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HARTFORD FIRE INS. CO. v. HULS AMERICA

July 18, 1995

HARTFORD FIRE INSURANCE COMPANY
v.
HULS AMERICA, INC., KAY-FRIES HOLDING, INC., and WIRT-VITABILE ARCHITECTS, P.C.



The opinion of the court was delivered by: LOUIS H. POLLAK

 Pollak, J.

 July 18, 1995

 The plaintiff in this action -- Hartford Fire Insurance Company ("Hartford"), as subrogee of Alpha Housing and Health Care, Inc., t/a Main Line Nursing Rehabilitation Center ("Alpha") -- has brought this suit against (1) Huls America, Inc., including its division, Trocal Roofing Systems, (2) Huls America's predecessors-in-interest, Kay-Fries Holding, Inc., and Dynamit Nobel of America, Inc., and (3) Wirt-Vitabile Architects, P.C., to recover for damages suffered by Alpha when, on November 27, 1993, the roof on a building owned by Alpha in Malvern, Pennsylvania, failed. Hartford has, pursuant to an insurance policy maintained by Alpha, reimbursed Alpha for its losses, and now Hartford seeks to recoup those losses by suing the manufacturer of the roof (the first two defendants, which will collectively be referred to hereafter as "Huls") and the architecture firm that had allegedly been hired by Alpha to inspect the building (including the roof) and report anticipated problems.

 The first and third arguments made by Huls involve the warranties purchased by Alpha in connection with the purchase of the roof. The pleadings do not include a copy of either of the two warranties, so for the warranties to play any role in the resolution of this motion, it would be necessary for the motion to be converted into a motion for summary judgment. Although Hills apparently believes that the warranties (of which Huls has provided copies, along with an affidavit attesting to the authenticity of the warranty copies) can be considered without conversion of the motion. Hartford argues to the contrary, but nonetheless urges that the motion be converted, and has, in anticipation of such conversion, provided the court with affidavits of its own. *fn1" I am not persuaded that I can consider the warranties unless the motion is treated as one for summary judgment rather than as simply for judgment on the pleadings. Pursuant to Rule 12(c), notice is to be provided when such a conversion takes place. In this case, the movant has created the need for conversion, and the nonmovant has urged that the motion be converted. In addition, the issue has been raised in the correspondence the parties have submitted to chambers subsequent to the briefing of the motion. See supra note 1. Accordingly, I consider the parties to have been on notice that the motion was subject to conversion, and I will therefore treat the motion as a motion for summary judgment.

 In addressing the motion, I will first take up Huls's second and third arguments, the resolution of which will make it unnecessary for me to reach Huls's first argument.

 Huls's second argument involves what is known as the "economic-loss doctrine." As set forth in the Supreme Court's opinion in East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 871, 90 L. Ed. 2d 865, 106 S. Ct. 2295 (1986) (in which the Court was sitting in admiralty), the economic-loss doctrine provides that "a manufacturer in a commercial relationship has no duty under either a negligence or strict products-liability theory to prevent a product from injuring itself." Whether a product fails "through gradual deterioration or internal breakage" or "calamitous" event, "since by definition no person or other property is damaged, the resulting loss is purely economic. Even when the harm to the product itself occurs through an abrupt, accident-like event, the resulting loss due to repair costs, decreased value, and lost profits is essentially the failure of the purchaser to receive the benefit of its bargain -- traditionally the core concern of contract law." Id. at 870.

 Both the Third Circuit and the Pennsylvania Superior Court have predicted that the Pennsylvania Supreme Court will adopt the economic-loss doctrine as it is set forth in East River. See Aloe Coal Co. v. Clark Equip. Co., 816 F.2d 110, 119 (3d Cir.), cert. denied, 484 U.S. 853, 98 L. Ed. 2d 111, 108 S. Ct. 156 (1987); Rem Coal Co. v. Clark Equipment Co., 386 Pa. Super. 401, 563 A.2d 128, 132 (Pa. Super. Ct. 1989). As it is formulated in East River, the doctrine clearly precludes recovery by Hartford in tort for damage to the roof itself. The remaining question is whether the tort claims relating to water damage to the building and to the resulting interruption of Alpha's business are also precluded.

 An examination of the cases cited by both Hartford and Huls reveals that there is no one, monolithic economic-loss doctrine. Prior to the Supreme Court's decision in East River, the courts of appeals sitting in admiralty had, following the paths of the various state courts, adopted different versions of the doctrine. See East River, 476 U.S. at 868-70. Different jurisdictions continue to apply variations of the economic-loss doctrine, as is evidenced by the disparity between the decisions in Potomac (in which the court, applying the law of the District of Columbia, held that any damage other than that to the roof itself was recoverable in tort) and Chicago Heights Venture v. Dynamit Nobel of America, Inc., 782 F.2d 723, 726-29 (7th Cir. 1986) (in which the court, applying the law of Illinois, held that the economic-loss doctrine precluded recovery in tort for water damage to a building that resulted from the failure of a roof). *fn3" The parties appear to agree that the law of Pennsylvania governs this dispute, so the question that must be answered is, to what extent does the economic-loss doctrine, as found in the law of Pennsylvania, preclude recovery on the facts of the case at bar for (1) water damage to Alpha's building, and (2) Alpha's lost profits resulting from the interruption of its business.

 Absent the water damage to Alpha's building -- that is, if Hartford were simply seeking lost profits from the demise of the roof -- this motion would be easily resolved. As Judge Joyner recently stated in Eagle Traffic Control v. Addco, 882 F. Supp. 417, 419 (E.D. Pa. 1995), "under the law of Pennsylvania . . . , there is no recovery under the tort theories of negligence [and] strict liability . . . 'where a product malfunctions because of an alleged defect in the article and causes damages to the product itself and consequential damages in the nature of cost of repair or replacement or lost profits, but the malfunction causes no personal injury and no injury to any other property of the plaintiff.'" Id. at 419 (quoting Lower Lake Dock Co. v. Messinger Bearing Corp., 395 Pa. Super. 456, 577 A.2d 631, 634 (Pa. Super. Ct. 1990)). The more difficult question is whether, as the phrase is used in East River and in the Pennsylvania case law, the alleged water damage constitutes injury to "other property."

 No Pennsylvania case has clearly addressed this question, but an examination of the principles that have led to the creation of the economic-loss doctrine suggests that, when faced with the question, the Pennsylvania Supreme Court will conclude that, at least within the commercial context, the phrase "other property" does not include the type of property that one would reasonably expect to be injured as a direct consequence of the failure of the product at issue. In N.Y. State Electric & Gas v. Westinghouse, 387 Pa. Super. 537, 564 A.2d 919, 925-26 (Pa. Super. Ct. 1989) ("NYSEG"), the court explained the policy rationale for the holding in East River:

 
Where an allegedly defective product causes damage only to itself, and other consequential damages resulting from the loss of the use of the product, the law of contract is the proper arena for redressing the harm because in such a case, the damages alleged relate specifically to product quality and value as to which the parties have had the opportunity to negotiate and contract in advance. They have allocated the risks of possible types of losses, and agreed on the level of quality that will be given for the price demanded. When the product fails to conform and only economic losses result, the parties' recovery one ...

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