State Farm Mutual Automobile Insurance v. Ford Motor Co.

State Farm Mutual Company, Automobile Insurance

Plaintiff-Appellant,

v. Defendant-Respondent, Ford Company, Motor Company, ABC a fictitious Ford, Neenah Menasha company, Company, and ABC Insurance a fictitious company,

insurance Defendants. Supreme Court argument No. 97-2594. Oral November 1998. Decided 4, 1999. May (Also 201.) reported in 592 N.W.2d by plaintiff

For the there were briefs Patrick J. Coffey Menu, Nelson, Sharratt, and & Teetaert Beisen- Appleton argument by stein, Ltd., and oral Patrick J.

Coffey. respondent

For the defendant there awas brief Hickey, Jeffrey Everson, Peter J. T. DeMeuse and Whitney, Bay Brehm, Everson & Green and Karen Kies DeGrand, Donohue, Brown, Mark M. Burden and Smyth, Chicago, argument IL Mathewson & and oral by Terry Murray, Peterson, E. Johnson of Johnson & C.,S. Milwaukee.

¶ 1. BABLITCH, WILLIAM A. It J. is estab- lished law in that the Wisconsin economic loss doctrine recovery bars tort for economic loss suffered com- requires mercial entities. This case us to determine applies whether the economic loss doctrine also to con- sumer transactions. The circuit court concluded that damages purely the economic loss doctrine bars tort in economic losses consumer State transactions. Farm (State Farm) Company Mutual Automobile Insurance requests that this court reverse the order of circuit entering summary judgment court Ford favor of (Ford) Company negligence on Motor State Farm's liability payments strict claims to recover it made its insured for an economic loss. Because we conclude that policies justify applying the same that the economic apply loss doctrine to commercial transactions with equal transactions, force to consumer we hold that applies loss doctrine consumer transac- tions bars State Farm's claims for the circuit court's Therefore, we affirm economic loss. judgment entering summary in favor of Ford.

order appeal, purposes are this the facts not For 2. Renberg (Renberg) pur- dispute. In 1992 James 4x4 "as is" from used 1990 Ford Bronco chased a dealership. Along with Ford, a Ford Neenah-Menasha Renberg purchased an extended service vehicle, Renberg warranty from Ford for vehicle. also with State Farm. insured the vehicle Renberg July 31, 1996, drove his 1990 On Renberg shift, At the end of his

Ford Bronco work. approached find a fire had occurred his vehicle to although the vehicle was still locked within vehicle Unfortunately up. and the windows were rolled expired. Renberg, his extended service had company, Renberg filed his insurance a claim with investigation an State Farm conducted State Farm.

Renberg's that the fire in claim and concluded ignition Renberg's a vehicle was caused defective August paid 8,1996, $11,602.40 Farm State switch. On Renberg, pursuant its an contract of insurance with represented the fair market value amount which vehicle. Renberg September

¶ In 4. received stating through recall from Ford that 1988 notice develop model Bronco and F-series trucks could a short ignition causing overheating, switch, in the circuit steering possibly column. The smoke and fire develop recall stated that the short circuit could notice in use or unattended. when the vehicle was ¶ State Farm notified this recall notice 5. was subrogation against and thereafter initiated this action money paid insured, it to its Ford recover had Renberg. State Farm based its action on theories of negligence, liability and of contractual strict breach including express implied duties warranties. State voluntarily Farm later dismissed its contractual causes of action because the sales contract for the vehi- cle was "as is" and the extended service had expired at the time of the fire.

¶ 6. In its answer Ford raised the economic loss doctrine asserting as an affirmative defense, that the doctrine negligence bars State Farm's tort claims of liability. and strict summary Ford also moved for judgment. Outagamie

¶ County 7. The Court, Circuit Dyer presiding, granted Honorable Dee R. Ford's summary judgment, agreeing motion for that the eco- nomic loss doctrine barred State Farm's tort claims. appealed. appeals State Farm The court of appeal pursuant

certified the to this court to Wis. Stat. (Rule) (1993-94),1 § accepted 809.61 and this court certification. payment 9. State Farm's claim to recover the it damage only

made for to the Ford Bronco was based on negligence liability. theories of and strict The issue presented by case, this and as certified the court of appeals, applies is whether the economic loss doctrine recovery to consumer transactions2 to bar tort 1A11 references to the Wisconsin Statutes are to the 1993-94 version unless otherwise indicated. party argues Neither the transaction at issue in this case is not a consumer transaction. "Consumer transaction" is defined as "a transaction in which one or more of parties the is a purposes customer for of transaction." Wis. Stat. 421.301(13).

§ "Customer" in turn person is defined as "a other (s. 421.301(28)) organization than an acquires who seeks or real personal or property, services, money personal, or credit for family, agricultural household purposes." or Wis. Stat. 421.301(17). §

313 purely words, deter- loss. In other we must economic may rely mine State Farm on theories whether damages resulting from a defect that causes recover only itself. conclude that harm We applies to consumer transac- economic loss doctrine for Therefore, State Farm's tort claims tions. are

economic loss barred. question loss 10. The of whether given applies transactions, doctrine consumer presented by question undisputed case, facts this Sunnyslope de law that this court reviews novo. Grad- ing Risberg, 910, Miller, Inc., 148 2d v. & Wis. Bradford (1989) Leasing (citing 915, 437 213 First Nat. N.W.2d Corp. Madison, 205, 251 208, v. 81 2d 260 N.W.2d Wis.

(1977)). 11. Economic loss is "the diminution in quality it is and value because inferior general purposes does not work for for which it was Northridge Co. v. W.R. Grace manufactured sold." (1991) Co., 925-26, & 2d 918, 162 Wis. 471 N.W.2d 171 (citing Liability Comment, to Remote Manufacturers' Damages Purchasers "Economic Loss" or —Tort (1966)). also, Contract?, 539, 114 U. Pa. L. Rev. See 541 Cedarapids, Janssen, Inc., Daanen & Inc. 216 Wis. (1998). 395, 401,

2d Economic loss has N.W.2d "damages inadequate value, also been defined as repair replacement prod- costs of the defective any consequent profits uct, or claim of loss of —without injury personal damage property...." Note, to other Liability Jurisprudence, Economic Loss in Products (1966). Daanen, Colum. L. Rev. also See 2d Wis.

¶ 12. Because economic losses are those associ- product ated with a defective or a that does not purchaser's expectations, causing damages ameet through are meant to be addressed law contract joined majority warranties, Wisconsin has jurisdictions which have held that in the commercial setting, damages transaction for economic losses are only recoverable in contract and not in tort. See Sun- nyslope, 148 Wis. 2d at 921. This rule has become known as the "economic loss doctrine." "The economic judicially loss providing doctrine is a created doctrine purchaser that a commercial of a cannot recover from a manufacturer, under tort theories of negligence products liability, damages or strict that are solely 'economic' in nature." Daanen, 216 Wis. 2d at policies support applying 13. Three the eco- 1) nomic loss doctrine to commercial transactions: it maintains the historical distinction between tort and 2) protects parties' law; contract it freedom to allocate 3) encourages economic risk contract; and it party best situated to assess the risk of loss, usually purchaser, assume, allocate or insure against that risk. Daanen, 216 Wis. 2d at 403. Our policies policy review of these convinces us that each applies equal with force to consumer transactions. compelling policy sup- 14. The first and most

porting application of the economic loss doctrine to commercial transactions is that it maintains the dis- tinction between tort and contract Daanen, law. important

Wis. 2d at 403. It is to maintain this distinc- very tion because the two theories serve different purposes. concept protect- is in the of 15. "Tort law rooted society person physical

ing or a from harm to as whole (citing property." 2d at East Daanen, 216 Wis. 405 Corp. Delaval, 476 U.S. S.S. v. Transamerica River (1986), Keeton, and Prosser and Keeton on 858, 866 (5th 1984)). Northridge, § 1 also 162 Wis. Torts ed. See society's health, life, "It in human 2d at 933. is interest against safety protection demands defective and imposes duty upon products, a and manufacturers of (citing products." Daanen, 2d 216 Wis. at 405 those 933). designed Northridge, 2d at law 162 Tort was Wis. protect people unexpected amount from losses that person may overwhelming be an misfortune that

to unprepared (citing River, meet. East 476 U.S. at 871 Bottling Co., 436, v. Coca Cola 150 P.2d 441 Escola (Cal. 1944) (concurring op.)). Christopher Scott See also Saving D'Angelo, Economic Doctrine: Con- Loss Warranty Drowning Torts, Law tract a Sea from (1995). 591, 594 "The 26 U. Tol. L. Rev. manufacturer unexpected deemed best to bear the cost of such able injury property damage personal since, at least in theory, throughout society spread its in the it can loss (refer- higher prices." 26 L. form of U. Tol. Rev. at 594 872). ring River, to East 476 U.S. at Tort extends to all reasonably parties; encompass may it foreseeable reasonably damages unforeseen templated well as those con- only by it because is circumscribed proximate Note, L. cause. Colum. Rev. at 947. Tort safety Northridge, provides hazards,

law redress sharing, 934, 2d risk id. 162 Wis. at embodies at law, hand, 16. Contract on the other is based on obligations imposed bargain, parties it and allows through protect bargaining. Daanen, themselves Northridge, 403; 2d at 2d 938; Wis. 162 Wis. David Negligence, Loss, Gaebler, B. U.C.C., Economic (Fall 1986) (referring Ind. 593, L.J. to Tort Theo- Litigation, Computer City ries 38 Rec. A.B. 426, N.Y. (1983); Keeton, Prosser and on Keeton Torts Dooley, §

656; J. Modern 2.06, Tort Law at 13-14 (1977); Gilmore, G. The Death Contract 87-90 (1974); Speiser, S. C. Gans, Krause & A. The American (1983); Bertschy, Negligent § Law Torts 1.20 Per- Service Contracts and the Economic Loss formance of (1984)). Doctrine, 17 J. L.Mar. Rev. 249 "The law of designed exchanges contracts is to effectuate and to protect expectancy parties private interest of bargained-for agreements." Daanen, 216 Wis. 2d at 404 (citing § Farnsworth, E. Allen 1.3 Contracts at 10-11 (1990)). party voluntarily A ato contract assumes a duty perform promise. Daanen, 216 Wis. 2d at 404 (quoting Cooley, n.4 1 Thomas M. A Treatise on the Law (4th 1932)). § Torts, 2 ed. of contracts law seeks of to parties promises, ensuring hold to their that each party bargain. receives the benefit of or her his Daanen, 216 2d at 404. Wis. Recovery

¶ 17. under contract is limited to parties to the contract those for whose benefit the Note, contract L. was made. 66 Colum. Rev. at 947.

Damages reasonably contemplated are limited those parties when the made. Id. contract was Con- provides suitability tract law redress in for defects and quality product. Northridge, of a Wis. 2d at 934.

"Warranty permits recovery damages law of economic plaintiff by providing recovery makes and whole repair replacement the costs of and/or any consequent profits, putting

and loss of thus position had plaintiff have he would been into the properly." L. Rev. at 26 U. Tol. functioned 872-73) (foot- (referring River, 476 U.S. at to East omitted). purchaser. and ultimate the manufacturer between industry Protecting development took id. See (refer- injured protecting plaintiffs. precedence Id. over Wright, ring 109, M. & 152 10 W. to Winterhottom (1842)). Eng. Rep. society by However, at least the mid-1960's days "long passed of indus- from the unsure

had since society settled and affluent where to a trial revolution just must concerned we injured be about the claims of the hapless user or consumer of industrial products." Dippel, 37 Wis. 2d at 450. Thus the bound- ary began between tort and contract law to move protecting purchasers. liability direction of developed Strict totally separate recovery as a area of for injured purchasers, recovery physical such aimed at injury person property. Seely to both and other v. White (Cal. 1965) Company, Motor 145, 149, 403 P.2d (citations omitted). Imposing liability strict on manu- products grew "public facturers for defective out of a policy judgment people protection needed more dangerous products from warranty." than is afforded the law of (citing Seely, River,

East 476 U.S. at 866 149). 403 P.2d at adopted

¶ 21. Wisconsin first the rule of strict liability (Second) products specifically adopting Dippel, § Restatement Torts 402A. 37 Wis. 2d " any product at 459. 'One who sells in a defective con- unreasonably dangerous dition to the user or consumer property subject liability physical or to his thereby harm caused to the ultimate user consumer, property (quoting or to his (Second) . . . ."'Id. Restatement 402A). liability § Torts Strict law rests on the physical injury person idea that the cost of property may or other " 'overwhelming be an misfortune person injured, injury one, and a needless for the risk of can be insured the manufacturer and distributed among public doing Seely, as a cost of business.'" (con- (quoting Escola, 403 P.2d at 151 P.2d curring op.)). liability designed gov-

¶ 22. Products law was problem physical injuries resulting ern the distinct product; designed from a defective it was not to under- warranty provisions mine contract law or the (U.C.C.). Seely, at 403 P.2d Commercial Code Uniform warranty has its own and of contract 149. The law warranty 'grew as a branch of "The law function. primarily and was commercial transactions

law of aspects controlling of these the commercial aimed at (citing Seely, James, P.2d at 150 transactions.'" Llewellyn, Liability, On 192; L. 34 Tex. Rev. Products Quality, Society, Warranty L. Rev. 36 Colum. and of 341). quality determine the rules of by promised product and the the manufacturer Seely, quality 403 P.2d at When it must deliver. the manu- not function warranted does fails in its end of the manufacturer

facturer, that is damages. may bargain, purchaser contract recover liability products acceptance ¶23. With appreciating plaintiffs, advan- law, commercial push tages provided law, continued by filing boundary law tort and contract between liability neg- products tort theories of claims under only damages ligence loss; their were where personal no caused is, where the defective that injury only damage damage property other but e.g., Sunnyslope, 914-15; See, 148 Wis. 2d itself. River, 476 U.S. at 861.

East liability products [strict if is clear.. .that 24. "It progress development law] far, too con- allowed to were River, in a sea of tort." East drown tract law would (citing Contract Gilmore, The Death U.S. at 866 G. (1974)). perceived plaintiffs were It was 87-94 boundary attempting between tort to move the loss Thus, of the economic too far. the dawn contract developed and loss doctrine was doctrine. The economic attempts largely response applied to extend as a liability products unintended far and into the law too realm of economic loss.

¶ 25. economic loss doctrine maintains the recognizes distinction between tort and contract. It product per- that whether a a certain meets level of purchaser's expectations or a formance is not a matter specific of product Rather, societal interest. functions of a of are matter contract. A "can- manufacturer performance products not for be held the level of his agrees in the consumer's business unless he that the designed was meet consumer's Seely, demands." 403 P.2d at Therefore, 151. "contract dealing law. . better than .is suited tort law for with purely economic loss in the commercial arena." (citations omitted). Daanen, 216 Wis. 2d 404 Con- permits parties specify tract law terms bargain protect Their and to themselves from commer- cial risk. Parties use the rules of and contract quality to "determine the the manufac- promises thereby [the quality turer manufacturer] determine the Seely,

must deliver." 403 P.2d at 150. plaintiff damages If a 26. could recover tort for purely loss, economic "the lia- manufacturer would be though agree [the product] ble even it not did that perform plaintiff expected would to do." wished it Seely, Society's 403 P.2d at 150. interest in tort law protecting purchasers overwhelming from the misfor- physical injury justify tune attendant with does not "requiring consuming public pay more for their products against so that a manufacturer can insure possibility products some his will not meet the her] [or business needs of of his Id. at some customers." Supreme along Court, 27. The States United majority readily adopted with a of other courts loss for doctrine commercial transactions to

321 recovery See East for economic loss. tort bar (citing Seely, 145; 403 P.2d at River, 476 U.S. at 868 Laughlin Corp. Sales Steel v. Johns-Manville Jones & (3rd 1980) (cit Corp., F.2d, 280, 287 and n.13 Cir. cases)).3 seeking damages buyer "[A]

ing commercial Resources, Inc., Shipping v. also Exxon Co. See Pacific (D. 1993) (doctrine recovery tort Supp. precluded F. 1195 Haw. fire); Bowling Mun. V. damage to caused Green Utils.

for bus (W.D. 1995) Co., Ky. Supp. F. Lumber Thomasson law) (doctrine recovery Kentucky dam (applying barred utility poles); Helicopters, Helicopter Inc. Bell age to ERA (E.D. 1987) Textron, Inc., (applying Loui Supp. 696 F. La. law) (doctrine resulting recovery damage precluded

siana engine component); Nelson v. Todd's helicopter's from defective (Iowa 1988) (doctrine Ltd., preclude to applied 120 426 N.W.2d by recovery spoiled tort for meat caused defective butcher agent); curing meat Oceanside at Pine Point Condominium (Me. 1995) Coors, Inc., Owners Ass'n v. Peachtree 659 A.2d 267 (doctrine recovery damage by alleg precluded for water caused Co., edly windows); Corp. 613 FMR v. Boston Edison defective (Mass. 1993) (doctrine precluded recovery tort when N.E.2d 902 losses); Fire power outages economic National Union caused Canada, Whitney Pittsburgh, Co. Pa. V.Pratt & 815 P.2d Ins. (Nev. 1991) (doctrine precluded recovery airplane 601 tort when destroyed (may engine airplane failed and entire be sudden and (N.H. 1988) case); Dagenais, Lempke v. 547 A.2d 290 calamitous (doctrine recovery garage); precluded damages for Chemtrol Adhesives, Co., Inc. v.American Mut. Ins. 537 N.E.2d 624 Mfrs. (Ohio 1989) (economic recovery loss tort doctrine barred where dryer, manufacturing setting, and dam used malfunctioned Country aged only dryer); Waggoner v. Town & Mobile (Okla. 1990) (doctrine Homes, Inc., applied 808 P.2d 649 to bar recovery damage defect caused tort where to mobile home Burman, Inc., only itself); v.E. Property the home Boston Inv. W. (R.I. 1995) (doctrine recovery

658 515 barred for A.2d economic damage contractor); City by general caused Lennox v. Mitek (S.D. 1994) (doctrine Indus., Inc., 519 N.W.2d 330 barred tort resulting purchase for economic loss from the of defec- goods may U.C.C., tive recover. . .under the but not in liability negligence." Spring strict or Motors Distribu- (N.J. 663, tors v. A.2d Co., Ford Motor 1985). similarly

¶28. Wisconsin has followed East majority country River and the of courts across the applying the economic loss doctrine to commercial barring recovery transactions and tort eco- nomic loss in Daanen, commercial transactions. See ("even privity, 216 Wis. 2d at 400 in the absence of pur- a economic loss doctrine remote bars commercial recovering chaser from from losses liability under manufacturer tort theories of strict (court negligence."); Northridge, 162 Wis. 2d at 938 recognized plain- economic loss doctrine but allowed damages tiffs to recover harm caused ("a asbestos); Sunnyslope, Wis. 2d at commer- purchaser solely cial of a cannot recover negli- economic losses from the manufacturer under gence liability particularly, theories, here, strict warranty given by specifi- where the the manufacturer trusses); recovery building for losses caused defective Mid- Serv., Corp. Curry County Inc., Spraying Continent Aircraft (Tex. 1978) (doctrine applied bar S.W.2d 308 tort recov ery airplane rough where defective crankshaft forced to land on road, damage causing fuselage wings; implied to and its doc entities); trine is to limited transactions between commercial (Utah Constr., Design Maack v. Resource & 875 P.2d 570 Ct. 1994) (doctrine

App. recovery damage barred tort to residence Rust, leakage); Orling caused water v. Sensenbrenner & (Va. 1988) (doctrine Neale, Architects, Inc.,374 55 S.E.2d barred recovery damage tort to foundation of house leak caused ing swimming pool).

323 recovery damages."); cally precludes the of such D'Huyvetter 306, 2d Smith Harvestore, 164 Wis. v.A.O. 1991) (Ct. (affirmed App. 330,

328, 475 N.W.2d 587 liability summary judgment on strict for defendants damages plaintiff negligence s the and claims because product perform to as stemmed from expected); failure Agr. Hopkins Spychalla Farms (Ct. App. 2d Chem., N.W.2d 151 Wis.

1989) (allowed damages the defective because damage physical property). to other caused is to

Recovery protect for economic loss intended a product purchasers from losses suffered because Recovery for expected] [or failed in its intended use. bargain necessarily

economic loss focuses on pre- law is parties; struck between the bargain. mised Economic loss protection on defined, damages previously, as we stated value, is inferior inadequate because general purpose and does not work for the for which Liability for it was manufactured or sold. implied representations

loss is on express based manifesting manufacturer's or seller's intent product. and 1984). on guarantee Prosser Keeton (5th Torts, 95-95A, p. secs. ed.

Northridge, Sunnys 2d at 933-34. See also Wis.

lope, 2d at 920-21. Wis. maintaining policy

¶ 29. We conclude that applies the distinction between tort contract with equal As force to consumer transactions. discussed above, it that a manufacturer has is well-established duty entity prevent prod- no another commercial injuring Daanen, uct from itself. 216 Wis. 2d at 406. River, However, also U.S. at there is

See East principled no reason to hold same manufacturer product a different standard when it sells its to an purchase individual consumer. the Whether is a com- specific transaction, mercial or consumer the functions theof are a matter of contract. Whether a com- specific transaction, mercial or consumer functions purchaser's expectations of and the are "the meat and drink of contract law." Edward T. al., et On O'Donnell, Between Blood and Differences Policy Arguments Ink: A Red Second Look at the for

Abrogation the Economic Loss Rule in Consumer Lit- 1995). igation, (Spring, L. 19 Nova Rev. Just parties bargain as contract law allows commercial protect risk, and themselves does from so too contract parties protect law allow consumer themselves. Con- appropriately tract law most enforces the duties that parties imposed upon by entering themselves into contracts. Whether in a commercial or consumer con- text, the distinction between tort and contract should not be eroded. Renberg purchased case, In this the Bronco likely agreement price is,"

"as an which affected did the vehicle. Ford not warrant that it would be free faulty ignition Renberg defects, from such as a switch. purchased warranty an

also extended service which protections price. provided for a certain certain Were Renberg insurer, Farm, or State as his allowed to damages recover tort economic loss—the very type of loss meant to be covered these con- meaningless. tracts —the be contracts would rendered agree though Ford it would be liable did not that the Renberg perform expected Bronco wished, would though expired. service had "The damages manufacturer would be liable unknown scope." Seely, 403 P.2d 150-51. unlimited plaintiffs, that still 31. This case illustrates pro- congenial appreciating environment," the "more Spring by Motors, 489 law, tort to consumers vided push boundary 668, the between A.2d continue filing purely by eco- tort actions for tort and contract However, whether a consumer nomic loss. plaintiff, provide if tort law were allowed

commercial loss, relief for contract law would U.S. at 866. River, in a sea of tort. See East drown entirely pur- different Because tort and contract serve poses, maintaining two the distinction between the important, commercial or con- theories is whether sumer transactions.4 argues that doctrine should The dissent the economic loss Ford apply product, in this because the defective the

not case Bronco, person danger property. an and posed unreasonable society be Dissent at 349-50. The dissent asserts that should products protected through the of such defective strict from risk products liability only even when the loss is economic. law disagree. respectfully

We recently regarding safety The was dissent's concern by Supreme States Airlines addressed Illinois Court. Trans (Ill. 1997). Whitney Canada, Pratt 682 N.E.2d & con- applied Trans State court economic loss doctrine over First, regarding safety product cerns for two reasons. when a itself, very damages only meant harm to be addressed "Thus, products liability products Id. law is not realized. liabil- ity Second, despite safety compromised." concerns are not Id.

applying the economic loss doctrine to situations in which there only itself, liability negli- damage product is to the strict gence adequately protect damage to law nonetheless continue to injury. property personal other Id. personal injury product property Where the causes or other dam- yet subject liability age, may the manufacturer be in tort. predict certainty any no can with

Because manufacturer that product damage his unsafe causes will be confined to policy supporting application ¶ 32. The second setting the economic loss doctrine in the commercial is protects parties' it that freedom to allocate economic risk Daanen, contract. 216 Wis. 2d at 403. As we earlier, stated economic loss is loss suffered defective; value of because it it is is, quality purposes inferior and it not does work for the Northridge, it which was manufactured and sold. 2dWis. at 925-26. Economic risk is the risk that might such a loss occur. law, 33. "Contract law and the designed

Uniform Commercial Code are to allow the parties Sunnys to allocate the risk of failure." lope, 148 Wis. 2d at 920-21. Parties can set the terms of agreements, their River, 872-73, East 476 U.S. at and thereby regarding product performance contract and purchaser's expectations. The U.C.C. manu allows liability by disclaiming facturers to limit restricting warranties or purchaser pays remedies, in which case the product. River, less for the East at Con 476 U.S. 873. provides

tract limitations, law also built-in derived parties' bargain. example, from Id. 874. For con sequential damages profits, such as lost must be a (citing of a foreseeable result breach the contract. Id.

Hadley Eng. Rep. Baxendale, 9 Ex.

(1854)). parties "Courts should assume that factor risk

itself, Therefore, liability possibility. tort continue loom as a will to view, products in our the incentive to build is not safe diminished. Id. agree reasoning Supreme We with the Court. Illinois looming liability per- unpredictable and threat of tort injury damage property by sonal and to other caused a defective product continues an to produce incentive manufacturers to products. safe agreements-" Daanen, 216 Wis.

allocation into their omitted). (citation at2d society, through liability Although products

¶ 34. duty protect imposed manufacturers to law, has a on injury prop- personal against the risk of foreseeable damage, erty manufacturer "it is more difficult disappointed purchaser's eco- a commercial assess expectations." Daanen, 216 2d at 410. This Wis. nomic purchaser particularly does not is true when the specific expecta- her the manufacturer of his or inform Although Seely, P.2d at a See 150. tions. predict as its cannot failures

manufacturer by purchaser, it limit risk contract. is able to used "Forcing Daanen, 216 Wis. 2d at 411-12. commercial gives parties negotiate and allocate risk manufactur- they certainty goods, pricing since can more ers reliably liability potential predict and dam- future 873). (citing ages." River, East 476 U.S. Id. at recovery Allowing for economic loss nullity protections a would render contractual destroy any con- freedom allocate economic risk deprived effect, "[M]anufacturers, tract. would be negotiate, liability." allocate, limit their freedom (citing Daanen, Note, 2d at 408 66 L. 216 Wis. Colum. 962). essentially at receive full

Rev. Purchasers would warranty against protections risk economic without warranty. having negotiate pay to or for such See ever Daanen, 2d 216 Wis. at 410. Purchasers would be encouraged forego purchasing a or insur- rely instead on tort for their ance would remedies "warranty" protection against Daanen, economic risk. (citing Wis. 2d at 408 Dakota Co. v. Gasification (8th 1996)). Bldg. Sys.,

Pascoe 91 F.3d Cir. gain Purchasers would much more than which they bargained paid purchase price. or the Daanen, 216 Wis. 2d at 409. damages If 36. were allowed for economic

loss the manufacturer would liable for risks be bargained expected. which it neither nor Daanen, 216 Sunnyslope, Wis. 2d at 410-11. See also 148 Wis. 2d at Seely, 921; 403 P.2d at 150-51. Manufacturers could any not invoke contractual disclaimer or limitation of against liability purchaser, bargained. the as For example, Seely, manufacturer, the White Motor Company, sold could have the truck "as is" and accord- ingly, any promises-regarding made not the function of applied the loss, truck. If tort law to economic such an (for attempt liability purchaser to limit the which probably pay price), meaning- would a lower would be damages purchaser's less. If tort were allowed for the though prod- loss, economic manufacturer sold purchaser anyway; uct is," "as would recover manufacturer would bear entire risk of economic (citing Daanen, loss. See Wis. Note, 2d at 407 965). Colum. L. Rev. at

¶ 37. Reliance doctrine, on economic loss protects however, allows and both manufacturer's purchaser's freedom to risk allocate economic Daanen, contract. See 216 Wis. 2d 407. The economic encourages parties negotiate loss doctrine ranty protection "to for war- steps, purchasing take such protect insurance, to their interests." appropriate bargain It Id. at a more enforce by using than to allow an run end around contract principles. Subject requirements tort good Id. at 407. conscionability,

faith and manufacturers can liability. In and limit their include disclaimers might pay price. exchange, purchasers id. a lower See 402.719(3). § 407-08; economic loss Wis. Stat. bargain. parties their There is "no doctrine holds to parties' of the risk to intrude into the allocations reason parties from their of loss and to extricate economic bargains." Daanen, 216 Wis. 2d at parties' policy protecting commercial by 38. The of applies risk contract

freedom allocate economic pre- equal In transactions. with force consumer parties sent allocated the risk of case the Renberg purchased is" the Ford Bronco "as failure.

according no to the contract of sale. Ford made promises performance regarding the vehicle's Renberg likely paid it less than he would have were guaranteed. Renberg purchased an war- also extended paid price exchange ranty. He a certain for warranty. protections provided by the With both warranty, contract of extended sale service Renberg protection against a certain level of received exchange price. for certain He also economic loss assumed some amount of risk. Had he been economic willing pay more, he could have received additional protections. Renberg Farm, or his 39. Were State damages purely

insurer, tort for eco- allowed recover very type covered nomic loss—the loss meant to be meaningless. contracts —the contracts would be Renberg and his insurer would receive full against protection purely risk in the economic form damages having negotiated paid without or Renberg gain warranty. would much more than purchase bargained paid that for which he in the price. Renberg damages If were allowed to recover tort stripped loss, his Ford would be ability liability by Ford, its thought to limit contract. which liability

it limited its for economic losses means of the contract of sale and extended war- ranty, damages would be liable for for it which neither bargained expected. nor argues

¶ 40. State Farm that the loss economic apply doctrine should not consumers con because equal bargaining power sumers do not have with "[t]he buyer However, manufacturers. who is not a cor poration necessarily poor unsophisticated is not so or products liability suggest." as the sacred of Although texts may L. Nova Rev. 935. there be situations bargaining parties' power extremely where the parate, is dis bargaining power "relative is not rule, touchstone of the economic loss nor even an ele (in citing Spring ment." Id. at 957 Motors, footnote 670-71; Products, A.2d at Greenman v. Yuba Power (Cal. 1963)). parity Inc., 377 P.2d 897 "Perfect is not required finding substantially equal bargaining a power." Alloway Ind., v. General Marine 695 A.2d (N.J. 1997). fact, In the law and the parties equal bargaining U.C.C. are not limited to with power. Seely, See 403 P.2d at 151. "Such a is limitation supported by language history not or of the sales act Id. unworkable." apply

¶ 41. To the economic loss doctrine to com- mercial entities but not to consumers "would mean one buy prod- rule businesses and another for those who equilibrium from not ucts these businesses. could (footnote omitted). stable." 19 L. at 944 be Nova Rev. a

Such rule would assume that commercial entities always equal bargaining power have with each other equal bargaining and that consumers never have power producer good. with the manufacturer or over-simplified approach. is a This nave and consumer, court, In the case before personal Renberg, purchased He for his use. the vehicle easily just purchased the same vehicle have could heavy-duty hauling painting business, for his small Seely. use or the truck was for individual as in Whether business, scenario have for a the same could returning Renberg locked vehicle his occurred — finding completing job, fire had a after approach Under the advocated occurred in his truck. Renberg purchaser, Farm, as an consumer would

State by the loss doctrine from recov- not be barred ering Renberg damages. However, as a small purchaser, owner, is, a commercial that as business in of the not be able to recover tort because would reality, Renberg In a small doctrine. economic loss equality bargaining in business has no more owner Renberg power than does as an individual. may recognize be situa- 43. We that there some disparate position bargaining in the

tions which great parties so it be uncon- the is that would between party This, such a to hold a to contract. scionable nothing however, There in is not one of those cases. Renberg

the purchase to indicate that was forced to record purchased the vehicle "as is." He could have It is vehicle that came warranties. also another with likely options in that he had several extended warran- to him. ties available

¶ 44. in a or consumer set- Whether commercial parties' ting, into there is "no reason to intrude the extricate allocations of risk economic loss to bargains." parties Daanen, 2d from their 216 Wis. at 410. Because the consumer can his or her allocate protecting policy par- contract, economic risk through applies ties' freedom allocate risk contract equally parties. to consumers as to commercial policy supports applying 45. The third loss doctrine commercial transactions is encourages party usually situated, that it purchaser, best against assume, allocate insure eco purchaser Daanen, nomic risk. Wis. 2d 403. The position plan inis the best for economic loss because product injures only pur when a defective itself, the chaser, manufacturer, not the "stands to lose the value product, displeasure risks the itsof customers who find that the needs, does not meet their .experiences performing or. . increased costs a ser like vice. Losses these can be insured." River, East (citing Cyclopedia U.S. at 871 — 72 Couch, 10A G. (2d §§ 42:385-42:401,

Insurance Law 42:414-417 ed.

1982); Admiralty, p. Benedict, 7 E. Form 1.16-7, No. (7th 1985); Appleman Appleman,

1—239 Ed. 5A J. & J. (1970)). § Insurance Law and Practice 3252 Only buyer ¶ 46. knows how and where the used and it will be whether will be used conjunction components. with other devices or 19 Nova purchasers Rev. L. at 939. Because their know own expectations, they protect needs and best are suited to against themselves economic loss. The manufacturer usually or intermediate seller does not know these things does, and if it its information will come from the buyer. predict result, Id. As a the seller is unable to and protect against severity partic- of economic loss to a purchaser. purchaser position ular Id. The is in a better impact disappointed to understand the of economic expectations by product. Daanen, caused defective purchaser anticipate 216 Wis. 2d at 411. A can against by agree- assume, allocate, or insure risk this through contracting ing sale, a certain contract of to purchasing Id. at 412. insurance. warranties or purchasers policy encouraging to 47. This really against loss assume, or insure economic allocate consuming public aas whole to "distills whether by losses sustained should bear the cost economic bargain purchasers for who failed to those commercial adequate Daanen, at 216 Wis. 2d contract remedies." Charley (citing Toppino Sons, Clara v. Casa 1993)). (Fla. purchaser 1244, 1246 2d If a could 620 So. regard damages purely loss, for economic

recover tort any arrangements contractual between less of parties, liable in tort and

the manufacturer would be against assume, to allocate or insure therefore forced pass on, A manufacturer would this cost economic risk. consuming public very

"forcing cost the to bear contractually agreed forego purchaser commercial exchange price." Daanen, 2d at for a lower 216 Wis. Allowing damages tort for economic loss

412. into would transform all manufacturers insurers liability. seemingly with unlimited tort Consumers pay premiums would then be forced subsidize or purchasers for commercial who choose not assume, allocate, their of eco- against or insure risk protection nomic loss. cost ultimately society. be

expectations would borne consuming public do as a We not think should the cost of economic losses sus- whole bear fail purchasers tained those commercial who bargain adequate contract remedies. River,

Id. 412-13. See also East 476 U.S. at 874. plaintiff Daanen, In could have express warranty requested distributor an that the warranty. Daanen, 216 extend the manufacturer's Wis. plaintiff

2d at 409. It failed to do so. The also could have purchased guard against equipment insurance to fail- apparently ure. Id. 412. It failed do Therefore, so.

this court concluded that Daanen could not now benefit recovering damages foregone from tort it when had protections, probably exchange these contractual price. a lower policy encouraging party

¶ 49. The best usually purchaser, situated, assume, allocate or against applies equal insure economic loss with force to consumer transactions. Whether in commercial con- damages transactions, if sumer tort were allowed for losses, economic manufacturers would become seemingly liability. insurers with unlimited tort See argu- Daanen, 216 2d at Wis. 412. As discussed at oral damages if case, ment in this purely were recoverable for loss, all, economic warranties if offered at would provide protection have to to the full extent of tort law. likely

Manufacturers would add the increased cost of providing expansive protection product, such to their thereby society causing pay as a whole to for the eco- bargain nomic losses of a handful who chose not to adequate "[T]he consuming contract remedies. See id.

public [should have] pay products not more for their against possibil- so that a manufacturer can insure ity products some his will not meet the business Seely, needs of some his customers." 403 P.2d at 151.

Purchasers, whether commercial entities or consum- position protect ers, are a better to assess and against disappointed expecta- themselves purchase tions, and therefore warranties or insurance accordingly. present Renberg purchased case, In though likely

Ford Bronco purchased is" it "as he could have different vehicle with As we warranties. likely times, is that this contract several it have noted price. Renberg pur- purchase also the of sale affected warranty. Again, there an extended service chased providing options likely available, some were several period Finally, coverage, longer time. or for a of more Renberg an contract with State entered into insurance exchange paid premium a a Farm, he for which damages. likely protection is from It certain level of greater protection had he he received that could have higher Renberg willing pay premium. to made been regard- knowledge personal his decisions based on his ing his level use of his vehicle and comfort with the Renberg his insurance contract fulfilled end the risk.

by paying premiums, Farm its his and State fulfilled regarding bargain by paying Renberg's claim the end of damages his Ford the to Bronco. Renberg contractually In to sum, was able

protect case, illustrated this the third himself. As policy justifies applying the doctrine that economic loss encourages transactions, that the to commercial party it purchaser, usually assume, situated, the to best against applies risk, allocate, or insure economic with equal transactions. force to consumer policies above, 52. For the reasons stated the justify applying the doctrine to

that economic loss com- equal apply with force to mercial transactions Whether a commercial or con- consumer transactions. important transaction,

sumer it is to maintain the because the two distinction between tort and contract very purposes: pro- to serve different tort law theories safety, life, societal human health and tect interests protect parties' bargain. law the Sec- and contract transaction, it ond, whether a commercial or consumer important protect parties' freedom to allocate recovery Allowing risk economic contract. would allow an run

economic loss end around the bar- recovery gain provide parties for which the neither expected. bargained Finally, nor whether a commercial important encourage transaction, or consumer it is usually party purchaser, situated, best against Only assume, allocate, or insure economic risk. purchaser, appreciate manufacturer, not the can severity consequences of an economic loss thereby accordingly. contract Our review the policies justify applying

three loss doctrine to commercial transactions convinces us that policies apply equal these with force to consumer transactions. majority jurisdictions

¶ 53. A in courts other applied also have the economic loss doctrine to con- by relying policies sumer transactions on the same by apply used this court to the economic loss doctrine to example, commercial transactions.5 For like this court 5 (Ala. 1990) Zarzour, See Weller 414 Marine v. 577 So. 2d aft (under liability doctrine, Alabama's extended manufacturer's recovery damage no regardless to itself of whether buyer); is sold consumer or commercial & Pratt (Alaska 1993) Whitney Canada, Sheehan, Inc. v. P.2d 852 1173 (distinguishing buyers between consumers and commercial is problematic rejected distinction); and this court such Danforth (Del. 1992) Structures, Inc., v. (rejected Acorn 608 A.2d 1194 homeowner's contention that economic loss doctrine should not apply purchasers opposed consumers as pur to commercial chasers. Such a rule would the legislative defeat intent in enacting Code); the Uniform Commercial Clara Casa Condo Assoc., Sons, Charley Inc., v. Toppino minium Inc. So. 620 (Fla. 1993); Chrysler 2d Corp. Taylor, v. S.E.2d 123 (Ga. 1977) App. (purchaser Ct. of car must sue under law, liability negligence, not strict for loss of benefit of the bargain); State Farm Mutual Automobile Ins. Co. Ford Motor (Minn. (economic 1997) Company, App. 572 N.W.2d 321 Ct. loss Sunny slope States and Daanen and the United in Supreme Supreme River, in Delaware East Court policy, the distinction between Court relied on first reject exception eco- an to the law, and contract tort doctrine for consumers. nomic loss loss underlying economic doctrine rationale the distinct by considering func- best understood by law contract law.

tions served tort .Products-liability protect law evolved to .. tort has from risk of property and his individual posed by dangerous products. Con- physical harm consumers; damage fire to automobile applies doctrine only in con- economic loss and recoverable resulted Industries, tract); Alloway Marine 695 A.2d v. General (N.J. 1997); Sheesley Plumbing Heating & Jandreau v. 270-71 (S.D. 1982) Co., privity, (regarding absent N.W.2d ability to reliance on purchaser's consumer show commercial or seller, hold express representations the remote most courts buyer direct loss non-privity that a cannot recover for implied warranty theory); Ritter v. express either an or an on (Term. 1995) (the Chemicides, Inc., S.W.2d 128 Custom damages have action for economic consumer does not an protect crop from frost product's caused failure to tomato Texas, label); Nobility on Inc. damage promised Homes of (Tex. 1977) (strict Shivers, liability inapplica- 557 S.W.2d 77 by purchaser to economic ble to action of mobile home recover (no 1998) (Vt. Co., losses); A.2d 410 Paquette v. Deer & application doctrine con- distinction in of economicloss between entities; value in motor home sumers and commercial reduced wiring problems purely and eco- because defective related only contract); recoverable nomic loss /Phillips v. Seattle School District Berschauer Construction Co. (Wash. 1994) 1, (applied the economic loss

No. P.2d 986 contractor, consumer," general "sophisticated to a a doctrine unsophisticated the legislature deprived the consumer because WPLA). damages the of economic under

tract-warranty protect law has evolved a viz., "bargained different interest: expecta- parties tions" of both contracting and other foreseeable users who suffer loss when a qualitative expectations fails to meet the of a con- sumer, i.e., when a product is unfit for its intended use. Structures, Inc., v. Acorn 608 A.2d

Danforth (Del. 1992) (citations omitted). 1195-96 and footnotes Clara, See also Casa 620 So. 2d at 1246-47. jurisdictions

¶ 54. Courts in other have also policy, recognizing on that, relied the second like com parties, mercial by consumers must be free to allocate risk [economic loss] contract. "The rule remains the regardless same, of the 'A nature the customer: bargain defective is a loss of the benefit of the is a which contract rather than tort action.'" Well (Ala. 1990) Zarzour, 414, 418 Marine v. 2d So. craft (quoting Dairyland, Corp., Co. Ins. v. General Motors (Ala. 1989)). availability So. 2d 44, of war statutory imposed ranties, sellers, duties on ability inspect goods purchase consumer's before bargain price provide protections over all to the con "[T]hese Clara, See sumer. Casa 620 So. 2d at 1247.

protections must be viewed as sufficient when com pared with the mischief that could be caused allowing recovery Id. economic losses." (footnote omitted). jurisdictions applied

¶ 55. Other have also economic doctrine loss to consumer transactions party policy, because, like the third best situated to usually purchaser, loss, assess risk encouraged assume, should be allocate or insure against "[M]any buyers against that risk. insure goods purchase directly risk of defective either 339 policy,. through purchase . .or an insurance of many indirectly through provided through insurance Alloway, purchases." 275. 695 A.2d at card credit jurisdictions points Farm where 56. State apply doctrine to did the economic loss the court not by persuaded are not these consumer transactions. We held the economic First, the courts which have cases. apply in the not to consumers are

loss minority. does doctrine Alloway, (referring A.2d at 271 See 695 Corp. Lakeshore, Inc., 851, F.2d Steel 753 Sharon (10th 1985) law); (regarding Mexico New 855-56 Cir. Harley 800, Co., Motor 182 N.W.2d

Cova v. Davidson (Mich. 1970); City App. Schubert, LaCrosse v. 804 Assoc., 38, 240 N.W.2d 124, 127 72 Wis. Schroeder & 2d (1976) by Lloyd [overruled 416]; Daanen, 216 Wis. 2d at Den-Tal-Ez, Inc., 11, 491 17 F. Smith Co. v. N.W.2d 1992)). (Minn. minority strength group Also, the of this many questionable of the cases on

cases is because they apply doc relied to not the economic loss which to consumers have since been overruled trine Thompson questioned. example, in v. Nebraska For (Mont. 1982) Corp., P.2d Mobile Homes 334 apply loss to con court did not the economic doctrine reasoning transaction, had sumer consumer respect bargaining position the man an unfair with Thompson, P.2d at 337. The court noted ufacturer. holding in with

that its was consistent cases several relying City including Wisconsin, on other states However, LaCrosse, at 38. LaCrosse was Wis. 2d Sunny slope, in first limited this court 148 Wis. 2d at expressly in 1989, then overruled Similarly, Daanen, 2d Farm and Wis. at 416. State shaky Thompson on the dissent's reliance on ground stands because most of the cases relied on Thompson questioned court have been limited in fashion.6 some support holding

¶ 58. Further for our is found in (Third) Liability the Restatement of Torts: Products (1998) majority jurisdictions § 21 which follows the of recovery damage only and excludes tort for to the defec- product party "pure tive itself. aWhen suffers recovery appropriately economic loss" is more deter- mined contract law and the remedies set in the forth (Third) Liability U.C.C. Restatement Torts: Products § 21 a. a cmt. "When defect in harm results governing itself, the law commercial trans- comprehensive governing actions sets forth a scheme rights buyer and seller." Id. cmt. d.7 6Following history is the Thompson cases relied on in v. (Mont. 1982): Homes, Corp., 334,

Nebraska Mobile 647 P.2d 337 (Colo. 1975) Hiigel Corp., v. General Motors 544 P.2d 983 was Inc., limited Challenge-Cook Richard O'Brien Cos. V. Bros. (D. Supp. 1987);

672 F. Karagheu 466 Colo. Santor v. A and M 1965) (N.J. sian, Inc., 207 A.2d 305 questioned was in East Corp Delaval, Steamship Inc., River v. Transamerica 476 U.S. 858, Schubert, (1986); City 870 La Crosse v. Schroeder and (1976)

Associates, 38, 2dWis. 240 N.W.2d 124 was overruled Janssen, Inc., by Daanen 394, & Cedarapids, Inc. v. 2dWis.

416, (1998); Superwood 573 N.W.2d 842 v. Corp. Siempelkamp (Minn. 1981) Corp., by Hapka 311 N.W.2d 159 was overruled v. (Minn. 1990).

Paquin Farms, Only 458 N.W.2d Gautheir (Mich. 1977) Fuel, Mayo, App. 258 N.W.2d 748 and C&S Inc. v. (E.D. Co., 1981), Equipment Supp. Ky.

Clark 524 F. both Thompson support extending cited in for not the economic consumers, negative history. loss doctrine to have no argues argument The dissent that an can be made for applying products liability law in this case. Dissent 352.

Although recognizes "plausible the Restatement that there is a argument" relying products liability for on strict law when a product poses danger, a contrary implication, dissent's holding support our is found Additional 59. protections under afforded consumers

in the warranties, U.C.C., law, and insurance. the lemon legislature adopted 1963, the U.C.C. July of 1963. "Once 1,1965. See Ch. Laws effective co-equal Legislature respect acts, it as branch legisla- government requires courts consider determining judicial limits of action." tion Alloway, (citing Spring Motors, at 489 695 A.2d 268 671; at 608 A.2d at 1200-01 Danforth, A.2d see also provisions (declining actions)). displace of with tort the U.C.C. by legislative protections granted

”[T]he the not to buttressed Uniform Commercial Code are be recovery." Sunnyslope, principles 148 Wis. 2d and 673). (citing Spring at Motors, 489 A.2d at 916 system compen- provides "comprehensive for U.C.C. a arising sating for economic loss from the consumers Alloway, purchase products." A.2d of defective at against damages ¶61. Protection caused a injuring only product purpose itself is the defective express implied provided in for the warranties River, at 872. When a U.C.C. See East U.S. operate a or as consumer

fails warranted expected, proper the is a avenue for relief breach-of- warranty prefers, "Or, if the it claim. Id. customer can reject acceptance product or its and sue for revoke (citing §§ 2-601, 2-608, breach of contract." Id. U.C.C.

2-612). Regardless, protections has the U.C.C. built-in purchaser and manufacturer. for both 352, at nonetheless concludes that the dissent Restatement remedy provides appropriate Uniform Commercial Code (Third) plaintiff only a economic loss. when suffers Restatement 295, Liability 21 cmt. a at 293. § Torts: Products d cmt. repair

¶ 62. Purchasers are able to recover costs profits, putting purchaser lost thus in the same position properly. ifas functioned See East expectation damages River, 476 U.S. at 873. "The avail- give able for a loss plaintiff bargain by compensating the full benefit its forgone opportunities." (citing business Id. Fuller & Damages: Perdue, The 1, Reliance Interest Contract (1936); 52, 46 Yale L.J. Posner, 60-63 R. Economic (3d 1986)). Analysis § Law 4.8 ed. provides protections 63. The U.C.C. also By contract, manufacturers. terms aof a manufacturer liability, by disclaiming can restrict its reason, within limiting River, warranties remedies. See East exchange, purchaser likely pays In U.S. at 873. a price. Id. "The lower limitation in action contract agreement parties comes from the and the requirement damages, consequential such as lost profits, be a foreseeable result of the breach." Id. at 874 (referring Hadley Eng. Baxendale, Ex. (1854)).

Rep. 145 § 64. State Farm cites Wis. Stat. its 401.102 for argument applies only that U.C.C. the to commercial provides underlying transactions. The statute that the "(a) purposes simplify, clarify the of U.C.C. are To and governing transactions; modernize the commercial law (b) permit expansion To the continued of commercial practices through usage agreement custom, and of the parties Despite § ... ." Wis. Stat. 401.102. these refer- ences to "commercial transactions" and "commercial practices," nowhere does the U.C.C. that indicate "con- group sumers as are to excluded from be the class buyers rights may whose be limited under that sec- (referring Note, tion." L. Rev. Colum. at 2-316). may Although § U.C.C. a court invalidate a unconscionable, the manufacturer's disclaimer purport hold that disclaimers not U.C.C. does per Note, are se. to consumers unconscionable directed 943; Rev. at 961; L. at 19 Nova L. 66 Colum. Rev. § 2-302.

U.C.C. explicit

¶ Furthermore, the U.C.C. "devotes 65. consumers, subject to the of sales to ultimate attention [footnote referring § 2-318, 2 and to U.C.C. comments any argument 3]. that the Code's renders feeble This only and to intended to deal with businessmen drafters regulated by tort law." leave to be ultimate consumers Liability Franklin, The- Marc A. When Worlds Collide: Cases, 18 ories and Disclaimers Defective-Product (footnote (1966) omitted). "The Stan. Rev. L. governs risk the con- allocation of between

U.C.C. just purchaser the seller as it does between sumer and purchaser seller, it and the commercial imposes upon transaction even where warranties expressed provi- the transaction is devoid (citing §§ 2-314, sions." 26 U. Tol. L. Rev. U.C.C. (1977)).

2-315 may gov- Some consumer transactions be erned the Wisconsin Consumer Act contained § Wis. Stat. chs. 421 to 427. Wis. Stat. 421.101. How- "[ujnless particular provisions superseded

ever, parties of chs. 421 to 427 to a consumer transaction rights obligations, duties, have and remedies all of apply [the U.C.C.] provided in chs. to 411 which 421.103(3). parties § the transaction." Wis. Stat. argued any provision

have can we discern not nor supersede obligations, Act Consumer that would purchase rights applicable duties, remedies to the provided an in the automobile U.C.C. ignores many Farm also cases 67. State applied the U.C.C. to consumer transactions. have 344 e.g., Eisenzopf, See, v. 482, Ewers 88 Wis. 2d 276 (1979); Murray Holiday Rambler, 802 Inc., N.W.2d v. (1978); 406, 2dWis. 265 N.W.2d 513 Gerner v. (1977).

Vasby, 660, 250 75 Wis. 2d N.W.2d 319 See also Murray, Daniel E. The Consumer and the A Code: (1968); View, Cross-Sectional 23 U. L. Miami Rev. Impact Helstad, L.

Orrin the Commer Uniform Law, cial Code on 355, Wisconsin 1964 Wis. L. Rev.

(1964). specifically applied fact, In the U.C.C. has been purchase by to the of motor vehicles made individual Hughes Chrysler Corp., v. consumers. See Motors ("Prior (1996) 973, 979, Wis. 2d 542 N.W.2d 148 only laws, enactment of lemon kinds of remedial statutory relief available to consumers were the reme acceptance dies revocation of breach Code.");

under the Uniform Commercial v. Taterka (1978) Co., 140, Ford Motor 86 Wis. 2d 271 N.W.2d 653 (applying provisions several U.C.C. to consumer's repair taillight demand to Ford to assembly gaskets); latent defect in the Car, Northwestern Motor Inc. (1971) Pope, (regarding 292, 187 2dWis. N.W.2d 200 402.718(1) liquidated damages § under Stat. Wis. contract). purchase

automobile legislative protections ¶ In addition to legislature U.C.C., afforded consumers provide protections enacted the lemon further law law, from economic loss. lemon Wisconsin's Wis. Stat. 'improve

§ 218.015, enacted "to was auto manufactur- .[and] quality inconvenience, ers' control. . reduce the expense, [the] frustration, the fear and emo- Hughes, tional trauma lemon owners endure.'" (quoting at 982 197 Wis. 2d Statement Vernon co-sponsor Holschbach, bill, "Lemon" Car Bill Sweet, Sides, Journal, Has Sour Wisconsin State 1983). purchased If a March consumer has vehicle is and the seller unwill- properly that does not function the remedy situation, or to the consumer ing unable Hughes, 197 Wis. 2d has recourse under the lemon law.

at 979-80. provides that if a new motor lemon law

Wisconsin's applicable express does not conform to an vehicle nonconformity repaired shall warranty, the be year warranty of the or one expiration before the vehicle, delivery the whichever is sooner. after of 218.015(2)(a). If nonconformity not Section attempt repair, after to a reasonable repaired vehicle, must return of the accept manufacturer consumer, replace either and at the direction consumer the full vehicle or refund to the tax, any charge, purchase price plus sales finance costs, less a reasonable allowance for use. Section 218.015(2)(b)l attempt 2. and A reasonable to nonconformity is means either that the sub- repair ject repair nonconformity to four times and continues or that the vehicle is out service an days warranty of at least 30 because of aggregate 218.015(l)(h)l 2. nonconformities. Section and Id. If 981. the automobile manufacturer refuses a voluntarily replace repurchase or lemon vehicle consumer, demanded the manufacturer violates 218.015(7) law, the remedies of are the lemon and § Id. available. legislative In addition to the protections consumers, a

the U.C.C. the lemon law afforded as a purchaser, just purchaser, consumer commercial can a on usually purchase product choose whether are to inspect the terms offered. Consumers also able over a price goods purchase, negotiate before around" for the best deal. "The con- product, "shop willing provide sumer is as free to find a seller just greater warranties, and to decide or whether he she pay greater wishes to warranties." 26 U. L. Tol. Rev. accept

at 599. The consumer is free to the basic war- ranty, pay price anof extended to avoid period. the risk of an failure for extended Id. simply short, 70. "In a seller does not a owe tort

duty supply buyer's that will meet the expectations." 26 U. L. Tol. Rev. at 599. Express implied warranties in contract law and provide remedy disap- the U.C.C. the exclusive for pointed purchasers, whether consumers or commercial protections entities. Id. Consumers also have under the ability inspect goods, law, lemon negotiate insurance and the price "shop over around." If consumers recovery purely were allowed tort for loss, economic trump "tort law would forever be used to contract law parties' bargains and render the and the careful alloca- meaningless. tion of duties and risks in the U.C.C. governs plaintiffs Contract tort law—not a law— solely

claims for economic losses." Id. finally argues ¶ 71. State Farm that the fact that Renberg purchased policy an insurance should make analysis no difference in our or treatment of this case. argues subrogation

State action, Farm that this is a and therefore State Farm in the stands shoes of Renberg. subrogation State Farm also asserts that whereby equitable party an doctrine liable a pay defective should the debt satisfied unjust another order to avoid enrichment. areWe persuaded by argument. subrogation not State Farm's injured Subrogation rights

¶ 72. derive from the party's right wrong-doer. to recover from the American Cleveland, 258, v. Standard Ins. Co. 124 Wis. 2d (Ct. 1985). Cunningham App. 369 N.W.2d 168 See also Metropolitan 437, 443-44, Co., Ins. 121 Wis. 2d Life (1985) (citing Palmer, 1 G.E. Law N.W.2d 33 1.5(b) (1978)). original right "The sec. Restitution subrogated [injured party] measures the extent [injured right, omitted] [citation party's Unless party] right tortfeasor, has a from the no recover subrogation Standard, arises." American issue of omitted). (citation 2d at 262 Wis. that 73. Because we determined have Renberg,

injured party, case have a in this does not against purely legal right Ford for his economic loss damages his are barred economic loss because legal right doctrine, does State Farm have neither subrogation recovery subrogated party. as a No issue of right injured Renberg, party, has no arises because the damages from Ford. to recover tort sum, In hold that the economic loss doc- we applies

trine recovery to consumer transactions to bar policies economic loss. same justify applying the loss to com- doctrine apply equal force mercial transactions with Additionally, consumer transactions. like commercial many protections entities, consumers have available against Therefore, loss. State Farm's tort economic purely for are claims economic loss barred. We make Jersey Supreme Like one note of caution. the New preclusion Court, do the the of "we not reach issue of strict-liability unequal parties claim when the are of bargaining power, product necessity, the is a no alter- readily product available, source the is native purchaser reasonably against cannot insure conse- the damages." Alloway, quential 695 A.2d at 273. None of present case. differ- these concerns are in this That is a case for a different ent time.

By the Court.—The order the circuit court is affirmed. ABRAHAMSON, 75. SHIRLEY S. CHIEF (dissenting).

JUSTICE In this case the consumer bought a Ford Bronco "as is" also entered into a warranty Company, contract with Ford Motor the After ended, manufacturer. the the Bronco caught allegedly manufacturing fire, on because of a ignition Subsequently, defect in the switch. the con- paid insurer, Farm, sumer's State fair market brought subrogation value of the Bronco and this suit "stepped in which it into the shoes" of the consumer for purposes seeking majority reimbursement.

opinion, holding however, limit does not its to the cir- presented broadly case, cumstances in this but instead applies holds "that the economic loss doctrine to con- sumer transactions and bars State Farm's tort claims Majority op. economic loss." at 311-12. attempting

¶ 76. an After extensive discussion justify holding its that the economic loss doctrine applies majority opin transactions, to all consumer holding ion itself admits that its is too broad. In the paragraph lengthy majority final decision, of this ay quotes Industries, Allow General Marine 695 A. 2d (N.J. 1997), cautioning 264, 273 "we do that not preclusion strict-liability reach the issue of a parties unequal bargaining claim when are power, necessity, is a no alternative source readily purchaser available, for the is and the reasonably against consequential cannot ages." insure dam only majority

A can reader conclude that opinion holding really loss not applies doctrine to all consumer transactions. Yet the reader does not know which consumer transactions are very excepted the factors from the new rule because majority present opinion are the cautions about which in this case. Although majority opinion

¶ heav- 77. relies Jersey Alloway Supreme ily case, Court on New Alloway expressly to resolve the issue refused Jersey presented facts of this case. The New Supreme Court stated:

An issue is whether the U.C.C. or tort unresolved a a product poses should when defective apply law has persons, serious risk other but property itself. In only product caused economic loss to the case, alleged not that the present plaintiffs have a defective seam in the boat such risk. Hence posed not

we do resolve issue.

Alloway, 695 273. A.2d at majority opinion Trans 78. The also relies on Whitney & Canada,

States Airlines v. Pratt 682 N.E.2d (Ill. 1997), Alloway, like involves a commer- which as in transaction, cial not consumer transaction this Alloway, expressed opinion States, Trans like no case. dis-

on whether "the consumer/commercial transaction any product when the tinction makes difference damages only States, See itself." Trans 682 N.E.2d at 54. I allow the consumer in this case to would product

proceed under the trial doctrine strict liability damage injury claimed, is, for the that alleg- the defective itself. This case involves an edly poses defective an unreasonable risk person property. product liability of harm to Strict grounded safety policies risk-spread- law is on greater ing. theory is that manufacturers will use they Safety products. if care are liable defective injury only concerns are not reduced when the is to the product itself. duty prod-

¶ A 80. manufacturer's to market safe depend ucts not should on whether the full extent of personal injury actually property happens. or When products present harm, defective a risk of isit resulting damage only fortuitous that the is to the product imposing I itself. can find no distinction for liability upon a different product manufacturer whose defective personal injury a

causes consumer to suffer property damage a and manufacturer whose defective

product safety presents an identical risk con- happens by only damage sumer but chance to result in product to the itself. The manufacturer remains position injury product best to avoid to the itself and to damage absorb the to the itself. adopt reasoning case, In this I would Supreme Court of Montana in a case similar to the

case at bar: public

The remains in an unfair bargaining position compared In the manufacturer. the case of damage arising out of only product, loss of this inequality bargaining position pro- becomes more easily nounced. Warranties are disclaimed. difficult, if

Negligence impossible, not to prove. generally consumer does not have dam- large ages lawyers attract attention of who must these contingent handle cases on a fee. We that feel protected by affording the consumer should be legal remedy which causes the manufacturer bear the cost of its defective products. own

Thompson Corp., v. Nebraska Mobile Homes 647 P.2d (Mont. 1982). 334, See & also Oklahoma Gas Elec. (Okla. 1992) (Wilson, Opala

Co., 834 P.2d 982-85 Jay Kauger, dissenting); JJ., ZZitter, M Strict Liability: Recovery Damage to Products Products (1989). Alone, 72 A.L.R. 4th similarly recognizes 82. The Restatement good presented in case a under the circumstances this applying products liability argument made for can be (Third) See Restatement Torts: Products Liabil- law. (1997) (regarding ity § harm to defective plausible argument products itself, "a can that be made merely dangerous, ineffectual, that are rather than governed governing products the rules should be 294) liability p. (Reporters' § law," cL 21 at comment 304). p. § 21 Note and numerous cases cited at any I need not decide in this case other presented under the economic loss doctrine. issues forth, reasons I 84. For the set dissent. ¶ 85. I state JUSTICE am authorized to joins BRADLEY this ANN WALSH dissent. notes history, legal Throughout have courts 18. boundary appropriate struggled between find the Lloyd generally Prosser, William contract. See tort and Contract, in SELECTED Tort The Borderland of TOP- (The M. 380, Thomas on the Law of Torts ICS Michigan University Cooley Series, Lectures, Fourth 1953). pres- boundary societal has fluctuated with This history, parties early legal example, relied For sures. rather than a distinction "forms of action" the strict on & 380-81; Id. at Prosser and contract. tort between § occa- However, 28. there were Torts 6 at Keeton on prevailed gravamen over of the action sions where "gravamen Prosser at 437. This the action. the form of approach distinction led to the modern the action" and contract law. between society industrial, it more As became prod- mass-produced influx of address the needed to reaching place, were the market some which ucts "necessary protect Initially thought it was defective. struggling industry against onslaught an unstable Dippel 2d Sciano, 37 Wis. claims." of disastrous (1967). protected manufac- Courts 450, 155 N.W.2d privity liability requiring of contract turers from

Case Details

Case Name: State Farm Mutual Automobile Insurance v. Ford Motor Co.

Court Name: Wisconsin Supreme Court

Date Published: May 4, 1999

Citation: 592 N.W.2d 201

Docket Number: 97-2594

Court Abbreviation: Wis.