Kodiak Elec. Ass'n, Inc. v. DeLaval Turbine, Inc., s. 7871

• Decision Date: 21 December 1984
• Docket Number: Nos. 7871,7896,s. 7871
• Parties: 40 UCC Rep.Serv. 155 KODIAK ELECTRIC ASSOCIATION, INC., and American Motorists Insurance Company, Appellants, v. DELAVAL TURBINE, INC., Westinghouse Electric Corp., and Portec, Inc., Appellees. DELAVAL TURBINE, INC., Cross-Appellant, v. KODIAK ELECTRIC ASSOCIATION, INC., and American Motorists Insurance Company, Cross-Appellees.
• Court: Alaska Supreme Court

Page 150

694 P.2d 150

40 UCC Rep.Serv. 155

KODIAK ELECTRIC ASSOCIATION, INC., and American Motorists

Insurance Company, Appellants, v. DELAVAL TURBINE, INC., Westinghouse Electric Corp., and Portec, Inc., Appellees.

DELAVAL TURBINE, INC., Cross-Appellant, v. KODIAK ELECTRIC ASSOCIATION, INC., and American Motorists

Insurance Company, Cross-Appellees.

Nos. 7871, 7896.

Supreme Court of Alaska.

Dec. 21, 1984.

Rehearing Denied Feb. 24, 1985.

Roger Holmes, Biss & Holmes, Anchorage, James P. Rohrback, Keller, Rohrback, Waldo, Hiscock, Butterworth & Fardal, Seattle, for appellants/cross-appellees.

Francis E. Smith, Jr., Ely, Guess & Rudd, Anchorage, for appellee/cross-appellant DeLaval Turbine.

James M. Powell and James F. Klasen, Hughes, Thorsness, Gantz, Powell & Brundin, Anchorage, for appellee Westinghouse.

Before BURKE, C.J. and RABINOWITZ, and COMPTON, JJ.

OPINION

BURKE, Chief Justice.

This case arose when a diesel generator failed, causing alleged damage to property owned by the plaintiff below, Kodiak Electric Association. The superior court granted summary judgment in favor of the defendants, DeLaval Turbine, Inc. and Westinghouse Electric Corporation. This appeal and cross-appeal followed. ¹

I

In October, 1974, Kodiak Electric and DeLaval entered into a contract for the sale of a "remanufactured" diesel generator unit to Kodiak Electric. The unit had two principal components, an engine and a generator, neither of which was to be provided new. Under the contract terms, DeLaval agreed to provide a used engine that was "completely dismantled and re-manufactured to 'as new' condition." In contrast, the used generator, which is the component at issue in this case, was only to be "cleaned, inspected, repaired as required, and tested by a competent firm." The generator was originally manufactured by Allis-Chalmers.

The generator repair work was performed by Westinghouse in October, 1974, at DeLaval's request. ² The unit, which became known as Unit 10, was delivered to Kodiak Electric during 1976. Testing was completed in March, 1977.

The original contract contained a limited warranty provision which expired eighteen months from the date of shipment. By letter dated January 5, 1976, DeLaval extended the warranty to February 28, 1978.

The Unit 10 generator failed on February 7, 1979. No other property or persons were injured at the time it failed. About three weeks later, however, a separate generator unit, Unit 12, failed. Kodiak Electric alleged that the failure of the second unit was due to overload caused by the failure of Unit 10.

Kodiak Electric ³ did not commence this action until February 4, 1982, nearly three years after the generator failures. Kodiak Electric sought damages from DeLaval and Westinghouse under five alternative theories breach of an implied warranty of fitness and merchantability, breach of express warranty, negligence, strict liability and breach of contract.

DeLaval and Westinghouse each moved for summary judgment, and the superior court granted their motions, although not on all grounds urged by DeLaval. The court found that Kodiak Electric had no cause of action under express and implied warranty theories against either party, and no claim for strict liability in tort against Westinghouse. The remaining claims were all held to be barred by AS 09.10.070, a two year statute of limitations. Kodiak Electric appeals from each of these rulings, ⁴ and DeLaval cross-appeals on one issue.

II

A. Strict Liability in Tort

The trial court held that Kodiak Electric could maintain a strict liability action against the seller of the used generator, DeLaval, but not against the repairer of the generator, Westinghouse. By way of cross-appeal DeLaval contests the first holding; Kodiak Electric appeals the second.

In order to prevail on a claim of strict liability in tort when no personal injury has occurred, the plaintiff must show "property damage" as opposed to mere "economic loss." Morrow v. New Moon Homes, Inc., 548 P.2d 279, 286 (Alaska 1976). In the instant case, the trial court found that there was property damage, based on the fact that there was evidence of damage to Unit 12 as a result of the failure of Unit 10. As alternative support for this conclusion, Kodiak Electric points to an affidavit it submitted to the trial court which described the accident as causing an electrical fire in the generating unit and arcing on the unit. The affidavit stated that it was customary for two controlmen to go near the unit and that had they been near it at the time, they could have been seriously injured by the arcing. Kodiak Electric contends that the potential for personal injury thus created, combined with the damage to Unit 12, puts this case into the "property damage" category.

In Northern Power & Engineering Corp. v. Caterpillar Tractor Co., 623 P.2d 324 (Alaska 1981), a diesel powered electrical generator's engine failed, resulting in severe damage to the machine but causing no additional damage to persons or property. We affirmed the trial court's finding that the loss was "entirely economic," since there was "no evidence in the record that such a defect presented a danger to persons or other property and no evidence of violence, fire, collision with external objects, or other calamity as a result of this failure." 623 P.2d at 329-30. Here, in addition to the electrical fire causing damage to Unit 10 itself, and the alleged damage to Unit 12, there was evidence of arcing, which presented a serious danger to persons. Thus, we believe the result in this case is controlled by our holding in Northern Power:

[W]hen a defective product creates a situation potentially dangerous to persons or other property, and loss occurs as a result of that danger, strict liability in tort is an appropriate theory of recovery, even though the damage is confined to the product itself.

623 P.2d at 329 (emphasis added). ⁵ See State v. Tyonek Timber, Inc., 680 P.2d 1148 (Alaska 1984) (distinction between property loss and economic loss further explained). Given this potential danger to persons, it is not necessary for us to decide whether the trial court was correct in finding that there was "property damage," because of the alleged damage to Unit 12.

We affirm the superior court's denial of summary judgment to DeLaval, although on a rationale somewhat different than that used by the trial court. ⁶

Kodiak Electric cannot prevail, however, on its strict liability claim against Westinghouse. Westinghouse did not manufacture generator Unit 10, nor did it sell that product to Kodiak Electric. All that Westinghouse provided was repair service. The "request that [Westinghouse] repair or even 'rebuild' [the generator]" is not sufficient ground upon which to hold it a manufacturer or seller, strictly liable in tort. Swenson Trucking & Excavating, Inc. v. Truckweld Equipment Co., 604 P.2d 1113, 1117 (Alaska 1980). We thus affirm the trial court's ruling on this claim as well.

B. Contractual/Warranty Claims

Kodiak Electric contends the trial court erred in dismissing its cause of action in contract against Westinghouse, arguing that it was a third party beneficiary of the repair contract between DeLaval and Westinghouse.

This contention is without merit. In order to be an intended third party beneficiary, Kodiak Electric would have to show an intention by DeLaval to benefit Kodiak Electric under the DeLaval/Westinghouse contract. State v. Osborne, 607 P.2d 369, 371 (Alaska 1980). No such intention is evident here. Although Kodiak Electric would be incidentally benefitted by the generator being repaired, this would not confer on Kodiak Electric anything beyond what DeLaval had contracted with Kodiak Electric to perform. Westinghouse's duty was owed to DeLaval, not Kodiak Electric. See Restatement (Second) of Contracts § 302, at 444 (1981).

Kodiak Electric alleges an additional contract claim against DeLaval because DeLaval refused to protect it and hold it harmless from losses arising out of Westinghouse's alleged negligence. It contends that the hold harmless and indemnity provision in the contract was breached when DeLaval refused to pay for Kodiak Electric's damages.

This argument is also without merit. Kodiak Electric is not seeking to recover money it has paid to a third party for damages. The contractual provision for indemnification is relevant only in those circumstances. See Citizens Insurance Co. of New Jersey v. Signal Insurance Co., 261 Or. 294, 493 P.2d 46, 47-48 (1971) ("[indemnity] requires that a common duty be mutually owed to a third party"); Davis v. Board of County Commissioners, 495 P.2d 21, 25 (Wyo.1972) ("It is well settled that indemnification against liability must always be regarded as having reference to existing grounds of liability and not as creating new ones.").

III

A. Statute of Limitations

1. Strict Liability and Negligence

One of the central issues in this appeal is whether the two-year statute of limitations contained in AS 09.10.070 or the six-year statute of limitations contained in AS 09.10.050 is applicable to the strict liability and negligence claims brought by Kodiak Electric.

AS 09.10.050 provides:

No person may bring an action

(1) upon a contract or liability, express or implied, excepting those mentioned in AS 09.10.040 or 09.10.055; (2) for waste or trespass upon real property; or (3) for taking, detaining, or injuring personal property, including an action for its specific recovery, except those mentioned in AS 09.10.055; unless commenced within six years.

(Emphasis added).

AS 09.10.070 provides:

No person may bring an action

(1) for libel, slander, assault, battery, seduction, false imprisonment, or for any injury to the person or rights of another not arising on contract and not specifically provided otherwise; (2) upon a statute for a forfeiture or penalty to the state; or (3) upon a liability created by statute, other than a penalty or...