[45 N.J. 561] Herbert C. Kaplan, Carteret, for plaintiffs-appellants (Kaplan, Feingold & Kaplan, Carteret, Attorneys; Herbert C. Kaplan, Carteret, on the brief).

John A. Lynch, Jr., New Brunswick, for defendant-respondent (Lynch, Murphy, Mannion & Lynch, New Brunswick, Attorneys; John A. Lynch, Jr., New Brunswick, on the brief).

[214 A.2d 13] The opinion of the court was delivered by

PROCTOR, J.

The question before us on this appeal is whether the plaintiff may recover for bodily injury or sickness resulting from fear for her safety caused by a negligent defendant, where the plaintiff was placed in danger by such negligence, although there was no physical impact.

The complaint alleges in the first count that the plaintiff, Charles Falzone, was standing in a field adjacent to the roadway when he was struck and injured by defendant's negligently driven automobile. The second count alleges that the plaintiff, Mabel Falzone, wife of Charles, was seated in his lawfully parked automobile close to the place where her husband was struck and that the defendant's negligently driven automobile 'veered across the highway and headed in the direction of this plaintiff,' coming 'so close to plaintiff as to put her in fear for her safety.' As a direct result she became ill and required medical attention. There is no allegation that her fear arose from apprehension of harm to her husband. In the third count plaintiff, Charles Falzone, seeks damages Per quod.

The Law Division granted the defendant's motion for summary judgment on the second and third counts, holding that it was constrained to follow the existing New Jersey rule that where there is no physical impact upon the plaintiff, there can be no recovery for the bodily injury or sickness resulting from negligently induced fright. We certified the plaintiffs' appeal before it was considered by the Appellate Division.

[45 N.J. 562] Neither this Court nor the former Court of Errors and Appeals has considered a case directly presenting this question. However, since a decision of our former Supreme Court in 1900, Ward v. West Jersey & Seashore R.R. Co., 65 N.J.L. 383, 47 A. 561, it has been considered settled that a physical impact upon the plaintiff is necessary to sustain a negligence action. See e.g., Greenburg v. Stanley, 51 N.J.Super. 90, 106, 143 A.2d 588 (App.Div.1958), modified on other grounds 30 N.J. 485, 153 A.2d 833 (1959).

In Ward, the complaint alleged that the plaintiff, while driving on a highway, was permitted without warning from the defendant railroad to drive upon a public crossing of its tracks in the face of an approaching train; that the defendant, by improperly lowering the gates before the plaintiff was off the tracks, subjected him to 'great danger of being run down and killed by said train' and caused him to be 'shocked, paralyzed, and otherwise injured.' 65 N.J.L. at p. 383, 47 A. at p. 561. On the defendant's demurrer, the court stated the issue: '(W)hether, in an action for negligence, the mere apprehension of personal injuries, which are not in fact received, will support an action, when physical suffering follows as a consequence of the mental disturbance.' id., at p. 384, 47 A. at p. 561. The court recognized a division of authority in other jurisdictions but chose to follow those decisions which denied liability in the absence of impact.^[1] Three reasons for denying recovery were set forth in the opinion. The first was that physical injury was not the natural and proximate result of the negligent act:

'The doctrine of non-liability affirmed in the several opinions already referred to, rests upon the principle that a person is legally responsible only for the Natural and proximate results of his negligent [45 N.J. 563] act. Physical suffering is not the probable or natural consequences of fright, in the case of a person of ordinary physical and mental vigor; and in the general conduct of business, and [214 A.2d 14] the ordinary affairs of life, although we are bound to anticipate and guard against consequences, which may be injurious to persons who are liable to be effected (sic) thereby, we have a right, in doing so, to assume, in the absence of knowledge to the contrary, that such persons are of average strength both of body and of mind.' id., at 385, 47 A. at 562.

Second, the court concluded that since this was the first action of its kind in New Jersey, the consensus of the bar must have been that no liability exists in the absence of impact. id., at pp. 385--386, 47 A. at 561. The third reason was 'public policy' which the court explained by quoting with approval from Mitchell v. Rochester Ry. Co., 151 N.Y. 107, 45 N.E. 354 (Ct.App.1896):

'If the right of recovery in this class of cases should be once established, it would naturally result in a flood of litigations in cases where the injury complained of may be easily feigned without detection, and where the damages must rest upon mere conjecture and speculation. The difficulty which often exists in cases of alleged physical injuries, in determining whether they exist, and, if so, whether they were caused by the negligent act of the defendant, would not only be greatly increased, but a wide field would be opened for unrighteous^[2] or speculative claims.' Ward, supra, 65 N.J.L. at p. 386, 47 A. at 562.

We think that the reasons assigned in Ward for denying liability are no longer tenable, and it is questionable if they ever were. The court there first stated that it is not 'probable or natural' for persons of normal health to suffer physical injuries, when subjected to fright, and that since a person whose acts cause fright alone could not reasonably anticipate that physical harm would follow, such acts cannot constitute negligence as to the frightened party. It appears that the court decided as a matter of law an issue which we believe is properly determinable by medical evidence. An Irish court as early as 1890 recognized the possibility of a casual connection [45 N.J. 564] between fright and physical injury in a normal person, Baron Palles expressing his view in these words:

'* * * I am of opinion that, as the relation between fright and injury to the nerve and brain structures of the body is a matter which depends entirely upon scientific and medical testimony, it is impossible for any Court to lay down, as a matter of law, that if negligence cause fright, and such fright, in its turn, so affects such structures as to cause injury to health, such injury cannot be 'a consequence which, in the ordinary course of things would flow from the' negligence, unless such injury 'accompany such negligence in point of time. " Bell v. Great Northern Railway Co., L.R. 26 Ir. 428, 442.

And even in Spade v. Lynn & B.R. Co., 168 Mass. 285, 288, 47 N.E. 88, 89 (Sup.Jud.Ct.1897) (relied upon in Ward), where recovery was denied for the physical consequences of fright, the court recognized that:

'Great emotion, may, and sometimes does, produce physical effects * * * A physical injury may be directly traceable to fright, and so may be caused by it. We cannot say, therefore, that such consequences may not flow proximately from unintentional negligence; * * *'

Moreover, medical knowledge on the relationship between emotional disturbance and physical injury has steadily expanded, and such relationship seems no longer open to serious challenge. See e.g., Smith, 'Relation of Emotions to Injury and Disease: Legal Liability for Psychic Stimuli,' 30 Va.L.Rev. 193 (1944); Smith and Solomon, 'Traumatic Neuroses in Court,' 30 Va.L.Rev. [214 A.2d 15] 87 (1943); Goodrich, 'Emotional Disturbance as Legal Damage,' 20 Mich.L.Rev. 497 (1922).

New Jersey courts have not generally adhered to the notion that fright cannot be the proximate cause of substantial physical injury, and three rules of law inconsistent with the Ward doctrine have developed. It has been held that where a person is injured attempting to avoid a hazard negligently created by another, he may recover for the physical consequences of fright even though the immediate injury suffered was slight and was not a link in the causal chain. Thus, in Buchanan v. West Jersey R.R. Co., 52 N.J.L. 265, 19 A. 254 (Sup. [45 N.J. 565] Ct.1890), cited with approval in Ward, a woman standing in a railroad station threw herself to the platform to avoid being struck by a protruding timber on a passing train. 'By reason of the shock to her nervous system occasioned by this peril, her health was seriously impaired.' 52 N.J.L., at p. 266, 19 A. at 254. The court allowed recovery even though her fright, and not the injury, if any, sustained in the fall, caused her physical suffering. See also Tuttle v. Atlantic City R.R. Co., 66 N.J.L. 327, 49 A. 450 (E. & A. 1901). Our courts have also been willing to allow recovery for physical injury traceable directly to fright when there is any impact, however inconsequential or slight. Porter v. Delaware Lackawanna & W.R.R. Co., 73 N.J.L. 405, 63 A. 860 (Sup.Ct.1906); and Kennell v. Gershonovitz Bros., 84 N.J.L. 577, 87 A. 130 (Sup.Ct.1913). See also Smith v. Montclair Brown and White Cab Co., 6 N.J.Misc. 57, 139 A. 904 (Sup.Ct.1928), and Greenburg v. Stanley, supra. The application of this rule was illustrated in Porter v. Delaware, Lackawanna & W.R.R. Co., supra, where a woman became ill as the result of her shock at seeing a railroad bridge fall near the place where she was standing. She testified that something fell on her neck and that dust entered her eyes. In allowing recovery for the physical consequences of her fright, the court said either the small injury to her neck or the dust in her eyes was a sufficient 'impact' to distinguish the case from Ward. And third, recovery has been permitted where physical suffering resulted from a wilfully caused emotional disturbance. Kuzma v. Millinery Workers Union Local No. 24, 27 N.J.Super. 579, 591--592, 99 A.2d 833 (App.Div.1953). See also Spiegel v. Evergreen Cemetery Co., 117 N.J.L. 90, 186 A. 585 (Sup.Ct.1936); and Harris v. Delaware, Lackawanna and W.R.R. Co., 77 N.J.L. 278, 72 A. 50 (Sup.Ct.1909).

The second reason given in Ward for denying recovery was that the absence of suits of this nature in New Jersey demonstrated the concurrence of the bar with the rule of no liability. We do not believe the court meant to imply that it would deny recovery because of opinions held by lawyers on the legal question presented. And if the court intended to bar the [45 N.J. 566] cause of action because of a lack of precedent in this State, a sufficient answer is that the common law would have atrophied hundreds of years ago if it had continued to deny relief in cases of first impression. See State v. Culver, 23 N.J. 495, 505--507, 129 A.2d 715, (1957).

Public policy was the final reason given in Ward for denying liability. The court was of the opinion that proof or disproof of fear-induced physical suffering would be so difficult that recovery would often be based on mere conjecture and speculation, and that the door would be opened to extensive litigation in a class of cases where injury is easily feigned. We realize that there may be difficulties in determining the existence of a causal connection between fright and subsequent physical injury and in measuring the extent of such injury. However, the problem of tracing a causal connection from negligence to injury is not peculiar to cases without impact and occurs in all types of personal injury litigation. See e.g., Smith v. Brennan, 31 N.J. 353, 365, 157 A.2d 497 (1960); Van Rensselaer v. Viorst, 136 N.J.L. 628, 631, 57 A.2d 49 (E. & A. 1947); and Millman v. United States Mortgage & Title Guaranty Co., 121 N.J.L. 28, 36--37, 1 A.2d 265 (Sup.Ct.1938). See [214 A.2d 16] also Goodrich, supra, at pp. 503--507. As Judge Burke said for the New York Court of Appeals in dealing with the same problem:

'In many instances, just as in impact cases, there will be no doubt as to the presence and extent of the damage and the fact that it was proximately caused by defendant's negligence. In the difficult cases, we must look to the quality and genuineness of proof, and rely to an extent on the contemporary sophistication of the medical profession and the ability of the court and jury to weed out the dishonest claims.' Battalla v. State, 10 N.Y.2d 237, 242, 219 N.Y.S.2d 34, 38, 176 N.E.2d 729, 731--732 (1961).

In any event, difficulty of proof should not bar the plaintiff from the opportunity of attempting to convince the trier of fact of the truth of her claim.

As to the possibility of actions based on fictitious injuries, a court should not deny recovery for a type of wrong [45 N.J. 567] which may result in serious harm because some people may institute fraudulent actions. Our trial courts retain sufficient control, through the rules of evidence and the requirements as to the sufficiency of evidence, to safeguard against the danger that juries will find facts without legally adequate proof. Smith v. Brennan, supra, 31 N.J. at pp. 365--366, 157 A.2d 497. Moreover, the allowance of recovery in cases where there has been an impact, however slight, negates the effectiveness of the no impact rule as a method of preventing fraudulent claims. As stated by Dean McNiece in his comprehensive article dealing with tort liability for psychic injuries:

'To hold that all honest claims should be barred merely because otherwise some dishonest ones would prevail is stretching the public policy concept very close to the breaking point, especially since it is quite as simple to feign emotional disturbance plus slight impact and get in 'under the wire' of one of the exceptions as it is to feign emotional disturbance sans impact. The arbitrary denial of recovery in all cases not falling within the realm of one or another of the exceptions discourages the bringing of meritorious actions and at the same time allows the prosecution of fabricated claims, for surely those capable of perjuring evidence will not hesitate to manufacture one additional feature of the occurrence--a slight impact--to insure recovery.' McNiece, 'Pyschic Injury and Liability in New York,' 24 St.John's L.Rev. 1, 31 (1949).

Ward also asserts that public policy demands denial of recovery in no impact cases to prevent a 'flood of litigations.' However, there is no indication of an excessive number of actions of this type in other states which do not require an impact as a basis for recovery. And, of more importance, the fear of an expansion of litigation should not deter courts from granting relief in meritorious cases; the proper remedy is an expansion of the judicial machinery, not a decrease in the availability of justice.

The many eminent legal scholars who have considered the rule denying recovery in the absence of impact are virtually unanimous in condemning it as unjust and contrary to experience [45 N.J. 568] and logic.^[3] The 1888 English case of Victorian Parkways Commissioners v. Coultas, 13 App.Cas. 222, which initiated the doctrine in England and which was followed in Ward, was repudiated in Dulieu v. White & Sons, 2 K.B. 669 [214 A.2d 17] (1901),^[4] only one year after Ward was decided. And Mitchell v. Rochester Ry. Co., supra, upon which the court in Ward relied so heavily, was expressly overruled in 1961 by the New York Court of Appeals. Battalla v. State, supra. A great majority of jurisdictions now hold that where physical injury results from wrongfully caused emotional stress, the injured person may recover for such consequences notwithstanding the absence of any physical impact upon him at the time of the mental shock. See e.g., Robb v. Pennsylvania Railroad Company, Del., 210 A.2d 709 (Sup.Ct.1965); Battalla v. State, supra; Colla v. Mandella, 1 Wis.2d 594, 85 N.W.2d 345, 64 A.L.R.2d 95 (Sup.Ct.1957); Orlo v. Connecticut [45 N.J. 569] Co., 128 Conn. 231, 21 A.2d 402 (Sup.Ct.Err.1941); Chiuchiolo v. New England Wholesale Tailors, 84 N.H. 329, 150 A. 540 (Sup.Ct.1930); Restatement of the Law of Torts § 436(a)(2). Contra, Bosley v. Andrews, 393 Pa. 161, 142 A.2d 263 (1958). See also Annotation, 'Right to recover for emotional disturbance or its physical consequences, in the absence of impact or other actionable wrong,' 64 A.L.R.2d 100 (1959). Indeed, Dean Prosser has recently written that the impact requirement 'is almost certainly destined for ultimate extinction.' Prosser, Torts § 55, p. 351 (3d ed. 1964). Our conclusion is that Ward should no longer be followed in New Jersey. We are not dealing with property law, contract law or other fields where stability and predictability may be crucial. We are dealing with torts where there can be little, if any, justifiable reliance and where the rule of Stare decisis is admittedly limited. Collopy v. Newark Eye and Ear Infirmary, 27 N.J. 29, 42, 141 A.2d 276; Smith v. Brennan, supra, 31 N.J. at p. 361, 157 A.2d 497. We hold, therefore, that where negligence causes fright from a reasonable fear of immediate personal injury, which fright is adequately demonstrated to have resulted in substantial bodily injury or sickness, the injured person may recover if such bodily injury or sickness would be regarded as proper elements of damage had they occurred as a consequence of direct physical injury rather than fright. Of course, where fright does not cause Substantial bodily injury or sickness, it is to be regarded as too lacking in seriousness and too speculative to warrant the imposition of liability.

We recognize that where there is no impact a defendant may be unaware of the alleged incident and thus not forewarned to preserve evidence upon which he might base his defense. However, this consideration should not be sufficient to bar a meritorious claim. Rather, it is appropriate that the trial judge charge the jury that an undue delay in notifying the defendant of the incident and the resulting injury may weigh heavily in determining the truth of the plaintiff's [45 N.J. 570] claim. It is unnecessary to decide here whether an undue delay short of the statute of limitations would justify a dismissal by the trial court.

[214 A.2d 18] The plaintiffs should be given the opportunity of submitting proof that Mrs. Falzone suffered substantial bodily injury or sickness and that such bodily injury or sickness was the proximate result of the defendant's negligence.

Reversed.

For reversal: Chief Justice WEINTRAUB and Justices JACOBS, FRANCIS, PROCTOR, HALL, SCHETTINO and HANEMAN--7.

For affirmance: None.

[1] Wyman v. Leavitt, 71 Me. 227, 36 Am.Rep. 303 (Sup.Jud.Ct.1880); Ewing v. Pittsburg, C., C. & St. L. Ry. Co., 147 Pa. 40, 23 A. 340 (Sup.Ct.1892); Mitchell v. Rochester Ry. Co., 151 N.Y. 107, 45 N.E. 354 (Ct.App.1896); Spade v. Lynn & Boston R. Co., 168 Mass. 285, 47 N.E. 88 (Sup.Jud.Ct.1897); and Victorian Railways Commissioners v. Coultas, 13 App.Cas. 222 (1888).

[2] The word 'unrighteous' is an apparent misquotation; the New York Report shows that the New York Court of Appeals used the term 'fictitious.'

[3] See Prosser, Torts § 55, pp. 349--352 (3d ed. 1964); 2 Harper and James, The Law of Torts § 18.4, pp. 1031--1039 (1956); McNiece, 'Psychic Injury and Tort Liability in New York,' 24 St. John's L.Rev. 1 (1949); Smith, 'Relation of Emotions to Injury and Disease: Legal Liability for Psychic Stimuli,' 30 Va.L.Rev. 193 (1944); Smith and Solomon, 'Traumatic Neuroses in Court,' 30 Va.L.Rev. 87 (1943); Magruder, 'Mental and Emotional Disturbance in the Law of Torts,' 49 Harv.L.Rev. 1033 (1936); 1936 Report of N.Y.Law Rev.Comm., 375; Green, "Fright' Cases,' 27 Ill.L.Rev. 761 (1933); Hallen, 'Damages for Physical Injuries Resulting from Fright or Shock,' 19 Va.L.Rev. 253 (1933); Wilson, 'The New York Rule as to Nervous Shock,' 11 Cornell L.Q. 512 (1926); Goodrich, 'Emotional Disturbance as Legal Damage,' 20 Mich.L.Rev. 497 (1922); Throckmorton, 'Damages for Fright,' 34 Harv.L.Rev. 260 (1921); Burdick, 'Tort Liability for Mental Disturbance and Nervous Shock,' 5 Colum.L.Rev. 179 (1905); Bohlen, 'Right to Recover for Injury Resulting from Negligence Without Impact,' 41 Am.L.Reg. 141 (1902).

[4] 'Later cases in the Admiralty Division of the High Court of Justice and in the House of Lords treat Dulieu v. White as settling the law in England; and it may, therefore, be said that the Coultas case has been overruled and the doctrine established in England that there may be recovery for physical injuries resulting from nervous shock without proof of actual impact.' Throckmorton, supra, note 2, at p. 262.

[84 N.J. 90] [417 A.2d 522] Joseph Maran, Newark, for plaintiff-appellant (Ira J. Zarin, Newark, attorney).

Isaac Henkoff, Clifton, for defendants-respondents Edith Jaffee and Nathan Jaffee (Klein, Chester, Greenburg & Henkoff, Clifton, attorneys).

Gerald Kaplan, Morristown, for defendants-respondents Watson Elevator Co. and Atlantic Elevator Co. (Lieb, Berlin & Kaplan, Morristown, attorneys).

The opinion of the Court was delivered by

PASHMAN, J.

We are asked to determine whether a parent can recover damages for the emotional anguish of watching her young child suffer and die in an accident caused by defendant's negligence. In Falzone v. Busch, 45 N.J. 559, 214 A.2d 12 (1965), this Court imposed liability for such infliction of mental or emotional distress when negligence created the potential, but not the occurrence, for physical harm to the traumatized individual. The question presented here is whether liability should exist where there was no potential for personal injury, but distress resulted from perceiving the negligently inflicted injuries of another.

Relying on Falzone, the trial court rejected liability and granted partial summary judgment for defendants on this issue, R. 4:46-3. After the Appellate Division granted plaintiff's motion for leave to appeal, we directly certified the case, R. 2:12-1. 82 N.J. 295, 412 A.2d 801 (1980). We now reversed the trial court and remand the matter for further proceedings.

The factual premises of this appeal are the uncontroverted assertions of plaintiff Renee Portee. In reviewing the dismissal of her claims as legally insufficient, we must accept as true all the allegations of the complaint, the affidavits and products of discovery submitted on her behalf. We must also draw those reasonable inferences that are most favorable to her cause. E. g., Berman v. Allen, 80 N.J. 421, 426, 404 A.2d 8 (1979); Heavner v. Uniroyal, Inc., 63 N.J. 130, 133, 305 A.2d 412 (1973); Judson v. Peoples Bank [84 N.J. 91] & Trust Co. of Westfield, 17 N.J. 67, 73-75, 110 A.2d 24 (1954); R. 4:46-2. The facts which follow are the result of this necessarily indulgent examination of the record.

Plaintiff's seven-year-old son, Guy Portee, resided with his mother in a Newark apartment building. Defendants Edith Jaffee and Nathan Jaffee owned and operated the building. On the afternoon of May 22, 1976, the youngster became trapped in the building's elevator between its outer door and the wall of the elevator shaft. The elevator was activated and the boy was dragged up to the third floor.^[1] Another child who was racing up a nearby stairway to beat the elevator opened it, saw the victim wedged within it, and ran to seek help. Soon afterwards, plaintiff and officers of the Newark Police Department arrived. The officers worked for four and one-half hours to free the child. While their efforts continued, the plaintiff watched as her son moaned, cried out and flailed his arms. Much of the time she was restrained from touching him, apparently to [417 A.2d 523] prevent interference with the attempted rescue. The child suffered multiple bone fractures and massive internal hemorrhaging. He died while still trapped, his mother a helpless observer.

During the unsuccessful efforts to save Guy Portee's life, the police contacted the office of defendant Atlantic Elevator Company in nearby Belleville, New Jersey. Along with defendant Watson Elevator Company, which designed and built the elevator, Atlantic was responsible for the installation and maintenance of the elevator. The police requested that Atlantic send a mechanic to the building to assist in the attempt to free plaintiff's son. Apparently no one came.

After her son's death plaintiff became severely depressed and seriously self-destructive. On March 24, 1979, she attempted to take her own life. She was admitted to East Orange General Hospital with a laceration of her left wrist more than two inches deep. She survived and the wound was repaired by surgery, but she has since required considerable physical therapy and presently [84 N.J. 92] has no sensation in a portion of her left hand. She has received extensive counseling and psychotherapy to help overcome the mental and emotional problems caused by her son's death.

On December 2, 1976, plaintiff brought suit against the Jaffees and the two elevator companies. The complaint was premised on defendants' negligence in failing to provide a safe elevator.^[2] As both general administratrix and administratrix ad prosequendum of the estate of Guy Portee, plaintiff asserted survival and wrongful death claims. N.J.S.A. 2A:15-3, :31-1. She also sued individually seeking damages for her mental and emotional distress caused by observing her son's anguish and death.^[3]

Defendants Edith and Nathan Jaffee moved for summary judgment as to plaintiff's claims for mental and emotional distress on June 27, 1979. After a hearing the trial court granted the motion. In an oral opinion the court stated that Falzone v. Busch, supra, set the outer limits of liability for the negligent infliction of mental and emotional distress. The court noted that the Appellate Division had confirmed this view of Falzone in Burd v. Vercruyssen, 142 N.J.Super. 344, 361 A.2d 571 (1976), certif. den., 72 N.J. 459, 371 A.2d 64 (1976). Since plaintiff had concededly not been subjected to any risk of physical harm caused by defendants' alleged negligence, the trial court found that plaintiff's claims for psychological injury did not meet the requirements of Falzone.

Because the trial court considered this Court's decision in Falzone dispositive, we begin our discussion with that case. The plaintiff in Falzone had been placed in fear for her bodily safety [84 N.J. 93] by negligent conduct. See 45 N.J. at 561, 214 A.2d 12. Although she sustained no physical impact, this Court ruled plaintiff could recover damages for substantial bodily injury or sickness induced by fright. Id. at 569, 214 A.2d 12. In so holding, the Court overruled a long-established line of cases which had required some physical impact, however slight, to recover for emotional injuries. See, e. g., Tuttle v. Atlantic City R. R. Co., 66 N.J.L. 327, 49 A. 450 (E. & A.1901); Consolidated Traction Co. v. Lambertson, 60 N.J.L. 457, 458, 38 A. 683 (E. & A.1897); Greenberg v. Stanley, 51 N.J.Super. 90, 106, 143 A.2d 588 (App.Div.1958), mod. on other grounds, 30 N.J. 485, 153 A.2d 833 (1959); Justesen v. Pennsylvania R. R. Co., 92 N.J.L. 257, 106 A. 137 (Sup.Ct.1919); Ward v. West Jersey & S. R. R. Co., 65 N.J.L. 383, 47 A. 561 (Sup.Ct.1900); see also Graf v. Taggart, 43 N.J. 303, 312-313, 204 A.2d 140 (1964). It examined the three reasons given for the old rule, see Ward, supra, 65 N.J.L. at 385-386, 47 A. 561 [417 A.2d 524] and found them "no longer tenable." Falzone, supra, 45 N.J. at 563, 214 A.2d 12. The first reason that physical injury was presumed not to be a probable or natural consequence of fright was perceived by the Court as an issue to be resolved by medical evidence, not judicial presumption. Id. at 563-565, 214 A.2d 12. The Falzone Court rejected the second reason that there was a lack of precedent or consensus in favor of recovery as specious. Id. at 565-566, 214 A.2d 12; see State v. Culver, 23 N.J. 495, 505-507, 129 A.2d 715 (1957). The final reason traditionally advanced against liability was the prospect of recovery based on conjecture and speculation and a consequent flooding of the courts with groundless litigation. Falzone, supra, 45 N.J. at 566-567, 214 A.2d 12; see Ward, supra, 65 N.J.L. at 386, 47 A. 561. The Falzone Court responded by observing that the civil litigation process would safeguard against spurious and even fraudulent claims. 45 N.J. at 562, 214 A.2d 12. Finding the conventional rationales to be insufficient, the Court overruled Ward and held that "where negligence causes fright from a reasonable fear of immediate personal injury," the frightened person could recover damages for any resulting "substantial bodily injury or sickness." Id. at 569, 214 A.2d 12, 17.

Falzone expressly required that any resulting bodily harm be substantial. Id. It did not, however, explicitly limit liability to cases in which the distressed plaintiff had been subjected to an [84 N.J. 94] unreasonable risk of physical harm. See id. at 569-570, 214 A.2d 12. Nevertheless, since the new cause of action was in derogation of the prior inflexible requirement of physical impact,^[4] some decisions interpreted Falzone narrowly. Liability has been denied where the plaintiff suffered distress without having been subjected to a risk of physical harm. Burd v. Vercruyssen, supra; Kern v. Kogan, 93 N.J.Super. 459, 226 A.2d 186 (Law Div.1967). Other cases have recognized the absence of such an express limitation in Falzone. When independently assessing foreseeable risks of emotional distress, courts have found possible liability for the negligent mishandling of a corpse, Muniz v. United Hospitals Med. Cen. Presbyterian Hosp., 153 N.J.Super. 79, 379 A.2d 57 (App.Div.1977), and for the unreasonably aggravating handling of a consumer's complaint about a defective product, Lemaldi v. De Tomaso of America, Inc., 156 N.J.Super. 441, 383 A.2d 1220 (Law Div.1978); see also Fiore v. Sears, Roebuck & Co., Inc., 144 N.J.Super. 74, 77, 364 A.2d 572 (Law Div.1976).

This Court has recognized that Falzone did not place express limits on negligence liability for mental or emotional distress. In Caputzal v. The Lindsay Co., 48 N.J. 69, 222 A.2d 513 (1966), we observed that questions of liability for non-intentional conduct were generally governed by the concepts of "duty, and the breach thereof, and proximate, or legal, cause of the injury * * *." Id. at 74, 222 A.2d at 516. Applying this general analysis to cases involving the infliction of psychological but not physical injury, the Court approved the following formula:

(L)iability should depend on the defendant's foreseeing fright or shock severe enough to cause substantial injury in a person normally constituted, thus then bringing the plaintiff within the "zone of risk." (Id. at 76, 222 A.2d at 517 (quoting 2 F. Harper & F. James, The Law of Torts, § 18.4 at 1036 (1956))

[84 N.J. 95] The Court recognized that Falzone had imposed liability occasioned by a risk of physical injury. 48 N.J. at 73, 222 A.2d 513. However, there was no requirement in the Caputzal formula that the "zone of risk" of [417 A.2d 525] mental or emotional distress coincide with a zone of risk of physical harm. More recently, in Berman v. Allen, supra, we held that where a doctor negligently failed to inform prospective parents that their child would likely suffer from severe genetic defects, the parents could recover damages for the emotional trauma of discovering their child's condition at birth. Id. 80 N.J. at 433, 404 A.2d 8.

Since Falzone, this Court's decisions have shown no hostility to the imposition of liability for negligently caused mental or emotional distress even without an attendant risk of physical harm. Our decision in Berman could support liability in this case. The trauma of witnessing the agonizing death of one's child may be no less substantial than the shocking realization that one's newborn child is profoundly crippled and will remain so for life. Both types of emotional injury also seem equally likely "in a person normally constituted," Caputzal, 48 N.J. at 76, 222 A.2d 513. The sole distinction between Berman and the present case may be described in terms of the degree of foreseeability. While in Berman, the mother was necessarily present at the birth of her child, and the father's presence was an all but certain eventuality, here the plaintiff was present at the scene of her son's death only because of the physical proximity of the accident to the mother's residence. Thus, one formulation of the issue before us is whether it was foreseeable that the mother would be observing the death of her young child.

The possibility that a parent may be near her young child is always substantial. Yet the recognition of a substantial possibility of harm does not resolve the question of liability. The standard is one of reasonable foreseeability, see Caputzal, 48 N.J. at 74-75, 222 A.2d 513; more directly stated, we must determine whether defendants owed a duty to the plaintiff that was violated when her child became trapped in the elevator. It might be argued that plaintiff had been continuously subjected to a risk of physical injury by the presence of a defective elevator in her [84 N.J. 96] building. Although this reasoning would place the present case within the rule of Falzone, it would transform the requirement of a risk of physical injury into the same arbitrary formality as the former rule of physical impact, see supra at 524, n.4. Rather than adopt this artful yet artificial approach, we address directly whether defendants owed the mother a duty of reasonable care.

Few notions anywhere in the law are more vague than the fundamental concept of the law of negligence: the duty of reasonable care. This is because few are more closely linked with prevailing community standards of conduct. The issue of negligence is frequently a matter left to the judgment of the community as expressed by a panel of jurors. Although our courts have avoided attaching to this issue the confusing label of "a mixed question of law and fact," the phrase aptly connotes that juries in negligence cases as much make the law as apply it.

On many occasions, the law of negligence needs no other formulation besides the duty of reasonable care. Other cases, however, present circumstances rendering application of that general standard difficult, if not impossible. Without adequate guidance, juries may impose liability that is not commensurate with the culpability of defendant's conduct.

This difficulty has been recognized when courts considered liability for mental and emotional distress. We have noted the traditional argument, rejected by this Court in Falzone, that the imposition of such liability unoccasioned by any physical impact would lead to "mere conjecture and speculation." Falzone, supra, 45 N.J. at 566, 214 A.2d 12. Even where the causal relationship between conduct and emotional harm was clear, courts would deny liability unless the fault of defendant's conduct could be demonstrated by the occurrence of physical harm to the plaintiff. See id. at 564-565, 214 A.2d 12. Under Falzone, it became clear that the creation of a risk of physical harm would be a sufficient indication that defendant's conduct was unreasonable. Without such an indication, it might be argued [417 A.2d 526] that a jury could not form a reliable judgment regarding negligence. The question now before us is whether we are left to "mere conjecture and [84 N.J. 97] speculation" in assessing the culpability of conduct that creates neither the risk nor the occurrence of physical harm.

The task in the present case involves the refinement of principles of liability to remedy violations of reasonable care while avoiding speculative results or punitive liability. The solution is close scrutiny of the specific personal interests assertedly injured. By this approach, we can determine whether a defendant's freedom of action should be burdened by the imposition of liability. In the present case, the interest assertedly injured is more than a general interest in emotional tranquility. It is the profound and abiding sentiment of parental love. The knowledge that loved ones are safe and whole is the deepest wellspring of emotional welfare. Against that reassuring background, the flashes of anxiety and disappointment that mar our lives take on softer hues. No loss is greater than the loss of a loved one, and no tragedy is more wrenching than the helpless apprehension of the death or serious injury of one whose very existence is a precious treasure. The law should find more than pity for one who is stricken by seeing that a loved one has been critically injured or killed.

Courts in other jurisdictions which have found liability in the circumstances before us have placed limits on this type of negligence liability consistent with their view of the individual interest being injured. In Dillon v. Legg, 68 Cal.2d 728, 441 P.2d 912, 69 Cal.Rptr. 72 (1968) (in bank), the California Supreme Court identified three factors which would determine whether an emotional injury would be compensable because "foreseeable":

(1) Whether plaintiff was located near the scene of the accident as contrasted with one who was a distance away from it. (2) Whether the shock resulted from a direct emotional impact upon plaintiff from the sensory and contemporaneous observance of the accident, as contrasted with learning of the accident from others after its occurrence. (3) Whether plaintiff and the victim were closely related, as contrasted with an absence of any relationship or the presence of only a distant relationship. (Id. at 740, 441 P.2d at 920, 69 Cal.Rptr. at 80)

Those courts which have permitted actions for negligent infliction of emotional injuries unaccompanied by the risk of physical harm have adopted or followed these guidelines. See D'Amicol v. Alvarez Shipping Co., Inc., 31 Conn.Sup. 164, 326 A.2d 129 [84 N.J. 98] (1973); Kelley v. Kokua Sales & Supply, Ltd., 56 Hawaii 204, 532 P.2d 673 (Sup.Ct.1975); Dziokonski v. Babineau, --- Mass. ----, 380 N.E.2d 1295 (Sup.Jud.Ct.1978); Toms v. McConnell, 45 Mich.App. 647, 207 N.W.2d 140 (1973); Sinn v. Burd, 486 Pa. 146, 404 A.2d 672 (1979); D'Ambra v. United States, 114 R.I. 643, 338 A.2d 524 (1975); Landreth v. Reed, 570 S.W.2d 486 (Tex.Civ.App.1978).

We agree that the three factors described in Dillon together create a strong case for negligence liability. In any given case, as physical proximity between plaintiff and the scene of the accident becomes closer, the foreseeable likelihood that plaintiff will suffer emotional distress from apprehending the physical harm of another increases. The second requirement of "direct * * * sensory and contemporaneous observance" appears to reflect a limitation of the liability rule to traumatic distress occasioned by immediate perception. The final criterion, that the plaintiff be "closely related" to the injured person, also embodies the judgment that only the most profound emotional interests should receive vindication for their negligent injury.

Our analysis of the specific emotional interest injured in this case a fundamental interest in emotional tranquility founded on parental love reveals where the limits of liability would lie. Addressing the Dillon criteria in reverse order, we find the last the existence of a close relationship to be the most crucial. It is the presence of deep, intimate, familial ties between the plaintiff and the physically injured person that makes the harm to emotional tranquility [417 A.2d 527] so serious and compelling. The genuine suffering which flows from such harm stands in stark contrast to the setbacks and sorrows of everyday life, or even to the apprehension of harm to another, less intimate person.^[5] The existence of a marital^[6] or intimate familial relationship [84 N.J. 99] is therefore an essential element of a cause of action for negligent infliction of emotional distress. In the present case, the instinctive affection of a mother for her seven-year-old son would be a sufficiently intimate bond on which to predicate liability.

The second requirement that the plaintiff witness the incident which resulted in death or serious injury is equally essential. We recognize that to deny recovery solely because the plaintiff was not subjected to a risk of physical harm would impose an arbitrary barrier that bears no relation to the injury to his basic emotional stability. See Dillon v. Legg, supra, 68 Cal.2d at 733, 441 P.2d at 915, 69 Cal.Rptr. at 75; Toms v. McConnell, supra, 45 Mich.App. at 653, 207 N.W.2d at 144. Yet avoiding arbitrary distinctions does not entail that a cause of action should exist for all emotional injuries to all the close relatives of the victim. This expansive view would extend judicial redress far beyond the bounds of the emotional interest entitled to protection. To avoid imposing liability in excess of culpability, the scope of recovery must be circumscribed to negligent conduct which strikes at the plaintiff's basic emotional security.

Discovering the death or serious injury of an intimate family member will always be expected to threaten one's emotional welfare. Ordinarily, however, only a witness at the scene of the accident causing death or serious injury will suffer a traumatic sense of loss that may destroy his sense of security and cause severe emotional distress. As Justice Cardozo stated in his classic formulation, "The risk reasonably to be perceived defines the duty to be obeyed." Palsgraf v. Long Island R.R. Co., 248 N.Y. 339, 344, 162 N.E. 99, 100 (1928); see 2 F. Harper & F. James, supra, § 18.2 at 1018. Such a risk of severe emotional distress is present when the plaintiff observes the accident at the scene. Without such perception, the threat of emotional injury is lessened and the justification for liability is fatally weakened. The law of negligence, while it redresses suffering wrongfully caused by others, must not itself inflict undue harm by imposing an unreasonably excessive measure of liability. [84 N.J. 100] Accordingly, we hold that observing the death or serious injury of another while it occurs is an essential element of a cause of action for the negligent infliction of emotional distress.

The first factor discussed in Dillon that the plaintiff be near the injured person embodies the same observations made concerning the other requirements of direct perception and close familial relationship. Physical proximity may be of some relevance in demonstrating the closeness of the emotional bond between plaintiff and the injured family member. For example, one would generally suppose that the risk of emotional distress to a brother who is halfway across the country is not as great as to a mother who is at the scene of the accident. The proximity of the plaintiff to the accident scene increases the likelihood that he will witness the event causing the death or serious injury of a loved one. Yet it appears that if the plaintiff must observe the accident that causes death or serious injury, a requirement of proximity is necessarily satisfied. The risk of emotional injury exists by virtue of the plaintiff's perception of the accident, not his proximity to it.

An additional factor yet undiscussed is the severity of the physical injury causing emotional distress. The harm we have determined to be worthy of judicial redress is [417 A.2d 528] the trauma accompanying the observation of the death or serious physical injury of a loved one. While any harm to a spouse or a family member causes sorrow, we are here concerned with a more narrowly confined interest in mental and emotional stability. When confronted with accidental death, "the reaction to be expected of normal persons," Caputzal, supra, 48 N.J. at 76, 222 A.2d at 517 (quoting 2 F. Harper & F. James, The Law of Torts, § 18.4 at 1035), is shock and fright. We hold that the observation of either death or this type of serious injury is necessary to permit recovery. Since the sense of loss attendant to death or serious injury is typically not present following lesser accidental harm, perception of less serious harm would not ordinarily result in severe emotional distress. Thus, the risk of an extraordinary reaction to less serious injury is not sufficient to result in liability. To impose liability for any emotional consequence of [84 N.J. 101] negligent conduct would be unreasonable; it would also be unnecessary to protect a plaintiff's basic emotional stability. Therefore, a cause of action for emotional distress would require the perception of death or serious physical injury.

The cause of action we approve today for the negligent infliction of emotional distress requires proof of the following elements: (1) the death or serious physical injury of another caused by defendant's negligence; (2) a marital or intimate, familial relationship between plaintiff and the injured person; (3) observation of the death or injury at the scene of the accident; and (4) resulting severe emotional distress. We find that a defendant's duty of reasonable care to avoid physical harm to others extends to the avoidance of this type of mental and emotional harm. As Chief Justice Weintraub stated:

Whether a duty exists is ultimately a question of fairness. The inquiry involves a weighing of the relationship of the parties, the nature of the risk, and the public interest in the proposed solution. (Goldberg v. Housing Auth. of Newark, 38 N.J. 578, 583, 186 A.2d 291, 293 (1962) (emphasis in original))

Our inquiry has led us to conclude that the interest in personal emotional stability is worthy of legal protection against unreasonable conduct. The emotional harm following the perception of the death or serious injury to a loved one is just as foreseeable as the injury itself, for few persons travel through life alone. Ultimately we must decide whether protecting these emotional interests outweighs an interest against burdening freedom of conduct by imposing a new species of negligence liability. We believe that the interest in emotional stability we have described is sufficiently important to warrant this protection. At the same time we are confident that limiting judicial redress to those inflicted on intimate emotional bonds by the death or serious injury of a loved one serves to prevent liability from exceeding the culpability of defendant's conduct.

A final matter remaining for consideration is the effect of the injured party's own negligence on plaintiff's right to recover. Under our Comparative Negligence Act, L. 1973, c. 146, N.J.S.A. 2A:15-5.1 to -5.3, the injured person's own recovery would be reduced by the proportion of his negligence so long as it was "not greater than the negligence of the person against [84 N.J. 102] whom recovery is sought(.)" N.J.S.A. 2A:15-5.1. To allow a plaintiff seeking damages for emotional injuries to recover a greater proportion than the injured party would surely create liability in excess of the defendant's fault. We therefore hold that any recovery for emotional harm resulting from perceiving the death or serious injury to another shall be reduced by the proportion of the injured party's negligence, as well as, of course, any contributing negligence of the plaintiff himself.

For the foregoing reasons, the judgment of the Superior Court, Law Division, is reversed.

For reversal Chief Justice WILENTZ, and Justices SULLIVAN, PASHMAN, CLIFFORD, SCHREIBER, HANDLER and POLLOCK 7.

For affirmance none.

[1] The record does not indicate the floor on which the elevator started.

[2] We therefore find no occasion to consider whether liability would exist against defendant landlords for breach of their implied warranty of habitability. See Trentacost v. Brussel, 82 N.J. 214, 412 A.2d 436 (1980).

[3] The victim's father, who was estranged from plaintiff at the time of the fatal incident, filed a separate suit against defendants. Although the actions of both parents were consolidated for trial, the father's claims are not before us.

[4] While inflexible, the traditional requirement of physical contact was often a mere formality. Contact unrelated to the source of plaintiff's fright was sufficient to permit recovery of damages for mental or emotional distress. See, e. g., Greenberg v. Stanley, 51 N.J.Super. at 105-106, 143 A.2d 588; Porter v. Delaware, L. & W. R. R. Co., 73 N.J.L. 405, 406, 63 A. 860 (Sup.Ct.1906); Buchanan v. West Jersey R. R. Co., 52 N.J.L. 265, 19 A. 254 (Sup.Ct.1890); see also Friel v. Vineland Obstetrical and Gynecological Prof. Ass'n, 166 N.J.Super. 579, 400 A.2d 147 (Law Div.1979) (physical impact of birth found to permit liability based on negligent medical care).

[5] A failure to recognize the contrast may have been responsible for the refusal of the New York Court of Appeals to permit this cause of action based on physical harm to another. See Tobin v. Grossman, 24 N.Y.2d 609, 615-617, 249 N.E.2d 419, 422-423, 301 N.Y.S.2d 554, 558-560 (1969).

[6] The common law action for loss of consortium may be perceived as a claim for negligently inflicted emotional injury. See Ekalo v. Constructive Serv. Corp. of Amer., 46 N.J. 82, 86-91, 215 A.2d 1 (1965).

Concur — Nardelli, J.P., Tom, Sullivan, Ellerin and Rubin, JJ.

[292 A.D.2d 260] Plaintiffs Julia Pizarro and Maricela Castro witnessed an elevator malfunction that resulted in the decapitation of nonparty James Chenault, who was not previously known to either plaintiff. Supreme Court dismissed the complaint as it pertained to plaintiff Pizarro on the ground that she was not in the elevator at the time of the incident. However, the court declined to dismiss the claim of plaintiff Castro, reasoning that, as one of the five passengers in the faulty elevator, she was within the zone of danger.

At her deposition, Ms. Castro testified that, after she boarded the elevator on the main floor, it began descending while a woman was still getting on. The elevator then reversed direction and, as it moved upwards with the doors still open, she saw that the man subsequently identified as James Chenault was standing in the door frame. As the top of the elevator hit the top of his head, plaintiff turned away. When she heard a woman scream, she looked down and saw Mr. Chenault's head next to her feet. After a rapid ascent, the elevator subsequently descended very quickly, slowing down only when it reached the third floor and eventually stopping on the first floor. Although physically unharmed, plaintiff Castro was treated for shock. The complaint alleges that she continues to suffer psychological symptoms as a result of her experience.

The horrific nature of this accident is self-evident. However, as defendant contended on the motion, the complaint should have been dismissed because plaintiff Castro was not closely related to the decedent (Bovsun v Sanperi, 61 NY2d 219).

A plaintiff may state a cause of action for mental trauma sustained as the result of negligence, even without physical impact (Battalla v State of New York, 10 NY2d 237, 242; see also, Tobin v Grossman, 24 NY2d 609, 613). However, where the recovery sought by an uninjured third party is predicated on witnessing injury sustained by another person, three criteria must be established: first, the defendant's conduct must be a substantial factor in causing serious injury or death to the third party; second, the plaintiff must be within the zone of danger; and, third, the injured person must be an immediate family member of the plaintiff (Bovsun v Sanperi, supra at 230-231; see also, Trombetta v Conkling, 82 NY2d 549 [niece not a member of the victim's immediate family]).

Terrance D. Garmey (orally), Maureen E. Dea, William Kany, Smith & Elliott, Saco, for plaintiff.

Leland N. Chisholm (orally), R. Terrance Duddy, Kelly, Remmel & Zimmerman, Portland, for Neal-York Funeral Home, Inc.

James M. Bowie (orally), Hunt, Thompson & Bowie, Portland, for Osteopathic Hosp. of Maine, Inc.

Before McKUSICK, C.J., and NICHOLS, ROBERTS, WATHEN, SCOLNIK and CLIFFORD, JJ.

ROBERTS, Justice.

Following a jury trial, the Superior Court, Cumberland County, entered a judgment against the plaintiff, Gerald C. Gammon, and in favor of the defendants, Osteopathic Hospital of Maine, Inc. and Neal-York Funeral Home, Inc. On appeal Gammon challenges the directed verdict granted on Count I of his complaint, which alleged negligent infliction of severe emotional distress.^[1] Because the evidence introduced at trial would support a verdict in Gammon's favor on the negligence theory of Count I, we vacate the judgment.

[534 A.2d 1283] I.

Linwood Gammon, Gerald's father, died on November 7, 1982 at the Osteopathic Hospital in Portland. Gerald Gammon asked the Neal-York Funeral Home to make the funeral arrangements. Morrill York went to the hospital to pick up Linwood Gammon's body. Hospital personnel directed him to the hospital morgue where corpses are kept in a two-drawer cooler. York found the bottom drawer empty. The top drawer contained Linwood Gammon's body identified by a tag. That drawer also contained two plastic bags, one of which was identified by a tag as Gammon's personal effects. Because on prior occasions York had found personal effects in the cooler with corpses, he assumed that both bags contained Gammon's personal effects.

Both plastic bags were delivered to Gerald Gammon at the funeral home and taken by him to his father's home in Limington. The next morning Gammon searched the tagged bag looking for his father's shaver. He found only clothing. Inside the untagged bag, he found a second bag. When he opened the second bag, Gammon discovered a bloodied leg, severed below the knee and bluish in color. He yelled "Oh my God, they have taken my father's leg off." He ran into the kitchen where he leaned against the refrigerator for support, and said, "Guess what I found in the bathroom. I found my father's leg." In the words of Gammon's aunt, "He was as white as a ghost."

Gammon later found a label located on the outside of the inner bag that identified the leg as a pathology specimen that had been removed from someone other than his father. He carried the bag to the garage and called York who returned the bag to the hospital. Thereafter, Gammon began having nightmares for the first time in his life, his personality was affected and his relationship with his wife and children deteriorated. After several months Gammon's emotional state began to improve, although his wife testified that he still had occasional nightmares and Gammon testified that he still sees the leg in his mind two or three times a week. He did not seek medical or psychiatric evaluation or treatment and no medical evidence was offered at trial.

The trial court granted the defendants' motions for a directed verdict on Gammon's claim for negligent infliction of severe emotional distress. Gammon's claim in Count III of his complaint for damages resulting from intentional or reckless infliction of severe emotional distress was submitted to the jury upon special interrogatories. The jury concluded that Gammon had suffered "severe emotional distress"^[2] but that the distress was not proximately caused by intentional or reckless conduct of either defendant. Accordingly, the court entered judgment in favor of the defendants.

II.

The issue is whether, in these circumstances, Gammon has established a claim, in tort, for negligent infliction of severe emotional distress. A person's psychic well-being is as much entitled to legal protection as is his physical well-being. We recognize as much and provide compensation when the emotional distress is intentionally or recklessly inflicted, when the emotional distress results from physical injury negligently inflicted, or when negligently inflicted emotional distress results in physical injury. In order to ensure that a claim for emotional distress without physical injury is not spurious, we have previously required a showing of physical impact, objective manifestation, underlying or accompanying tort, or special circumstances. In the case before us, we conclude that these more or less arbitrary requirements should not bar Gammon's claim for compensation for severe emotional distress.

[534 A.2d 1284] In 1880 we held that "mental suffering alone, unattended by any injury to the person, caused by simple actionable negligence" was not compensable. Wyman v. Leavitt, 71 Me. 227 (1880). Again, in 1921 we held that "if no bodily injury is alleged or proved ... mental suffering ... [is] outside the principle of compensation." Herrick v. Evening Express Pub. Co., 120 Me. 138, 113 A. 16 (1921). Seventeen years ago we adopted a new rule allowing recovery where the plaintiff suffered substantial and objectively manifested mental and emotional suffering proximately caused by an act of negligence "even though there [was] no discernable trauma from external causes." Wallace v. Coca-Cola Bottling Plants, Inc., 269 A.2d 117 (Me.1970). We later found in Wallace a fortiori support for the adoption of the rule of liability stated in section 46 of the Restatement (Second) of Torts (1965) for intentionally or recklessly causing severe emotional distress. Vicnire v. Ford Motor Credit Co., 401 A.2d 148, 154 (Me.1979). To the extent that the language of the Wallace opinion rejected the "physical impact" requirement in addition to its rejection of the "bodily injury" requirement as an essential element, it was unnecessary to the holding.^[3] Nevertheless, we adopted the Wallace dictum as support for our holding in favor of allowing a bystander to recover for emotional distress without showing physical impact. Culbert v. Sampson's Supermarkets, Inc., 444 A.2d 433 (Me.1982). Moreover, that part of the Wallace decision requiring proof of "objective symptomatology" (nausea, for example) was explicitly overruled.^[4] Id. at 437. We concluded that the requirement of physical manifestation of mental distress was both over-inclusive (permitting recovery for trivial distress if accompanied by physical symptoms), and underinclusive (denying recovery for serious distress if not accompanied by physical symptoms). Id. For bystander recovery for damages resulting from "serious mental distress," we were satisfied that "the state of modern medical science" plus the factors deemed relevant in determining foreseeability provided sufficient guarantee against fraudulent claims and against undue burden on defendants. Id. at 436-37.

Two years later, in the context of a defamation action, we reaffirmed the Culbert foreseeability test but concluded that the jury verdict for the defendant on the defamation action precluded recovery by the plaintiff for negligently inflicted emotional distress. Packard v. Cent. Me. Power Co., 477 A.2d 264 (Me.1984). Last year, in a case involving late delivery of a memorial stone, we affirmed the denial of recovery for emotional distress in the absence of either physical consequences or an "independent underlying tort." Rubin v. Matthews Int'l. Corp., 503 A.2d 694 (Me.1986) (citing Packard ). Most recently, in an action for mental distress caused by negligent treatment by a psychotherapist, we vacated a summary judgment in favor of the defendants. Rowe v. Bennett, 514 A.2d 802, 804 (Me.1986). Three members of the Rowe court found it necessary to create an exception to the Rubin requirement of an "underlying tort." That exception was justified, the opinion states, because it is unlikely that "objective evidence of mental distress will be unavailable in a claim by a patient against his psychotherapist." Id. at 806.

No useful purpose would be served by more detailed analyses of our prior decisions or by consideration of whether the holdings of these cases follow a consistent trend. They demonstrate in a variety of ways the difficulty courts have had dealing [534 A.2d 1285] with psychic injury.^[5] They also demonstrate the frailty of supposed lines of demarcation when they are subjected to judicial scrutiny in the context of varying fact patterns. Moreover, these cases disclose our awareness of the extensive criticism aimed at the artificial devices used by courts to protect against fraudulent claims and against undue burden on the conduct of defendants.

The analyses of commentators^[6] and the developing trend in caselaw^[7] encourage us to abandon these artificial devices in this and future tort actions and to rely upon the trial process for protection against fraudulent claims. In addition, the traditional tort principle of foreseeability relied upon in Wallace and Culbert provides adequate protection against unduly burdensome liability claims for emotional distress. Jurors or trial judges will be able to evaluate the impact of psychic trauma with no greater difficulty than pertains to assessment of damages for any intangible injury. We do not foresee any great extension of tort liability by our ruling today. We do not provide compensation for the hurt feelings of the supersensitive plaintiff--the eggshell psyche. A defendant is bound to foresee psychic harm only when such harm reasonably could be expected to befall the ordinarily sensitive person.^[8]

We have previously recognized that courts in other jurisdictions have allowed recovery for mental distress alone for negligent mishandling of corpses. Rubin, 503 A.2d at 699 n. 5. In recognizing that Gammon has made out a claim in the instant case, we do not find it necessary to rely on an extension of this exception. Instead, we look to the rationale supporting the exception. Courts have concluded that the exceptional vulnerability of the family of recent decedents makes it highly probable that emotional distress will result from mishandling the body. See, e.g., Whitehair v. Highland Memory Gardens, Inc., 327 S.E.2d 438 (W.Va.1985). That high probability is said to provide sufficient trustworthiness to allay the court's fear of fraudulent claims. Prosser and Keaton on Law of Torts, § 362 (5th Ed.1984). This rationale, it seems, is but another way of determining that the defendant reasonably should have foreseen that mental distress would result from his negligence. By the same token, on the record before us, a jury could conclude that the hospital and the mortician reasonably should have foreseen that members of Linwood Gammon's family would be vulnerable to emotional shock at finding a severed leg in what was supposed to be the decedent's personal effects. Despite the defendants' argument to the [534 A.2d 1286] contrary, we hold that the evidence in this case would support a jury finding that either or both defendants failed to exercise reasonable care to prevent such an occurrence.

Although the analysis in the instant case may impact upon the rationale of our recent cases, we do not find it necessary to overrule those cases. We do not hold that any prior case was wrongly decided. Rather, we recognize that the elimination of some barriers to recovery for negligent infliction of severe emotional distress may compel further evaluation of other policy considerations. For example, the result in Packard is supported on the ground stated by the trial court: "[B]y allowing recovery ... merely on the ground of negligence, the 'qualified privilege' given to communications to law enforcement officials is diluted." Packard, 477 A.2d at 268.

On the facts and circumstances of the case before us, however, we find no sound basis to preclude potential compensation to Gammon. We hold, therefore, that the trial court erred in directing a verdict on Gammon's claim for negligent infliction of severe emotional distress.^[9] Accordingly, we vacate the judgment in favor of the defendants on Count I.

The entry is: Judgment on Count I vacated.

Remanded for further proceedings consistent with the opinion herein.

All concurring.

[1] Gammon's brief states that the court also erred in directing a verdict for the defendants on Count II, but he presents no argument in support of that contention. Gammon does not challenge the jury verdict against him on Count III that alleged intentional or reckless infliction of emotional distress.

[2] The court defined severe emotional distress as "such that no reasonable man could be expected to endure it."

[3] There was evidence of impact in Wallace although the impact clearly was insufficient of itself to cause physical, as opposed to psychic, injury.

[4] Our implicit rejection of section 313 of the Restatement (Second) of Torts (1965) that requires proof of "illness or bodily harm" as a result of negligently inflicted mental distress reflected the developing caselaw rejecting this requirement in the 17 years since the Restatement's adoption.

[5] When discussing this type of injury, the courts of other jurisdictions and the commentators have used as the adjective either "emotional, mental, nervous or psychic" together with the noun "distress, pain, injury, harm, trauma, disturbance or shock." These phrases have not become words of art although each, with varying degrees of accuracy, seems to refer to non-tactile trauma resulting in injury to the psyche.

[6] See, e.g., Prosser and Keeton on Law of Torts, 54 (5th ed. 1984); Bell, The Bell Tolls: Toward Full Tort Recovery for Psychic Injury, 36 U.Fla.L.Rev. 333 (1984); Nolan & Ursin, Negligent Infliction of Emotional Distress: Coherence Emerging from Chaos, 33 Hast. L.J. 583 (1982); Zepkin, The Independent Tort of Negligently Inflicted Emotional Distress--Its Time Has Come, 10 Va.Bar J. 4 (1984).

[7] See, e.g., Molien v. Kaiser Foundation Hosp., 27 Cal.3d 916, 167 Cal.Rptr. 831, 616 P.2d 813 (Cal.1980) (in bank) (negligent diagnosis of syphilis in plaintiff's wife); Rodrigues v. State, 472 P.2d 509 (Haw.1970) (negligently caused property damage inflicting mental distress); Leong v. Takasaki, 520 P.2d 758 (Haw.1974) (bystander recovery for negligently inflicted mental distress without resulting physical injury); Bass v. Nooney Co., 646 S.W.2d 765 (Mo.1983) (en banc) (emotional distress from being trapped in an elevator); St. Elizabeth Hosp. v. Garrard, 730 S.W.2d 649 (Tex.1987) (negligent disposal of stillborn infant's body); Gates v. Richardson, 719 P.2d 193 (Wyo.1986) (bystander recovery for negligent infliction of emotional distress); Contra Payton v. Abbott Labs, 386 Mass. 540, 437 N.E.2d 171 (1982) (mental distress caused by exposure to DES in utero ).

[8] We described serious mental distress in Culbert as being "where a reasonable person, normally constituted, would be unable to adequately cope with the mental stress engendered by the circumstances of the event." Rowe, 514 A.2d at 805 (quoting Culbert ).

[9] By virtue of the pleadings and the jury finding in the case before us, our holding necessarily is limited to negligently inflicted severe emotional distress. We do not decide whether a defendant shall be liable for negligently inflicted emotional distress of any lesser degree.

[100 N.J. 248] [495 A.2d 108] Louis A. Ruprecht, Millburn, for appellant Consol. Rail Corp. (McDermott, McGee & Ruprecht, Millburn, attorneys).

John C. Heavey, Newark, for appellant Union Tank Car Co. (Carpenter, Bennett & Morrissey, Newark, attorneys; Thomas M. Moore, Newark, on the brief).

Dennis M. Cavanaugh, Newark, for appellant BASF Wyandotte Co. (Tompkins, McGuire & Wachenfeld, Newark, attorneys).

Raymond P. D'Uva, Roseland, for respondent (Rodino, Forman & D'Uva, Roseland, attorneys; Raymond P. D'Uva and Mary Ann Dubiel, Roseland, on the brief).

The opinion of the Court was delivered by

HANDLER, J.

This appeal presents a question that has not previously been directly considered: whether a defendant's negligent conduct that interferes with a plaintiff's business resulting in purely economic losses, unaccompanied by property damage or personal injury, is compensable in tort. The appeal poses this issue in the context of the defendants' alleged negligence that caused a dangerous chemical to escape from a railway tank car, resulting in the evacuation from the surrounding area of persons whose safety and health were threatened. The plaintiff, a commercial airline, was forced to evacuate its premises and [100 N.J. 249] suffered an interruption of its business operations with resultant economic losses.

I.

Because of the posture of the case--an appeal taken from the grant of summary judgment for the defendant railroad, subsequently reversed by the Appellate Division, 194 N.J.Super. 349, 476 A.2d 1256 (App.Div.1984)--we must accept plaintiff's version of the facts as alleged. The facts are straight-forward.

On July 22, 1981, a fire began in the Port Newark freight yard of defendant Consolidated Rail Corporation (Conrail) when ethylene oxide manufactured by defendant BASF Wyandotte Company (BASF) escaped from a tank car, punctured during a "coupling" operation with another rail car, and ignited. The tank car was owned by defendant Union Tank Car Company (Union Car) and was leased to defendant BASF.

The plaintiff asserted at oral argument that at least some of the defendants were aware from prior experiences that ethylene oxide is a highly volatile substance; further, that emergency response plans in case of an accident had been prepared. When the fire occurred that gave rise to this lawsuit, some of the defendants' consultants helped determine how much of the surrounding area to evacuate. The municipal authorities then evacuated the area within a one-mile radius surrounding the fire to lessen the risk to persons within the area should the burning tank car explode. The evacuation area included the adjacent North Terminal building of Newark International Airport, where plaintiff People Express Airlines' (People Express) business operations are based. Although the feared explosion never occurred, People Express employees were prohibited from using the North Terminal for twelve hours.

The plaintiff contends that it suffered business-interruption losses as a result of the evacuation. These losses consist of cancelled scheduled flights and lost reservations because employees were unable to answer the telephones to accept bookings; [100 N.J. 250] also, certain fixed operating expenses allocable to the evacuation time period were [495 A.2d 109] incurred and paid despite the fact that plaintiff's offices were closed. No physical damage to airline property and no personal injury occurred as a result of the fire.

According to People Express' original complaint, each defendant acted negligently and these acts of negligence proximately caused the plaintiff's harm. An amended complaint alleged additional counts of nuisance and strict liability based on the defendants' undertaking an abnormally dangerous activity, as well as defective manufacture or design of the tank car, causes of action with which we are not concerned here. Defendants filed answers and cross-claims for contribution pursuant to the Joint Tortfeasors Contribution Law, N.J.S.A. 2A:53A-1 to -6.

Conrail moved for summary judgment, seeking dismissal of the complaint and cross-claims against it; the motion was opposed by plaintiff, People Express, and defendants BASF and Union Car. The trial court granted Conrail's summary judgment motion on the ground that absent property damage or personal injury economic loss was not recoverable in tort. Defendants BASF and Union Car subsequently sought summary judgment dismissing the complaint; the trial court also granted these motions based on the same reasoning.

The Appellate Division granted plaintiff's interlocutory request for leave to appeal and reversed the trial court's order granting summary judgment. The Appellate Division held that recovery of negligently caused economic losses was not automatically barred by the absence of property damage and that summary judgment was inappropriate. 194 N.J.Super. at 355-56, 476 A.2d 1256. The cause was remanded to the trial court with instructions to determine whether the evidence could support the finding of a foreseeable risk of harm to the plaintiff. This Court granted defendant Union Car's petition for certification, in which Conrail and BASF joined, and denied People Express' [100 N.J. 251] motion to dismiss the petition for certification. 99 N.J. 169, 170, 491 A.2d 678 (1984).

II.

The single characteristic that distinguishes parties in negligence suits whose claims for economic losses have been regularly denied by American and English courts from those who have recovered economic losses is, with respect to the successful claimants, the fortuitous occurrence of physical harm or property damage, however slight. It is well-accepted that a defendant who negligently injures a plaintiff or his property may be liable for all proximately caused harm, including economic losses. See Palsgraf v. Long Island R.R., 248 N.Y. 339, 162 N.E. 99 (1928); W. Prosser & W. Keeton, The Law of Torts § 129, at 997 (5th ed. 1984) (Prosser & Keeton). Nevertheless, a virtually per se rule barring recovery for economic loss unless the negligent conduct also caused physical harm has evolved throughout this century, based, in part, on Robins Dry Dock & Repair Co. v. Flint, 275 U.S. 303, 48 S.Ct. 134, 72 L.Ed.2d 290 (1927) and Cattle v. Stockton Waterworks Co., 10 Q.B. 453 (1875). This has occurred although neither case created a rule absolutely disallowing recovery in such circumstances.^[1] See, e.g., Stevenson v. East Ohio Gas Co., 73 N.E.2d 200 (Ohio Ct.App.1946) (employee who was prohibited from working at his plant, which was closed due to conflagration begun by negligent rupture of stored liquified natural gas at nearby utility, could not recover lost wages); Byrd v. English, 117 Ga. 191, 43 S.E. 419 (1903) (plaintiff who owned printing plant could not recover lost profits when defendant negligently damaged utility's electrical conduits that supplied [100 N.J. 252] power to the plant); see also Restatement (Second) of Torts § 766C (1979) (positing rule of nonrecovery for purely economic losses [495 A.2d 110] absent physical harm). But see In re Kinsman Transit Co., 388 F.2d 821, 824 (2d Cir.1968) (after rejecting an inflexible rule of nonrecovery, court applied traditional proximate cause analysis to claim for purely economic losses).

The reasons that have been advanced to explain the divergent results for litigants seeking economic losses are varied. Some courts have viewed the general rule against recovery as necessary to limit damages to reasonably foreseeable consequences of negligent conduct. This concern in a given case is often manifested as an issue of causation and has led to the requirement of physical harm as an element of proximate cause. In this context, the physical harm requirement functions as part of the definition of the causal relationship between the defendant's negligent act and the plaintiff's economic damages; it acts as a convenient clamp on otherwise boundless liability. See Union Oil Co. v. Oppen, 501 F.2d 558, 563 (9th Cir.1974); The Federal No. 2, 21 F.2d 313 (2d Cir.1927); Byrd v. English, supra, 117 Ga. 191, 43 S.E. 419 (1903). The physical harm rule also reflects certain deep-seated concerns that underlie courts' denial of recovery for purely economic losses occasioned by a defendant's negligence. These concerns include the fear of fraudulent claims, mass litigation, and limitless liability, or liability out of proportion to the defendant's fault. See In re Kinsman Transit Co., supra, 388 F.2d at 823; Weller & Co. v. Foot & Mouth Disease Research Inst. [1966], 1 Q.B. 569, 577; Stevenson v. East Ohio Gas Co., supra, 73 N.E.2d at 203.

The assertion of unbounded liability is not unique to cases involving negligently caused economic loss without physical harm. Even in negligence suits in which plaintiffs have sustained physical harm, the courts have recognized that a tortfeasor is not necessarily liable for all consequences of his conduct. While a lone act can cause a finite amount of physical harm, that harm may be great and very remote in its final [100 N.J. 253] consequences. A single overturned lantern may burn Chicago. Some limitation is required; that limitation is the rule that a tortfeasor is liable only for that harm that he proximately caused. Proximate or legal cause has traditionally functioned to limit liability for negligent conduct. Duty has also been narrowly defined to limit liability. Compare the majority and dissenting opinions in Palsgraf v. Long Island R.R., supra, 248 N.Y. 339, 162 N.E. 99. Thus, we proceed from the premise that principles of duty and proximate cause are instrumental in limiting the amount of litigation and extent of liability in cases in which no physical harm occurs just as they are in cases involving physical injury.

Countervailing considerations of fairness and public policy have led courts to discard the requirement of physical harm as an element in defining proximate cause to overcome the problem of fraudulent or indefinite claims. See Portee v. Jaffee, 84 N.J. 88, 417 A.2d 521 (1980); Dillon v. Legg, 68 Cal.2d 728, 69 Cal.Rptr. 72, 441 P.2d 912 (1968) (abandoning zone of danger rule in favor of a foreseeability test to determine whether the plaintiff may recover for mental distress arising from physical harm to another). In this context, see, e.g., Portee v. Jaffee, supra, as well as in variant settings, see Merenoff v. Merenoff, 76 N.J. 535, 388 A.2d 951 (1978), we have subordinated the threat of potential baseless claims to the right of an aggrieved individual to pursue a just and fair claim for redress attributable to the wrongdoing of another. The asserted inability to define damages in cases arising under the cause of action for negligent infliction of emotional distress absent impact or near-impact has not hindered adjudication of those claims. Nor is there any indication that unfair awards have resulted.

The troublesome concern reflected in cases denying recovery for negligently-caused economic loss is the alleged potential for infinite liability, or liability out of all proportion to the defendant's fault. This objection is also not confined to negligently-caused economic injury. See infra [495 A.2d 111] at 110. The same objection has been asserted and, ultimately, rejected by this [100 N.J. 254] Court and others in allowing recovery for other forms of negligent torts, see H. Rosenblum, Inc. v. Adler, 93 N.J. 324, 461 A.2d 138 (1983), and in the creation of the doctrine of strict liability for defective products, see Feldman v. Lederle Laboratories, 97 N.J. 429, 479 A.2d 374 (1984); Henningsen v. Bloomfield Motors, Inc., 32 N.J. 358, 161 A.2d 69 (1960), and ultrahazardous activities, see State, Dep't of Envtl. Protection v. Ventron Corp., 94 N.J. 473, 468 A.2d 150 (1983). See also Carpenter, "Interference With Contract Relations," 41 Harv.L.Rev. 728, 742 (1928) (noting that most advances in tort law have been attended by reluctance to take the step forward). The answer to the allegation of unchecked liability is not the judicial obstruction of a fairly grounded claim for redress. Rather, it must be a more sedulous application of traditional concepts of duty and proximate causation to the facts of each case. See Soler v. Castmaster, Div. of H.P.M. Corp., 98 N.J. 137, 484 A.2d 1225 (1984).

It is understandable that courts, fearing that if even one deserving plaintiff suffering purely economic loss were allowed to recover, all such plaintiffs could recover, have anchored their rulings to the physical harm requirement. While the rationale is understandable, it supports only a limitation on, not a denial of, liability. The physical harm requirement capriciously showers compensation along the path of physical destruction, regardless of the status or circumstances of individual claimants. Purely economic losses are borne by innocent victims, who may not be able to absorb their losses. See Comment, 88 Harv.L.Rev. 444, 449-50 (1974). In the end, the challenge is to fashion a rule that limits liability but permits adjudication of meritorious claims. The asserted inability to fix chrystalline formulae for recovery on the differing facts of future cases simply does not justify the wholesale rejection of recovery in all cases.

Further, judicial reluctance to allow recovery for purely economic losses is discordant with contemporary tort doctrine. The torts process, like the law itself, is a human institution designed to accomplish certain social objectives. One objective is to ensure that innocent victims have avenues of legal redress, [100 N.J. 255] absent a contrary, overriding public policy. See Kelly v. Gwinnell, 96 N.J. 538, 476 A.2d 1219 (1984); Evers v. Dollinger, 95 N.J. 399, 471 A.2d 405 (1984); Costa v. Josey, 83 N.J. 49, 415 A.2d 337 (1980); Berman v. Allan, 80 N.J. 421, 404 A.2d 8 (1979); Immer v. Risko, 56 N.J. 482, 267 A.2d 481 (1970); Henningsen v. Bloomfield Motors, Inc., supra, 32 N.J. 358, 161 A.2d 69. This reflects the overarching purpose of tort law: that wronged persons should be compensated for their injuries and that those responsible for the wrong should bear the cost of their tortious conduct.

Other policies underlie this fundamental purpose. Imposing liability on defendants for their negligent conduct discourages others from similar tortious behavior, fosters safer products to aid our daily tasks, vindicates reasonable conduct that has regard for the safety of others, and, ultimately, shifts the risk of loss and associated costs of dangerous activities to those who should be and are best able to bear them. Although these policies may be unevenly reflected or imperfectly articulated in any particular case, we strive to ensure that the application of negligence doctrine advances the fundamental purpose of tort law and does not unnecessarily or arbitrarily foreclose redress based on formalisms or technicalisms. Whatever the original common law justifications for the physical harm rule, contemporary tort and negligence doctrine allow--indeed, impel--a more thorough consideration and searching analysis of underlying policies to determine whether a particular defendant may be liable for a plaintiff's economic losses despite the absence of any attendant physical harm. See State v. Culver, 23 N.J. 495, 505, 129 A.2d 715, cert. den., 354 U.S. 925, 77 S.Ct. 1387, 1 L.Ed.2d 1441 (1957); see also Renz v. [495 A.2d 112] Penn Central Corp., 87 N.J. 437, 435 A.2d 540 (1981) (railroad immunity act's imputation of contributory negligence to minor injured while playing on railroad did not constitute absolute bar to recovery but was to be construed as a common law issue bearing on comparative fault).

III.

We may appropriately consider two relevant avenues of analysis in defining a cause of action for negligently-caused economic [100 N.J. 256] loss. The first examines the evolution of various exceptions to the rule of nonrecovery for purely economic losses, and suggests that the exceptions have cast considerable doubt on the validity of the current rule and, indeed, have laid the foundation for a rule that would allow recovery. The second explores the elements of a suitable rule and adopts the traditional approach of foreseeability as it relates to duty and proximate cause molded to circumstances involving a claim only for negligently-caused economic injury.

A.

Judicial discomfiture with the rule of nonrecovery for purely economic loss throughout the last several decades has led to numerous exceptions in the general rule. Although the rationalizations for these exceptions differ among courts and cases, two common threads run throughout the exceptions. The first is that the element of foreseeability emerges as a more appropriate analytical standard to determine the question of liability than a per se prohibitory rule. The second is that the extent to which the defendant knew or should have known the particular consequences of his negligence, including the economic loss of a particularly foreseeable plaintiff, is dispositive of the issues of duty and fault.

One group of exceptions is based on the "special relationship" between the tortfeasor and the individual or business deprived of economic expectations. Many of these cases are recognized as involving the tort of negligent misrepresentation, resulting in liability for specially foreseeable economic losses. Importantly, the cases do not involve a breach of contract claim between parties in privity; rather, they involve tort claims by innocent third parties who suffered purely economic losses at the hands of negligent defendants with whom no direct relationship existed. Courts have justified their finding of liability in these negligence cases based on notions of a special relationship between the negligent tortfeasors and the foreseeable plaintiffs [100 N.J. 257] who relied on the quality of defendants' work or services, to their detriment. The special relationship, in reality, is an expression of the courts' satisfaction that a duty of care existed because the plaintiffs were particularly foreseeable and the injury was proximately caused by the defendant's negligence.

The special relationship exception has been extended to auditors, see H. Rosenblum, Inc. v. Adler, supra, 93 N.J. 324, 461 A.2d 138 (independent auditor whose negligence resulted in inaccurate public financial statement held liable to plaintiff who bought stock in company for purposes of sale of business to company; stock subsequently proved to be worthless); surveyors, see Rozny v. Marnul, 43 Ill.2d 54, 250 N.E.2d 656 (1969) (surveyor whose negligence resulted in error in depicting boundary of lot held liable to remote purchaser); termite inspectors, see Hardy v. Carmichael, 207 Cal.App.2d 218, 24 Cal.Rptr. 475 (Cal.Ct.App.1962) (termite inspectors whose negligence resulted in purchase of infested home liable to out-of-privity buyers); engineers, see M. Miller Co. v. Central Contra Costa Sanitary Dist., 198 Cal.App.2d 305, 18 Cal.Rptr. 13 (Cal.Ct.App.1961) (engineers whose negligence resulted in successful bidder's losses in performing construction contract held liable); attorneys, see Lucas v. Hamm, 56 Cal.2d 583, 15 Cal.Rptr. 821, 364 P.2d 685 (1961), cert. den., 368 U.S. 987, 82 S.Ct. 603, 7 L.Ed.2d 525 (1962) (attorney whose negligence caused intended beneficiary to be deprived of proceeds of the will was liable to beneficiary); [495 A.2d 113] notaries public, see Immerman v. Ostertag, 83 N.J.Super. 364, 199 A.2d 869 (Law Div.1964); Biakanja v. Irving, 49 Cal.2d 647, 320 P.2d 16 (1958) (notaries public whose negligence caused out-of-privity mortgagee and intended beneficiary of will, respectively, to be deprived of expected proceeds held liable); architects, see United States v. Rogers & Rogers, 161 F.Supp. 132 (S.D.Cal.1958) (architects whose negligence resulted in use of defective concrete liable to out-of-privity prime contractor); weighers, see Glanzer v. Shepard, 233 N.Y. 236, 135 N.E. 275 (1922) (public weigher whose negligence caused remote buyer's losses was liable for loss); and telegraph companies, [100 N.J. 258] see Western Union Tel. Co. v. Mathis, 215 Ala. 282, 110 So. 399 (1926) (telegraph company whose negligent transmission caused plaintiff not to obtain contract was liable); see also W. Prosser, The Law of Torts § 107, at 705 (4th ed. 1971); Restatement (Second) of Torts § 552 (1977) (positing recovery for negligent misrepresentation). Cf. Strauss v. Belle Realty Co., 65 N.Y.2d 399, 492 N.Y.S.2d 555, 482 N.E.2d 34 (1985); Food Pageant, Inc. v. Consolidated Edison Co., 54 N.Y.2d 167, 445 N.Y.S.2d 60, 429 N.E.2d 738 (1981); Newlin v. New England Tel. & Tel. Co., 316 Mass. 234, 54 N.E.2d 929 (1944) (although some physical harm occurred in each case due to utility blackout, plaintiffs recovered economic losses either in negligence or as third party beneficiaries of contract for electricity).

A related exception in which courts have allowed recovery for purely economic losses has been extended to plaintiffs belonging to a particularly foreseeable group, such as sailors and seamen, for whom the law has traditionally shown great solicitude. See Carbone v. Ursich, 209 F.2d 178 (9th Cir.1953) (plaintiff seaman recovered lost wages resulting from lack of work while the ship on which they were employed, damaged through defendant's negligence, was being repaired); accord Main v. Leask, Sess.Cas. 772 (Scot.2d Div.1910) (by implication).

Courts have found it fair and just in all of these exceptional cases to impose liability on defendants who, by virtue of their special activities, professional training or other unique preparation for their work, had particular knowledge or reason to know that others, such as the intended beneficiaries of wills (e.g., Lucas v. Hamm, supra) or the purchasers of stock who were expected to rely on the company's financial statement in the prospectus (e.g., H. Rosenblum, Inc. v. Adler, supra), would be economically harmed by negligent conduct. In this group of cases, even though the particular plaintiff was not always foreseeable, the particular class of plaintiffs was foreseeable as was the particular type of injury.

[100 N.J. 259] A very solid exception allowing recovery for economic losses has also been created in cases akin to private actions for public nuisance. Where a plaintiff's business is based in part upon the exercise of a public right, the plaintiff has been able to recover purely economic losses caused by a defendant's negligence. See, e.g., Louisiana ex rel. Guste v. M/V Testbank, 752 F.2d 1019 (5th Cir.1985) (en banc) (defendants responsible for ship collision held liable to all commercial fishermen, shrimpers, crabbers and oystermen for resulting pollution of Mississippi River); Union Oil Co. v. Oppen, 501 F.2d 558 (9th Cir.1974) (fishermen making known commercial use of public waters may recover economic losses due to defendant's oil spill); Masonite Corp. v. Steede, 198 Miss. 530, 23 So.2d 756 (1945) (en banc) (operator of fishing resort may recover lost profits due to pollution); Hampton v. North Carolina Pulp Co., 223 N.C. 535, 27 S.E.2d 538 (1943) (polluter liable for economic losses of downstream riparian landowners); Columbia River Fishermen's Protective Union v. City of St. Helens, 160 Or. 654, 87 P.2d 195 (1939) (same as Union Oil Co., supra); see also Burgess v. M/V Tamano, 370 F.Supp. 247 (D.Me.1973) (on nuisance theory, commercial fisherman may recover lost profits due [495 A.2d 114] to oil spill).^[2] Cf. Birchwood Lakes Colony Club v. Borough [100 N.J. 260] of Medford Lakes, 90 N.J. 582, 449 A.2d 472 (1982) (residents whose use of lakeside properties was diminished by pollution from defendant's sewage treatment plant could sue for compensatory damages on nuisance theory). The theory running throughout these cases, in which the plaintiffs depend on the exercise of the public or riparian right to clean water as a natural resource, is that the pecuniary losses suffered by those who make direct use of the resource are particularly foreseeable because they are so closely linked, through the resource, to the defendants' behavior.^[3]

Particular knowledge of the economic consequences has sufficed to establish duty and proximate cause in contexts other than those already considered. In Henry Clay v. Jersey City, 74 N.J.Super. 490, 181 A.2d 545 (Ch.Div.1962), aff'd, 84 N.J.Super. 9, 200 A.2d 787 (App.Div.1964), for example, a lessee-manufacturer had to vacate the building in which its business was located because of the defendant city's negligent failure to maintain its sewer line while the line was repaired. While there was some property [100 N.J. 261] damage, the court treated the tenant's and owner's claims separately; the tenant's claims were purely economic, stemming from the loss of use of its property right, as in the instant case. Further, the city had had notice of the leak since 1957 and should have known about it even earlier. Duty, breach and proximate cause were found to exist; the plaintiff-tenant recovered lost profits and expenses incurred during the shut-down. See also J'Aire Corp. v. Gregory, 24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60 (1979) (contractor who undertook construction work for owner of building had duty to tenants to complete construction on time to avoid resultant economic losses).

These exceptions expose the hopeless artificiality of the per se rule against recovery for purely economic losses. When the plaintiffs are reasonably foreseeable, the injury is directly and proximately caused by defendant's negligence, and liability can be limited fairly, courts have endeavored to [495 A.2d 115] create exceptions to allow recovery. The scope and number of exceptions, while independently justified on various grounds, have nonetheless created lasting doubt as to the wisdom of the per se rule of nonrecovery for purely economic losses.^[4] Indeed, it has been [100 N.J. 262] fashionable for commentators to state that the rule has been giving way for nearly fifty years, although the cases have not always kept pace with the hypothesis. See Harvey, "Economic Losses and Negligence, the Search for a Just Solution," 50 Can.Bar.Rev. 580 (1972); Harper, "Interference with Contractual Relations," 47 Nw.U.L.Rev. 873 (1953), in 1 F. Harper & F. James, Torts, § 6.5, at 490 (1956); Carpenter, supra, "Interference with Contractual Relations," 41 Harv.L.Rev. 728; Note, "Negligent Interference with Contract: Knowledge As a Standard for Recovery," 63 Va.L.Rev. 813 (1977); Note, "Negligent Interference with Economic Expectancy: The Case for Recovery," 16 Stan.L.Rev. 664 (1964); Comment, "Foreseeability of Third Party Economic Injuries--A Problem in Analysis," 20 U.Chi.L.Rev. 283 (1953).

One thematic motif that may be extrapolated from these decisions to differentiate between those cases in which recovery for economic losses was allowed and denied is that of foreseeability as it relates to both the duty owed and proximate cause. The traditional test of negligence is what a reasonably prudent person would foresee and do in the circumstances; duty is clearly defined by knowledge of the risk of harm or the reasonable apprehension of that risk. In the above-cited cases, the defendants knew or reasonably should have foreseen both that particular plaintiffs or an identifiable class of plaintiffs were at risk and that ascertainable economic damages would ensue from the conduct. Thus, knowledge or special reason to know of the consequences of the tortious conduct in terms of the persons likely to be victimized and the nature of the damages likely to be suffered will suffice to impose a duty upon the tortfeasor not to interfere with economic well-being of third parties. See W. Prosser, supra, The Law of Torts § 129, at 941 ("The limitation of specifically foreseeable plaintiffs ... suggest[s] [100 N.J. 263] an ultimate solution to the problem" [of whether negligent interference with economic expectation absent physical harm should be compensable].).

The further theme that may be extracted from these decisions rests on the specificity and strictness that are infused into the definitional standard of foreseeability. The foreseeability standard that may be synthesized from these cases is one that posits liability in terms of where, along a spectrum ranging from the general to the particular, foreseeability is ultimately found. See W. Prosser, supra, The Law of Torts § 129, at 941; Note, supra, 63 Va.L.Rev. at 818; Comment, supra, 20 U.Chi.L.Rev. at 293. A broad view of these cases reasonably permits the conclusion that the extent of liability and degree of foreseeability [495 A.2d 116] stand in direct proportion to one another. The more particular is the foreseeability that economic loss will be suffered by the plaintiff as a result of defendant's negligence, the more just is it that liability be imposed and recovery allowed.

We hold therefore that a defendant owes a duty of care to take reasonable measures to avoid the risk of causing economic damages, aside from physical injury, to particular plaintiffs or plaintiffs comprising an identifiable class with respect to whom defendant knows or has reason to know are likely to suffer such damages from its conduct. A defendant failing to adhere to this duty of care may be found liable for such economic damages proximately caused by its breach of duty.

We stress that an identifiable class of plaintiffs is not simply a foreseeable class of plaintiffs. For example, members of the general public, or invitees such as sales and service persons at a particular plaintiff's business premises, or persons travelling on a highway near the scene of a negligently-caused accident, such as the one at bar, who are delayed in the conduct of their affairs and suffer varied economic losses, are certainly a foreseeable class of plaintiffs. Yet their presence within the area would be fortuitous, and the particular type of economic [100 N.J. 264] injury that could be suffered by such persons would be hopelessly unpredictable and not realistically foreseeable. Thus, the class itself would not be sufficiently ascertainable. An identifiable class of plaintiffs must be particularly foreseeable in terms of the type of persons or entities comprising the class, the certainty or predictability of their presence, the approximate numbers of those in the class, as well as the type of economic expectations disrupted. See Henry Clay v. Jersey City, supra, 74 N.J.Super. at 497-501, 181 A.2d 545. See also Strauss v. Belle Realty Co., supra, 65 N.Y.2d 399, 492 N.Y.S.2d 555, 482 N.E.2d 34 (tenants of building harmed by utility blackout comprise defined, limited, known class).

We recognize that some cases will present circumstances that defy the categorization here devised to circumscribe a defendant's orbit of duty, limit otherwise boundless liability and define an identifiable class of plaintiffs that may recover. In these cases, the courts will be required to draw upon notions of fairness, common sense and morality to fix the line limiting liability as a matter of public policy, rather than an uncritical application of the principle of particular foreseeability. See Rickards v. Sun Oil Co., 23 N.J.Misc. 89, 41 A.2d 267 (Sup.Ct.1945); Byrd v. English, supra, 117 Ga. 191, 43 S.E. 419.

B.

Liability depends not only on the breach of a standard of care but also on a proximate causal relationship between the breach of the duty of care and resultant losses. Proximate or legal causation is that combination of " 'logic, common sense, justice, policy and precedent' " that fixes a point in a chain of events, some foreseeable and some unforeseeable, beyond which the law will bar recovery. Caputzal v. Lindsay Co., 48 N.J. 69, 77-78, 222 A.2d 513 (1966), (quoting Powers v. Standard Oil Co., 98 N.J.L. 730, 734, 119 A. 273 (Sup.Ct.1923), aff'd o.b., 98 N.J.L. 893, 121 A. 926 (E. & A. 1923); see also Palsgraf v. Long Island R.R., supra, 248 N.Y. at 350, 162 N.E. at 103 (Andrews, J., dissenting). The standard of [100 N.J. 265] particular foreseeability may be successfully employed to determine whether the economic injury was proximately caused, i.e., whether the particular harm that occurred is compensable, just as it informs the question whether a duty exists. See Hill v. Yaskin, 75 N.J. 139, 143, 380 A.2d 1107 (1977) (citing L. Green, Rationale of Proximate Cause 82-83 (1927)).

Although not expressly eschewing the general rule against recovery for purely economic losses, our courts have employed a traditional proximate cause analysis in order to decide whether particular claimants may survive motions for summary [495 A.2d 117] judgment. These cases embody a distinction between those economic losses that are only generally foreseeable, and thus non-compensable, and those losses the defendant is in a position particularly to foresee. In Henry Clay v. Jersey City, supra, 74 N.J.Super. 490, 181 A.2d 545, the court determined that the plaintiff-tenant's economic losses arising from the defendant city's failure to maintain its sewer line were directly and proximately caused by the defendant's negligence. There were no intervening causes, unlike Kinsman Transit Co., supra, 388 F.2d at 822.^[5] The economic injury was close in time and space; the defendant had ample opportunity to ascertain the identity and nature of the plaintiff's interests. Further, the amount of litigation and extent of liability was finite, rather than expansive. These are the kinds of considerations that converge in the determination whether economic losses are particularly foreseeable and proximate.

[100 N.J. 266] In two other cases, Rickards v. Sun Oil Co., supra, 23 N.J.Misc. 89, 41 A.2d 267, and Dale v. Grant, 34 N.J.L. 142 (Sup.Ct.1870), our courts again applied proximate cause principles to determine whether the plaintiffs could recover purely economic losses, and found that liability was unjustified. In Rickards, supra, the defendant's barge negligently destroyed a bridge that was the only means of access to six plaintiffs' retail businesses. In denying relief to these plaintiffs for recovery of "losses from expectant gains," 23 N.J.Misc. at 91, 41 A.2d 267, the court noted that principles of proximate cause applied to cases sounding in negligence and nuisance and that each case stood on its own facts. See Rickards, supra, 23 N.J.Misc. at 93, 41 A.2d 267. Recovery was denied because "[n]o ordinary prudent person could reasonably have been expected to have foreseen the resultant injurious consequences * * *." Id. at 95, 41 A.2d 267. This result may be explained in terms of the disproportionate extent of liability, which could not have been anticipated, and that the economic losses, while generally foreseeable, did not suffice to establish the requisite knowledge or particular foreseeability for recovery. In Dale v. Grant, supra, the court also applied traditional proximate cause principles to deny recovery to a plaintiff claiming lost profits. In that case, however, the interference with contractual relations was intentional, but that tort was not yet widely recognized as compensable. See Dale, supra, 34 N.J.L. at 149.

The particular-general foreseeability axis is also accordant with the policies underlying tort law. For good reason, tortfeasors are liable only for the results falling within the foreseeable risks of their negligent conduct. Assigning liability for harm that fortuitously extends beyond the foreseeable risk of negligent conduct unfairly punishes the tortfeasor for harm that he could not have anticipated and taken precautions to avoid. This comports with an underlying policy of the negligence doctrine: the imposition of liability should deter negligent conduct by creating incentives to minimize the risks and costs of accidents. See Note, supra, 63 Va.L.Rev. at 815. The [100 N.J. 267] imposition of liability for unforeseeable risks cannot serve to deter the conduct that has eventuated in attenuated results, but instead arbitrarily assigns liability unrelated or out of proportion to the defendant's fault. If negligence is the failure to take precautions that cost less than the damage wrought by the ensuing accident, see United States v. Carroll Towing Co., 159 F.2d [495 A.2d 118] 169, 173, reh. den., 160 F.2d 482 (2d Cir.1947), it would be unfair and socially inefficient to assign liability for harm that no reasonably-undertaken precaution could have avoided. Cf. Soler v. Castmaster, Div. of H.P.M. Corp., supra, 98 N.J. 137, 484 A.2d 1225; Brown v. United States Stove Co., 98 N.J. 155, 484 A.2d 1234 (1984); Campos v. Firestone Tire & Rubber Co., 98 N.J. 198, 485 A.2d 305 (1984) (employing objective-subjective foreseeability in product liability context).

We conclude therefore that a defendant who has breached his duty of care to avoid the risk of economic injury to particularly foreseeable plaintiffs may be held liable for actual economic losses that are proximately caused by its breach of duty. In this context, those economic losses are recoverable as damages when they are the natural and probable consequence of a defendant's negligence in the sense that they are reasonably to be anticipated in view of defendant's capacity to have foreseen that the particular plaintiff or identifiable class of plaintiffs, as defined infra at 263-64, is demonstrably within the risk created by defendant's negligence.

III.

We are satisfied that our holding today is fully applicable to the facts that we have considered on this appeal. Plaintiff has set forth a cause of action under our decision, and it is entitled to have the matter proceed to a plenary trial. Among the facts that persuade us that a cause of action has been established is the close proximity of the North Terminal and People Express Airlines to the Conrail freight yard; the obvious nature of the plaintiff's operations and particular foreseeability of economic losses resulting from an accident and evacuation; the defendants' actual or constructive knowledge of the [100 N.J. 268] volatile properties of ethylene oxide; and the existence of an emergency response plan prepared by some of the defendants (alluded to in the course of oral argument), which apparently called for the nearby area to be evacuated to avoid the risk of harm in case of an explosion. We do not mean to suggest by our recitation of these facts that actual knowledge of the eventual economic losses is necessary to the cause of action; rather, particular foreseeability will suffice. The plaintiff still faces a difficult task in proving damages, particularly lost profits, to the degree of certainty required in other negligence cases. The trial court's examination of these proofs must be exacting to ensure that damages recovered are those reasonably to have been anticipated in view of the defendants' capacity to have foreseen that this particular plaintiff was within the risk created by their negligence.

We appreciate that there will arise many similar cases that cannot be resolved by our decision today. The cause of action we recognize, however, is one that most appropriately should be allowed to evolve on a case-by-case basis in the context of actual adjudications. See Merenoff v. Merenoff, supra, 76 N.J. at 557, 388 A.2d 951. We perceive no reason, however, why our decision today should be applied only prospectively. See Darrow v. Hanover Tp., 58 N.J. 410, 415, 278 A.2d 200 (1971). Our holdings are well grounded in traditional tort principles and flow from well-established exceptional cases that are philosophically compatible with this decision. See Cogliati v. Ecco High Frequency Corp., 92 N.J. 402, 415-16, 456 A.2d 524 (1983); Mirza v. Filmore Corp., 92 N.J. 390, 398, 456 A.2d 518 (1983).

Accordingly, the judgment of the Appellate Division is modified, and, as modified, affirmed. The case is remanded for proceedings consistent with this opinion.

For modification and affirmance --Chief Justice WILENTZ, and Justices CLIFFORD, HANDLER, O'HERN, GARIBALDI and STEIN--6.

For reversal--None.

[1] In Robins Dry Dock, supra, Justice Holmes ruled that the law did not protect third parties whose contractual expectations were disrupted when the contract was "unknown to the doer of the wrong." Id. at 309, 48 S.Ct. at 135, 72 L.Ed. at 292. In Stockton Waterworks, the court grounded its denial of recovery on the absence of a proximately caused injury. 10 Q.B. at 457.

[2] It has been suggested that courts are ill-equipped to manage efficiently the kind of litigation (and concommitant resource allocation) stemming from the type of disasters that may be produced by negligent mishaps in ultrahazardous businesses, many of which are concentrated here in New Jersey. See, e.g., Louisiana ex rel. Guste v. M/V Testbank, 752 F.2d 1019, 1032-34 (5th Cir.1985) (en banc ) (Gee, J. and Clark, C.J., concurring) (denying recovery to businesses dependent on commercial fishing that lost profits when twelve tons of a toxic chemical spilled into the Mississippi River and the river was closed to fishing for three weeks; commercial fishing businesses recovered). We believe, however, that it would be unwise for the Court to sidestep the question presented on this appeal by rigid adherence to the physical harm rule. Absent forthcoming remedies from our coordinate branches of government, it would seem to serve justice better for a court of law to fashion a remedy in a particular case, and perhaps be corrected by the legislature, than for innocent victims to have no redress at all. E.g., Kelly v. Gwinnell, 96 N.J. 538, 476 A.2d 1219 (1984). "[T]he difficulties of adjudication [should not] frustrate the principle that there be a remedy for every substantial wrong." Dillon v. Legg, supra, 68 Cal.2d at 739, 69 Cal.Rptr. at 79, 441 P.2d at 919.

[3] A further compromise of the nonrecovery rule may be discerned in cases in which courts have allowed a plaintiff to recover only the added costs of performing the contract, but not lost profits, without expressly resting the decision on such considerations as a special relationship or foreknowledge of a particular class of plaintiffs. See J. Ray McDermott & Co. v. S.S. Egero, 453 F.2d 1202 (5th Cir.1972) (defendant who negligently interfered with construction contract was liable for liquidated damages paid to subcontractor, though court said subcontractor could not have recovered if he had sued in his own right); Dominion Tape of Canada Ltd. v. L.R. McDonald & Sons, Ltd., 3 Ont. 627 (1971) (defendant, who caused power failure that forced plaintiff manufacturer to cease manufacturing, was liable for workers' lost wages, required to be paid under the plaintiff's employment contract, but no lost profits); Midvale Coal Co. v. Cardox Corp., 152 Ohio St. 437, 89 N.E.2d 673 (1949) (employer recovered the excess cost of workers' compensation insurance premiums resulting from negligence by defendant to plaintiff's employee); see also Medical Care Recovery Act, 42 U.S.C. § 2651 (giving the federal government a right of recovery for medical care it must and has provided someone, particularly in the armed services, injured by a defendant's negligence).

[4] The rationale has been proffered that negligently-caused economic losses are recoverable if they are part of the entire unit or complex of damages caused by an independent, threshold tort; nonrecoverable economic losses are damages that stand alone or apart from other damages suffered. See Prosser & Keeton, supra, § 129, at 997. This rationale, however, does not explain, for example, why economic losses stemming from an intentional, rather than negligent, interference with economic expectations are recoverable although there is no attendant physical harm and no independent, threshold tort. See, e.g., Lumley v. Gye, 118 Eng.Rep. 749 (Q.B.1853) (one who intentionally induced opera singer to dishonor contract was liable to theatre owner for lost profits). The notion that the defendant must have breached a duty independent of the negligent interference with economic expectations assumes that the defendant's negligence--fortuitously resulting only in economic losses--is not a tort. Whether the law recognizes the injury as compensable is a matter of policy; but clearly an "independent" tort has been committed, and no parasitic relationship with another tort should be required before determining whether the injury is compensable. Further, the rule-of-damages rationale does not explain why the application of concepts of duty and proximate cause, which serve negligence well in cases where the plaintiff is physically harmed, cannot function equally well in cases in which there has been no physical harm. See supra at 110.

[5] In Kinsman, the defendants' negligence caused a ship to break loose from her moorings and careen down the narrow, S-shaped Buffalo River channel. She struck another ship, which in turn broke loose from her moorings and drifted downstream--followed by the first ship--until she crashed into a bridge. The bridge collapsed and its wreckage, together with the two ships, formed a dam, which caused extensive flooding and an ice jam reaching almost 3 miles upstream. As a result of this disaster, transportation on the river was disrupted for a period of about two months. The plaintiff's grain shipments were delayed and substitute grain had to be obtained. 388 F.2d at 822-23. The resultant economic losses were deemed too remote to allow recovery. Id. at 824.

[479 N.Y.S.2d 165] William E. Hegarty, Ernest J. Williams, Thomas J. Kavaler, Vincent E. Gentile and Lisa Schilit, New York City, for appellant-respondent.

Frederick A.O. Schwarz, Jr., Corp. Counsel, New York City (Alfred Weinstein, Leonard Koerner and Daniel E. Katz, New York City, of counsel), for respondents-appellants.

OPINION OF THE COURT

JONES, Judge.

The determination made in a prior action that Con Edison was grossly negligent in connection with the 1977 blackout in the City of New York is binding and conclusive on Con Edison in this action. Although plaintiffs may recover damages for physical injury to persons and property directly resulting from the service interruption, including damages resulting from looting and vandalism by rioters, they may not recover damages for additional expenditures, occasioned by the blackout, made by plaintiffs in the performance of their governmental functions, nor may they recover for loss of revenues assertedly attributable to the blackout.

On July 13, 1977 at approximately 9:36 p.m. there was a complete failure of electrical service in the City of New York except for an area in the Borough of Queens which was supplied by the Long Island Lighting Company. The blackout lasted for approximately 25 hours with power not being completely restored until approximately 10:40 p.m. on July 14.

The present action was instituted on September 7, 1978 by the City of New York and 14 public benefit corporations to recover damages allegedly sustained as a result of Con Edison's gross negligence and reckless and willful conduct with respect to the blackout.

Plaintiffs moved for partial summary judgment with respect to Con Edison's liability for gross negligence "on the ground that, under the doctrine of collateral estoppel, a prior determination in another lawsuit (Food Pageant, Inc. v. Consolidated Edison Co., Inc., Supreme Court, Bronx County, Index No. 16971/77) ^[1] that the July 13-14, 1977 electric power failure * * * resulted from the gross negligence of the defendant Consolidated Edison, is conclusive and binding on the defendant Consolidated Edison in this action". Con Edison thereupon made a cross motion for partial summary judgment, so far as pertinent for the purposes of the present appeal, (1) dismissing plaintiffs' claims based on Con Edison's contracts with the Power Authority of the State of New York (PASNY) because "plaintiffs are neither parties nor third-party beneficiaries of those contracts", (2) dismissing "plaintiffs' claims for damages attributable to criminal activity, civil disturbances, municipal employee absenteeism and lost productivity" because "superseding causes preclude imposition of liability upon Con Edison for such damages", and (3) dismissing "plaintiffs' claims [479 N.Y.S.2d 166] for reimbursement of municipal expenditures incurred during July 13-14, 1977" because "plaintiffs cannot recover as damages the costs of governmental operations which they were created to perform".

Special Term granted plaintiffs' motion and denied Con Edison's motion as described above. The Appellate Division, 95 A.D.2d 988, 465 N.E.2d 99, affirmed, without opinion, and granted both plaintiffs and Con Edison leave to appeal to our court. We modify the determination at the Appellate Division.

We agree with both courts below that on the issue of Con Edison's liability for gross negligence in connection with the blackout, Con Edison is precluded by the adverse determination of the issue in Food Pageant v. Consolidated Edison Co., 54 N.Y.2d 167, 445 N.Y.S.2d 60, 429 N.E.2d 738. The applicable principle in this case is that of third-party issue preclusion.

It is plaintiffs who seek to invoke the principle of third-party issue preclusion to bar Con Edison from relitigating its liability for gross negligence. It is not disputed that this issue was actually litigated and determined by a valid and final judgment in Food Pageant and that the determination of that issue was essential to the judgment in that case. Plaintiffs contend, therefore, that the determination in Food Pageant is binding and conclusive in this case. Con Edison, having the burden^[3] to demonstrate that the circumstances of the prior determination justify affording it an opportunity to relitigate the issue of liability, advances several arguments in support of its contention that the determination in Food Pageant is not to be given preclusive effect.^[4] [479 N.Y.S.2d 167] These arguments, taken singularly or in combination, do not warrant the result for which Con Edison contends, and Con Edison has not tendered sufficient proof in admissible form to require trial of any issue of fact or reversal of the exercise of judgment by the courts below.

It is first contended that third-party issue preclusion should not apply because there are other judicial determinations concluding that Con Edison was not guilty of gross negligence in connection with the blackout.^[5] Whatever might be said of the effect properly to be given to inconsistent determinations of like judicial stature, in this instance it suffices to dismiss Con Edison's contention to observe that the inconsistent determinations on which it would rely are those in cases tried in the Small Claims Part of the Civil Court of New York City as to which informal and simplified procedures are applicable^[6] and which by express statutory provision are not to be deemed an adjudication of any fact at issue (other than the amount involved) with respect to any other action.^[7]

Con Edison next argues that there is now available exculpatory evidence which in fairness requires that it be permitted to relitigate the issue of liability. Reference is made to investigative reports, in particular to the so-called Clapp Report. These reports were available and offered but rejected in the Food Pageant trial. Nothing suggests that the exclusion of this hearsay evidence was there error (and any contention that it was could have been subjected to appellate review on the appeal in that case), and no persuasive argument is now advanced to support admissibility in this case.

Con Edison next makes an oblique plea that we should reintroduce the former requirement of mutuality which we declared "a dead letter" in B.R. DeWitt, Inc. v. Hall, 19 N.Y.2d 141, 147, 278 N.Y.S.2d 596, 225 N.E.2d 195. To grant this plea would, of course, be entirely to eliminate third-party issue preclusion. It is understandable that Con Edison should express concern, in the light of the multiplicity of claims arising out of the blackout, that the issue of its gross negligence will have been established in each case. Nevertheless, no sufficient justification is advanced to turn the clock back with respect to so [479 N.Y.S.2d 168] fundamental a legal development as the elimination of the requirement of mutuality. We have been committed since DeWitt, and indeed even before (Israel v. Wood Dolson Co., 1 N.Y.2d 116, 151 N.Y.S.2d 1, 134 N.E.2d 97), to the proposition that efficient utilization of the judicial system is served by preclusion of relitigation of issues as to which a litigant has had a full and fair opportunity for resolution, irrespective of the identity of his particular opponent. Nor does Con Edison advance any intermediate position warranting a different application of the principles of third-party issue preclusion with respect to a multiplicity of claims arising out of a community-wide disaster such as the blackout in this case.

It is then argued that the determination in Food Pageant should not be given preclusive effect because of indications that it was the result of compromise in the jury room. No tender has been made, however, of proof in admissible form sufficient to require trial of this factual issue. The arguments of Con Edison are grounded only in speculation, and it cannot be said as a matter of law that the Food Pageant verdict was the result of impermissible compromise.

The circumstance, to which Con Edison next points, that the claim in Food Pageant and the amount of the jury's verdict ($40,500) may be said to be "small in absolute terms and particularly so when compared to the aggregate of over $200 million in claims against Con Edison arising out of the 1977 blackout", provides no basis to deny application of third-party issue preclusion. In Food Pageant, Con Edison had a full and fair opportunity to litigate the issue of gross negligence, the forum and applicable procedures were the same, the burden of persuasion was the same, and Con Edison, explicitly then recognizing the potential preclusive effects of an adverse determination in that case, had every incentive to defend that action fully and vigorously.

Nor does the adoption of a rule of comparative negligence in New York (CPLR art. 14-A) foreclose application of third-party issue preclusion in the circumstances of this case. No contention whatsoever is put forth by Con Edison that any action or omission to act on the part of any of plaintiffs contributed to cause the blackout. There simply is no issue of comparative negligence involved in the question of Con Edison's responsibility for the blackout. It may be, however, that principles of mitigation will require consideration of certain action or inaction on the part of plaintiffs in the determination of damages.

Finally with respect to the preclusion issue, we reject as wholly without merit Con Edison's assertion that to apply third-party issue preclusion would be to deprive it of the due process to which it is constitutionally entitled. The characterization of this appeal as "presenting a question of fundamental fairness" neither concludes nor advances the argument. Con Edison cites no authority, and we know of none, which now regards the application of third-party issue preclusion as posing a question of constitutional dimension where in the prior action a full and fair opportunity to litigate has been afforded.

For the reasons stated we conclude that the prior determination in Food Pageant with respect to Con Edison's liability for gross negligence in connection with the 1977 blackout is binding and conclusive on Con Edison in this action.

We reject, too, Con Edison's argument that because the city and the other plaintiffs associated with it were customers of PASNY and not direct customers of Con Edison, they are not entitled to recover against Con Edison. In 1974 a new section, "s 1001-a. Emergency Provisions For The Metropolitan Area of the City of New York", was added to the Public Authorities Law (L. 1974, ch. 369, § 2). Pursuant to the authorization of that section, in December, 1974 and December, 1975 PASNY acquired from Con Edison two partially completed generating units (the Astoria 6 and the Indian Point 3 Units). The underlying [479 N.Y.S.2d 169] legislation and both acquisitions anticipated that Con Edison would continue to provide transmission and delivery of the electricity produced in the two plants. In conformity with that expectation, a service agreement was entered into by PASNY and Con Edison for delivery of power and energy from the Astoria 6 Unit and the Indian Point 3 Unit, in which was recited Con Edison's willingness, by use of its existing facilities, to assist PASNY in serving the needs of the Astoria-Indian Point customers, and Con Edison became obligated to provide the same quality of service to PASNY's customers as it did to its own customers and under Con Edison's regular tariff schedules. In a simultaneously executed "Contract for the Sale of Power and Energy", Con Edison agreed to provide sufficient energy to meet the requirements of PASNY's affected customers.

Against this background we have no difficulty in concluding that all the plaintiffs were third-party beneficiaries of the agreements between PASNY and Con Edison. They were precisely the consumers for whose benefit the legislation was enacted and the agreements made between PASNY and Con Edison.

To be distinguished are our holdings in Moch Co. v. Rensselaer Water Co., 247 N.Y. 160, 159 N.E. 896 and Kornblut v. Chevron Oil Co., 62 A.D.2d 831, 407 N.Y.S.2d 498, affd. on opn. below 48 N.Y.2d 853, 424 N.Y.S.2d 429, 400 N.E.2d 368 In neither of those cases did the operative contract provide that the service was to be rendered other than for the contracting party, city or authority. Moreover, in Moch we noted the distinction between the agreement of the water company, there in issue, to furnish water at the hydrants and the agreement of the water company to provide direct service to members of the public at their homes and factories (247 NY, at pp. 164, 166, 159 N.E. 896). In the present instance, the purpose of the enabling legislation was expressly stated to be "To preserve reliability of electric service in the metropolitan area of the city of New York" (Public Authorities Law, § 1001-a, subd. 1), and the service agreement contained the express obligation to "operate and maintain all the facilities necessary to deliver power to Astoria-Indian Point Customers in accordance with good utility operating practice". Indeed, the essence of the responsibility of a public utility is to provide services to the consuming public.

We turn then to issues posed by Con Edison's motion for partial summary judgment with respect to the extent of the damages to which plaintiffs may be entitled, on appropriate supporting proof, observing that plaintiffs' action sounds both in contract and in tort. Initially we note that procedurally Con Edison may raise challenges in this regard by a motion for partial summary judgment seeking dismissal of claims for specified and distinct categories of damages (CPLR 3212, subd. see Siegel, Practice Commentaries, McKinney's Cons.Laws of N.Y., Book 7B, CPLR C3212:30, p. 448).

It is not disputed that plaintiffs would be entitled, on supporting proof, to recover damages for physical injury to persons and property directly resulting from the service interruption. Con Edison disputes their right, however, to recover damages resulting from looting and vandalism by rioters related to the blackout. We reject this contention inasmuch as plaintiffs have shown facts sufficient to require a trial of the factual question of whether intervention of the rioters was within the contemplation of the parties or reasonably to have been foreseen by Con Edison. If so, a jury could, under appropriate instructions, properly include this element of damage in any award to plaintiffs (cf. Nallan v. Helmsley-Spear, Inc., 50 N.Y.2d 507, 429 N.Y.S.2d 606, 407 N.E.2d 451).

[479 N.Y.S.2d 170] We rule in favor of Con Edison, however, as to two other categories of damage. Con Edison argues persuasively that plaintiffs should not be permitted to recover costs incurred for wages, salaries, overtime and other benefits of police, fire, sanitation and hospital personnel from whom services (in addition to those which would normally have been rendered) were required in consequence of the blackout. The general rule is that public expenditures made in the performance of governmental functions are not recoverable (see, generally, Matter of TMI Litigation Governmental Entities Claims, 544 F.Supp. 853, 855, mod sub nom. Pennsylvania v. General Public Utilities Corp., 710 F.2d 117 [caused by nuclear incident]; City of Bridgeton v. B.P. Oil, 146 N.J.Super. 169, 178-179, 369 A.2d 49 [caused by oil spill]; Town of Freetown v. New Bedford Wholesale Tire, 384 Mass. 60, 423 N.E.2d 997 [caused by dumping of large quantity of tires]).^[8] The general rule is grounded in considerations of public policy, and we perceive nothing in the different and somewhat closer relationship between Con Edison and plaintiffs in this case which would warrant departure from that rule. We additionally note that certain exceptions to the general rule have been created by statutory enactment to give a municipality a claim for expenditures for fire fighting and other police power services. (See, e.g., General Municipal Law, § 207-c id., § 209 id., § 209-g State Finance Law, § 54-e). No statute is called to our attention which would accord a comparable benefit to plaintiffs in the circumstances of this case.

Finally, and we think effectively, Con Edison disputes the right of plaintiffs to recover revenues allegedly lost in consequence of the blackout--taxes not recovered on sales, transfers, and business transactions not undertaken, transit fares and tolls not paid, and receipts from wagers not placed with the Off-Track Betting Corporation. In the same category is to be included loss of productivity of employees due to absenteeism. The tender of proof of damages in this category is speculative only, determinable solely by reference to collateral transactions (or their absence), and insufficient to defeat Con Edison's motion. (Cf. Burns Jackson Miller Summit & Spitzer v. Lindner, 59 N.Y.2d 314, 334-335, 464 N.Y.S.2d 712, 451 N.E.2d 459). Additionally, there are strong considerations of public policy which militate against recognition of losses sustained by municipal and public benefit corporations in consequence of adverse effects on the general economy. That there will inevitably be interruptions in utility services from time to time must be taken for granted. Loss of revenues by municipal and public benefit corporations in consequence of the interruption of utility services, however, is the economic counterpart of the incurment of added costs attributable to such interruption (see supra, pp. 560-561, 479 N.Y.S.2d, pp. 169-170, 468 N.E.2d, pp. 7-8). In neither case will recovery be allowed.^[9]

[479 N.Y.S.2d 171] For the reasons stated, the order of the Appellate Division should be modified, without costs, to grant Con Edison's motion for partial summary judgment dismissing plaintiffs' claims for damages on account of expenditures made for additional governmental services furnished in consequence of the blackout and for loss of revenue and similar economic damage asserted to be attributable to the blackout, and as so modified, affirmed.^[10]

COOKE, C.J., and JASEN, WACHTLER, MEYER, SIMONS and KAYE, JJ., concur.

Order modified, without costs, in accordance with the opinion herein and, as so modified, affirmed. Cross appeal by plaintiffs dismissed, without costs. Question certified answered in the negative.

[1] When this case reached our court we upheld the jury verdict which found Con Edison to have been grossly negligent in causing the 1977 blackout and which awarded plaintiff grocery store chain damages in the sum of $40,500 for food spoilage and loss of business. (Food Pageant v. Consolidated Edison Co., 54 N.Y.2d 167, 445 N.Y.S.2d 60, 429 N.E.2d 738).

[2] Issue preclusion between the same parties is to be distinguished from third-party issue preclusion. In the former case as stated in section 27 of the Restatement of Judgments, Second--"When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim", subject to a very narrow range of exceptions (id., § 28). By some contrast the principle of third-party issue preclusion is that, again in the phraseology of the Restatement (§ 29)--"A party precluded from relitigating an issue with an opposing party, in accordance with §§ 27 and 28, is also precluded from doing so with another person". The range of circumstances which may lead to avoidance of preclusion, however, is now much broader--"unless the fact that he lacked full and fair opportunity to litigate the issue in the first action or other circumstances justify affording him an opportunity to relitigate the issue." With respect to the distinction between issue preclusion between the same parties and third-party issue preclusion, see Matter of American Ins. Co. (Messinger-Aetna Cas. & Sur. Co.), 43 N.Y.2d 184, 190, 401 N.Y.S.2d 36, 371 N.E.2d 798.

[3] (Schwartz v. Public Administrator, 24 N.Y.2d 65, 73, 298 N.Y.S.2d 955, 246 N.E.2d 725.)

[4] The relevant factors to be considered are set out in section 29 of the Restatement of Judgments, Second, and in Schwartz. Section 29 provides in full as follows:

"§ 29. Issue Preclusion in Subsequent Litigation with Others

"A party precluded from relitigating an issue with an opposing party, in accordance with §§ 27 and 28, is also precluded from doing so with another person unless the fact that he lacked full and fair opportunity to litigate the issue in the first action or other circumstances justify affording him an opportunity to relitigate the issue. The circumstances to which considerations should be given include those enumerated in § 28 and also whether:

"(1) Treating the issue as conclusively determined would be incompatible with an applicable scheme of administering the remedies in the actions involved;

"(2) The forum in the second action affords the party against whom preclusion is asserted procedural opportunities in the presentation and determination of the issue that were not available in the first action and could likely result in the issue being differently determined;

"(3) The person seeking to invoke favorable preclusion, or to avoid unfavorable preclusion, could have effected joinder in the first action between himself and his present adversary;

"(4) The determination relied on as preclusive was itself inconsistent with another determination of the same issue;

"(5) The prior determination may have been affected by relationships among the parties to the first action that are not present in the subsequent action, or apparently was based on a compromise verdict or finding;

"(6) Treating the issue as conclusively determined may complicate determination of issues in the subsequent action or prejudice the interests of another party thereto;

"(7) The issue is one of law and treating it as conclusively determined would inappropriately foreclose opportunity for obtaining reconsideration of the legal rule upon which it was based;

"(8) Other compelling circumstances make it appropriate that the party be permitted to relitigate the issue."

The articulation in Schwartz appears at page 72, 298 N.Y.S.2d 955, 246 N.E.2d 725, as follows: "A decision whether or not the plaintiff drivers had a full and fair opportunity to establish their nonnegligence in the prior action requires an exploration of the various elements which make up the realities of litigation. A comprehensive list of the various factors which should enter into a determination whether a party has had his day in court would include such considerations as the size of the claim, the forum of the prior litigation, the use of initiative, the extent of the litigation, the competence and experience of counsel, the availability of new evidence, indications of a compromise verdict, differences in the applicable law and foreseeability of future litigation."

[5] (Penichet v. Consolidated Edison Co., NYLJ, May 1, 1980, p. 7, col. 2; Lehman v. Consolidated Edison Co., NYLJ, March 25, 1980, p. 10, col. 6; Finkelstein v. Consolidated Edison Co., NYLJ, May 1, 1979, p. 13, col. 3; LoVico v. Consolidated Edison Co., 99 Misc.2d 897, 420 N.Y.S.2d 825; Lee v. Consolidated Edison Co., 95 Misc.2d 120, 407 N.Y.S.2d 777.)

[6] CCA 1804 provides: "The court shall conduct hearings upon small claims in such manner as to do substantial justice between the parties according to the rules of substantive law and shall not be bound by statutory provisions or rules of practice, procedure, pleading or evidence, except statutory provisions relating to privileged communications and personal transactions or communications with a decedent or mentally ill person. Disclosure shall be unavailable in small claims procedure except upon order of the court on showing of proper circumstances. The provisions of this act and the rules of this court, together with the statutes and rules governing supreme court practice, shall apply to claims brought under this article so far as the same can be made applicable and are not in conflict with the provisions of this article; in case of conflict, the provisions of this article shall control."

[7] CCA 1808 provides: "A judgment obtained under this article may be pleaded as res judicata only as to the amount involved in the particular action and shall not otherwise be deemed an adjudication of any fact at issue or found therein in any other action or court."

[8] For discussion of recovery of damages by nongovernmental plaintiffs, see Dunlop Tire & Rubber Corp. v. FMC Corp., 53 A.D.2d 150, 385 N.Y.S.2d 971.

[9] In private litigation, recovery of damages for loss of profits generally depends on the certainty and specificity of the proof (see Dunlop Tire & Rubber Corp. v. FMC Corp., 53 A.D.2d 150, 154-156, 385 N.Y.S.2d 971). Thus, in Food Pageant, 54 N.Y.2d 167, 445 N.Y.S.2d 60, 429 N.E.2d 738 a private litigant was awarded such damages. In that case, it is to be observed, Con Edison registered no protest to the charge that damages could be awarded for loss of profits, and in our court did not challenge the sufficiency of the evidence to support such an award.

[10] The cross appeal taken by plaintiffs should be dismissed on the ground that it does not lie inasmuch as they took no appeal to the Appellate Division.