Citizens Gas & Coke Utility v. American Economy Ins. Co.

• Decision Date: 30 December 1985
• Docket Number: No. 1285S532,1285S532
• Citation: 486 N.E.2d 998
• Parties: CITIZENS GAS & COKE UTILITY, Appellant, v. AMERICAN ECONOMY INSURANCE CO., Appellee.
• Court: Indiana Supreme Court

Page 998

486 N.E.2d 998

CITIZENS GAS & COKE UTILITY, Appellant, v. AMERICAN ECONOMY INSURANCE CO., Appellee.

No. 1285S532.

Supreme Court of Indiana.

Dec. 30, 1985.

Harry V. Huffman, Terrence F. Peak, Indianapolis, for appellant.

Donn H. Wray, Stewart Irwin Gilliom Meyer & Guthrie, Indianapolis, for appellee.

PIVARNIK, Justice.

This cause comes to us on a petition to transfer from the First District Court of Appeals. Petition is brought by Citizens Gas and Coke Utility, Defendant in the trial court and Appellant in the Court of Appeals. Petition for Transfer is granted and we vacate the opinion of the Court of Appeals, 477 N.E.2d 329, and reverse the trial court.

The cause was submitted to the trial court on stipulated facts that showed on April 8, 1972, Citizens Gas sold a water heater to Mr. and Mrs. George Barnes and installed it in their residence. The replacement water heater included a pressure relief valve also known as a T & P valve. The uniform plumbing code required that a drain be constructed near the valve and extend to the outside of the building. The obvious purpose of the drain was to disperse water which might leak out of the valve under three different circumstances. Water would be released from the valve if the water heater overheated, if it overpressured, or if the relief valve malfunctioned.

The Barnes residence was constructed on a concrete slab and there was no drain in the utility area in which the water heater was to be placed. In order to install such a drain, it would have been necessary to go through the concrete floor and the cost of such procedure was estimated to exceed the cost of the water heater itself. Before installing the water heater, Citizens Gas explained the need for and the requirement of such a drain to Mr. and Mrs. Barnes. It is not denied that a representative of Citizens Gas fully explained the potential danger to the contents of the house without the drain. Mrs. Barnes specifically told Citizens Gas to install the water heater without the drain. Citizens Gas then required Mrs. Barnes to execute a waiver by writing on the service contract that she assumed the cost of all damage caused if the valve malfunctioned. Mrs. Barnes did so. All of the parties stipulated that the installation of the water heater without the drain was in violation of the code but they also stipulated that such a violation did not pose any threat of personal injury.

Mr. and Mrs. Barnes sold their home to John and Mary Atkins. In July, 1979, the Atkins' were away from their home when the T & P valve malfunctioned and as a result the single story concrete slab residence was flooded, causing substantial damage to personal property and the structure. The Atkins' filed a claim under their homeowners insurance policy with American Economy. This claim was settled when American Economy paid $12,077.33 to the Atkins'. This amount included the loss sustained from the property and structural damage and relocation and living expenses incurred during repair and replacement. On July 28, 1980, American Economy filed their subrogation claim against Citizens Gas to recover the amount it paid its insured. The complaint alleged Citizens Gas as a contractor negligently installed the water heater in violation of the plumbing code. The trial court entered judgment in favor of American Economy and against Citizens Gas for $12,077.33 plus prejudgment interest.

Citizens Gas does not challenge the lower court's determination of negligence. It raises only the issue of whether lack of privity shields it from liability. Furthermore, as the Court of Appeals pointed out, this action was tried and facts were stipulated such that on review no presumptions arise in favor of the trial court. We are in as good a position as the trial judge in applying the facts to our determination of the privity issue. General Asbestos and Supply Company v. Aetna Casualty and Surety Company (1935), 101 Ind.App. 207, 198 N.E. 813. Furthermore, in view of our disposition the question of prejudgment interest allowed by the trial court is moot. Therefore, the only issue before us is that of privity.

The requirements of privity have been abolished by this Court and the Court of Appeals for products liability and contractor liability involving personal injury caused by a product or work in a condition that was dangerously defective, inherently dangerous or imminently dangerous such that it created a risk of imminent personal injury. In the instant case, the Court of Appeals sought to extend the abolition of privity where the negligence of the contractor created an imminent danger of property damage only. This conclusion does not comport with our logic in previous cases and we accordingly find the Court of Appeals in error on this issue.

This Court established a general rule in Indiana in Daugherty v. Herzog (1896) 145 Ind. 255, 44 N.E. 457, that a contractor or repairman is not liable for negligent damages to third parties after acceptance of the work by an owner. Daugherty did involve a case where a young girl was killed by the collapse of the wall of a building which allegedly was due to the negligent construction of the defendant. Daugherty, nonetheless, held there was no liability to third parties that had no privity with the contractor. Daugherty acknowledged, however, a class of cases, where the law imposes a duty to third persons, independent of the contract, as in sales of dangerous goods, poisonous drugs or explosive oils. Daugherty, 145 Ind. at 260, 44 N.E. at 458.

An exception to the general rule espoused in Daugherty was created in Holland Furnace Company v. Nauracaj (1938), 105 Ind.App. 574, 14 N.E.2d 339, trans. den., where...