State Farm Ins. Co. v. Premier Manufactured Systems, Inc.

• Citation: 217 Ariz. 222,172 P.3d 410
• Decision Date: 03 December 2007
• Docket Number: No. CV-06-0338-PR.,CV-06-0338-PR.
• Parties: STATE FARM INSURANCE COMPANIES, Plaintiff/Appellant, v. PREMIER MANUFACTURED SYSTEMS, INC., an Arizona Corporation, Defendant/Appellee.
• Court: Supreme Court of Arizona

172 P.3d 410

217 Ariz. 222

STATE FARM INSURANCE COMPANIES, Plaintiff/Appellant, v. PREMIER MANUFACTURED SYSTEMS, INC., an Arizona Corporation, Defendant/Appellee.

No. CV-06-0338-PR.

Supreme Court of Arizona, En Banc.

December 3, 2007.

The Sittu Law Firm, P.L.L.C. by John D. Sittu, Scottsdale, Attorneys for State Farm Insurance Companies.

Baird, Williams, & Greer, L.L.P. by Robert L. Greer, Craig M. LaChance, Phoenix, Attorneys for Premier Manufactured Systems, Inc.

Law Offices of Charles M. Brewer, Ltd. by Charles M. Brewer, John B. Brewer, David L. Abney, Dane L. Wood, Phoenix, Attorneys for Amicus Curiae Law Offices of Charles M. Brewer, Ltd.

Haralson, Miller, Pitt, Feldman & McAnally, P.L.C. by Stanley G. Feldman and Law Office of JoJene Mills by JoJene E. Mills, Tucson and Adelman German, P.L.C. by Daniel J. Adelman, Scottsdale, Attorneys for Amicus Curiae Arizona Trial Lawyers Association.

Bowman and Brooke, L.L.P. by Jeffrey R. Brooke, Thomas M. Klein, Phoenix, Attorneys for Amicus Curiae Product Liability Advisory Council, Inc.

OPINION

HURWITZ, Justice.

¶ 1 This case requires us to decide whether liability among tortfeasors in strict products liability actions is joint and several or several only. We conclude that the legislative abolition of joint and several liability in 1987 extends to strict products liability actions. In such cases, liability is several only and fault must be apportioned among tortfeasors.

I.

¶ 2 In 2001, an insured of State Farm Insurance Companies ("State Farm") discovered that a leak in his water filtration system had damaged his home and personal property. State Farm paid the homeowner $19,270.86 to cover the loss.

¶ 3 Premier Manufactured Systems, Inc. ("Premier") assembled, packaged, and sold the water filtration system, which consisted of a series of filters inside plastic canisters linked by tubing. Worldwide Water Distributing, Ltd. ("Worldwide") manufactured the plastic canisters and sold them to Premier. As subrogee for its insured, State Farm sued Premier and Worldwide, alleging that each was strictly liable in tort for distributing a defective product.

¶ 4 Worldwide failed to respond to the complaint, and the superior court entered a default judgment against it. In a subsequent motion for partial summary judgment, State Farm argued that Worldwide and Premier were jointly and severally liable for 100% of the homeowner's damages. Premier argued in response that under Arizona Revised Statutes ("A.R.S.") § 12-2506 (2003) the defendants' liability was several only and that the statute required allocation of fault between Premier and Worldwide. The superior court denied State Farm's motion.

¶ 5 State Farm and Premier then entered into a stipulated judgment, which stated that the leak had been caused by either a design or manufacturing defect in one of the canisters. The judgment provided that Worldwide was 75% and Premier 25% at fault and that Premier was liable to State Farm "only to that extent" for the damages caused by the leak. Because Worldwide had gone out of business and had no insurance coverage, State Farm could therefore recover only 25% of its insured's damages. The stipulation preserved, for purposes of appeal, State Farm's argument that liability of the two defendants should have been joint and several.

¶ 6 The court of appeals affirmed, holding that under § 12-2506 liability of Premier and Worldwide was several only and that fault must be allocated between them. State Farm Ins. Cos. v. Premier Manufactured Sys., Inc., 213 Ariz. 419, 420 ¶ 1, 142 P.3d 1232, 1233 (App.2006). The court rejected State Farm's argument that applying comparative fault principles to strict products liability actions violated Article 18, Section 6 of the Arizona Constitution. Id. at 426 ¶ 28, 142 P.3d at 1239.

¶ 7 We granted State Farm's petition for review because whether § 12-2506 applies to strict products liability actions is an issue of statewide importance. See ARCAP 23(c)(3). We have jurisdiction pursuant to Article 6, Section 5(3) of the Arizona Constitution and A.R.S. § 12-120.24 (2003).

II.

¶ 8 The common law generally imposed joint and several liability when the conduct of several persons caused a single injury to a plaintiff. See, e.g., Holtz v. Holder, 101 Ariz. 247, 251, 418 P.2d 584, 588 (1966). In such a case, the plaintiff could collect his entire damages from any defendant. Id.; see also 2 Dan B. Dobbs, The Law of Torts § 385, at 1078 (2001); W. Page Keeton et al., Prosser & Keeton on the Law of Torts § 47, at 328-29 (5th ed.1984). A defendant who paid the plaintiff's damages, however, could not seek contribution from other tortfeasors. Holmes v. Hoemako Hosp., 117 Ariz. 403, 405, 573 P.2d 477, 479 (1977); 2 Dobbs, supra, § 386, at 1078. Thus, a single defendant could bear the entire burden of the judgment.

¶ 9 In 1984, the legislature alleviated the common law's harshness by adopting the Uniform Contribution Among Tortfeasors Act ("UCATA"). 1984 Ariz. Sess. Laws ch. 237, § 1 (codified as amended at A.R.S §§ 12-2501 to -2509 (2003)).¹ Under UCATA, a jointly liable defendant "who has paid more than his pro rata share of the common liability" can seek contribution from other tortfeasors. A.R.S. § 12-2501(B). This right can be enforced either in the underlying tort action or in a separate suit for contribution. Id. § 12-2503(A) & (B). When a defendant seeks contribution, the finder of fact must apportion liability according to the relative degrees of fault of each tortfeasor. Id. § 12-2502(1).

¶ 10 The 1984 legislation expressly provided that the right to contribution applied to defendants held strictly liable in tort for distribution of a defective product. Id. § 12-2509(A). The statute provided that, for purposes of apportioning liability among such tortfeasors, "the relative degree of fault of each is the degree to which each contributed to the defect causing injury to the claimant." Id. § 12-2509(C).

¶ 11 The adoption of comparative fault in the 1984 version of UCATA did not entirely protect defendants from paying more than their allocated share of a judgment. The legislation did not alter the common law rule of joint and several liability; each defendant remained liable to the plaintiff for the entire amount of the judgment. The right to contribution was thus of limited or no practical utility if one or more of the tortfeasors were insolvent or if a judgment for contribution could not be collected. Under those circumstances, a defendant who had paid more than his share still absorbed a disproportionate loss. See Gehres v. City of Phoenix, 156 Ariz. 484, 487, 753 P.2d 174, 177 (App.1987).²

¶ 12 The legislature solved this problem in 1987 by amending UCATA to abolish joint and several liability in most circumstances. 1987 Ariz. Sess. Laws ch. 1. The 1987 amendment, codified at A.R.S. § 12-2506, establishes a system of comparative fault, making "each tortfeasor responsible for paying his or her percentage of fault and no more." Dietz v. Gen. Elec. Co., 169 Ariz. 505, 510, 821 P.2d 166, 171 (1991). Under this system of several-only liability, plaintiffs, not defendants, bear the risk of insolvent joint tortfeasors.

A.

¶ 13 State Farm argues that the general abolition of joint and several liability in 1987 was not intended to apply to parties strictly liable in tort for distributing a defective product. We disagree.

¶ 14 Under A.R.S. § 12-2506(A),

[i]n an action for personal injury, property damage or wrongful death, the liability of each defendant for damages is several only and is not joint, except as otherwise provided in this section.

(Emphasis added.) An action for strict products liability is clearly one "for personal injury, property damage or wrongful death." Therefore, under the plain language of the 1987 enactment, each defendant's liability in such an action is several only, subject only to the specific exceptions in § 12-2506.

¶ 15 Section 12-2506 provides only three exceptions to the general regime of several-only liability:

The liability of each defendant is several only and is not joint, except that a party is responsible for the fault of another person, or for payment of the proportionate share of another person, if any of the following applies:

1. Both the party and the other person were acting in concert.

2. The other person was acting as an agent or servant of the party.

3. The party's liability for the fault of another person arises out of a duty created by the federal employers' liability act, 45 United States Code § 51.

Id. § 12-2506(D). State Farm correctly concedes that this case falls within neither the first nor the third exception.

¶ 16 State Farm instead relies upon § 12-2506(D)(2), which imposes joint liability when another person "was acting as an agent or servant of the party." This argument, however, suffers from obvious deficiencies. State Farm does not contend that a conventional principal-agent or master-servant relationship existed between Worldwide and Premier. Premier simply purchased the defective canister from Worldwide and then incorporated it into its water filtration system. The mere purchase of a product from a supplier does not establish a master-servant or principal-agent relationship between the buyer and seller. See 2 Dobbs, supra ¶ 8, § 335, at 910-13, § § 336-38, at 917-29; Keeton et al., supra ¶ 8, § 70, at 501-08; Restatement (Third) of Agency § 1.01 cmts. b & c (2006).

¶ 17 Instead, relying on Wiggs v. City of Phoenix, 198 Ariz. 367, 10 P.3d 625 (2000), State Farm argues that we should impute an agency relationship between Premier and Worldwide for purposes of § 12-2506(D)(2). Wiggs involved an automobile accident in which a car struck and killed the plaintiff's teenage daughter as she crossed a Phoenix intersection at dusk. Id. at 368 ¶ 2, 10 P.3d at 626. The plaintiff's suit against the City of Phoenix alleged that improper maintenance of a streetlight at the intersection...