Bay Breeze Condominium Ass'n v. Norco Windows

• Decision Date: 31 July 2002
• Docket Number: No. 01-2689.,01-2689.
• Citation: 651 N.W.2d 738,2002 WI App 205,257 Wis.2d 511
• Parties: The BAY BREEZE CONDOMINIUM ASSOCIATION, INC., Plaintiff-Appellant, v. NORCO WINDOWS, INC. and JC Development Corporation, Defendants-Third-Party Plaintiffs, MORGAN-WIGHTMAN SUPPLY CO., Barker Lumber Company, American Family Mutual, Wausau Underwriters Insurance Company, The Twin City Fire Insurance, John Ingersoll and Colette Giefer, Defendants, JELD-WEN, INC., Defendant-Respondent, v. TERRA II CONSTRUCTION, INC., Kazmierski Builders & Remodelers, David P. Kaminski, Douglas A. Gallus, Dennis Schiller and Timothy Schiller, d/b/a Outsiders a/k/a Great Plains, and Steve Elkin and Gary Elkin d/b/a H.I.P., Third-Party Defendants.
• Court: Wisconsin Court of Appeals

257 Wis.2d 511

2002 WI App 205

651 N.W.2d 738

The BAY BREEZE CONDOMINIUM ASSOCIATION, INC., Plaintiff-Appellant, v. NORCO WINDOWS, INC. and JC Development Corporation, Defendants-Third-Party Plaintiffs, MORGAN-WIGHTMAN SUPPLY CO., Barker Lumber Company, American Family Mutual, Wausau Underwriters Insurance Company, The Twin City Fire Insurance, John Ingersoll and Colette Giefer, Defendants, JELD-WEN, INC., Defendant-Respondent, v. TERRA II CONSTRUCTION, INC., Kazmierski Builders & Remodelers, David P. Kaminski, Douglas A. Gallus, Dennis Schiller and Timothy Schiller, d/b/a Outsiders a/k/a Great Plains, and Steve Elkin and Gary Elkin d/b/a H.I.P., Third-Party Defendants.

No. 01-2689.

Court of Appeals of Wisconsin.

Submitted on briefs June 7, 2002.

Decided July 31, 2002.

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of Steven J. Slawinski of O'Neil, Cannon & Hollman, S.C. of Milwaukee.

On behalf of the defendant-respondent Jeld-Wen, Inc., the cause was submitted on the brief of Kevin P. Whaley of Foley & Lardner of Milwaukee.

Before Nettesheim, P.J., Brown and Snyder, JJ.

¶ 1. NETTESHEIM, P.J.

The Bay Breeze Condominium Association, Inc. (the Association) appeals from a summary judgment granted in favor of Jeld-Wen, Inc. The Association filed this action against Jeld-Wen alleging that windows installed in certain condominium units were negligently designed and manufactured by Jeld-Wen, resulting in water damage inside and outside the units and between the interior and exterior walls. The Association maintained that the damage to the area surrounding the windows fell under the "other property" exception to the economic loss doctrine and, therefore, brought its action in tort, raising claims of strict products liability and negligence. The circuit court dismissed the Association's tort claims based on its determination that the claims are barred by the economic loss doctrine. The court found that the windows are part of an integrated structure such that the "other property" exception does not apply.

¶ 2. We affirm the circuit court's grant of summary judgment in favor of Jeld-Wen. We conclude that the damage caused to portions of the condominium units adjoining the defective windows does not fall within the "other property" exception to the economic loss doctrine.

FACTS

¶ 3. Bay Breeze is a luxury condominium complex located in Muskego, Wisconsin. It is comprised of sixteen buildings that are divided into seventy-four units. The buildings were constructed by JC Development Corporation in phases between 1989 and 1998. All of the windows installed at Bay Breeze were Norco brand windows. Those windows installed prior to July 1996 were designed and manufactured by Norco Windows, Inc. In July 1996, Jeld-Wen purchased the assets of Norco Windows, Inc., including the Norco brand name, and continued manufacturing and selling windows using the Norco brand name. ¶ 4. According to Jeld-Wen, its windows were used in only four units of the Bay Breeze condominium development. With these windows, Jeld-Wen provided to the original purchasers a two-year warranty for the "wood components, hardware, weather stripping, insect screens, and glazing beads that accompany its products ("components")" and further stating that these items were "free of defect that might unreasonably affect the product's normal functioning." Pursuant to the warranty, Jeld-Wen "will either provide replacement parts to the place of the product installation or repair any non-conforming components at its discretion."

¶ 5. On October 30, 1998, the Association filed this action against Norco Windows, Inc., and JC Development Corporation. Jeld-Wen was not named as a defendant until the Association filed its second amended complaint on November 17, 2000.¹ The complaint alleged that by 1997, the Association discovered that it was experiencing an inordinate amount of problems related to the windows installed in the condominium units. These problems included leakage of water into the units and into the walls of the buildings at or around the windows; excessive peeling of paint on the exterior wooden window casements and frames and on the exterior of the buildings around or near the windows; rotting and deterioration of wood window casements and frames and of certain portions of the building; and water damage to the interior of the condominium units and structural components of the walls of certain buildings as a result of water leakage at or near the windows. ¶ 6. As to Jeld-Wen, the Association alleged strict products liability, negligence and breach of warranty. Jeld-Wen denied the Association's allegations and raised affirmative defenses, including a defense that the Association's claims were barred by the economic loss doctrine and by the terms of Jeld-Wen's express warranty. Jeld-Wen followed with a motion for summary judgment, which the circuit court granted.² The circuit court determined that the Association's claims brought in tort were barred under the economic loss doctrine.

¶ 7. The Association appeals.

DISCUSSION

Standard of Review

¶ 8. When reviewing a grant of summary judgment, we apply de novo the standards set forth in WIS. STAT. § 802.08 (1999-2000).³ Voss v. City of Middleton, 162 Wis. 2d 737, 748, 470 N.W.2d 625 (1991). Pursuant to § 802.08(2), summary judgment must be entered "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Economic Loss Doctrine

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¶ 9. The economic loss doctrine is a judicially created doctrine under which a purchaser of a product cannot recover from a manufacturer on a tort theory for damages that are solely economic. Kailin v. Armstrong, 2002 WI App 70, ¶ 27, 252 Wis. 2d 676, 643 N.W.2d 132. It is based on an understanding that contract law, and particularly the law of warranty, is better suited than tort law for dealing with purely economic loss in the commercial arena. Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 403-04, 573 N.W.2d 842 (1998). Therefore, when contractual expectations are frustrated because of a defect in the subject matter of the contract and the only damages are economic losses, the exclusive remedy lies in contract. Kailin, 2002 WI App 70 at ¶ 27.

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¶ 10. The policies underlying the economic loss doctrine are: (1) to protect the parties' freedom to allocate economic risk by contract; (2) to encourage the party best situated to assess the risk of economic loss—the purchaser—to assume, allocate, or insure against that risk; and (3) to maintain the fundamental distinction between tort law and contract law. Id.

¶ 11. In protecting the distinction between tort and contract law, the economic loss doctrine recognizes:

In contract law, the parties' duties arise from the terms of their particular agreement; the goal is to hold parties to that agreement so that each receives the benefit of his or her bargain. The aim of tort law, in contrast, is to protect people from misfortunes which are unexpected and overwhelming. The law imposes tort duties upon manufacturers to protect society's interest in safety from the physical harm or personal injury which may result from defective products. Thus, where a product fails in its intended use and injures only itself, thereby causing only economic damages to the purchaser, "the reasons for imposing a tort duty are weak and those for leaving the party to its contractual remedies are strong."

Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 235, 247-48, 593 N.W.2d 445 (1999) (citations omitted).

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¶ 12. In protecting the freedom to contract, commercial parties may set the terms of their own agreement, including warranties, disclaimers and limitation of remedies and a manufacturer may negotiate with its distributors and purchasers to disclaim or limit its liability for economic losses. Daanen, 216 Wis. 2d at 407-08. This contractual allocation of risk allows purchasers to buy the product at a lower price and in some situations may be the only way to encourage manufacturers to produce certain products. Id. at 408. Therefore, as a matter of policy, when commercial parties have allocated their respective risks through contract, the economic loss doctrine instructs that it is more appropriate to enforce that bargain than to allow an "end run" around that bargain through tort law. Id. at 407.

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¶ 13. The economic loss doctrine does not apply, however, if the damage is to property other than the defective product itself; in that case, a complainant may pursue an action in tort. Wausau Tile, 226 Wis. 2d at 247. "Similarly, claims which allege economic loss in combination with non-economic loss are not barred by the doctrine. `In short, economic loss is damage to a product itself or monetary loss caused by the defective product, which does not cause personal injury or damage to other property.'" Id. (citation omitted).

Application of the "Other Property" Exception

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¶ 14. The Association argues that the circuit court erred in granting Jeld-Wen's motion for summary judgment based on its finding that the "other property" exception did not apply to the Association's claim for damage caused to the defective windows or damage caused to the walls adjoining those windows.

¶ 15. Whether Jeld-Wen is entitled to summary judgment as a matter of law turns upon the application of the economic loss doctrine's "other property" exception. As stated above, that exception precludes the application of the economic loss doctrine when a product purchaser is claiming personal injury or damage to property other than to the product itself. Id. The circuit court determined that the Association's tort claims were barred by the economic loss doctrine because the windows were part of an "integrated system"...