U.S. Gypsum Co. v. Mayor and City Council of Baltimore, 127

CourtCourt of Appeals of Maryland
Citation647 A.2d 405,336 Md. 145
Docket NumberNo. 127,127
Parties, Prod.Liab.Rep. (CCH) P 14,026 UNITED STATES GYPSUM COMPANY et al. v. MAYOR AND CITY COUNCIL OF BALTIMORE. ,
Decision Date01 September 1992

Peter Buscemi (Grace E. Speights, Morgan, Lewis & Bockius, all on brief), Washington, DC (George A. Nilson, Piper & Marbury, both on brief), Baltimore (John H. Lewis, Jr., Amelia C. Kittredge, Morgan, Lewis & Bockius, all on brief), Philadelphia, PA., for U.S. Gypsum Co.

Thomas F. McDonough (Royston, Mueller, McLean & Reid, both on brief), Towson, for Asbestospray Corp. Peter W. Taliaferro (Robert J. Lynott, Thomas & Libowitz, P.A., all on brief), Baltimore, for appellant, Hampshire Industries, Inc.

Melvin J. Sykes (Carl E. Tuerk, Jr., Elizabeth J. Case, Cooper, Beckman & Tuerk; Neal M. Janey, City Sol., Otho M. Thompson, Deputy City Sol., all on brief), Baltimore (Stanley J. Levy, Jordan Fox, Levy, Phillips & Konigsberg, all on brief), New York City, for appellee.

Argued before MURPHY, C.J., and ELDRIDGE, RODOWSKY, McAULIFFE, * CHASANOW, KARWACKI and BELL, JJ.

ELDRIDGE, Judge.

This appeal arises out of a products liability action brought in 1984 by the Mayor and City Council of Baltimore ("the City") in the Circuit Court for Baltimore City, against manufacturers, distributors and installers of asbestos-containing building materials. The City sought damages against, inter alia, manufacturer United States Gypsum Co., installer Hampshire Industries, Inc., and manufacturer/distributor Asbestospray Corp., for the cost of discovering, managing, rectifying the effects of, and removing asbestos-containing surface treatment products. 1 No personal injury damages were sought in the action.

Trial began in the present Group I proceeding on January 9, 1992. On June 5, 1992, the jury returned special verdicts in favor of the plaintiff based on alternative theories of negligence, strict liability under § 402A of the Restatement (Second) of Torts, 2 and breach of implied and express warranties. 3 The jury decided that the City was entitled to compensatory damages from the three defendants totaling $17,208,807.14. Specifically, the jury awarded compensatory damages against Asbestospray in the amount of $8,333,183.81, against United States Gypsum in the amount of $8,161,637.22, and against Hampshire in the amount of $713,986.11. The amounts of these compensatory damages awards were identical under all theories of recovery relied on by the City.

Hampshire had cross-claimed for indemnity against United States Gypsum, and, pursuant to an agreement between the two parties, an order was entered for United States Gypsum to indemnify Hampshire in the amount of the judgment against Hampshire in the Group I proceeding. The jury additionally determined that punitive damages should be awarded against United States Gypsum in the amount of $4,000,000, and against Asbestospray in the amount of $2,000,000. On August 11, 1992, the circuit court issued an order directing the entry of a final judgment pursuant to Maryland Rule 2-602 for the Group I proceeding, and final judgment was entered. 4

The defendants timely noted appeals to the Court of Special Appeals, and this Court issued a writ of certiorari prior to consideration of the case by the intermediate appellate court. Shortly thereafter, the three defendants filed motions in this Court to "vacate" the circuit court's order directing the entry of final judgment pursuant to Rule 2-602, arguing that the trial judge abused "his Rule 2-602(b) discretion." Finding no abuse of discretion, this Court on March 18, 1993, denied the motions to vacate. Subsequent to briefing and oral argument in this Court, United States Gypsum and Hampshire Industries entered into settlement agreements with the City and dismissed their appeals, leaving Asbestospray as the sole defendant in this Group I appeal.

The Asbestospray Corporation was established in 1949 for the purpose of marketing and distributing the sprayed fiber products of the Asbestos Products Manufacturing Co., formed in 1947. Both companies were closely-held by members of the same family, and the businesses operated out of the same premises. 5

The Asbestospray product is an asbestos-containing spray-on fireproofing that was installed in the six City buildings at issue in this appeal between 1956 and 1971. The greatest part of the compensatory damages award against Asbestospray represented $8,016,442.33 in costs to the City associated with rectifying the effects of and the complete removal of approximately 350,000 square feet of Asbestospray's fireproofing from Walbrook Senior High School. The asbestos fireproofing in Walbrook Senior High School had deteriorated, and had contaminated furniture, equipment and books in the school. Consequently, the City was required to pay for the cleaning and storage of each piece of furniture, equipment, and all books, and then to remove all asbestos fireproofing from the building. The remainder of the damages against Asbestospray comprised the cost of removing some or all of the asbestos-containing fireproofing located in the five other buildings at issue in this appeal, as well as the cost of operations and management programs for that asbestos which still remains.

Asbestospray raises numerous issues on appeal, and additional facts will be set forth in the particular parts of this opinion to which those facts specifically relate. 6

I.

A threshold matter concerns the availability of negligence and § 402A strict liability tort remedies in an action by a property owner seeking only property damages because of a defect in a product which the owner had purchased. The compensatory damages which the City sought and recovered were for the cost of discovering, managing, rectifying the effects of, and removing the defective product, namely the asbestos-containing building material.

Traditionally, in cases to recover damages because of defective products, the loss of value or use of the product itself, and the cost to repair or replace the product, have usually been viewed as economic losses. See Decoster v. Westinghouse, 333 Md. 245, 250-251, 634 A.2d 1330, 1332-1333 (1994); 2 M. Stuart Madden, Products Liability § 22.21, at 334 (2d ed. 1988); William L. Prosser, The Law of Torts § 101, at 665 (4th ed. 1971); Comment, Manufacturer's Liability to Remote Purchasers for "Economic Loss" Damages--Tort or Contract?, 114 U.Pa.L.Rev. 539 (1966). Tort recovery for purely economic losses has ordinarily not been allowed. Instead, a purchaser suffering only economic loss because of a defective product will normally be limited to contract causes of action, including breach of implied and express warranties, and, in the case of fraud, to an action for deceit. Decoster v. Westinghouse, supra, 333 Md. at 250, 634 A.2d at 1332; Prosser, supra, § 107, at 708.

As previously indicated, in this case the greater part of the damages against Asbestospray was for the removal of the defective fireproofing from the Walbrook Senior High School, costs normally recoverable only by a contract action. Nevertheless, in the circumstances here, we hold that the City's tort claims for compensatory damages in this asbestos action are fully cognizable.

Even where a recovery, based on a defective product, is considered to be for economic loss, a plaintiff may still recover in tort if the defect creates a substantial and unreasonable risk of death or personal injury. This legal principle was firmly established in Maryland by Council of Co-Owners v. Whiting-Turner, 308 Md. 18, 517 A.2d 336 (1986), in which we upheld a negligence action to recover the cost of correcting a dangerous condition allegedly created by the failure of a general contractor and certifying architects to construct a ten-story condominium with the proper fire resistant materials. No fire had yet occurred, and the builder and architects sought to defend, in part, on the ground that the plaintiff council of unit owners had suffered only economic loss. 308 Md. at 24, 517 A.2d at 339. This Court, in an opinion by Judge McAuliffe, refused to penalize the plaintiffs for "the fortuitous circumstance of the nature of the resultant damage." 308 Md. at 35, 517 A.2d at 345. Rather, we held that "where the risk is of death or personal injury the action will lie for recovery of the reasonable cost of correcting the dangerous condition," regardless of whether the damages constitute economic loss. Ibid. See also Village of Cross Keys v. U.S. Gypsum, 315 Md. 741, 753-754, 556 A.2d 1126, 1131-1132 (1989) (applying the rationale of Whiting-Turner to a claim for negligent misrepresentation involving a serious risk of physical harm).

Courts elsewhere, considering claims for the cost of asbestos removal, have similarly permitted the plaintiffs to proceed in tort based on allegations that the asbestos-containing materials posed a substantial and unreasonable risk of personal injury to building users. In 80 S. 8th St. Ltd. Ptsp. v. Carey-Canada, 486 N.W.2d 393, 397 (Minn.1992), the Supreme Court of Minnesota rejected the defendant manufacturer's argument that the plaintiff's tort claim could not be maintained because it was for economic loss arising from the failure of asbestos-containing fireproofing to perform satisfactorily. The court permitted the plaintiff building owner to proceed in tort because, "[i]n seeking the costs of maintenance, removal and replacement, 80 South Eighth seeks the costs of eliminating the risks of injury and of making the building safe for all those who use and occupy this property." Ibid. Just as this Court had earlier held in Whiting-Turner, supra, the Minnesota court concluded by stating that, "[r]ather than waiting for an occupant or user of the building to develop an asbestos-related injury, we believe building owners should be encouraged to abate the hazard to protect the public." 486 N.W.2d at 398. See generally James L. Connaughton, Recovery...

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