Title: Insurance Company of North America v. Cease Electric Inc.
Citation: 2004 WI 139
Docket Number: 2003AP000689
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: November 9, 2004

2004 WI 139 
 
 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
03-0689 
COMPLETE TITLE: 
 
 
Insurance Company of North America,  
          Plaintiff-Respondent, 
 
Cold Spring Egg Farm, Inc.,  
          Involuntary-Plaintiff-Respondent, 
 
     v. 
 
Cease Electric Inc., d/b/a Zillmer  
Electric and Pekin Insurance Company,  
 
          Defendants-Appellants-Petitioners. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
2004 WI App 15 
Reported at:  269 Wis. 2d 286, 674 N.W.2d 886 
(Ct. App. 2003-Published) 
 
 
OPINION FILED: 
November 9, 2004   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
September 10, 2004   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Walworth   
 
JUDGE: 
John R. Race   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
        
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the defendants-appellants-petitioners there were briefs 
by Monte E. Weiss and Weiss Law Office, S.C., Milwaukee; and 
J.P. Fernandes and Hale & Wagner, S.C., Milwaukee, and oral 
argument by Monte E. Weiss. 
 
For the plaintiff-respondent and involuntary plaintiff-
respondent there was a brief by Timothy A. Bascom, Richard E. 
Ceman, Jr., Amy J. Wilkinson and Bascom, Budish & Ceman, S.C., 
Wauwatosa, and oral argument by Timothy A. Bascom. 
 
 
 
2
An amicus curiae brief was filed by E. Campion Kersten and 
Kersten & McKinnon, S.C., Milwaukee; and William C. Gleisner, 
III, and Law Offices of William Gleisner, Milwaukee, on behalf 
of the Wisconsin Academy of Trial Lawyers. 
 
An amicus curiae brief was filed by Thomas P. Godar, John 
D. Finerty, Jr., and Michael Best & Friedrich, LLP, Madison; and 
Michele Odorizzi and Mayer, Brown, Rowe & Maw, LLP, Chicago, on 
behalf of Associated General Contractors of America, AGC of 
Wisconsin, Inc., and Associated General Contractors of Greater 
Milwaukee, and oral argument by Michele Odorizzi. 
 
2004 WI 139 
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  03-0689  
(L.C. No. 
99 CV 391) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Insurance Company of North America,  
 
          Plaintiff-Respondent, 
 
Cold Spring Egg Farm, Inc.,  
 
          Involuntary-Plaintiff- 
          Respondent, 
 
     v. 
 
Cease Electric Inc., d/b/a Zillmer  
Electric and Pekin Insurance Company,  
 
          Defendants-Appellants- 
          Petitioners. 
 
FILED 
 
NOV 9, 2004 
 
Cornelia G. Clark 
Clerk of Supreme Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed.   
 
¶1 
ANN 
WALSH 
BRADLEY, 
J.   The 
petitioners, 
Cease 
Electric Inc., d/b/a Zillmer Electric and Pekin Insurance 
Company seek review of a court of appeals' decision affirming a 
circuit court judgment awarding Cold Spring Egg Farm, Inc., and 
its insurance carrier, Insurance Company of North America, 
damages for losses sustained due to the failure of a barn 
No. 
03-0689   
 
2 
 
ventilation system.1  Cease Electric, a contract electrician, 
asserts that it was retained to manufacture a product, namely 
the ventilation system.  Accordingly, it contends that the 
economic loss doctrine precludes Cold Spring's recovery under 
tort.   
¶2 
We agree with Cold Spring that its contract with Cease 
Electric was one for services and not for a product.  Because we 
determine that the economic loss doctrine does not apply to 
contracts for services, we conclude that Cold Spring is entitled 
to its recovery under tort for the negligent performance of 
services.  We therefore affirm the decision of the court of 
appeals.2 
I 
 
¶3 
Cold Spring raises chickens to produce eggs.  It had a 
long-standing business relationship with Cease Electric.  In the 
summer of 1996, Cold Spring entered into an oral contract with 
Cease Electric to upgrade the ventilation system in one of its 
barns.  Ventilation systems are required to bring fresh, cool 
                                                 
1 Insurance Co. of North America v. Cease Electric, Inc., 
2004 WI App 15, 269 Wis. 2d 286, 674 N.W.2d 886 (affirming a 
decision of the circuit court for Walworth County, John R. Race, 
Judge). 
2 Because we determine that Cease Electric's contract with 
Cold Spring was one for services, we do not address the proper 
test for distinguishing mixed contracts that involve both 
products and services.  Similarly, because we conclude that the 
economic loss doctrine does not apply to contracts for services, 
we do not reach the issue of whether Cold Spring's chickens 
constituted "other property." 
No. 
03-0689   
 
3 
 
air into the barns so that the chickens have sufficient oxygen 
to live. 
 
¶4 
Prior to installation of the new system, Cold Spring 
had manual ventilation systems in its barns.  Under the manual 
system, each individual fan had its own thermostat control 
independent of the other fans.  If one individual fan failed, 
the remaining fans would continue to operate. 
 
¶5 
The 
new 
system 
was 
designed 
so 
that 
a 
single 
controller would operate all fans in stages.  As the temperature 
in the barn rose, the fan control would engage different fans to 
bring fresh air into the barn.  Conversely, when the temperature 
in 
the 
barn 
fell, 
the 
controller 
would 
turn 
off 
fans 
accordingly. 
 
¶6 
The "brains" of the new ventilation system was the 
main fan control unit:  the ST-4026.  Cold Spring purchased this 
component from Aerotech, Inc.  Aerotech designed the system to 
have a backup thermostat as a safety device in the event the 
primary fan control failed.  It recommended wiring the backup 
thermostat separately from the power source for the primary fan 
control. 
 
¶7 
Included with the ST-4026 was a one-page wiring 
schematic.  Based on this diagram, Cold Spring asked Cease 
Electric to wire the ventilation system's component parts, 
including the primary fan control and the backup thermostat.  
Upon 
completion 
of 
the 
job, 
Cold 
Spring 
terminated 
its 
relationship with Cease Electric because it believed that Cease 
had not completed the project correctly or in a timely fashion. 
No. 
03-0689   
 
4 
 
 
¶8 
On January 8, 1997, the ventilation system in Cold 
Spring's barn failed, resulting in the loss of nearly 18,000 
chickens.  Within a week of the loss, Cold Spring hired Al 
Dittmar, an electrician with Carroll Electric, to investigate 
why the fans malfunctioned.    
 
¶9 
Dittmar concluded that Cease Electric had improperly 
wired the main fan control unit to the same power circuit as the 
backup thermostat.  He also determined that Cease Electric's 
employees had failed to test the new system, which would have 
revealed that the backup thermostat was not functioning. 
 
¶10  Pursuant to its insurance contract, Insurance Company 
of North America (INA) paid Cold Spring $118,339.20 for the loss 
of income and $40,704.89 for the loss of chickens.  Cold Spring, 
meanwhile, sustained a loss of $39,761.02 due to its policy 
deductible.  Both INA and Cold Spring commenced this action in 
June 1999, alleging that the failure of the ventilation system 
was the result of the negligence of Cease Electric in its 
performance of services.  
 
¶11 At the conclusion of a two-day trial, a jury found 
that the employees of Cease Electric were negligent and that 
their negligence had caused the plaintiffs' loss.  The circuit 
court inserted the stipulated amount of damages into the 
verdict.  It then entered judgment in the total amount of 
$204,065.29, representing the amount of stipulated damages plus 
No. 
03-0689   
 
5 
 
double costs awarded pursuant to Wis. Stat. § 807.01(3) (2001-
02).3  Cease Electric appealed. 
 
¶12 On 
appeal, 
Cease 
Electric 
maintained 
that 
the 
plaintiffs' negligence action was precluded by the economic loss 
doctrine.4  It argued that it had provided a product to Cold 
Spring, the ventilation system.  According to Cease Electric, as 
the plaintiffs' case was one of disappointed expectations 
resulting in only economic losses to the product, the economic 
loss doctrine barred recovery in a tort action. 
 
¶13 The court of appeals affirmed the circuit court.  It 
concluded that the economic loss doctrine did not bar Cold 
Spring's recovery under tort.  Insurance Co. of North America v. 
Cease Electric Inc., 2004 WI App 15, ¶1, 269 Wis. 2d 286, 674 
N.W.2d 886.  Specifically, the court of appeals determined that 
Cease Electric had provided only services to Cold Spring and 
that, under Wisconsin law, the economic loss doctrine did not 
extend to service contracts.  Id.  Cease Electric and its 
insurer, Pekin Insurance Company, petitioned this court for 
review.  
                                                 
3 All references to the Wisconsin Statutes are to the 2001-
02 version unless otherwise noted. 
4 Additionally, Cease Electric asserted that the circuit 
court erred in (1) refusing to impose sanctions against Cold 
Spring for its alleged spoliation of evidence and (2) exacting 
the penalty provisions of Wis. Stat. § 807.01(3).  The court of 
appeals rejected both arguments.  Insurance Co. of North 
America, 269 Wis. 2d 286, ¶¶1, 24.  Because we did not grant 
review of these issues, we do not address them here. 
No. 
03-0689   
 
6 
 
 
II 
¶14 This case provides us with an opportunity to further 
define 
the 
parameters 
of 
the 
economic 
loss 
doctrine 
in 
Wisconsin.  Before doing so, however, we must first determine 
whether the transaction at issue was one for goods or services.  
Interpreting the nature of a contract presents a question of law 
subject to independent appellate review.  See Micro-Managers, 
Inc. v. Gregory, 147 Wis. 2d 500, 507, 434 N.W.2d 97 (Ct. App. 
1988). 
¶15 The economic loss doctrine is a judicially created 
doctrine that seeks to preserve the distinction between contract 
and tort.  Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 
2d 395, 403-04, 573 N.W.2d 842 (1998).  From its inception, the 
doctrine has been based on the understanding that contract law, 
and particularly the law of warranty, is better suited than tort 
law for dealing with purely economic loss in the commercial 
arena.  Id.  Its application to a set of facts also presents a 
question of law subject to independent appellate review.  See 
Sunnyslope Grading, Inc. v. Miller, Bradford & Risberg, Inc., 
148 Wis. 2d 910, 915, 437 N.W.2d 213 (1989). 
III 
¶16 Our discussion begins with an examination of the 
nature of the contract at issue.  Cease Electric contends that 
the court of appeals erred in characterizing its contract with 
Cold Spring as one for services.  It asserts that it was hired 
to manufacture a unique ventilation system for Cold Spring's 
No. 
03-0689   
 
7 
 
barn.  According to Cease Electric, it fashioned this system by 
providing additional component parts that Cold Spring did not 
have.5 
¶17 The circuit court rejected Cease Electric's claim that 
it provided a product to Cold Spring.  Similarly, the court of 
appeals determined that Cease Electric had mischaracterized its 
role in the agreement.  Insurance Co. of North America, 269 
Wis. 2d 286, ¶20.  It concluded that Cold Spring had hired Cease 
Electric 
to 
provide 
the 
service 
of 
installing 
the 
new 
ventilation system.  Id.  
¶18 Like the court of appeals, we determine that the 
contract at issue was for services, and not for a product.  
Here, it was Aerotech's ST-4026 that created the ventilation 
system in the barn, not Cease Electric.  All Cease was required 
to do was to follow the one-page wiring schematic to ensure that 
the controller was properly wired to ventilation fans and a 
power source.  It failed to do so, and Cold Spring brought suit, 
alleging negligent performance of services.  
¶19 A review of the record supports our conclusion.  To 
begin, Cease Electric did not charge Cold Spring a one-time fee 
for the price of a "system."  Rather, the electricians who did 
the work for Cease Electric kept time sheets and billed their 
time out on an hourly basis.  Evidence of billing is a relevant 
                                                 
5 It is unclear from the record which party furnished the 
backup thermostat in this case.   
No. 
03-0689   
 
8 
 
consideration when determining the nature of a contract.  Micro-
Managers, 147 Wis. 2d at 508. 
¶20 Furthermore, 
the 
testimony 
of 
Robert 
Cease, 
a 
principal of Cease Electric, belies Cease Electric's assertion 
that it "manufactured" Cold Spring's ventilation system.  After 
discussing the manual system in place before the installation of 
the Aerotech system, Cease made the following observation about 
the new fan controller:  "The unit itself is sophisticated, but 
the wiring of it is very simple.  You bring power in, you take 
power out to a fan or a stage of fans.  So it's basically inputs 
and outputs." 
¶21 Finally, 
although 
Cease Electric 
claims to 
have 
furnished additional component parts for Cold Spring's system, 
there is no evidence in the record to support this contention.  
As noted above, Cold Spring had purchased the ST-4026 from 
Aerotech.  The only clear evidence of any "product" provided by 
Cease Electric is contained in Exhibit 3, which references 
merely conduit and wiring.  Accordingly, we are satisfied that 
the contract at issue was for services and not for a product.  
IV 
¶22 Having determined that the contract at issue was one 
for services, we turn next to the applicability of the economic 
loss doctrine here.  Recently, this court described the economic 
loss doctrine as holding that a commercial purchaser of a 
product 
cannot 
recover 
solely 
economic 
losses 
from 
the 
manufacturer under negligence or strict liability theories, 
particularly where the warranty given by the manufacturer 
No. 
03-0689   
 
9 
 
specifically precludes the recovery of such damages.  Van Lare 
v. Vogt, 2004 WI 110, ¶18, __ Wis. 2d __, 683 N.W.2d 46 (citing 
Sunnyslope, 148 Wis. 2d at 921).   
¶23 "Economic loss" for purposes of the doctrine is 
defined as "the loss in a product's value which occurs because 
the product is 'inferior in quality and does not work for the 
general purposes for which it was manufactured and sold.'"  
Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 235, 
246, 595 N.W.2d 445 (1999) (quoting Northridge Co. v. W.R. Grace 
& Co., 162 Wis. 2d 918, 925-26, 471 N.W.2d 179 (1991)).  It 
includes both direct economic loss and consequential loss.  
Daanen, 216 Wis. 2d at 401. 
¶24 The significance of the economic loss doctrine is that 
it "requires transacting parties in Wisconsin to pursue only 
their contractual remedies when asserting an economic loss 
claim, in order to preserve the distinction between contract and 
tort."  Digicorp, Inc. v. Ameritech Corp., 2003 WI 54, ¶34, 262 
Wis. 2d 32, 662 N.W.2d 652.  In general, tort offers a broader 
array of damages than contract.  The economic loss doctrine 
precludes parties under certain circumstances from eschewing the 
more limited contract remedies and seeking tort remedies. 
¶25 There is a split among the jurisdictions as to whether 
the economic loss doctrine applies to contracts for services.  
As one treatise noted, "[t]he judiciary remains hopelessly 
divided 
on 
whether 
the 
doctrine 
should 
be 
extended 
to 
services . . . ."  Philip L. Brunner and Patrick J. O'Connor, 
Jr., Construction Law § 19:10, at n. 14 (May 2004).  This court 
No. 
03-0689   
 
10 
 
has not yet addressed whether the doctrine covers such claims.  
Indeed, in Daanen, 216 Wis. 2d at 417, we expressly reserved the 
issue of "whether the doctrine applies with equal force to 
damages resulting from the provision of services."6 
 
¶26 The genesis of the economic loss doctrine lies in 
products liability cases.  The seminal case on the economic loss 
doctrine is Seely v. White Motor Co., 403 P.2d 145 (Cal. 1965).  
There, the California Supreme Court held that a plaintiff could 
not recover in a tort action for a defective truck that did not 
injure person or property, but only needed repairs after 
crashing due to defective brakes.  Id. at 150-51.  It reasoned 
that the losses suffered by the plaintiff were solely economic 
and due to the failure of the product to live up to the buyer's 
expectations.  Id. at 151. 
 
¶27 Wisconsin first recognized the economic loss doctrine 
in Sunnyslope, 148 Wis. 2d at 910, another products liability 
case.  There, the plaintiff, a commercial contractor, purchased 
a backhoe directly from the defendant manufacturer.  When the 
backhoe failed to properly perform, the plaintiff brought a tort 
action against the manufacturer for damages including the cost 
of replacement parts, labor charges, and lost profits.  Id. at 
914-15.  This court denied the plaintiff relief, concluding that 
a commercial purchaser of a product cannot recover solely 
                                                 
6 In accordance with our decision, we withdraw the language 
in Vogel v. Russo, 2000 WI 85, ¶15, 236 Wis. 2d 504, 613 N.W.2d 
177, suggesting that the economic loss doctrine precludes 
recovery in tort of purely economic losses for the failure of a 
service to live up to contractual expectations.   
No. 
03-0689   
 
11 
 
economic losses from the manufacturer under negligence or strict 
liability theories.  Id. at 921. 
 
¶28 The application of the economic loss doctrine in the 
abovementioned cases is not surprising given the protections 
afforded by the Uniform Commercial Code (U.C.C.).  Adopted by 
the legislature in 1963, the U.C.C. sets forth the rights and 
remedies that govern a transaction between two commercial 
parties of relatively equal bargaining power.  Id. at 916.  It 
provides a "'comprehensive system for compensating consumers for 
economic loss arising from the purchase of defective products.'"  
State Farm Mut. Auto. Ins. Co. v. Ford Motor Co., 225 Wis. 2d 
305, 342, 592 N.W.2d 201 (1999) (quoting Alloway v. General 
Marine Ind., 695 A.2d 264, 268 (N.J. 1997)). 
 
¶29 Protection against damages caused by a defective 
product injuring itself is the purpose of express and implied 
warranties provided for in the U.C.C.  State Farm, 225 Wis. 2d 
at 342.  When a product fails to operate as warranted or 
expected, the proper avenue for relief is a breach of warranty 
claim.  Id.  Alternatively, customers can reject the product or 
revoke their acceptance and sue for breach of contract.  Id. 
 
¶30 Under the provisions of the U.C.C., purchasers of 
defective products are able to recover costs and lost profits, 
thereby placing them in the same position as if the product had 
functioned properly.  Id. at 343.  "'The expectation damages 
available in warranty for purely economic loss give a plaintiff 
the full benefit of its bargain by compensating for forgone 
No. 
03-0689   
 
12 
 
business opportunities.'"  Id. (quoting East River Steamship 
Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 873 (1986)).  
 
¶31 Additionally, the U.C.C. provides protections for 
manufacturers.  Through the terms of a contract, a manufacturer 
can restrict its liability by disclaiming warranties or limiting 
remedies.  Id.  In return, the purchaser is likely to pay a 
lower price.  Id.  "'The limitation in a contract action comes 
from the agreement of the parties and the requirement that 
consequential damages, such as lost profits, be a foreseeable 
result of the breach.'"  Id. (quoting East River, 476 U.S. at 
874).   
 
¶32 It is the existence of these rights and remedies that 
serves as one of the critical rationales underlying the economic 
loss doctrine.  After all, if a commercial purchaser were 
allowed to sue in tort to recover solely economic loss, the 
U.C.C. provisions designed to govern such disputes could be 
circumvented entirely.  In that event, the U.C.C. would be 
rendered meaningless and "contract law would drown in a sea of 
tort."  East River, 476 U.S. at 866. 
 
¶33 Our case law recognizes this underlying rationale.  In 
Sunnyslope, 
this 
court 
observed 
that, 
"the 
legislative 
protections granted by the Uniform Commercial Code are not to be 
buttressed by tort principles and recovery."  148 Wis. 2d at 
916.  Similarly, just last term, we warned of tort law 
duplicating contract remedies and adding unnecessary confusion 
into the law.  We stated: 
No. 
03-0689   
 
13 
 
Where there are well-developed contractual remedies, 
such as the remedies that the Uniform Commercial Code 
(in force in all U.S. states) provides for breach of 
the quality, fitness, or specifications of goods, 
there is no need to provide tort remedies . . . .  The 
tort remedies would duplicate the contract remedies, 
adding unnecessary complexity to the law.   
Tietsworth v. Harley-Davidson, Inc., 2004 WI 32, ¶30, 270 Wis. 
2d 146, 677 N.W.2d 233 (quoting All-Tech Telecom, Inc. v. Amway 
Corp., 174 F.3d 862, 865 (7th Cir. 1999)).  This reasoning is 
particularly significant in the present case. 
 
¶34 Here, Cease Electric asks this court to extend the 
economic loss doctrine to contracts for services.  It maintains 
that allowing Cold Spring to escape the confines of its 
agreement would permit a classic "end run," eviscerating the 
doctrine altogether.  Cease Electric asserts that when a 
commercial party suffers a failure in the performance of a 
contract and the loss sustained is solely economic, the doctrine 
should apply. 
 
¶35 The major problem with Cease Electric's argument is 
that it assumes that contract law is better suited than tort law 
for dealing with purely economic loss in the context of service 
agreements.  It is not.  Unlike contracts for products or goods, 
which enjoy the benefit of well-developed law under the U.C.C., 
no such benefit exists for contracts for services.  This is 
because the U.C.C. does not apply to service contracts.  Wis. 
Stat. § 402.102.  Van Sistine v. Tollard, 95 Wis. 2d 678, 684, 
291 N.W.2d 636 (1980).  As a result, the built-in warranty 
provisions that the U.C.C. may provide in a contract for the 
No. 
03-0689   
 
14 
 
sale of products or goods would not apply to a contract for 
services.    
 
¶36 Given the inapplicability of the U.C.C. to service 
contracts, we decline to extend the economic loss doctrine in 
this case.  We note that we are not alone in this regard.  See, 
e.g., Cargill, Inc. v. Boag Cold Storage Warehouse, 71 F.3d 545, 
550 (6th Cir. 1995) (citing the U.C.C. and stating that the 
economic loss doctrine "is associated with 'transactions in 
goods,' and not with transactions in services"); McCarthy Well 
Co., Inc. v. St. Peter Creamery, Inc., 410 N.W.2d 312, 315 
(Minn. 1987) (explaining that the rationale behind the economic 
loss rule is that "a recognition of tort actions in cases under 
the U.C.C. would upset the remedies contained in the U.C.C.; 
when the rationale is not applicable, i.e., when the U.C.C. does 
not apply, there is no reason for the [economic loss] rule to 
apply"). 
 
¶37 The inapplicability of the U.C.C. and its warranties 
is particularly troubling in light of the facts of this case.  
Like many agreements between purchasers and providers of 
services, the agreement between Cold Spring and Cease Electric 
was oral rather than written.  Because of the informal 
circumstances surrounding most oral contracts for services, the 
policy provisions underpinning the application of the economic 
loss doctrine do not readily apply. 
¶38 In Daanen this court identified three policies as a 
basis for application of the economic loss doctrine to tort 
actions:  (1) to maintain the fundamental distinction between 
No. 
03-0689   
 
15 
 
tort and contract law; (2) to protect commercial parties' 
freedom to allocate economic risk by contract; and (3) to 
encourage the party best situated to assess the risk of economic 
loss to assume, allocate, or insure against that risk.  216 
Wis. 2d at 403.  We address each in turn. 
¶39 Even though the distinctions between tort and contract 
law at times may seem blurred, they differ in the interests that 
each protects.  Tort principles protect not only the individuals 
harmed but also demonstrate a public policy to protect society 
against the unreasonable risk of harm from accidental and 
unexpected injury.  Christopher J. Faricelli, Wading Into The 
"Morass": An Inquiry Into the Application of New Jersey's 
Economic Loss Rule To Fraud Claims, 35 Rutgers L.J. 717, 723  
(Winter 2004). 
¶40 On the other hand, an operating principle behind 
contract law is that bargaining parties to a contract will 
allocate the risks of non-performance.  Id. at 722.  The 
disappointed party to the contract is protected against non-
performance by the benefit of the bargain.  Id. at 722-23.  
Thus, when a contract is broken, the breaching party is liable 
for restoring the non-breaching party to the position he or she 
would have been in, regardless of negligence or intent.  
Michelle 
Kristin 
Hart, 
Tort 
or 
Contract?: 
New 
Jersey's 
Simultaneous Expansion and Dilution of Contract Theory, 26 
Rutgers L.J. 495, 496 (1995). 
¶41 As noted above, contract law is not better suited than 
tort law for dealing with negligently provided services.  Tort 
No. 
03-0689   
 
16 
 
law provides an incentive generally to guard against negligent 
conduct in the provision of services.  If tort law is avoided, 
the ability to deter certain activity is impaired because 
contract remedies and warranties may be easily disclaimed.  Tort 
principles address more than merely a private interest between 
two commercial companies; they also address society's interest 
in minimizing harm by deterring negligent conduct. 
¶42 Admittedly, contract law also advances a societal 
interest in seeing that bargained for promises are performed.   
The fundamental premise in the application of contract law is 
that the bargaining parties will allocate the risks and 
remedies.  As the facts demonstrate in this case, however, this 
fundamental premise simply is not at work with many service 
contracts.    
¶43 Often the circumstances surrounding service contracts 
are simple and informal (e.g., electricians, plumbers, lawn care 
providers, etc.).  In light of the societal interests behind the 
application of tort principles, and the inapplicability of the 
fundamental premise supporting contract law, the policy of 
maintaining the distinction between tort and contract law does 
not warrant the invocation of the economic loss doctrine here.  
¶44 Likewise, 
the 
second 
policy 
consideration 
of 
protecting the parties' freedom to allocate economic risk by 
contract is not implicated.  Certainly, parties to service 
contracts, oral or written, can by means of contractual 
provisions allocate risk and limit remedies.  Yet given the 
informality of such agreements, few parties actually address the 
No. 
03-0689   
 
17 
 
allocation of risk or the limitation of remedies.  They neither 
discuss it themselves nor hire attorneys to draft written 
agreements. 
¶45 Once again the concept of the parties engaging in 
discussions of pre-negotiated liability in the event of breach 
seems to fly in the face of the reality of routine service 
contract relationships.  Although the freedom to allocate 
economic risk by contract should not be impinged, applying the 
economic loss doctrine to limit recovery based on the premise 
that the parties have indeed exercised that freedom simply makes 
no sense. 
¶46 Finally, we examine the third policy that the party in 
the best position to assess the risk of economic loss should be 
encouraged to assume, allocate, or insure against the risk.  The 
requirement of pre-negotiated agreements seems to presuppose 
that each party to the service contract can negotiate the terms 
with an identical level of bargaining power.  In many service 
contract relationships, the information disparities between the 
parties do not support such a presupposition. 
¶47 Here, Cold Spring argues that a contractor has more 
knowledge than the buyer concerning the service that is 
provided.  Cease Electric responds that Cold Spring is in the 
better position to assess what economic loss will occur to their 
business if the service fails.  Who can better assess the risk 
of economic loss seems to fall to a case-by-case application.  
Thus, the third policy consideration, as a general rule, neither 
No. 
03-0689   
 
18 
 
supports nor negates the application of the economic loss 
doctrine to service contracts.  
 
¶48 On balance, we conclude that the policy considerations 
underlying the economic loss doctrine do not support its 
extension here.  Instead, they buttress our decision not to 
extend the doctrine given the inapplicability of the U.C.C. 
¶49 In reaching this result, we are mindful of the 
ramifications that would accompany a decision to extend the 
doctrine to such agreements.  Wisconsin courts have previously 
held that claims for professional malpractice lie both in tort 
and contract.  See, e.g., Milwaukee County v. Schmidt, Garden & 
Erikson, 
43 
Wis. 
2d 
445, 
453, 
168 
N.W.2d 
559 
(1969) 
(architects); Smith v. Long, 178 Wis. 2d 797, 803, 505 N.W.2d 
429 (Ct. App. 1993) (attorneys); Milwaukee Partners v. Collins 
Engineers, Inc., 169 Wis. 2d 355, 363, 485 N.W.2d 274 (Ct. App. 
1992) (engineers).  Because actions against professionals often 
involve purely economic loss without personal injury or property 
damage, the economic loss doctrine could be used to effectively 
extinguish such causes of action in tort. 
 
¶50 Inevitably, this court would find itself on a slippery 
slope of having to decide whether an exception should be made 
for some or all professional groups.  For an illustration of 
this problem, we need look no further than what is occurring in 
Illinois, where the state supreme court has exempted some 
professions from the economic loss doctrine, Congregation of the 
Passion v. Touche Ross & Co., 636 N.E.2d 503, 515 (Ill. 1994) 
(accountants), Collins v. Reynard, 607 N.E.2d 1185, 1187 (Ill. 
No. 
03-0689   
 
19 
 
1992) (attorneys), but not others, Fireman's Fund Ins. Co. v. 
SEC 
Donohue, 
Inc., 
679 
N.E.2d 
1197, 
1201 
(Ill. 
1997) 
(engineers), 2314 Lincoln Park West Condominium Ass'n v. Mann, 
Gin, Ebel & Frazier Ltd., 555 N.E.2d 346, 353 (Ill. 1990) 
(architects).   
 
¶51 This inconsistency in application has led one justice 
to 
criticize 
the 
decision-making 
process 
as 
creating 
an 
"exception of the month."  Congregation of the Passion, 636 
N.E.2d at 525 (Heiple, J., dissenting).  That justice further 
lamented 
that 
such 
a 
case-by-case 
approach 
"[fails] 
to 
coherently differentiate between these professional groups," and 
therefore "[places] trial judges and litigants in the unenviable 
position of guessing which additional professions will receive 
protection 
under 
[the 
state's] 
economic 
loss 
doctrine."  
Fireman's 
Fund 
Ins., 
697 
N.E.2d 
at 
1202 
(Heiple, 
J., 
dissenting).   
 
¶52 Today, we choose to avoid those ends by avoiding this 
beginning.  Accordingly, we determine that the economic loss 
doctrine is inapplicable to claims for the negligent provision 
of services.  This bright line rule will limit the uncertainty 
and 
increased 
litigation 
that 
would 
accompany 
any 
other 
decision.  
V 
¶53 In sum, we agree with Cold Spring that its contract 
with Cease Electric was one for services and not for a product.  
Because we determine that the economic loss doctrine does not 
apply to contracts for services, we conclude that Cold Spring is 
No. 
03-0689   
 
20 
 
entitled 
to 
its 
recovery 
under 
tort 
for 
the 
negligent 
performance of services.  We therefore affirm the decision of 
the court of appeals.7 
By the Court.—The decision of the court of appeals is 
affirmed.  
  
                                                 
7 Prior to oral argument, Cold Spring and Insurance Company 
of North America filed a motion asking this court to reconsider 
its granting of the petition for review.  That motion was held 
in abeyance pending the court's decision on the merits of this 
case.  The court now denies Cold Spring's motion. 
No. 
03-0689   
 
 
 
1