American Universal Ins. Group v. General Motors Corp.

• Decision Date: 22 April 1991
• Docket Number: No. 89-2475,89-2475
• Citation: 578 So.2d 451,16 Fla. L. Weekly 1089
• Parties: AMERICAN UNIVERSAL INSURANCE GROUP, Appellant, v. GENERAL MOTORS CORPORATION, Appellee. 578 So.2d 451, 16 Fla. L. Week. 1089, Prod.Liab.Rep.(CCH)P. 12,836
• Court: Florida District Court of Appeals

Page 451

578 So.2d 451

AMERICAN UNIVERSAL INSURANCE GROUP, Appellant, v. GENERAL MOTORS CORPORATION, Appellee.

No. 89-2475.

578 So.2d 451, 16 Fla. L. Week. 1089,

Prod.Liab.Rep.(CCH)P. 12,836

District Court of Appeal of Florida,

First District.

April 22, 1991.

Robert M. Dees of Gabel, Taylor & Dees, Jacksonville, for appellant.

Ronald L. Palmer of Sistrunk, Kaler & Palmer, P.A., Jacksonville, for appellee.

SMITH, Judge.

American Universal Insurance Group (American) appeals a final order dismissing its second amended intervening complaint against General Motors Corporation (General Motors). American sought tort damages under theories of negligence and strict liability for injury to an engine which burned up as the result of an allegedly defective oil pump manufactured and sold by General Motors. We affirm.

In 1985, Diesel Parts, Sales & Service, Inc. (Diesel Parts) sold to Robert Cook and installed in the commercial fishing vessel, "Captain Sleepy," a replacement oil pump which was manufactured, assembled, sold and distributed by General Motors. On January 20, 1987, while Captain Sleepy was being operated off the coast of New Symrna Beach, Florida, the oil pump drive gear allegedly malfunctioned, burning up the engine. Pursuant to its insurance policy, American paid Cook and his wife $7,392.91 for damages to the engine. As the result of American's payment to Robert Cook, American became subrogated to Cook's rights against General Motors to the extent of its payment.

The action below arose when Diesel Parts sued Cook, seeking to recover for the parts and labor for repairing the damaged engine. Cook answered and alleged, among other things, a set-off based upon Diesel Parts' breach of implied warranty of merchantability arising out of the sale of the defective oil pump. Cook brought a third-party complaint against Diesel Parts and General Motors based upon the same grounds. The third-party claim against General Motors was dismissed for failure to state a cause of action and was not refiled.

In the meantime, American moved for and was granted the right to intervene as a subrogee of Cook's rights to the extent of the insurance company's payment to him. American filed an intervening complaint against Diesel Parts and General Motors. Count I sued both defendants for negligence, Count II sued Diesel Parts for breach of implied warranty, and Count III sued General Motors for strict liability. General Motors' motion to dismiss Counts I and III was granted with prejudice. Diesel Parts also moved to dismiss Count I and this motion was granted. Count II, the breach of warranty action against Diesel Parts, remains pending.

While the trial court's order dismissing the complaint against General Motors does not set forth the basis for the dismissal, it is plain that the complaint was dismissed upon the trial court's belief that Florida law does not allow recovery in tort for the damages claimed by American. ¹

The controversy regarding whether and under what circumstances a manufacturer, wholesaler, seller, or retailer may be held liable under tort theories, either negligence or strict liability, for defects in a product, where the only damage alleged is to the product itself and not to persons or other property, is long-standing. See Annot., Strict Products Liability: Recovery for Damage to Products Alone, 72 A.L.R.4 12 (1989). One line of cases precludes recovery of such damages in a tort action, reasoning that the law of contracts (warranty action) is more suitable when the loss involves only monetary harm. See Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965). On the other hand, a minority of courts permit recovery in a tort action. See Santor v. A & M Karagheusian, Inc., 44 N.J. 52, 207 A.2d 305 (1965); but see Spring Motors Distributors, Inc. v. Ford Motor Co., 98 N.J. 555, 489 A.2d 660 (1985) (rejecting Santor in the commercial context). Some courts allow recovery only if the defective product created an unreasonable risk of harm to persons or property other than the defective product, or the damage took place in a sudden or calamitous fashion. See Northern Power & Engineering Corp. v. Caterpillar Tractor Co., 623 P.2d 324 (Alaska 1981), and Cloud v. Kit Manufacturing Co., 563 P.2d 248 (Alaska 1977).

In 1986, in a unanimous decision, the United States Supreme Court ruled that in an admiralty action, one may not recover for injury to the product itself under strict liability or negligence, and the court rejected distinctions based on the manner of injury to the product and degree of risk. See East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986). The court identified, examined, and evaluated the fundamental principles of tort and contract remedies and based its decision on the following considerations: (1) when the defective product injures only itself, the reasons for imposing a tort duty are weak and those limiting remedies to contract law are strong; (2) damage to the product itself is most naturally understood as a warranty claim; (3) contract law is well-suited for commercial controversies because the parties may set the terms of their own agreements; (4) warranty law sufficiently protects purchasers by allowing them to obtain the benefit of their bargain; and (5) warranty law has a built-in limitation on liability, whereas tort actions could subject manufacturers to an indefinite amount of damages. Aloe Coal Co. v. Clark Equipment Co., 816 F.2d 110, 117-8 (3rd Cir.1987), citing East River, 106 S.Ct. at 2303.

While East River is only binding in federal admiralty cases, it has been widely accepted in state jurisdictions, including Florida. See Florida Power & Light Co. v. Westinghouse Electric Corp., 510 So.2d 899 (Fla.1987). In Florida Power & Light, the court ruled that Florida law does not permit a buyer under a contract for goods to recover economic losses in tort without a claim for personal injury or property damage to property other than the allegedly defective goods. Said the court:

We hold contract principles more appropriate than tort principles for resolving economic loss without an accompanying physical injury or property damage. The lack of a tort remedy does not mean that the purchaser is unable to protect himself from loss. We note the Uniform Commercial Code contains statutory remedies for dealing with economic losses under warranty law, which, to a large extent, would have limited application if we adopted the minority view. Further, the purchaser, particularly in a large commercial transaction like the instant case, can protect his interests by negotiation and contractual bargaining or insurance. The purchaser has the choice to forego warranty protection in order to obtain a lower price. We conclude that we should refrain from injecting the judiciary into this type of economic decision-making.

Id. at 902.

American concedes that the rule in Florida is that economic losses are not recoverable in tort in the absence of personal injury or damage to property other than the product itself. However, American points out that this rule does permit recovery for damages when there is injury to "other property" other than the product itself. It is American's contention that under the circumstances of this case, the oil pump was the product and the engine was "other property" so that American can seek recovery for the damage to the engine. American makes this argument based upon its contention that the object of the parties' bargain in this case was a replacement oil pump, so that when the replacement oil pump damaged the engine, this was damage to "other property." American concedes that if it had been the original oil pump which failed, the rule precluding recovery for economic loss in tort would apply. We disagree that a distinction can be made based upon the fact that it was the replacement oil pump which malfunctioned rather than the oil pump originally placed in the engine...