National Union Fire Ins. Co. of Pittsburgh, Pa. v. Pratt and Whitney Canada, Inc.

• Decision Date: 24 July 1991
• Docket Number: No. 20781,20781
• Citation: 107 Nev. 535,815 P.2d 601
• Parties: , Prod.Liab.Rep. (CCH) P 12,871 NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., a Pennsylvania corporation, Appellant, v. PRATT AND WHITNEY CANADA, INC., and Piper Aircraft Corporation, Respondents.
• Court: Nevada Supreme Court

Page 601

815 P.2d 601

107 Nev. 535, Prod.Liab.Rep. (CCH) P 12,871

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., a Pennsylvania corporation, Appellant, v. PRATT AND WHITNEY CANADA, INC., and Piper Aircraft Corporation, Respondents.

No. 20781.

Supreme Court of Nevada.

July 24, 1991.

Miles, Pico & Mitchell and Gary L. Myers, Las Vegas, and Kern & Wooley and Jonathan S. Morse, Los Angeles, Ca., for appellant.

Gifford & Vernon, Las Vegas, for respondent Pratt and Whitney.

Wait & Shaffer, Reno, for respondent Piper Aircraft.

OPINION

STEFFEN, Justice:

Appellant National Union Fire Insurance Company (National Union) filed a subrogation action against respondents Pratt and Whitney Canada, Inc. (PWC) and Piper Aircraft Corporation (Piper) for recovery of payments made to its insureds for losses resulting from the crash of an airplane. National Union sought relief under theories of negligence, strict products liability, and warranty.

The district court, having determined that there were no disputed material issues of fact, granted summary judgment against National Union. The lower court concluded, as a matter of law, that tort damages were unavailable because National Union sought recovery for purely economic loss resulting from the airplane self-destructing. PWC and Piper were also awarded attorney's fees pursuant to both NRS 18.010 and 17.115. ¹ National Union, claiming error in each of the district court's rulings, appeals. Our review of the record persuades us that the judgment below was correct except as to the computation of attorney's fees; we therefore affirm in part and reverse in part.

Facts

PWC manufactured and sold to Piper two Model PT6A-28 engines used on the Model PA-31T Cheyenne II (Cheyenne) aircraft which was the subject of the litigation between the parties to this appeal. Piper designed, manufactured, assembled, and sold the Cheyenne originally to Airline Training Center (ATC) of San Diego, California. ATC later sold the plane to Nevada National Leasing Corporation (Nevada National Leasing), which thereafter leased the plane to Vegas Vic, Inc. dba Famous Pioneer Club (Pioneer). Pioneer obtained a policy of insurance from National Union which insured the Cheyenne against loss or damages.

On February 8, 1984, the Cheyenne took off from Bullhead City, Arizona. One of the PWC engines failed, and the airplane crashed in the Nevada desert. National Union paid its insured $534,766.45 for the total loss of the plane and the costs of its recovery. National Union then filed a subrogation complaint, shortly thereafter amended, against PWC and Piper for recovery of the losses paid to its insured. Theories of recovery asserted by National Union included tort claims for negligence and strict products liability and a contract claim based upon warranty. The warranty claim was later dropped.

Discussion

We note preliminarily that the constraints under which we review an entry of summary judgment are well-established. First, in a light most favorable to the appellant, we must determine whether issues of material fact exist thus precluding judgment by summary proceeding. Second, assuming our review confirms the absence of such factual issues, we must determine "whether the law has been correctly perceived and applied by the district court." Mullis v. Nevada National Bank, 98 Nev. 510, 512, 654 P.2d 533, 535 (1982). Because our review confirmed that there are no genuine issues of material fact, the issue of moment on appeal is whether the district court correctly determined that National Union sought and was lawfully precluded from recovering damages in tort for a purely economic loss. ²

National Union concedes that purely economic losses usually are not recoverable under tort theories of negligence and strict liability. See Central Bit Supply v. Waldrop Drilling, 102 Nev. 139, 717 P.2d 35 (1986); Local Joint Exec. Bd. v. Stern, 98 Nev. 409, 651 P.2d 637 (1982). Nevertheless, we are urged to accept the argument that the defective PWC engine damaged property other than the engine itself--namely, the rest of the airplane--thus avoiding application of the economic loss rule adopted in Stern, reaffirmed in Central Bit Supply, and relied upon by the district court.

National Union contends that Oak Grove Inv. v. Bell & Gossett Co., 99 Nev. 616, 668 P.2d 1075 (1983), is both apposite and supportive of its position. In Oak Grove, however, there was little factual basis for invoking the economic loss doctrine. Indeed, rather than receding from our rulings in Stern and Central Bit Supply, we concluded, by way of dictum, that the factual scenario in Oak Grove did not implicate the economic loss doctrine because it involved a defective heating and plumbing system that caused water leakage and damage throughout the apartment complex. It was thus clear that, in contrast to the instant case, Oak Grove did not involve a single integrated product that "injured itself." The apartment complex there consisted of a number of separate apartment units that were each self-contained and constructed for the separate occupancy of the end users. Indeed, this court has not yet entered the fray among courts as to whether even a "house" constitutes a product for purposes of the law of strict products liability, let alone an entire apartment complex. See Elley v. Stephens, 104 Nev. 413, 418, 760 P.2d 768, 771 (1988). We deem it safe to conclude, however, that the economic loss doctrine was never intended to apply to construction projects that reflect the products and efforts of so many different manufacturers, laborers, crafts, supervisors and inspectors in the creation of an essentially permanent place of habitation. On the other hand, as will be noted in greater detail hereafter, commercial products that may, for whatever reason, injure themselves are readily insured and suitable for inclusion within the economic loss doctrine.

In a well-reasoned admiralty case, a unanimous United States Supreme Court expressed what is essentially the basis for our ruling in the instant case. The factual predicate for the court's decision in East River S.S. Corp. v. Transamerica Delaval, 476 U.S. 858, 860, 106 S.Ct. 2295, 2296, 90 L.Ed.2d 865 (1985), involved a defective first-stage steam reversing ring within one of the ship's turbines that had nearly disintegrated. The defective component damaged the turbine. Thus, although the ship itself was not damaged, property other than the defective component was damaged. Id. at 860, 106 S.Ct. at 2296. The court denied liability, stating:

When a product injures only itself the reasons for imposing a tort duty are weak and those for leaving the party to its contractual remedies are strong.

The tort concern with safety is reduced when an injury is only to the product itself. When a person is injured, the "cost of an injury and the loss of time or health may be an overwhelming misfortune," and one the person is not prepared to meet. Escola v. Coca Cola Bottling Co., 24 Cal.2d at 462, 150 P.2d at 441 [ (1944) ].... In contrast, when a product injures itself, the commercial user stands to lose the value of the product, risks the displeasure of its customers who find that the product does not meet their needs, or, as in this case, experiences increased costs in performing a service. Losses like these can be insured. See 10A G. Couch, Cyclopedia of Insurance Law §§ 42:385-42:401, 42:414-417 (2d ed.1982); 7 E. Benedict, Admiralty, Form No. 1.16-7, p. 1-239 (7th ed.1985); 5A J. Appleman & J. Appleman, Insurance Law and Practice § 3252 (1970). Society need not presume that a customer needs special protection. The increased cost to the public that would result from holding a manufacturer liable in tort for injury to the product itself is not justified. Cf. United States v. Carroll Towing Co., 159 F.2d 169, 173 (CA2 1947).

Id. at 871-72, 106 S.Ct. at 2302.

We recognize that the PWC engine was a defective component part of the Piper airplane. Therefore, the engine arguably destroyed not only itself, but other property as well, i.e., the entire airplane. We nevertheless hold that National Union is not entitled to tort damages. As the East River S.S. Corp. court also observed, "[s]ince all but the very simplest of machines have component parts, [a contrary] holding would require a finding of 'property damage' in virtually every case where a product damages itself. Such a holding would eliminate the distinction between warranty and strict products liability." Id. at 867, 106 S.Ct. at 2300 (quoting Northern Power & Engineering Corp. v. Caterpillar Tractor Co., 623 P.2d 324, 330 (Alaska 1981)). We agree with the reasoning of the United States Supreme Court. ³

The original purchaser of the Cheyenne airplane did not purchase an airplane engine and thereafter install the engine on the plane. Rather, as in the typical situation involving commercial products, the buyer acquired a single integrated product consisting of numerous component parts. Moreover, although the aircraft's warranty had expired prior to the time of its destruction, the owner had acquired and paid for insurance protection from National Union to cover the very eventuality that occurred. To allow National Union to recover for the occurrence of the risk for which it had been paid would be tantamount to extending the manufacturer's warranty with predictable results in the initial pricing of the product to the consumer. This we are unwilling to do.

We also reject National Union's contention that manufacturers should be liable when a product crashes calamitously or exposes plaintiffs to an unreasonable risk of harm, despite the absence of personal injury or damage to property other than the product itself. National Union would have this court distinguish between accidental or calamitous losses having the potential for human injury on the one hand, and purely economic losses on the other, and hold a manufacturer liable for the former. ...