State Farm Mut. Auto. Ins. Co. v. W.R. Grace & Company-Conn.

Decision Date16 June 1994
Docket NumberCOMPANY-CONN,No. 93-3685,93-3685
Citation24 F.3d 955
PartiesProd.Liab.Rep. (CCH) P 13,994 STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Plaintiff-Appellee, v. W.R. GRACE &, Defendant-Appellant.
CourtU.S. Court of Appeals — Seventh Circuit

Edward J. Westbrook (argued), L. David Condon, and J. Anderson Berly, III, Ness, Motley, Loadholt, Richardson & Poole, Charleston, SC, for plaintiff-appellee.

Hugh V. Plunkett, III (argued), John C. Childs, Allen W. Hinderaker, and Donald R. McNeil, Jr., Popham, Haik, Schnobrich & Kaufman, Minneapolis, MN, for defendant-appellant.

Before POSNER, Chief Judge, BAUER, Circuit Judge, and ASPEN, District Judge. *

POSNER, Chief Judge.

In 1963 W.R. Grace & Company became the manufacturer of "Mono-Kote" fireproofing material, a dry mixture of vermiculite, gypsum, and asbestos packed and sold in 50-pound bags to construction companies. At the construction site a contractor or subcontractor would mix the Mono-Kote with water and spray the mixture on structural steel to fireproof it. In the early 1970s, State Farm insurance company built a corporate headquarters and two other buildings. The architect's plans specified "cementitious" fireproofing, of which Mono-Kote was a prominent brand. The contractors bought and used Mono-Kote for the fireproofing of the buildings. Ten years later State Farm discovered large quantities of airborne asbestos fibers in the three buildings and undertook a costly program to remove the Mono-Kote. Later State Farm brought this diversity tort action against Grace, charging that Grace had failed to warn State Farm that Mono-Kote contained asbestos and had not tested the product adequately before sale. The very use of asbestos in Mono-Kote, State Farm charged, was gratuitous because Grace had developed an asbestos-free variant (Mono-Kote 4) that worked just as well and cost only a little more. Grace had failed to sell State Farm Mono-Kote 4 only because it was trying to unload its inventory of the old Mono-Kote (Mono-Kote 3) and because the price of Mono-Kote 4 was limited by price controls. (Eventually Grace did begin supplying Mono-Kote 4 for the State Farm building projects.) The suit charged negligence and breach of warranty. The district judge held the warranty claim time-barred but allowed the negligence claim to go to the jury, the Supreme Court of Illinois having relaxed the "economic loss" rule in asbestos cases. Board of Education v. A, C & S, Inc., 131 Ill.2d 428, 137 Ill.Dec. 635, 546 N.E.2d 580, 585-90 (1989). The jury found that Grace had been negligent, and, after a reduction in the verdict by reason of State Farm's contributory negligence, judgment was entered for $12.5 million.

The only issue raised on appeal is whether State Farm's suit is barred by the Illinois Design and Construction Statute of Repose, which bars any tort suit "brought against any person for any act or omission of such person in the design, planning, supervision, observation or management of construction, or construction of an improvement to real property[,] after 10 years have elapsed from the time of such act or omission." 735 ILCS 5/13-214(b). If that is the character of Grace's act or omission, the suit is indeed barred. The judge thought not, 834 F.Supp 1052, 1056-61 (C.D.Ill.1993), but propounded the following special interrogatory, which the jury answered "Yes": "Did W.R. Grace provide design, planning, supervision, observation or management of construction services related to installation of fireproofing to State Farm Mutual Automobile Insurance Company in addition to supplying bags of Monokote 3 and Monokote 4 fireproofing?"

The special interrogatory is a red herring. (Why it was asked eludes us.) It embellishes the statute with the expansive term "services" and brings in Grace's activities with regard to Mono-Kote 4, which is not the product on which the suit is based. The few visits that employees of Grace made to the building sites occurred, with one possible exception, after the Mono-Kote 3, the product in suit, had been sprayed on. Grace did not supervise the spraying.

The original version of the statute was invalidated as "special legislation," mainly because it excluded from its protection owners or occupiers of the property on which the building was being built or the improvement being made. Skinner v. Anderson, 38 Ill.2d 455, 231 N.E.2d 588 (1967). So the legislature amended the statute to knock out the exclusion. The revised statute was upheld in People ex rel. Skinner v. Hellmuth, Obata & Kassabaum, Inc., 114 Ill.2d 252, 102 Ill.Dec. 412, 500 N.E.2d 34 (1986), where the court remarked that the revised statute "does not exclude persons based upon their status" but instead protects "anyone who engages in the enumerated activities." Id., 102 Ill.Dec. at 415, 500 N.E.2d at 37 (emphasis in original). Grace fastens on this language, arguing that the fact that it is a manufacturer rather than a designer, builder, etc. does not exclude it from the statute's protection. That is true but the activities in which it engaged in relation to the Mono-Kote 3 used in the construction of State Farm's three buildings are not reasonably interpreted as design, supervision, observation, planning, etc. Grace did not spray the structural steel in the buildings with a mixture of Mono-Kote and water. It merely sold bags of Mono-Kote for application by a contractor or subcontractor at the building site.

The bags came with instructions. Most products do. If including instructions with the delivered product makes a supplier a designer or builder, then virtually every supplier of building materials is protected by the statute of repose despite the legislature's evident intent to circumscribe its protection far more narrowly--in fact as narrowly as the Supreme Court of Illinois would permit. Grace points us to a letter from a subcontractor to the contractor for one of the buildings requesting approval for the use of Mono-Kote as the...

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