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PHILADELPHIA NATL. BANK v. DOW CHEM. CO.

January 24, 1985

The PHILADELPHIA NATIONAL BANK
v.
The DOW CHEMICAL COMPANY, Dow Chemical U.S.A., and Amspec, Inc., et al.



The opinion of the court was delivered by: NEWCOMER

 NEWCOMER, District Judge.

 PNB brought this action to recover for injuries allegedly brought about by the incorporation of Dow's *fn1" product, Sarabond, into the mortar used in the construction of PNB's Plaza building. PNB contends Sarabond has caused corrosion of metals embedded in the mortar and brick panels of its building and cracking of the masonry on the exterior of the building. Recovery is sought of the costs of inspection and repair of the building, loss of its use, loss of customers, and loss of employee time. PNB also seeks punitive damages. Presently before me is Dow's motion for summary judgment on all tort counts, which include negligence (Count III), strict liability (Count IV), misconduct (Count V), intentional tort (Count VI), and fraud (Count VII). Defendant also seeks summary judgment on plaintiff's claim for punitive damages. For reasons discussed below, the motion will be denied.

 Dow contends all of PNB's counts alleging tort liability are defective inasmuch as the damages for which PNB seeks to recover constitute "economic loss." The parties agree that under Pennsylvania law no negligence or strict liability may be imposed for mere economic loss. Pennsylvania Glass Sand v. Caterpillar Tractor Co., 652 F.2d 1165 (3rd Cir.1981). They differ, however, as to the applicability of this principal to the facts of this case.

 The leading case on the subject is Pennsylvania Glass Sand (hereinafter "PGS"). In PGS plaintiff purchased from defendant a front-end loader which functioned without incident for four years. Subsequently, while the machine was in operation, a fire broke out in the front portion. The operator escaped without injury, but in his haste he failed to turn off the motor, which in effect further fueled the fire. As a result the loader was severely damaged. Plaintiff sought to recover the amount spent on repair and replacement of the machine contending the machine was defective in that it had no fire suppression system. Defendant contended these items constituted mere economic loss which could be recovered, if at all, in a contract action.

 The issue before the Third Circuit was whether injury to the defective product itself should be regarded as an economic loss recoverable only in a contract action. The Court noted that the items most frequently relegated to the realm of economic loss are decrease in value caused by a defect, cost of repair of replacement, and loss of profits -- all items sought by PNB in this action. It nevertheless concluded plaintiff's injuries were cognizable in strict liability.

 In reaching this conclusion the Court noted as follows:

 
The items for which damages are sought, such as repair costs, are not determinative. Rather, the line between tort and contract must be drawn by analyzing interrelated facts such as the nature of the defect, the type of risk, and the manner in which the injury arose.

 652 F.2d at 1173. The Court thus sought to draw a line between contract actions in which the gravaman of plaintiff's complaint is that he failed to receive the quality of product he expected, and tort actions, the gist of which is that the plaintiff has been exposed, through a hazardous product, to an unreasonable risk of injury to his person or his property. Stated another way, the issue is whether a defect renders a product unsafe or whether it merely makes the product ineffective.

 Dow's first contention -- that the items for which recovery is sought determine whether an injury may be designated "economic loss --" is plainly wrong. PGS clearly concluded that the Court must look behind the actual damages alleged to ascertain the nature of the defect and the type of risk it posed. In fact, one of the items for which recovery is sought here -- repair and replacement -- is precisely what PGS held plaintiff could recover in strict liability.

 Defendant's next two contentions are more difficult. Because they overlap I will discuss them together. Defendant asserts that under PGS plaintiff must establish actual injury to person or property and furthermore that the injury occurred in a sudden and calamitous manner. Plaintiff disputes that it must establish actual injury to persons or property, contending instead that if a defect presents an unreasonable risk of harm to persons or property then all damages occasioned by the defect are recoverable in tort. Plaintiff further argues that it has in fact created an issue of fact as to whether injury to property other than the defective product has, in fact, occurred. Finally, plaintiff denies that the injury must occur in a sudden and calamitous manner.

 Language may be found in PGS to support the positions advanced by both sides. For example, the Court noted that, generally speaking, "defects of quality, evidenced by internal deterioration or breakdown, are assigned to the economic loss category, while the loss stemming from the defects that cause accidents of violence or collision with external objects is treated as physical injury." 652 F.2d at 1169-1170. Whether PGS intended to require an actual calamitous injury as a prerequisite to tort recovery, however, is brought into question by the Court's characterization of a products liability case as one in which the plaintiff "has been exposed, through a hazardous product, to an unreasonable risk of injury to his person or his property." Id. at 1169 (emphasis added). In addition, the Court concluded plaintiff's case presented a tort claim because the alleged defect "constitutes a safety hazard that posed a serious risk of harm to people and property" despite the fact that no one was in fact injured. Id. at 1174 (emphasis added). The Court noted also that with some products an "accident" may not be clearly distinguishable from internal deterioration. Id. at 1171, n. 19.

 A more recent Third Circuit case refined and applied PGS in the maritime context. East River Steamship Corp. v. Delaval Turbine, Inc., 752 F.2d 903 (3d Cir.1985). *fn2" In Delaval plaintiff alleged that component parts of turbines installed in four of its ships were defective. Difficulties arose while one of the ships was near port. Interim repairs were made, but problems again arose during a storm at sea. Ultimately no persons or property, other than the turbine parts themselves, were damaged; however, plaintiff contended that because the difficulties endangered the ship and her crew during the storm ...


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