State Farm v. Premier Manufactured Systems

• Decision Date: 29 August 2006
• Docket Number: No. 1 CA-CV 04-0465.,1 CA-CV 04-0465.
• Citation: 142 P.3d 1232,213 Ariz. 419
• Parties: STATE FARM INSURANCE COMPANIES, Plaintiff/Appellant, v. PREMIER MANUFACTURED SYSTEMS, INC., an Arizona corporation, Defendant/Appellee.
• Court: Arizona Court of Appeals

142 P.3d 1232

213 Ariz. 419

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

No. 1 CA-CV 04-0465.

Court of Appeals of Arizona, Division 1, Department A.

August 29, 2006.

The Sittu Law Firm, PLLC By John D. Sittu, Scottsdale, Attorneys for Plaintiff/Appellant.

Baird, Williams & Greer, L.L.P. By Robert L. Greer, Phoenix, Attorneys for Defendant/Appellee.

OPINION

NORRIS, Judge.

¶ 1 This appeal arises out of a strict products liability action. The issue before us is whether the principles of comparative fault established by the state legislature in Arizona Revised Statutes ("A.R.S.") section 12-2506 (2003) are applicable to the participants in the chain of distribution of an allegedly defective product. We hold they are.

FACTS AND PROCEDURAL HISTORY

¶ 2 The parties have stipulated to the relevant facts. In May 2001, an insured of Plaintiff/Appellant State Farm Insurance Companies returned home from a vacation and discovered that an under-sink reverse osmosis water filtration system had leaked, damaging his home and personal property. The insured had purchased the filtration system one to two years before the leak, and had properly installed and maintained the system. He had not modified or altered the system from its original condition.

¶ 3 The filtration system had been packaged and sold by Defendant/Appellee Premier Manufactured Systems, Inc. The system contained a series of filters inside plastic canisters connected by flexible tubing. Worldwide Distributing, LTD. had manufactured the canisters and sold them to Premier. Because of a design or manufacturing defect, one of the canisters in the system had fractured and caused the leak.

¶ 4 State Farm paid its insured $19,270.86 for the losses caused by the leak, then filed a strict products liability case against Premier and Worldwide (and others not relevant to this appeal) to recover the amount it had paid. Worldwide, by then defunct, failed to answer the complaint, and the court entered a default judgment against it. Premier answered, denied liability, and affirmatively alleged the trier of fact would be required to determine the "relative degree of fault of all parties and other persons." Subsequently, State Farm moved for summary judgment on the issue of comparative fault, asserting all entities in the chain of distribution of a defective product in a strict products liability action are jointly and severally liable to the consumer for all injuries caused by the product. The superior court denied State Farm's motion, holding the comparative fault principles set forth in A.R.S. § 12-2506 applied to strict products liability cases. The court further held that the entities involved in the manufacture, production, and sale of a defective product to consumers were severally at fault.

¶ 5 As a consequence of the court's ruling, the parties entered into a stipulated judgment and agreed Worldwide was 75% at fault and Premier was 25% at fault and liable to State Farm "only to that extent."¹ The superior court entered judgment against Premier in the amount of $4817.71. State Farm timely appealed. We have jurisdiction pursuant to A.R.S. § 12-2101(B) (2003).

DISCUSSION

¶ 6 On appeal, State Farm asserts Arizona's statutory system of several liability based on comparative fault should not be applied to the members of the chain of distribution in a strict products liability case, and the liability of those in the chain of distribution should be joint and several. Because the "basic tenet" of products liability law is to make the injured consumer whole, State Farm argues all parties in the chain of distribution of a defective product should be jointly and severally liable; otherwise, an injured consumer will be left with little or no remedy if, as in this case, most of the fault is apportioned to an insolvent member of the distribution chain. The arguments raised by State Farm present questions of law, which we review de novo. Gamez v. Brush Wellman, Inc., 201 Ariz. 266, 269, ¶ 4, 34 P.3d 375, 378 (App.2001); Diaz v. Magma Copper Co., 190 Ariz. 544, 547, 950 P.2d 1165, 1168 (App.1997).

I. Strict Products Liability and Comparative Fault

¶ 7 The doctrine of strict products liability is "a public policy device to spread the risk from one to whom a defective product may be a catastrophe, to those who marketed the product, profit from its sale, and have the know-how to remove its defects before placing it in the chain of distribution." Tucson Indus., Inc. v. Schwartz, 108 Ariz. 464, 467-68, 501 P.2d 936, 939-40 (1972).² In Caruth v. Mariani, 11 Ariz.App. 188, 192, 463 P.2d 83, 87 (1970), this court discussed application of the doctrine to those involved in the chain of a defective product's distribution. We explained that strict liability is based on public policy:

Who should bear the loss? The injured member of the public or those persons who are in the chain of placing defective goods on the market. We choose to protect the member of the public since those involved in the chain of marketing can distribute the risk between themselves by means of insurance and indemnity agreements. They should be better equipped economically to do so than some innocent member of the public. If only one entity in the chain of marketing is subject to liability to the victim, and that one is financially irresponsible, it is no comfort to the victim to know that he has a theoretically valid complaint against one defendant.

¶ 8 Strict products liability does not rest on traditional concepts of fault. Rocky Mountain Fire & Cas. Co. v. Biddulph Oldsmobile, 131 Ariz. 289, 292, 640 P.2d 851, 854 (1982). A strict products liability plaintiff does not have to prove the defendant was negligent. Id. Liability for a defective product extends to all those involved in its distribution, including manufacturers of component parts, dealers, distributers, or retail sellers. Id.; Sullivan v. Green Mfg. Co., 118 Ariz. 181, 575 P.2d 811 (App.1977). Thus, every member in the distribution chain of a defective product is responsible for the injury to the plaintiff, even if it did not make the product defective or unreasonably dangerous.³ A manufacturer, seller, or distributor of a defective product is liable even if it "has exercised all possible care in the preparation and sale of [its] product." Restatement (Second) of Torts, § 402A & cmt. f (1965).

¶ 9 Strict products liability initially arose in this state when the common-law doctrine of joint and several liability was the norm, not the exception. Under this doctrine, if two or more actors together cause an injury to the victim, each is liable for the full amount of the victim's injuries. Herstam v. Deloitte & Touche, LLP, 186 Ariz. 110, 114, 919 P.2d 1381, 1385 (App.1996). Thus, under this doctrine, an "innocent" seller, who had done nothing to make the product defective or unreasonably dangerous, could be held liable for the full amount of the plaintiff's injuries. However, under the common law the innocent seller could seek indemnity from the manufacturer who had created the defect. Sequoia Mfg. Co. v. Halec Construct. Co., Inc., 117 Ariz. 11, 20, 570 P.2d 782, 791 (App.1977) (lessor of defective product); Allison Steel Mfg. Co. v. Superior Court, 20 Ariz.App. 185, 190, 511 P.2d 198, 203 (1973) (absent its own active participation in creation of defect causing injury, retailer may seek indemnity from manufacturer).⁴

¶ 10 In 1984, the legislature enacted the Uniform Contribution Among Tortfeasors Act ("UCATA"). 1984 Ariz. Sess. Laws, ch. 237, § 1. UCATA replaced contributory negligence with comparative fault and abolished the rule forbidding contribution between joint tortfeasors.

Under this new regime, the factfinder allocated a percentage of fault to each culpable actor. Even though the culpable defendants were still jointly and severally liable for all damages, the legislature established a right of contribution that allowed a defendant held liable for more than his share of fault to recover from the other tortfeasors in proportion to their several contributions of fault.

Piner v. Superior Court, 192 Ariz. 182, 187, ¶ 21, 962 P.2d 909, 914 (1998).

¶ 11 "This change was intended to bring about a system in which each tortfeasor would eventually contribute only a portion of damage equal to the percentage of fault attributed to that tortfeasor by the fact finder." Id. Even under this new system, Arizona negligence law still produced harsh results when one defendant was insolvent, thus leaving the other defendants unable to obtain contribution.

¶ 12 In response, in 1987 the legislature amended UCATA, and except in certain situations, abolished joint and several liability and replaced it with a system of several liability based on comparative fault. Section 12-2506(A) states that "[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" and "[e]ach defendant is liable only for the amount of damages allocated to that defendant in direct proportion to that defendant's percentage of fault . . . ." In assessing "percentages of fault," the trier of fact is required to consider the "fault" of plaintiffs, defendants, and nonparties; that is, "all persons who contributed to the alleged injury, death or damage to property, regardless of whether the person was, or could have been, named as a party" in the case. A.R.S. § 12-2506(B).

¶ 13 UCATA's "general goal" is to make each tortfeasor responsible for only its share of fault. Jimenez v. Sears, Roebuck & Co., 183 Ariz. 399, 404, 904 P.2d 861, 866 (1995). Consistent with this goal, the statutory definition of fault is as follows:

"Fault" means an actionable breach of legal duty, act or omission proximately causing or contributing to injury or damages sustained by a person seeking recovery, including negligence in all of its...