2000 Watermark Ass'n, Inc. v. Celotex Corp.
| Decision Date | 25 March 1986 |
| Docket Number | No. 85-1387,85-1387 |
| Citation | 784 F.2d 1183 |
| Parties | 42 UCC Rep.Serv. 1608, Prod.Liab.Rep.(CCH)P 10,920 2000 WATERMARK ASSOCIATION, INC., Appellee, v. The CELOTEX CORPORATION, Appellant. |
| Court | U.S. Court of Appeals — Fourth Circuit |
John Gregg McMaster (Tompkins, McMaster & Thomas, Columbia, S.C., on brief), for appellant.
D. Cravens Ravenel (Belser, Baker, Barwick, Ravenel, Toal & Bender, Columbia, S.C., on brief), for appellee.
Before CHAPMAN and SNEEDEN, Circuit Judges and HILTON, United States District Judge for the Eastern District of Virginia, sitting by designation.
The central question in this products liability case is whether, under South Carolina law, a plaintiff can recover in negligence for an intangible economic loss. The district court held that such recovery was permissible. We disagree, and we reverse and remand.
Asphalt shingles manufactured by the defendant, Celotex Corporation (Celotex), were installed on a condominium project, 2000 Watermark Place, in 1974, 1975, and 1978. In 1982 the Homeowner's Association, 2000 Watermark Association, Inc. (Watermark), learned that blisters had appeared on many of these shingles. Believing that these blisters were the result of a manufacturing defect, Watermark brought this action in the United States District Court for the District of South Carolina, advancing three theories of recovery: negligence, breach of express warranty, and breach of the implied warranty of merchantability.
Watermark has never alleged that these shingles actually leaked. The damage alleged is economic and aesthetic. Watermark charges that the blisters have shortened the life expectancy of the roof and destroyed its aesthetic appeal. Celotex acknowledges that a roof has two functions--to shed rain and to look good. Moreover, Celotex admits that these blisters shortened the life expectancy of the roof.
This case was tried before a jury. On special interrogatories, the jury found for Celotex on breach of express warranty and for Watermark on the implied warranty and negligence theories. The jury returned a verdict of $40,679 in actual damages and $250,000 in punitive damages.
The question is whether, under South Carolina law, a plaintiff can recover in negligence for injuries which are purely economic. If such a recovery is not permissible, then this court must decide if the case should be remanded for a new trial solely on the warranty theories.
The courts of South Carolina have never decided, in the context of a products liability suit, whether an action for negligence can be maintained for purely economic injuries. In the case of Purvis v. Consolidated Energy Products Co., 674 F.2d 217 (4th Cir.1982), this court decided that South Carolina would not permit recovery for purely economic loss in a Restatement (Second) of Torts Sec. 402A strict products liability action. Watermark argues that Purvis is not relevant to the case at bar because it considered only recovery in strict liability and not in negligence. Celotex counters that if economic loss alone is not actionable under one tort doctrine, then it is not actionable under another.
The majority of courts which have considered this question have followed the decision of the California Supreme Court in Seely v. White Motor Company, 63 Cal.2d 9, 403 P.2d 145, 45 Cal.Rptr. 17 (1965), and held that purely economic losses are not ordinarily recoverable under tort law. See, e.g. Jones & Laughlin Steel Corp. v. Johns-Manville Sales Corp., 626 F.2d 280 (3rd Cir.1980); Iowa Elec. Light & Power Co. v. Allis-Chalmers Mfg. Co., 360 F.Supp. 25 (S.D.Iowa 1973); Morrow v. New Moon Homes, Inc., 548 P.2d. 279 (Alaska 1976); Arrow Leasing Corp. v. Cummins Ariz. Diesel, Inc., 136 Ariz. 444, 666 P.2d 544 (1983); Hiigel v. General Motors Corp., 190 Colo. 57, 544 P.2d 983 (1975); Chrysler Corp. v. Taylor, 141 Ga.App. 671, 234 S.E.2d 123 (1977); Moorman Mfg. Co. v. Nat'l Tank Co., 91 Ill.2d 69, 61 Ill.Dec. 746, 435 N.E.2d 443 (1982); Price v. Gatlin, 241 Or. 315, 405 P.2d 502 (1965); Nobility Homes of Texas, Inc. v. Shivers, 557 S.W.2d 77 (Tex.1977). This is certainly the traditional view of the law; indeed, historically the only tort action available to the disappointed purchaser suffering an intangible commercial loss was an action for fraud. Prosser and Keeton on Torts Sec. 101, at 708 (5th ed. 1984). With the increase in products liability litigation, courts have frequently been faced with the question of whether intangible economic loss should be recoverable under negligence or strict liability. Central to the analysis of the Seely court and its successors has been the question of risk allocation.
Contract law permits the parties to negotiate the allocation of risk. Even where the law acts to assign risk through implied warranties, it can easily be shifted by the use of disclaimers. No such freedom is available under tort law, which assigns risk as a matter of law. Once assigned, the risk cannot be easily disclaimed. This lack of freedom seems harsh in the context of a commercial transaction, and thus the majority of courts have required that there be injury to person or property before imposing tort liability.
The distinction that the law makes between recovery in tort for physical injuries and recovery in warranty for economic loss is hardly arbitrary. It rests upon an understanding of the nature of the responsibility a manufacturer must undertake when he distributes his products. He can reasonably be held liable for physical injuries caused by defects by requiring his products to match a standard of safety defined in terms of conditions that create unreasonable risks of harm or arise from a lack of due care. This is reasonable because the cost of injury may be an overwhelming misfortune to the person injured. It is a needless misfortune since the risk of that injury can be insured by the manufacturer and distributed among the public as a cost of doing business.
This rationale, however, does not justify requiring the consuming public to pay more for their products so that the manufacturer can insure against the possibility that some of his products will not meet the business needs of his customers. Seely, supra, at 403 P.2d 151, 45 Cal.Rptr. 23. Courts which have been presented with this question have also considered the impact of their decision on the Uniform Commercial Code. The UCC is generally regarded as the exclusive source for ascertaining when the seller is subject to liability for damages if the claim is based on an intangible economic loss and not attributable to physical injury to person or to a tangible thing other than the defective product itself. Prosser and Keeton, supra, Sec. 95A, at 680. If intangible economic loss were actionable under a tort theory, the UCC provisions permitting assignment of risk by means of warranties and disclaimers would be rendered meaningless. It would be virtually impossible for a seller to sell a product "as is" because if the product did not meet the economic expectations of the buyer, the buyer would have an action under tort law. The UCC represents a comprehensive statutory scheme which satisfies the needs of the world of commerce, and courts have been reluctant to extend judicial doctrines that might dislocate the legislative structure. Henry Heide, Inc. v. W R H Products Co., 766 F.2d 105, 109 (3d Cir.1985).
This does not mean that courts have been unanimous in holding that intangible economic losses are not actionable under tort law. Watermark urges this court to follow the decision of the New Jersey Supreme Court in the case of Santor v. A & M Karagheusian, Inc., 44 N.J. 52, 207 A.2d 305 (1965). In that case the court held that the responsibility of a manufacturer should be no different if the injury is an economic loss than it would be if the injury is personal. The court recognized that it was extending tort law into an area which was...
To continue reading
Request your trial
-
City of Wichita, Kan. v. US Gypsum Co.
...themselves, while the risk for other types of losses should rest with the defendant as a matter of law. See 2000 Watermark Ass'n v. Celotex Corp., 784 F.2d 1183, 1186 (4th Cir.1986); East River, 476 U.S. at 871-73, 106 S.Ct. at 2302-03. "Though the rule has been expressed in different ways,......
-
Continental Ins. v. Page Engineering Co.
...525 N.E.2d 950 (1988), which is also a school asbestos material case. Comparable to City of Greenville is 2000 Watermark Ass'n, Inc. v. Celotex Corp., 784 F.2d 1183 (4th Cir.1986), where asphalt shingles were poorly but not dangerously manufactured and installed. The shingles might not shed......
-
Kelly v. Georgia-Pacific LLC
...for purely economic loss in tort when a contract, a warranty, or the UCC operates to allocate risk. See, e.g., 2000 Watermark Ass'n v. Celotex Corp., 784 F.2d 1183, 1186 (1986) (applying South Carolina law); Ellis-Don Constr., Inc. v. HKS, Inc., 353 F.Supp.2d 603, 606-07 (M.D.N.C.2004) (app......
-
Sparks v. Oxy-Health, LLC
...form one "product" or several "products" for purposes of a product liability action. See, e.g., 2000 Watermark Ass'n, Inc. v. Celotex Corp., 784 F.2d 1183, 1185–86 (4th Cir.1986); Wilson v. Dryvit Sys., Inc., 206 F.Supp.2d 749, 753 (E.D.N.C.2002). These cases generally hold that where a com......
-
Negligent Misrepresentation and the Economic Loss Rule
...which threatens to subvert the very concept of predetermined risk allocation"). See also 2000 Watermark Ass'n, Inc. v. Celotex Corp., 784 F.2d 1183, 1185 (4th Cir. 1986)("[H]istorically, the only tort action available to the disappointed purchaser suffering an intangible commercial loss was......