Lead Opinion
In California, a manufacturer, distributor, or retailer of a defective product is strictly liable in tort for any resulting harm to a person or to property other than the product itself. This case presents two issues: (1) Can a manufacturer of windows installed in a mass-produced home during its construction ever be strictly liable in tort for harm resulting from defects in those windows? (2) If so, is that manufacturer strictly liable in tort for resulting physical damage to other parts of the house in which the windows have been installed? We answer “yes” to both questions.
I. Facts and Proceedings
In 1988, developer McMillin Scripps II completed the Galleria and Renaissance housing developments in the Scripps Ranch area of San Diego. Viking Industries, Inc. (Viking) manufactured the windows in the Galleria development; T.M. Cobb Company (Cobb) manufactured the windows in the Renaissance development.
Plaintiffs Filipina and Nestor Jimenez, owners of one of the Galleria homes, brought this action against window manufacturers Viking and Cobb, and also against two companies (Medallion Industries, Inc., and Minnoch Supply Co.) that had supplied and installed the windows. On behalf of themselves and all homeowners in the Galleria and Renaissance developments, plaintiffs asserted that defendants had “designed, developed, manufactured, produced, supplied and placed into the stream of commerce” defective windows installed in the Galleria and Renaissance homes, and that the defects caused property damage. They alleged strict liability and negligence causes of action.
Window manufacturer Cobb moved for summary adjudication of the strict liability cause of action. Cobb argued that the manufacturer of a product installed in a mass-produced home, unless it has ownership or control over the housing development, cannot be held strictly liable to a homeowner for a defective or dangerous condition in the home. In response, plaintiffs conceded that Cobb did not own or control the Renaissance housing development, but they argued that manufacturers of component parts of mass-produced houses are strictly liable for damages caused by those component parts, including damage to other parts of the houses in which they are installed. Plaintiffs asserted that the allegedly defective windows installed in their home had damaged the “stucco, insulation, framing, drywall, paint, wall coverings, floor coverings, baseboards, and other parts of the home.”
The trial court granted window manufacturer Cobb’s motion for summary adjudication. The parties later stipulated, and the trial court ordered, that the
The Court of Appeal issued a writ directing the trial court to vacate its order granting the defense motion for summary adjudication. It held that the doctrine of strict products liability applied to manufacturers of defective component parts installed in mass-produced homes, and that this strict liability extended to injuries to other parts of the house in which the defective component was installed. We granted the petitions for review of defendant window manufacturers Cobb and Viking.
II. Relevant Case Law
Nearly 60 years ago, in a concurring opinion in Escola v. Coca Cola Bottling Co. (1944)
Two decades later, in Greenman v. Yuba Power Products, Inc. (1963)
The next year, in Vandermark v. Ford Motor Co. (1964)
In 1969, the Court of Appeal in Kriegler v. Eichler Homes, Inc. (1969)
Thereafter, the Court of Appeal in La Jolla Village Homeowners ’ Assn. v. Superior Court (1989)
The Court of Appeal in this case was the same Court of Appeal (that is, the same division of the same appellate district) that decided La Jolla Village, supra,
III. Strict Products Liability of Component Manufacturers
Citing La Jolla Village, supra,
The policies underlying strict products liability in tort, restated in our decision in Vandermark, supra,
Defendant window manufacturers here argue that subjecting them to strict liability would be improper because they had no physical control over the windows at the time of the alleged harm. In support, they cite Preston v. Goldman (1986)
Insisting that they should not be held strictly liable, defendant window manufacturers point out that their windows are shipped in parts, assembled by others, and installed by others. They rely on language in subdivision (l)(b) of section 402A of the Restatement Second of Torts. That subdivision says that the seller of a defective product “is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if [f] . . . [ID (b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.” (Italics added.) The mere assembly of a product that is sold in parts is not a “substantial change” in the product within the meaning of the Restatement. The issue is not whether the product was sold fully assembled or in parts, but rather whether the defect that resulted in the alleged damage existed when the windows left the manufacturers’ control. To the extent defendants argue that any defect in their windows resulted from improper assembly or installation, their argument is not properly before us here. A motion for summary adjudication may be granted only if there is no triable issue of material fact. (Code Civ. Proc., § 437c, subd. (d)(1).) Defendants’ motion for summary adjudication did not rely on a claim of improper assembly or installation.
Defendant window manufacturers argue that to subject them to strict liability would nullify the California Legislature’s intent when it enacted
Finally, defendant window manufacturers contend that applying strict liability to them would “open the litigation floodgates.” They predict a massive increase in litigation as manufacturers and distributors of component products used in the mass production of homes bring actions and cross actions against each other for indemnity and other claims. We are not convinced. The same dire predictions were made in response to the original development of strict products liability. As we have explained, the policy reasons favoring strict products liability for component manufacturers are the same as for other participants in the general enterprise of manufacturing and marketing consumer goods, and these interests, including the incentives for improved product safety, outweigh the burden imposed by increased litigation.
Accordingly, we hold that the manufacturers of component parts, here windows, that are installed in mass-produced homes can be subject to strict products liability in tort when their defective products cause harm.
IV. The Economic Loss Rule
Two years after our 1963 decision in Greenman, supra,
The truck manufacturer appealed, and we affirmed the judgment. We rejected a contention that strict products liability had entirely superseded the law governing product warranties. We explained: “The distinction that the law has drawn between tort recovery for physical injuries and warranty recovery for economic loss is not arbitrary and does not rest on the ‘luck’ of one plaintiff in having an accident causing physical injury. The distinction rests, rather, on an understanding of the nature of the responsibility a manufacturer must undertake in distributing his products.” (Seely, supra,
This reasoning ultimately outlined the framework of our economic loss rule, which the United States Supreme Court later adopted in large part for purposes of tort liability under admiralty jurisdiction. (See East River S.S. Corp. v. Transamerica Delaval (1986)
In summary, the economic loss rule allows a plaintiff to recover in strict products liability in tort when a product defect causes damage to “other property,” that is, property other than the product itself. The law of contractual warranty governs damage to the product itself. (E.g., Aas v. Superior Court, supra,
To apply the economic loss rule, we must first determine what the product at issue is. Only then do we find out whether the injury is to the product itself (for which recovery is barred by the economic loss rule) or to property other than the defective product (for which plaintiffs may recover in tort). Defendant window manufacturers argue that here the “product” is the entire house in which their windows were installed, and that the damage caused to other parts of the house by the allegedly defective windows is damage to the product itself within the economic loss rule, thus precluding application of strict liability. We disagree.
California decisional law has long recognized that the economic loss rule does not necessarily bar recovery in tort for damage that a defective product (e.g., a window) causes to other portions of a larger product (e.g., a house) into which the former has been incorporated. In Aas v. Superior Court, supra,
Applying this principle to the facts before us here, we conclude that the manufacturer of a defective window installed in a mass-produced home may be held strictly liable in tort for damage that the window’s defect causes to other parts of the home in which it is installed. We have no occasion here to consider whether defective raw materials should be treated in the same manner as component parts or whether there may be situations in which the economic loss rule would bar recovery for damages that a defective component part causes to other portions of the finished product of which it is a part. We hold only that, under California decisional law, the economic loss rule does not bar a homeowner’s recovery in tort for damage that a defective window causes to other parts of the home in which it has been installed.
V. Propriety of Order Granting Summary Adjudication
We now consider whether the trial court acted properly in granting the defense motion for summary adjudication. The court relied on La Jolla Village, supra,
Conclusion and Disposition
This court assumed a leading role in holding manufacturers, distributors, and retailers of defective products strictly liable for physical injuries resulting from the defects. We imposed this strict liability to assure just compensation to innocent victims, to give all those in the distributive chain an incentive to improve product safety and performance, and to promote equitable spreading and apportionment of the losses resulting from physical injuries as a cost of doing business. These policy considerations support the conclusions we reach here: to impose strict liability on the manufacturers of windows installed in mass-produced homes for physical injuries caused by defects in those windows, and to include within the scope of this strict liability damage to other parts of the houses in which these defective windows are installed.
The judgment of the Court of Appeal is affirmed.
George, C. J., Baxter, J., Werdegar, J., Chin, J., and Moreno, J., concurred.
Notes
La Jolla Village Homeowners’ Assn. v. Superior Court, supra,
In the wake of our decision in Aas v. Superior Court, supra,
Concurrence Opinion
The majority opinion, which I authored, holds that the economic loss rule does not bar recovery for damages that defective windows cause to other components of mass-produced homes in which they are installed. (Maj. opn., ante, at p. 484.) It does not hold, however, that the economic loss rule can never bar recovery for damages that one part or element of a finished product causes to other parts or elements of the same finished product. I write separately to express and explain my view that the crucial inquiry for applying the economic loss rule in this context is whether the component part has been so integrated into the overall unit that it has lost its separate identity.
The economic loss rule limits tort recovery under strict products liability to damages for physical harm to a person or to property other than the defective product itself. (Maj. opn., ante, at p. 483.) To apply the economic loss rule, therefore, one must first determine what the product at issue is. Only then can one determine whether the injury is to the product itself (and therefore subject to the economic loss rule) or to property other than the
The manufacturer of a component part may be strictly liable in tort for physical injuries caused by defects in the component. As the Restatement Third of Torts recognizes: “One engaged in the business of selling or otherwise distributing product components who sells or distributes a component is subject to liability for harm to persons or property caused by a product into which the component is integrated if: ffl] (a) the component is defective in itself. . . and the defect causes the harm . . . .” (Rest.Sd Torts, Products Liability, § 5.) A comment in the Restatement Third of Torts addresses the issue of a component causing damage to the product of which it is a part. It says: “[Wjhen a component part of a machine or a system destroys the rest of the machine or system, the characterization process becomes more difficult. When the product or system is deemed to be an integrated whole, courts treat such damage as harm to the product itself. When so characterized, the damage is excluded from the coverage of this Restatement. A contrary holding would require a finding of property damage in virtually every case in which a product harms itself and would prevent contractual rules from serving their legitimate function in governing commercial transactions.” (Rest.3d Torts, Products Liability, § 21, com. e, pp. 295-296.) Under the Restatement view, in other words, the manufacturer of component will not be strictly liable in tort for injury to other parts of the unit in which it is installed if the component has been so integrated into the overall unit that it has lost its separate identity.
Instructive here is the United States Supreme Court’s decision in East River S.S. Corp. v. Transamerica Delaval (1986)
Thereafter, the United States Supreme Court in Saratoga Fishing Co. v. J.M. Martinac & Co. (1997)
I would adopt for California the interpretation of the economic loss rule articulated in these two decisions of the United States Supreme Court and in the Restatement Third of Tort, discussed above. Under this interpretation, in determining whether a component manufacturer is strictly liable in tort for harm that its defective product causes to a larger object of which it is a component, the pertinent inquiry is whether the component has been so integrated into the larger unit as to have lost its separate identity. If so, strict liability is improper. But if the component retains its separate identity, so that it may be readily separated from the overall unit, the component manufacturer may be strictly liable for damages to the larger unit.
Windows are not so integrated into houses as to lose their separate identity. Windows can be readily removed from houses and replaced with other windows. A window that has been removed from one house can then
Concurrence Opinion
In a single paragraph and without significant analysis (maj. opn., ante, at p. 484), the majority sharply narrows the economic loss rule and thereby substantially erodes the demarcation between contract and tort law in California. Plaintiffs allege they bought a product (a mass-produced home) that included defective components (the windows), which malfunctioned, damaging the product as a whole but otherwise causing no personal injury or property damage. In short, plaintiffs claim they did not get the full benefit of their bargain because the product they bought deteriorated in value due to the malfunctioning of a component. The case raises no issue of public safety, nor does it involve an injury that exceeds the subject matter of the parties’ bargain. As such, it is a purely commercial dispute involving failure to deliver bargained-for value (monetary harm) and dependent for its resolution on the terms of the parties’ agreement. Plaintiffs have not shown that traditional warranty principles are somehow inadequate to provide redress for the harm at issue here. Nevertheless, the majority permits a strict products liability action without discussing why a tort remedy is appropriate in this context.
In a world full of complex, integrated products, the general malfunction of a product is almost always traceable to the malfunctioning of a component. Therefore, the majority’s rule turns virtually every product failure into a tort. Because this ill-considered abandonment of settled principles is wrong and fraught with potentially far-reaching consequences, I dissent.
I.
The acknowledged genesis of strict products liability in California is Justice Traynor’s concurring opinion in Escola v. Coca Cola Bottling Co., supra, 24 Cal.2d at pages 461-468 (conc. opn. of Traynor, J.) (Escola), which the court adopted in Greenman v. Yuba Power Products, Inc. (1963)
The court’s concern was thus to maximize consumer safety (see Vandermark v. Ford Motor Co. (1964)
But imposition of strict products liability for damage a defective component of a product causes to the product itself cannot be brought within the foregoing rationale. Here, plaintiffs complain solely of damage to their house, that is, to the product they originally purchased; the safety of their person and other property has never been at issue. That circumstance takes this case outside the scope of strict products liability. The concern driving strict products liability law is that “[a] consumer should not be charged at the will of the manufacturer with bearing the risk of physical injury when he buys a product on the market.” (Seely, supra,
When no safety concerns are implicated because the damage is limited to the product itself, the consumer’s recourse is in contract law to enforce the benefit of the bargain. This principle underlies the economic loss rule, a rule that distinguishes between damages from physical injuries caused by a defective product and economic losses resulting from the failure of the product to meet the consumer’s expectations (for example, losses in a business or the diminished value of the product). The acknowledged seminal articulation of this rule is Chief Justice Traynor’s opinion in Seely, supra,
“The distinction that the law has drawn between tort recovery for physical injuries and warranty recovery for economic loss is not arbitrary and does not rest on the ‘luck’ of one plaintiff in having an accident causing physical injury. The distinction rests, rather, on an understanding of the nature of the responsibility a manufacturer must undertake in distributing his products. He can appropriately be held liable for physical injuries caused by defects by requiring his goods to match a standard of safety defined in terms of conditions that create unreasonable risks of harm. He cannot be held for the level of performance of his products in the consumer’s business unless he agrees that the product was designed to meet the consumer’s demands.” (Seely, supra,
The court also emphasized the appropriateness of bargained-for limitations of liability when a product simply malfunctions, or functions below expectations, but causes no personal injury or damage to other property. The court noted that, because strict products liability “prevents] a manufacturer from defining the scope of his responsibility for harm caused by his products,” its application in the case of a product that merely performs below
The court made equally clear its decision did not depend on the relative bargaining power of the parties. “The law of warranty is not limited to parties in a somewhat equal bargaining position. Such a limitation is not supported by the language and history of the sales act and is unworkable. Moreover, it finds no support in Greenman. The rationale of that case does not rest on the analysis of the financial strength or bargaining power of the parties to the particular action. It rests, rather, on the proposition that ‘The cost of an injury and the loss of time or health may be an overwhelming misfortune to the person injured, and a needless one, for the risk of injury can be insured by the manufacturer and distributed among the public as a cost of doing business.’ [Citation.] That rationale in no way justifies requiring the consuming public to pay more for their products so that a manufacturer can insure against the possibility that some of his products will not meet the business needs of some of his customers.''’ (Seely, supra, 63 Cal.2d at pp. 18-19, italics added; see East River, supra, 476 U.S. at p. 872 [106 S.Ct. at pp. 2302-2303].)
The majority offers no reasoned explanation for ignoring the foregoing principles here where the cause of the product’s failure to meet expectations is that a defective component in the product has damaged the product. In other words, how does the fact that a product somehow damages itself bar invocation of the economic loss rule? The simple answer is that it does not, as the United States Supreme Court has explained in East River, supra, 476 U.S. 858. (See Saratoga Fishing Co. v. J.M. Martinac & Co. (1997)
III.
In East River, components of supertanker turbine engines failed, causing damage—but only to the engines themselves, i.e., “purely monetary harm.” (East River, supra, 476 U.S. at p. 868 [
Equally important, “[w]hen a product injures only itself the reasons for imposing a tort duty are weak and those for leaving the party to its contractual remedies are strong. [1f] The tort concern with safety is reduced when an injury is only to the product itself. When a person is injured, the ‘cost of an injury and the loss of time or health may be an overwhelming misfortune,’ and one the person is not prepared to meet. [Citation.]” (East River, supra, 476 U.S. at p. 871 [
The United States Supreme Court further noted that the more circumscribed scope of foreseeability in contract law imposes an additional necessary limit on liability in this context. (East River, supra, 476 U.S. at p. 874 [106 S.Ct. at pp. 2303-2304].) By contrast in strict products liability, “where there is a duty to the public generally, [and hence foreseeability is construed more broadly,] foreseeability is an inadequate brake. [Citations.] Permitting recovery for all foreseeable claims for purely economic loss could make a manufacturer liable for vast sums.” (Ibid.)
The court thus articulated a “product sold” test for determining what constitutes damage to the product and what constitutes damage to other property. This test harmonizes principles underlying both the economic loss rule and strict products liability, preventing the latter from subsuming the former. As noted in East River, “preserving a proper role for the law of warranty precludes imposing tort liability if a defective product causes purely monetary harm,” as occurs when a defect in the product damages the product itself, and thereby diminishes its value, but causes no other damage. (East River, supra,
IV.
The majority fails even to recognize, much less resolve on any principled basis, the tension generated by resorting to strict products liability despite the adequacy of alternative remedies
The problem in particular with the analysis in Stearman, which the majority implicitly and uncritically accepts, is that the Court of Appeal misconceived the driving principle underlying the economic loss rule. “The economic loss doctrine marks the fundamental boundary between contract law, which is designed to enforce the expectancy interests of the parties, and tort law, which imposes a duty of reasonable care and thereby encourages citizens to avoid causing physical harm to others.” (Barrett, Recovery of Economic Loss in Tort for Construction Defects: A Critical Analysis (1989) 40 S.C. L.Rev. 891, 894.) As the Nevada Supreme Court explained when it addressed the question of recovery for water damage caused to homes by defective roofing and siding: “Contract law is designed to enforce the expectancy interests created by agreement between the parties and seeks to enforce standards of quality. ‘This standard of quality must be defined by reference to that which the parties have agreed upon.’ [Citation.] In contrast, tort law is designed to secure the protection of all citizens from the danger of physical harm to their persons or to their property and seeks to enforce standards of conduct. These standards are imposed by society, without regard to any agreement. Tort law has not traditionally protected strictly economic interests related to product quality—in other words, courts have generally refused to create a duty in tort to prevent such economic losses. [Citation.]” (Calloway v. City of Reno (2000)
The Nevada high court noted that Florida’s supreme court had reached a similar conclusion in the present context: “ ‘Buying a house is the largest investment many consumers ever make, and homeowners are an appealing, sympathetic class. If a house causes economic disappointment by not meeting a purchaser’s expectations, the resulting failure to receive the benefit of the bargain is a core concern of contract, not tort, law. There are protections
Here, as in Calloway, the allegedly defective windows were “an integral component” of plaintiffs’ homes. (Calloway, supra,
The majority proffers no rationale—in terms of either strict products liability or the economic loss rule—for rejecting the reasoning of East River, Calloway, and other decisions (from a majority of jurisdictions that have addressed the issue) barring tort recovery for home damage caused by defective parts. (See Calloway, supra,
The majority’s holding not only eviscerates the economic loss rule (see East River, supra,
Unlike the majority’s rule, a “product sold” test can be readily applied not only in this case but in any circumstance where a component of a product damages the product itself. Here, plaintiffs bought their homes as single, integrated products complete with windows and other constituent parts one would expect in a home. They allege the windows were defective and caused damage to the other parts of their homes, but plaintiffs suffered no personal injury from these defects, nor was any property, other than the homes themselves, damaged. In other words, the product they bought—their homes—did not meet the quality standard they expected at the time of purchase. In those circumstances, the economic loss rule limits their recovery to the benefit of their bargain. If for some reason, such as a limited warranty, they find their contractual remedies inadequate, that fact is a function of their bargain with the seller; it is not a loss the general public should have to subsidize. (See Seely, supra,
The petition of real party in interest Viking Industries, Inc., for a rehearing was denied January 22, 2003. Brown, J., was of the opinion that the petition should be granted. -
Although the majority’s analysis of whether component manufacturers can ever be subject to strict products liability comprises the greater portion of its discussion, that proposition is, in fact, a question on which the law appears substantially settled; and I do not take issue with that aspect of the opinion. Indeed, Justice Traynor’s concurring opinion in Escola v. Coca Cola Bottling Co. (1944)
The fact that a component may be defined as a “product” for purposes of imposing strict products liability when its defective condition causes personal injury or damage to other property (see Rest.3d Torts, Products Liability, § 19, com. b, p. 268) is irrelevant here where the only damage is to the product itself. Under established principles, imposition of strict liability is appropriate in the former circumstances to preclude component manufacturers from avoiding responsibility for the harm caused by their defective products.
Such remedies are rooted in the general law of sales and in special statutory provisions governing home sales. We note in this regard that the Legislature has not failed to enact special protections for the purchasers of homes. (See, e.g., Stats. 2002, ch. 722, § 3 [enacting new Civ. Code, § 895 et seq., eff. Jan. 1, 2003].)
Stearman notes that some Court of Appeal decisions rely on cryptic dicta in the last paragraph of Seely suggesting, without explanation, that the plaintiff in that case might have recovered in strict products liability if he had established causation. (Seely, supra,
The majority purports to reserve the question whether raw materials come within its holding. (See maj. opn., ante, at p. 484.) Given the Restatement’s definition of “product,” however (see Rest.3d Torts, Products Liability, § 19, com. b, p. 268), it is unclear by what principle raw materials could be excluded.