Linden v. Cascade Stone Company, Inc.
| Decision Date | 17 August 2004 |
| Docket Number | No. 04-0004.,04-0004. |
| Citation | 2004 WI App 184,687 NW 2d 823 |
| Parties | James B. Linden and Dianne C. Linden, Plaintiffs-Appellants, v. Cascade Stone Company, Inc., West Bend Mutual Insurance Company and Rich Fern d/b/a Allied Construction, Defendants-Respondents, American Family Mutual Insurance Company, Intervening Defendant-Respondent. |
| Court | Wisconsin Court of Appeals |
On behalf of the plaintiffs-appellants, the cause was submitted on the briefs of Mark A. Seidl of Seidl & Stingl, S.C., Wausau.
On behalf of the defendant-respondent, West Bend Mutual Insurance Company, the cause was submitted on the brief of R. Michael Waterman of Mudge Porter Lundeen & Seguin, S.C., Hudson.
On behalf of the defendant-respondent, Rich Fern d/b/a Allied Construction, the cause was submitted on the brief of Mark S. Henkel of First Law Group, SC, Stevens Point.
On behalf of the intervening defendant-respondent, the cause was submitted on the brief of Paul E. David of Wendorff, Ellison & David, LLP, Wausau.
Before Cane, C.J., Hoover, P.J., and Peterson, J.
¶1.
James and Dianne Linden appeal a summary judgment dismissing their negligence and contract claims against Cascade Stone Company, Inc., Rich Fern d/b/a Allied Construction, and their insurers for alleged faulty workmanship in the construction of the Lindens' home. The Lindens contend that: (1) the economic loss doctrine does not bar their negligence claims; (2) the trial court erred in dismissing Cascade's insurer, West Bend Mutual Insurance Company, since its policy covers their contract claim against Cascade; and (3) the trial court erred in denying leave to amend their complaint against Fern. Because we determine the predominant purpose of the underlying transaction was for a product, we conclude that the economic loss doctrine bars the Lindens' tort claims. We decline to review the trial court's ruling dismissing West Bend since any error was invited. Finally, we conclude that the trial court properly exercised its discretion in refusing to allow the Lindens to amend their complaint to add a contract claim against Fern.
¶2. In March 1999, James and Dianne Linden contracted with Groveland Craftsman, Inc., a general contractor, to construct a new home in Houlton. Groveland retained a number of subcontractors to complete the construction of the Linden home. The subcontractor Cascade Stone Company, Inc., was retained to install the exterior stucco siding. Richard Fern, d/b/a Allied Construction, was retained to install the roof.
¶3. The Lindens took occupancy of the home in November 1999. They experienced a variety of moisture intrusion problems by way of the windows, roof and exterior walls, resulting in deterioration and mold.
¶4. In June 2000, the Lindens commenced this action.1 The Lindens asserted contract and tort claims against the stucco subcontractor, Cascade, and coverage of those claims by Cascade's insurer, West Bend Mutual Insurance Company.2 They also claimed negligence by Fern, the roofing subcontractor, and liability for Fern's negligence by Fern's insurer, American Family Mutual Insurance Company.
¶5. On October 1, 2003, the trial court granted summary judgment in favor of the defendants. The court found that the economic loss doctrine barred the Lindens' tort claims against all parties. The court also held that there was no coverage under the West Bend policy for the contract claim against Cascade and dismissed that claim. Finally, the court denied the Lindens' motion to amend the complaint to add a contract claim against Fern.
¶6. When reviewing a summary judgment, we perform the same function as the trial court and our review is independent of the trial court's decision. Green Spring Farms v. Kersten, 136 Wis. 2d 304, 315, 401 N.W.2d 816 (1987). On summary judgment, a court must view the facts in the light most favorable to the non-moving party. State Bank of La Crosse v. Elsen, 128 Wis. 2d 508, 512, 383 N.W.2d 916 (Ct. App. 1986). We will reverse a summary judgment if the trial court incorrectly decided a legal issue or if material facts are in dispute. Coopman v. State Farm Fire & Cas. Co., 179 Wis. 2d 548, 555, 508 N.W.2d 610 (Ct. App. 1993).
¶7. "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." Bay Breeze Condo. Ass'n v. Norco Windows, Inc., 2002 WI App 205, ¶9, 257 Wis. 2d 511, 651 N.W.2d 738. Economic damages are those arising because the product does not perform as expected, including damage to the product itself or monetary losses caused by the product. Biese v. Parker Coatings, Inc., 223 Wis. 2d 18, 23, 588 N.W.2d 312 (Ct. App. 1998). Economic damages do not include losses due to personal injury or damage to other property. Id.
¶8. The economic loss doctrine preserves the distinction between contract and tort law. Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 403-04, 573 N.W.2d 842 (1998); see also East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 866 (1986) (). The premise of the economic loss doctrine is that contract law, and particularly the law of warranty, is better suited than tort law for dealing with purely economic loss. Daanen, 216 Wis. 2d at 403-04. Allowing buyers and sellers to allocate the risk of economic losses by contract promotes an efficient, predictable marketplace. Id. at 410-12. On the other hand, claims concerning personal injury or damage to property other than the product itself are best governed by tort law, an area of law intended to protect people from misfortunes that are unexpected and overwhelming. Id. at 405; see also Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 235, 248, 593 N.W.2d 445 (1999). In operation, "the economic loss doctrine requires transacting parties in Wisconsin to pursue only their contractual remedies when asserting an economic loss claim ...." Digicorp, Inc. v. Ameritech Corp., 2003 WI 54, ¶34, 262 Wis. 2d 32, 662 N.W.2d 652.
¶9. When a contract involves both products and services, i.e., a "mixed contract," this court looks to the predominant purpose test to determine whether the economic loss doctrine applies. Biese, 223 Wis. 2d at 24-25. The predominant purpose test for mixed contracts is "whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of a service, with goods incidentally involved (e.g., contract with an artist for a painting) or is a transaction of sale, with labor incidentally involved (e.g., installation of a water heater in a bathroom)." Id. at 25 (citations omitted). If the predominant purpose of the contract is for a product, the economic loss doctrine applies.3
¶10. Before we can determine the predominant purpose of the transaction, however, we must determine the relevant transaction to be examined. The subcontractors and their insurers argue that the underlying transaction here is the general contract and its predominant purpose is for the sale of a product-a house. The Lindens, relying on Biese, contend we must look to the subcontracts of Fern and Cascade, which they claim are predominately for services.
¶11. In Biese, the plaintiff contracted with A to Z Epoxy Coatings to install an epoxy floor. Biese, 223 Wis. 2d at 20. Parker provided the flooring materials and Epoxy installed the floor. Id. Biese sued Parker in tort for negligent provision of defective flooring materials "and/or" faulty installation instructions. Id. at 21. We applied the predominant purpose test and held that the transaction was for a product, with any service being incidental. Id. at 20. Since the predominant purpose was for a product, the economic loss doctrine applied and barred the tort-based claims against Parker. Id. Although our analysis focused on what Parker, a subcontractor, contributed to the transaction, we were ultimately concerned with the predominant purpose of "the entire underlying transaction." Id. at 26. Since Parker provided primarily flooring materials, the transaction was predominately for a product and the economic loss doctrine applied. Id. at 28-29.
¶12. The Lindens contend Biese holds that we should look to the subcontract in applying the predominant purpose test. Biese should not be read so broadly. The relevant transaction was never disputed by the parties in Biese. Indeed, whether we analyzed the general contract (purchase of a floor) or the subcontract (purchase of flooring materials), our holding would have been the same: the transaction was for the sale of a product and the economic loss doctrine barred the negligence claims.
¶13. Like the Lindens, the plaintiff in Biese attempted to avoid application of the economic loss doctrine by pointing to a specific aspect of the transaction and claiming it was a service. Biese argued that Parker's obligation to reinstall the floor was not incidental to the contract. Id. at 28, n.8. We looked at the entire transaction, however, and concluded that the services were incidental. Id.
¶14. Additionally, looking at the general contract supports the three policies underlying the economic loss doctrine: (1) preserving separation between tort and contract; (2) protecting freedom to contract; and (3) encouraging purchasers to assume, allocate or insure against risk of economic loss. Wausau Tile, 226 Wis. 2d at 247. First, looking at the entire underlying transaction maintains the fundamental distinction between tort and contract law. At its core, the Lindens' complaint is that the house they received is not the house for which they contracted. Groveland's decision to subcontract portions of the house construction to subcontractors should not permit the Lindens to make an "end around" their contract and the economic loss...
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