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NEW YORK STATE ELECTRIC & GAS CORPORATION v. WESTINGHOUSE ELECTRIC CORPORATION AND SHIELDS RUBBER CORPORATION (09/14/89)

filed: September 14, 1989.

NEW YORK STATE ELECTRIC & GAS CORPORATION, APPELLANT,
v.
WESTINGHOUSE ELECTRIC CORPORATION AND SHIELDS RUBBER CORPORATION, A PENNSYLVANIA CORPORATION



Appeal from the Order entered October 19, 1987 in the Court of Common Pleas of Allegheny County, Civil, No. GD 86-9576.

COUNSEL

Carl A. Eck, Pittsburgh, for appellant.

Paul A. Manion, Pittsburgh, for Westinghouse, appellee.

Cirillo, President Judge, and Cavanaugh, Brosky, McEwen, Olszewski, Beck, Tamilia, Popovich and Johnson, JJ. Johnson, J., files concurring statement. McEwen, J., joins in concurring statement by Johnson, J.

Author: Beck

[ 387 Pa. Super. Page 539]

This case arises out of a dispute between plaintiff-appellant New York State Electric & Gas Corporation ("NYSEG") and defendant-appellee Westinghouse Electric Corporation ("Westinghouse") concerning alleged defects in a turbine generator designed, manufactured and supplied by Westinghouse to NYSEG for installation in NYSEG's Homer City Electric Generating Station.*fn1 The trial court granted summary judgment in favor of Westinghouse on alternative grounds; first, that the parties' contracts barred recovery by NYSEG on any of the theories pleaded, and second, that NYSEG's tort causes of action sought recovery of purely economic losses, which are not recoverable in a tort product liability action. We affirm.

The Contracts

In 1969, Westinghouse supplied NYSEG with two turbine generators for installation in the Homer City Station. Only one of these generators, Unit No. 1, is involved in this case.

[ 387 Pa. Super. Page 540]

Unit No. 1 functioned without incident until 1983, when the events giving rise to this lawsuit began.

During the years following installation of Unit No. 1, the parties entered into a series of agreements governing Westinghouse's further involvement in servicing the generator and providing materials to the Homer City Station. These agreements consist of a maze of general provisions, blanket purchase orders and more specific purchase orders relating to particular jobs performed by Westinghouse at the Station. They were executed over the five year period from 1979 to 1984. Since the parties' agreements are the horizon against which we must analyze the instant dispute, and are, in our view, determinative of their respective rights and liabilities, we set forth the following detailed description of the agreements' pertinent provisions.

In 1979, ten years after Unit No. 1 became operational, NYSEG and Westinghouse entered into an agreement called the Fixed Price Supply Contract (the "Contract"). As described by NYSEG in the Amended Complaint, this document governed services to be provided by Westinghouse and materials to be supplied by Westinghouse to the Homer City Station from the date of its execution forward. In its initial general provisions, the Contract provides that it is the entire agreement between the parties, presumably as to the subject matter thereof.

The Contract contains very limited warranties regarding Westinghouse's work at the Station. Westinghouse warranted only that its personnel would exercise their best professional knowledge and judgment in performing services and that work or materials supplied under the Contract would conform to contract specifications, be free of defects in workmanship and material and reflect Westinghouse's best technical knowledge and judgment. In the event that either services provided or materials sold were defective, Westinghouse agreed only to reperform, repair, replace or modify the defective services or materials.

The agreements also contain the following pertinent language regarding the extent of Westinghouse's liability to

[ 387 Pa. Super. Page 541]

    the owners of the Homer City station, including NYSEG, for either defective materials or services:

Warranties are Exclusive

THE ABOVE WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR PURPOSE OR OTHER WARRANTIES OR GUARANTEES OF ANY KIND OR DESCRIPTION, EXPRESS OR IMPLIED

The above warranties do not cover, and Westinghouse will have no responsibility for any failure to meet, any warranty caused by any failure of Purchaser or its agents to store, install, operate, inspect or maintain the equipment covered by this contract in accordance with the recommendations of Westinghouse or in the absence of such recommendations, in accordance with the generally accepted practices of the United States electric power industry, including but not limited to applicable quality assurance procedures relating to the installation of equipment covered by this contract.

Remedies are Exclusive

THE REMEDIES OF PURCHASER SET FORTH FOR THE ABOVE WARRANTIES ARE EXCLUSIVE.

Repair, adjustment, reperformance, modification or replacement of any equipment or services performed hereunder in the manner and during the period provided herein shall constitute fulfillment of all liabilities of Westinghouse to Purchaser under the warranties set forth in this Article, whether based on contract; on negligence of any kind, strict liability or tort, on the part of Westinghouse or of its suppliers or subcontractors of any tier; or otherwise.

Limitation of Liability

PURCHASER EXPRESSLY AGREES THAT, NOTWITHSTANDING ANY OTHER PROVISION OF THIS CONTRACT, UNDER NO CIRCUMSTANCES SHALL WESTINGHOUSE'S TOTAL AGGREGATE LIABILITY RESULTING:

[ 387 Pa. Super. Page 542]

    a. FROM THE PERFORMANCE, FAILURE TO PERFORM OR BREACH OF WESTINGHOUSE'S OBLIGATION HEREIN; AND

     b. FROM ANY ACTIVITY UNDERTAKEN BY WESTINGHOUSE WITH RESPECT TO THE EQUIPMENT AND SERVICES COVERED BY THIS CONTRACT; AND

     c. FROM ALL ACTIONS BASED ON NEGLIGENCE OR ANY KIND, STRICT LIABILITY OR TORT, ON THE PART OF WESTINGHOUSE OR ITS SUPPLIERS OR SUBCONTRACTORS OR ANY TIER; AND

     d. OTHERWISE

EXCEED THE PRICE OF THE PRODUCT OR PART ON WHICH SUCH LIABILITY IS BASED.

PURCHASER EXPRESSLY AGREES THAT THE REMEDIES PROVIDED HEREIN RELATING TO WARRANTIES AND PATENT INFRINGEMENT ARE EXCLUSIVE AND THAT NEITHER WESTINGHOUSE NOR ITS SUPPLIERS OR OR SUBCONTRACTORS OF ANY TIER WILL UNDER ANY CIRCUMSTANCES BE LIABLE UNDER ANY THEORY OR [sic] RECOVERY, WHETHER BASED ON CONTRACT, ON NEGLIGENCE OF ANY KIND, STRICT LIABILITY OR TORT, ON THE PART OF WESTINGHOUSE OR ITS SUPPLIERS OR SUBCONTRACTORS OF ANY TIER; OR OTHERWISE, FOR DAMAGE TO OR LOSS OF PROPERTY OR EQUIPMENT OTHER THAN THE EQUIPMENT SUPPLIED HEREUNDER; FOR LOSS OF PROFITS OR REVENUE; FOR LOSS OF USE OF POWER SYSTEM; FOR INCREASED COST OF ANY KIND, INCLUDING BUT NOT LIMITED TO CAPITAL COST, FUEL COST AND COST OF PURCHASED OR REPLACEMENT POWER; CLAIMS OF CUSTOMERS OR PURCHASER, INCLUDING BUT NOT LIMITED TO CLAIMS FOR SERVICE INTERRUPTIONS; OR FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES.

[ 387 Pa. Super. Page 543]

The parties later executed another general agreement called the Blanket Purchase Order, effective May 1, 1983 through April 30, 1984, pursuant to which Westinghouse agreed to provide engineering services to NYSEG during repairs to the Homer City Station turbine and generators. All services performed by Westinghouse at the Homer City Station in the period covered by the Blanket Purchase Order were provided pursuant to its terms, unless the parties executed another specific purchase order governing the particular job involved. The Blanket Purchase Order incorporated the Contract, with some revisions to the warranty, exclusive remedy and limitation of liability language. However, these revisions did not change the basic parameters of Westinghouse's potential liability. Westinghouse continued to warrant only that the engineering services to be provided would reflect Westinghouse's engineers' best professional knowledge and judgment and, if defective, would be reperformed or the price therefor would be refunded. The exclusive warranty and remedies provisions again expressly limited Westinghouse's warranties and remedies to those stated above. The limitation of liability provision expressly excluded liability in contract or tort for any special, indirect, incidental or consequential damages, including lost profits and cost of replacement energy, and established the price of the defective work or materials as the upper limit of Westinghouse's potential liability. The Blanket Purchase Order also states that is it the entire agreement between the parties, supercedes all prior or contemporaneous representations, and "has been induced by no representations, statements or agreements other than those herein expressed."

Against the backdrop of these agreements, freely negotiated between commercial enterprises, we now turn to the facts of this dispute.

Factual Background

In December 1983, Westinghouse notified NYSEG that a portion of the turbine generator called the "blower spacer" should be inspected during the next scheduled shut down of

[ 387 Pa. Super. Page 544]

    the generator and that during the shutdown, the seal on the blower spacer should be replaced. The generator had last been inspected in November 1983, at which time no problems with the blower spacer had been detected. The December 1983 notification apparently arose from Westinghouse's concern that certain difficulties that had arisen in blower spacers in other generators of the same design as the Homer City generator might have been caused by problems with the seal.

In January 1984, the generator was shut down and a new seal was installed on the blower spacer as Westinghouse had earlier recommended. The materials necessary for this work were provided pursuant to a specific purchase order issued on behalf of NYSEG to Westinghouse. This purchase order incorporated by reference the Contract, including its limitation of liability and exclusive warranties and remedies language. Westinghouse also supervised the replacement process. Since there was no specific purchase order regarding the services Westinghouse supplied, these services were apparently provided pursuant to the Blanket Purchase Order, including its limitation of liability and exclusive warranties and remedies language.

In April 1984, Westinghouse notified NYSEG that the generator should be shut down immediately for reinspection of the blower spacer. NYSEG complied and after reinspection by Westinghouse, Westinghouse concluded that there was an "indication" on the blower spacer of a possible inception of an early stage crack in the blower spacer flange. NYSEG then agreed that the generator should be taken out of service in order to permit Westinghouse to repair the blower spacer, which was accomplished by July 6, 1984. Again, Westinghouse's work on the generator was done pursuant to a specific purchase order that incorporated all of the standing terms and conditions regarding warranties and limitations of liability set forth above.

Procedural History

NYSEG instituted suit against Westinghouse in June 1986. NYSEG sought recovery of ...


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