Wausau Tile, Inc. v. County Concrete Corp.

• Court: Wisconsin Supreme Court
• Citation: Wausau Tile, Inc. v. County Concrete Corp., 593 N.W.2d 445, 226 Wis.2d 235 (Wis. 1999)
• Decision Date: 28 May 1999
• Docket Number: No. 97-2284,97-2284
• Parties: WAUSAU TILE, INC., a domestic corporation, Plaintiff-Appellant, v. COUNTY CONCRETE CORPORATION, a domestic corporation, and American States Ins. Co., a foreign insurance corporation, Defendants, The Travelers Indemnity Co., a foreign insurance corporation, and Medusa Corporation, d/b/a Medusa Cement Company, a foreign corporation, Defendants-Respondents.

Page 445

593 N.W.2d 445

226 Wis.2d 235

WAUSAU TILE, INC., a domestic corporation, Plaintiff-Appellant, v. COUNTY CONCRETE CORPORATION, a domestic corporation, and American States Ins. Co., a foreign insurance corporation, Defendants The Travelers Indemnity Co., a foreign insurance corporation, and Medusa Corporation, d/b/a Medusa Cement Company, a foreign corporation Defendants-Respondents.

No. 97-2284.

Supreme Court of Wisconsin.

Argued Feb. 11, 1999.

Decided May 28, 1999.

For the plaintiff-appellant, there were briefs by Thomas R. Crone, Dana J. Erlandsen, Devon R. Baumbach and Melli, Walker, Pease Ruhly, S.C., Madison and oral argument by Dana J. Erlandsen.

For the defendant-respondent, Medusa Corporation, there was a brief by Keith W. Kostecke and Menn, Nelson, Sharratt, Teetaert Beisenstein, Ltd., Appleton and oral argument by Keith W. Kostecke.

For the defendant-respondent, The Travelers Indemnity Company, there was a brief by John D. Bird, Jr., and Bird, Martin Salomon, S.C., Milwaukee and oral argument by John D. Bird, Jr.

Amicus curiae brief was filed by Frank A. Scherkenbach, Jeffrey S. Fertl and Hinshaw Culbertson, Milwaukee for Wisconsin Gas Company.

¶1 N. PATRICK CROOKS, J

The court of appeals certified this case pursuant to Wis. Stat. § (Rule) 809.61 (1997-98), ¹ asking this court "to determine the nature, extent and scope of the public safety exception to the economic loss doctrine enunciated in Northridge Co. v. W.R. Grace & Co., 162 Wis.2d 918, 471 N.W.2d 179 (1991)." Certification at 1. We hold that the Northridge rule is not applicable to the tort claims alleged in this case. Because the only non-economic loss alleged by Wausau Tile is the personal injury or property damage of third persons, we conclude that Wausau Tile's tort claims are barred by the economic loss doctrine.

I.

¶2 Wausau Tile, Inc. (Wausau Tile) manufactures, sells and distributes "Terra" pavers to entities around the country. Pavers are concrete paving blocks made of cement, aggregate, water, and other materials, for use mainly in exterior walkways. Wausau Tile's pavers have been installed in various locations throughout the nation.

¶3 Wausau Tile contracted with Medusa Corporation (Medusa) to supply the cement for the pavers and arranged for County Concrete Corporation ("County Concrete") to supply the aggregate. ² Wausau Tile's contract with Medusa contained warranties providing that Medusa would remedy or replace cement which did not meet particular specifications. ³

¶4 On April 16, 1996, Wausau Tile filed suit in Marathon County Circuit Court against Medusa, County Concrete, and their insurers, alleging breach of warranty, breach of contract, negligence, indemnification, contribution and strict liability claims. Wausau Tile claimed that several of the installed pavers had suffered "excessive expansion, deflecting, curling, cracking and/or buckling." Compl. p 12. Wausau Tile asserted that these problems were caused by alkali-silica gel reactions which resulted from high levels of alkalinity in Medusa's cement and high concentrations of silica in County Concrete's aggregate.

¶5 Wausau Tile claimed that the expansion and cracking of the pavers had led to problems and property damages which have given rise to "various claims, demands and suits against Wausau Tile." ⁴ Compl. p 12. Wausau Tile alleged that it had "sustained monetary damages in remedying the property damage claims, is facing claims for personal injuries, and has suffered and will continue to suffer lost business and profits." Compl. p 17. In connection with its tort claims, Wausau Tile sought "actual and consequential damages arising from said problems and defects, including, but not limited to, costs of repair, replacement and remedy of any and all defects, complaints and resulting injuries which have arisen or will arise in the future as a result of the use of said pavers." Compl. p 31.

¶6 On March 20, 1997, The Travelers Indemnity Company (Travelers), Medusa's insurer, filed a motion to: (1) dismiss Wausau Tile's negligence, indemnification, and contribution claims pursuant to Wis. Stat. § 802.06, for failure to state causes of action against Medusa and Travelers for which relief could be granted; ⁵ and (2) obtain a summary declaration pursuant to Wis. Stat. § 802.08 that Travelers had no duty to defend Medusa on Wausau Tile's breach of contract and warranty claims. Travelers asked the court to issue an order dismissing Wausau Tile's complaint and all claims asserted against Travelers on their merits.

¶7 The circuit court, Judge Vincent K. Howard presiding, granted Travelers' motion. In a written order entered on July 24, 1997, the court dismissed Wausau Tile's negligence and strict liability claims against Medusa with prejudice. In addition, the court entered summary judgment in favor of Travelers, holding that Travelers had no duty to defend Medusa in this case and dismissing on their merits all pleadings asserting a claim against Travelers.

¶8 In its memorandum decision, the circuit court determined that Wausau Tile's complaint concerned only the suitability or quality of Medusa's product and that the loss it sought to recover was purely economic. Although Wausau Tile asserted personal injury and property damage in support of its negligence and strict liability claims, the third parties who were the real parties in interest as to those claims were not joined, nor was joinder feasible or necessary for Wausau Tile to litigate the economic loss issues. The court concluded, therefore, that the economic loss doctrine precluded Wausau Tile from maintaining its tort claims against Medusa.

¶9 Based on this conclusion, the circuit court held that Travelers had no duty to defend Medusa against Wausau Tile's tort claims. The court found that the Travelers policy ⁶ covered exclusively claims for bodily injury and property damage. Since the third-party real parties in interest for Wausau Tile's claims of bodily injury and property damage were not joined in the suit, the court held that Travelers had no duty to defend.

¶10 As stated previously, the court of appeals certified Wausau Tile's appeal to this court. This court accepted review of all issues raised before the court of appeals.

II.

¶11 We begin by determining whether the circuit court properly dismissed Wausau Tile's negligence and strict liability claims against Medusa as barred by the economic loss doctrine. "A motion to dismiss a complaint for failure to state a claim tests the legal sufficiency of the complaint." Watts v. Watts, 137 Wis.2d 506, 512, 405 N.W.2d 303 (1987). See also Doe v. Archdiocese of Milwaukee, 211 Wis.2d 312, 331, 565 N.W.2d 94 (1997). Whether the complaint states a claim for relief is a question of law which this court reviews de novo. Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis.2d 395, 400, 573 N.W.2d 842 (1998); Watts, 137 Wis.2d at 512, 405 N.W.2d 303. For purposes of review, we must accept the facts stated in the complaint, along with all reasonable inferences which may be drawn from them, as true. Watts, 137 Wis.2d at 512, 405 N.W.2d 303. See also Northridge, 162 Wis.2d at 923-24, 471 N.W.2d 179. Unless it seems certain that no relief could be granted under any set of facts that the plaintiff could prove, dismissal of the complaint is improper. Northridge, 162 Wis.2d at 923, 471 N.W.2d 179; Watts, 137 Wis.2d at 512, 405 N.W.2d 303.

A.

¶12 The economic loss doctrine precludes a purchaser of a product from employing negligence or strict liability theories to recover from the product's manufacturer loss which is solely economic. ⁷ Sunnyslope Grading, Inc. v. Miller, Bradford & Risberg, Inc., 148 Wis.2d 910, 921, 437 N.W.2d 213 (1989). See also East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 870-71, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986); Daanen, 216 Wis.2d at 400, 573 N.W.2d 842; Northridge, 162 Wis.2d at 925, 471 N.W.2d 179. Economic loss is the loss in a product's value which occurs because the product "is inferior in quality and does not work for the general purposes for which it was manufactured and sold." Northridge, 162 Wis.2d at 925-26, 471 N.W.2d 179. See also Daanen, 216 Wis.2d at 401, 573 N.W.2d 842.

¶13 Economic loss may be either direct or consequential. Daanen, 216 Wis.2d at 401, 573 N.W.2d 842; Northridge, 162 Wis.2d at 926, 471 N.W.2d 179. Direct economic loss is "loss in value of the product itself." Daanen, 216 Wis.2d at 401, 573 N.W.2d 842 (citing Steven R. Swanson, The Citadel Survives a Naval Bombardment: A Policy Analysis of the Economic Loss Doctrine, 12 Tul. Mar. L.J. 135, 140 (1987) [hereinafter "Swanson"] ). All other economic loss caused by the product defect, such as lost profits, is consequential economic loss. Daanen, 216 Wis.2d at 401, 573 N.W.2d 842; Northridge, 162 Wis.2d at 926, 471 N.W.2d 179; Swanson at 140.

¶14 The economic loss doctrine does not preclude a product purchaser's claims of personal injury or damage to property other than the product itself. Daanen, 216 Wis.2d at 402, 573 N.W.2d 842; Northridge, 162 Wis.2d at 937, 471 N.W.2d 179; Tony Spychalla Farms, Inc. v. Hopkins Agric. Chem. Co., 151 Wis.2d 431, 438, 444 N.W.2d 743 (Ct.App.1989). Similarly, claims which allege economic loss in combination with non-economic loss are not barred by the doctrine. Daanen, 216 Wis.2d at 402, 573 N.W.2d 842. "In short, economic loss is damage to a product itself or monetary loss caused by the defective product, which does not cause personal injury or damage to other property." Id. at 402, 573 N.W.2d 842.

¶15 In Daanen, this court identified three policies supporting the application of the economic loss doctrine to commercial transactions. Id. at 403, 573 N.W.2d 842. First, the economic loss doctrine preserves the fundamental distinction between tort law and contract law. Id. Second, application of the doctrine protects the parties' freedom to allocate economic risk by contract. Id. Third, the...