caused by the defendant’s negligence in damaging the bridge is not the 

proximate cause of the plaintiff’s damages. In reality, we did not adopt 

the economic loss rule. We applied the proximate-cause-remoteness 

doctrine and called it the economic loss rule.

A few years later, this court refined its position on pure economic 

loss claims. Nelson v. Todd’s Ltd., 426 N.W.2d 120, 122–25 (Iowa 1988). 

The court applied the economic loss rule to a product liability case, but 

did so using a different rationale. Id. The Nelson court quoted with 

approval the following analysis suggested by a federal court of appeals in 

deciding whether a particular claim is cognizable in tort or contract:
18

“The line between tort and contract must be drawn by 

analyzing interrelated factors such as the nature of the 

defect, the type of risk, and the manner in which the injury 

arose. These factors bear directly on whether the safetyinsurance policy of tort law or the expectation-bargain 

protection policy of warranty law is most applicable to a 

particular claim.”

Id. at 124–25 (quoting Pa. Glass Sand Corp. v. Caterpillar Tractor Co., 652 

F.2d 1165, 1173 (3d Cir.1981)). Whereafter, our court stated:

We agree that the line to be drawn is one between tort 

and contract rather than between physical harm and 

economic loss. . . . When, as here, the loss relates to a 

consumer or user’s disappointed expectations due to 

deterioration, internal breakdown or non-accidental cause, 

the remedy lies in contract.

Tort theory, on the other hand, is generally 

appropriate when the harm is a sudden or dangerous 

occurrence, frequently involving some violence or collision 

with external objects, resulting from a genuine hazard in the 

nature of the product defect.

Nelson, 426 N.W.2d at 125. Thus, the court abandoned its former 

proximate cause rationale in favor of a tort–contract analysis. This 

analysis is particularly fact intensive and the outcome is contingent on 

the nature of the claim. 

We reaffirmed the tort–contract analysis in Tomka v. Hoechst 

Celanese Corp., 528 N.W.2d 103 (Iowa 1995). The Tomka court found 

the damages sustained by the plaintiff clearly fell within contract theory, 

not tort theory. Tomka, 528 N.W.2d at 107. The Tomka court held, 

“ ‘defects of suitability and quality are redressed through contract actions 

and safety hazards through tort actions.’ ” Id. (quoting Northridge Co. v. 

W.R. Grace & Co., 471 N.W.2d 179, 185 (Wis. 1991)). 

In 1999 this court again applied the tort–contract analysis in a 

products liability case. Am. Fire & Cas. Co. v. Ford Motor Co., 588 

N.W.2d 437, 438 (Iowa 1999). In American Fire and Casualty, the court 
19

determined the economic loss rule would not preclude a product liability 

suit brought by the automobile owner’s insurer, as subrogee, against the 

manufacturer seeking recovery for the loss of an automobile when the 

automobile spontaneously caught fire. Id. at 439–40. This court held 

the manner in which the injury occurred sounded more like a tort action 

than a contract action; therefore, the economic loss rule would not bar 

recovery by the insurer. Id. 

In 2000 this court utilized the tort–contract analysis to determine 

that a purchaser of a home could not recover on a negligence theory 

against the seller for purely economic loss. Determan v. Johnson, 613 

N.W.2d 259, 264 (Iowa 2000). In making this determination, the court 

applied the factors enumerated in Nelson. Id. at 263. The court looked 

at the nature of the defect, the type of risk, and manner in which the 

injury arose. Id. Relying on the nature of the claim the court reasoned 

the “plaintiff’s claim is based on her unfulfilled expectations with respect 

to the quality of the home she purchased. Accordingly, her remedy lies 

in contract law, not tort law.” Id. Thus, the court found the action 

sought the benefit of the bargain rather than a tort remedy. Id. at 264. 

Most recently, in 2010, this court revisited the economic loss rule 

and held the rule did not preclude a buyer’s tort claim of negligent 

misrepresentation. Van Sickle Constr. Co. v. Wachovia Commercial 

Mortg., Inc., 783 N.W.2d 684, 693 (Iowa 2010). Here too, the court 

reached its conclusion by examining the nature of the claim. Id. The 

court reaffirmed the purpose behind the rule—“to prevent litigant with 

contract claims from litigating them inappropriately as tort claims.” Id. 

In addition to product liability claims that result from sudden and 

dangerous injuries and claims based on negligent misrepresentation, this 

court has not applied the economic loss rule in cases of professional 
20

negligence. This court has allowed clients to sue their attorney for 

negligence and collect purely economic loss despite the economic loss 

rule. See Crookham v. Riley, 584 N.W.2d 258, 265–66 (Iowa 1998); 

Pickens, Barnes & Abernathy v. Heasley, 328 N.W.2d 524, 526–27 (Iowa 

1983). The same is true for suits against accountants. See Kemin 

Indus., Inc. v. KPMG Peat Marwick LLP, 578 N.W.2d 212, 221 (Iowa 1998). 

Robins Dry Dock & Repair Co. v. Flint, 275 U.S. 303, 48 S. Ct. 134, 

72 L. Ed. 290 (1927), is widely regarded as the landmark decision in this 

area. After Robins, courts have applied the economic loss rule in a 

variety of cases using multiple rationales and justifications. Peter 

Benson, The Problem with Pure Economic Loss, 60 S.C. L. Rev. 823, 823–

38 (2009) [hereinafter Benson]. At the very core of the rule is the idea 

that it serves as a boundary line between two areas of law—contract law, 

which rests on a bargained-for obligation between limited and 

immediately identifiable parties, versus tort law, grounded in legal 

obligations imposed on the greater population generally. In most cases, 

one of these two areas of the law will allow an aggrieved party a cause of 

action. In some circumstances, however, neither will. This circumstance 

gives us the opportunity to design a framework under which exceptions 

to the economic loss rule may be considered. 

The common thread running through all our prior cases is that we 

apply the economic loss rule in a mechanical fashion. We look at the 

facts and the nature of the lawsuit to determine if the plaintiff is 

attempting to litigate a contract claim as a tort claim. Van Sickle Constr. 

Co., 783 N.W.2d at 693. In making this determination, we consider 

whether the plaintiff suffered an injury, or was merely disappointed in 

his or her expectation. In the event a party suffered only economic loss, 

we may allow a claim but not before further inquiry. This inquiry 
21

requires us to determine if the economic loss sustained was sudden and 

dangerous as in American Fire & Casualty or simply an unfulfilled 

expectation as in Determan. 

As far back as 1958, courts have contemplated circumstances that 

give rise to exceptions to the economic loss rule. Biakanja v. Irving, 320 

P.2d 16, 18–19 (Cal. 1958). In Biakanja a notary public negligently failed 

to have a will property executed resulting in a pure economic loss to the 

plaintiff. Id. at 17. Because of the closeness of the defendant’s conduct 

and the injury suffered, the court reasoned that it was fair and just to 

allow the plaintiff to recover damages. Id. at 19. The primary focus of 

the court was the “end and aim” of the transaction. Id. at 18–19. 

In 1979 the California Supreme Court revisited the exception to 

the economic loss rule. J’Aire Corp. v. Gregory, 598 P.2d 60, 61 (Cal. 

1979). Here, the court allowed recovery of pure economic damages when 

a restaurant owner suffered losses due to the negligence of a contractor 

performing work on a building the restaurant owner was leasing. Id. at 

66. As in Biakanja, the court reasoned that the special relationship of 

the parties created an independent duty on the part of the defendant to 

perform the work diligently and with consideration to the tenants. Id. at 

63–65. 

In People Express Airlines, Inc. v. Consolidated Rail Corporation, 

495 A.2d 107 (N.J. 1985), the plaintiff’s airline terminal was forced to 

shut down when ethylene oxide escaped from a tank car necessitating 

evacuation of the surrounding area. People Express Airlines, Inc., 495 

A.2d at 108. Without any property damage or physical injury, the court 

allowed People Express to recover its pure economic loss. Id. at 109, 

118. The court reasoned that pure economic losses should not be borne 

by innocent victims. Id. at 111.
22

Commentators have also opined that a strict mechanical 

application of the economic loss rule may not be possible and that 

exceptions to the rule are necessary. See generally Benson, 60 S.C. L. 

Rev. at 823–38; Herbert Bernstein, Civil Liability for Pure Economic Loss 

Under American Tort Law, 46 Am. J. Comp. L. 111, 126–31 (1998). After 

first adopting and applying the economic loss rule, this court has also 

acknowledged there may be circumstances giving rise to a cause of 

action for purely economic loss arising from an independent duty outside 

the world of contract law and beyond tort law. I believe the economic 

loss rule should remain generally, with exceptions based upon the 

nature of the action.5 This case presents one of those exceptions.

In examining the cause of action in the present case, it is clear to 

me that Annett Holdings is not trying to circumvent a contract claim by 

bringing a tort claim. Allowing the claim against Kum & Go to proceed 

will not result in a flood of litigation, speculative damages, or thwart any 

of the other rationales commonly asserted in association with the 

economic loss rule. I reach this conclusion for a number of reasons. 

First, Annett could not bring a contract claim against Kum & Go. 

Annett did not have any contractual relationship with Kum & Go. 

Therefore, there is not a contractual remedy available to Annett to 

redress this alleged wrong. Moreover, without a contractual relationship, 

Annett was unable to allocate the risk of loss if Kum & Go was negligent 

in its processing of the purchases. As one commenter pointed out:

With respect to the boundary-line function of the economic 

loss rule, decisions holding that third-party claims are not 

foreclosed by the rule make sense. If there is no agreement 

 5It should be noted that many foreign common law jurisdictions have 

substantially revised, or have done away with, similar doctrines. See generally Karen

Hogg, Negligence and Economic Loss in England, Australia, Canada, and New Zealand, 

43, Int’l & Comp. L.Q. 116 (1994). 
23

between the parties to a lawsuit, there is no risk that 

recognizing tort obligations will violate the parties’ freedom to 

contract, because there never was an effort to exercise such 

freedom. If the parties are not in privity, contract law does 

not potentially afford a remedy, except in the relatively rare 

case of a third-party beneficiary. Thus, respect for contract 

principles and private ordering does not require that the 

economic loss rule bar the claims of persons not standing in 

a contractual relationship. The purpose of the economic loss 

rule is not to leave injured persons remediless for economic 

losses but to ensure respect for private ordering by relegating 

a plaintiff to contract remedies in cases where there is an 

agreement between the parties allocating economic risks. If 

there is no contract between the parties to litigation, there is 

no boundary-line function to be performed by the economic 

loss rule.

Vincent R. Johnson, The Boundary-Line Function of the Economic Loss 

Rule, 66 Wash. & Lee L. Rev. 523, 555 (2009) (footnotes omitted). 

Courts in Minnesota and Colorado have agreed with this rationale. 

See Russo v. NCS Pearson, Inc., 462 F. Supp. 2d 981, 1001 (D. Minn. 

2006) (“[I]t strikes the Court as unfair to hold . . ., as a matter of law, 

that Plaintiffs lack a tort remedy because the alleged tort arose in the 

context of the performance of a contract to which they were strangers.”); 

A.C. Excavating v. Yacht Club II Homeowners Ass’n, 114 P.3d 862, 870 

(Colo. 2005) (“[S]ubcontractors [had] assumed contractual obligations 

with the developer and general contractor[;] these obligations did not and 

could not relieve the subcontractors of their independent duty to act 

without negligence in constructing the development.”).

Second, Kum & Go actions did not accompany the sale or creation 

of a product. Kum & Go was providing a service just as an attorney or 

an accountant does for their client. In performing this service, Kum & 

Go had an independent duty to use ordinary care in the processing of the 

purchases made with the Annett’s credit card. In re Hannaford Bros. Co. 

Customer Data Sec. Breach Litig., 613 F. Supp. 2d 108, 119 (D. Me. 

2009). Negligence means failure to use ordinary care. Mescher v. 
24

Brogan, 223 Iowa 573, 574, 272 N.W. 645, 646 (1937). Ordinary care is 

the care which a reasonably careful person would use under similar 

circumstances. Id. Therefore, negligence is “doing something a 

reasonably careful person would not do under similar circumstances, or 

failing to do something a reasonably careful person would do under 

similar circumstances.” Bartlett v. Chebuhar, 479 N.W.2d 321, 322 (Iowa 

1992) (quoting 1 Iowa Civil Jury Instructions 700.2 (1987)). Annet had 

expectation that Kum & Go would process these transactions in a 

nonnegligent manner. 

In the summary judgment record there is a genuine issue of 

material fact as to whether Kum & Go was negligent in the processing of 

the credit card transactions. The breach of the duty to use ordinary care 

in the processing of the purchases made with Annett’s credit cards is 

independent of any contractual duty. In Iowa, courts recognized that 

under some circumstances, a breach of a contractual duty may give rise 

to an independent action in tort. Preferred Mktg. Assocs. Co. v. Hawkeye 

Nat’l Life Ins. Co., 452 N.W.2d 389, 397 (Iowa 1990). It seems 

incongruous to me that this court will allow independent tort actions in 

situations where a breach of a contractual duty gives rise to an 

independent tort, but will not allow such an action where an 

independent duty exists and there is no contract between the parties.

Finally, if you examine the basis of the claim, Annett is not making 

a claim for an injury to a product. Annett is claiming that Kum & Go 

was negligent in the processing of the credit card transactions. Kum & 

Go had a duty independent of a statute to operate and oversee the use of 

the credit cards. Historically, our cases involving the economic loss rule 

focus on a fact situation where the defendant sells a product that fails to 

perform as expected. See Determan, 613 N.W.2d at 260 (involving the 
25

sale of a home); Am. Fire & Cas. Co., 588 N.W.2d at 438 (involving the 

sale of a vehicle); Tomka, 528 N.W.2d at 105 (involving the sale of 

veterinarian drug products); Nelson, 426 N.W.2d at 121 (involving the 

sale of a meat-curing product). Obviously, Annett’s claims arise from 

transactions that were vastly different from those presented in our prior 

cases. The facts of this case are akin to a legal or accounting 

malpractice case.

This distinction was recognized by a federal district court in Maine 

when it held under Maine law the economic loss rule will not be extended 

to a situation where a merchant failed to use ordinary care in processing 

a credit card transaction. In re Hannaford Bros., 613 F. Supp. 2d at 

127–28. There, the plaintiffs alleged a grocery store failed to exercise 

ordinary care in processing a credit card transaction, causing the 

cardholder to suffer purely economic loss. Id. at 115–16. The facts of In 

re Hannaford Bros. are similar to the facts of this case. 

The court reviewed Maine law and determined the Maine courts 

established the economic loss rule to prevent a purchaser from receiving 

expectation damages in connection with the purchase of a product. Id. 

at 127–28. In Maine, these types of damages are better left to be litigated 

under express and implied warranty theories. Id. Our court used this 

same rationale when it applied the economic loss rule in Determan,

Tomka, and Nelson. The court also used this rationale when it rejected 

the economic loss rule in American Fire and Casualty. Annett’s action in 

this case does not involve the sale of a product or expectation damages; 

therefore, there is no logical reason to apply the economic loss rule in 

this case. 

In summary, I would not apply the economic loss rule 

mechanically. I would look at the nature of the action, the breach of the 
26

duty alleged, and the damages sought before I would allow the economic 

loss rule to bar a claim. I agree the economic loss rule should preclude 

recovery when the parties are in privity with the attendant opportunity to 

allocate the risk of loss, and no independent duty is established, because 

any damages incurred could have been covered by an agreement 

negotiated between the parties. It makes no sense to hold parties not in 

privity to the same standard, where a duty to process credit card 

transactions in a reasonable manner exists. The purpose of the rule is to 

prevent contract claims from being litigated as tort claims. There are no 

contract claims available to Annett under the facts of this case. Hence, 

the purpose of the economic loss rule is not frustrated by applying it 

under these narrow facts. Accordingly, I would reverse the district 

court’s order granting Kum & Go’s motion for summary judgment.

Hecht, J., joins this dissent.