Northridge Co. v. W.R. Grace and Co.

• Decision Date: 24 June 1991
• Docket Number: No. 90-1406,90-1406
• Citation: 471 N.W.2d 179,162 Wis.2d 918
• Parties: , 60 USLW 2075, Prod.Liab.Rep. (CCH) P 12,837 NORTHRIDGE COMPANY, a partnership, and Southridge Company, a partnership, Plaintiffs-Appellants, v. W.R. GRACE AND COMPANY, Defendant-Respondent.
• Court: Wisconsin Supreme Court

Page 179

471 N.W.2d 179

162 Wis.2d 918, 60 USLW 2075,

Prod.Liab.Rep. (CCH) P 12,837

NORTHRIDGE COMPANY, a partnership, and Southridge Company, a partnership, Plaintiffs-Appellants, v. W.R. GRACE AND COMPANY, Defendant-Respondent.

No. 90-1406.

Supreme Court of Wisconsin.

Argued May 29, 1991.

Decided June 24, 1991.

John A. Busch (argued), James E. Bauman, Paul F. Linn and Michael, Best & Friedrich, Milwaukee, for plaintiffs-appellants.

Thomas G. Cannon (argued), William A. Wiseman, Dean P. Laing and O'Neil, Cannon & Hollman, S.C., Milwaukee, for defendant-respondent.

SHIRLEY S. ABRAHAMSON, Justice.

This is an appeal from an order of the circuit court for Milwaukee county, John E. McCormick, Circuit Judge, dismissing the complaint for failure to state a claim upon which relief can be granted. This court took the appeal on the plaintiffs' petition to bypass the court of appeals. Section 808.05 and sec. (Rule) 809.60, Stats. 1989-90.

The plaintiffs, Northridge Company and Southridge Company, filed a complaint against the defendant, W.R. Grace and Company, alleging breach of warranty and several tort claims based on the defendant's sale of Monokote, a fireproofing material, to the plaintiffs' general contractor for use in the construction of the plaintiffs' shopping centers. The complaint alleges that the Monokote was in a defective condition and, because it contains asbestos, presented unreasonable danger to persons and property. The plaintiffs assert that the asbestos contaminated the building and they suffered damages by incurring expenses for inspection, testing and removal of Monokote and by a diminished value of the property.

The question we consider in this case is whether the plaintiffs' complaint states a tort claim for relief in strict products liability or negligence.

The circuit court determined that the plaintiffs' claimed damages in this case did not result from "damage to other property" but instead were solely economic losses unrelated to any physical harm to property. Relying on Sunnyslope Grading, Inc. v. Miller, Bradford & Risberg, Inc., 148 Wis.2d 910, 437 N.W.2d 213 (1989), and East River Steamship Corp. v. Transamerica Delaval Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986), the circuit court concluded that the "doctrine of economic loss" precludes the plaintiffs' tort claims of negligence and strict liability. According to the circuit court, "the doctrine of economic loss ... provides that 'a commercial purchaser of a product cannot recover solely economic losses from the manufacturer under negligence or strict liability theories,' " citing Sunnyslope. The circuit court thus denied recovery in tort when the only damage in this case was, in its view, to the product sold. The circuit court concluded that only a contract action for breach of warranty lies and that the statute of limitations barred the plaintiffs' warranty claim. The circuit court dismissed the plaintiffs' complaint, holding that it presented no claim upon which relief could be granted.

We conclude that the complaint in this case can be interpreted as alleging that a defect in the product has caused physical harm to property, property other than the product itself. The alleged physical harm to other property consists of the contamination of the plaintiffs' buildings with asbestos from the defendant's product, posing a health hazard. Accordingly we conclude that the complaint states a tort claim for relief in strict products liability and negligence. We reverse the order of the circuit court and remand the cause to the circuit court for further proceedings consistent with this opinion.

The question whether the plaintiffs' complaint has stated a claim for relief is a question of law we decide independently without deference to the circuit court. The facts set forth in the complaint must be taken as true and the complaint dismissed only if it appears certain that no relief can be granted under any set of facts that the plaintiffs might prove in support of their allegations. Kranzush v. Badger State Mut. Cas. Co., 103 Wis.2d 56, 82, 307 N.W.2d 256 (1981). The reviewing court must construe the facts set forth in the complaint and all reasonable inferences that may be drawn from those facts in favor of stating a claim. Evans v. Cameron, 121 Wis.2d 421, 426, 360 N.W.2d 25 (1985).

The plaintiffs' shopping centers were built in 1970 and 1972 by a general contractor who is not a party to this action. The defendant sold Monokote to the general contractor, who applied it to the beams and columns of the buildings. Monokote contains asbestos. Because of an alleged health hazard created by the asbestos, the plaintiffs apparently initiated an asbestos abatement program in the shopping centers sometime in the mid-1980's. The plaintiffs subsequently sold the shopping centers in 1988. The plaintiffs allege that they expended funds in the asbestos abatement program, that the Monokote reduced the value of their property, and that they received a lower price on the sale of the shopping centers because the Monokote damaged the buildings.

It is well-established law that under Wisconsin strict products liability law a plaintiff may recover for physical harm to property caused by a defect in the product that presents an unreasonable danger to persons or property. The rule of strict products liability set forth in the Restatement (Second) of Torts (1965), sec. 402A, and in Dippel v. Sciano, 37 Wis.2d 443, 459, 155 N.W.2d 55 (1967), provides:

One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer or to his property ... (Emphasis added).

Numerous cases support the rule that strict products liability law ¹ and negligence law ² apply to physical harm to property as well as to personal injury.

The parties assume that Wisconsin has adopted some form of the "economic loss doctrine" which may preclude recovery in a negligence or strict products liability torts claim when the complainant's claim is characterized as solely economic loss. ³ "Economic loss" may be defined generally as "the diminution in the value of the product because it is inferior in quality and does not work for the general purposes for which it was manufactured and sold." Comment, Manufacturers' Liability to Remote Purchasers for "Economic Loss" Damages--Tort or Contract?, 114 U.Pa.L.Rev. 539, 541 (1966). Economic loss has also been described in terms of direct economic loss and consequential economic loss.

Direct economic loss may be said to encompass damage based on insufficient product value; thus, direct economic loss may be 'out of pocket'--the difference in value between what is given and received--or 'loss of bargain'--the difference between the value of what is received and its value as represented. Direct economic loss also may be measured by costs of replacement and repair. Consequential economic loss includes all indirect loss, such as loss of profits resulting from inability to make use of the defective product.

Note, Economic Loss in Products Liability Jurisprudence, 66 Colum.L.Rev. 917, 918 (1966). A complainant's remedy for economic loss alone, without a claim for personal injury or physical harm to property other than the defective product itself, generally lies in a breach of warranty claim, not in a claim in tort.

We held in Sunnyslope Grading, Inc. v. Miller, Bradford & Risberg, Inc., 148 Wis.2d 910, 921, 437 N.W.2d 213 (1989), that "a commercial purchaser of a product cannot recover solely economic losses from the manufacturer under negligence or strict liability theories, particularly ... where the warranty given by the manufacturer specifically precludes the recovery of such damages." ⁴ The defective product in Sunnyslope was a backhoe, a piece of construction equipment. Certain parts on the backhoe broke or wore out. The manufacturer and dealer repaired defects covered by the warranty. Sunnyslope sought damages for additional replacement parts, labor charges, down-time expenses and lost profits associated with repairs the warranty specifically excluded. The "economic losses" that were not recoverable in Sunnyslope consisted of these repair expenses and lost profits. We limited our holding to "the question of whether damages to the product itself and economic losses flowing therefrom are recoverable in tort when a warranty exists in a commercial setting...." 148 Wis.2d at 911, 437 N.W.2d 213. ⁵ The court held in Sunnyslope that "a commercial purchaser of a product cannot recover solely economic losses from the manufacturer under negligence or strict liability theories, particularly, as here, where the warranty given by the manufacturer specifically precludes the recovery of such damages." 148 Wis.2d at 921, 437 N.W.2d 213. We expressly did not decide in Sunnyslope "whether a warranty can limit amounts recoverable due to damage to property other than the product itself." Id. [162 Wis.2d 928] at 911, 437 N.W.2d 213. In Sunnyslope the defective product did not cause injury to another person or other property; ⁶ the case involved a product that failed to function as expected or anticipated by the purchaser. ⁷

Our holding in Sunnyslope was limited and does not resolve this case in which the plaintiffs argue that their property was harmed and the defendant argues that the parties are not in privity. The defendant's attempt to extend Sunnyslope to resolve this case focuses on the characterization of the plaintiffs' alleged damages.

The plaintiffs assert that the Monokote caused asbestos contamination that has injured its other property. The plaintiffs argue that the contamination of the shopping centers with asbestos from the Monokote constitutes actual physical harm to their property. The plaintiffs urge that the complaint is not that Monokote has broken down or failed to perform the...