Summary
holding that "delamination of the tile [for which the plaintiff contracted the defendant to install] . . . was not an abrupt, cataclysmic occurrence, . . . but a process of failure of the product to perform as anticipated under normal business conditions"
Summary of this case from Northbrook NY, LLC v. Lewis & Clinch, Inc.Opinion
Argued April 30, 1991
Decided June 13, 1991
Appeal from the Appellate Division of the Supreme Court in the First Judicial Department, Carol H. Arber, J.
Richard A. Rosen for Circle Industries Corporation, appellant. Jay A. Canel and Stephen D. Davis, of the Illinois Bar, admitted pro hac vice, and Lloyd I. Isler for Masonite Corporation, appellant.
Gerald D. Roth for HRH Construction Corporation and others, respondents.
John M. O'Connor and Donald M. Spector for Bellevue South Associates, respondent.
Michael Hoenig and Jay M. Smyser for The Product Liability Advisory Council, Inc., amicus curiae.
This appeal — in a case seeking damages for the replacement of defective floor tiles throughout plaintiff owner's housing complex — presents two discrete issues: first, whether plaintiff can recover its replacement costs against the tile manufacturer in tort (strict products liability) or is limited to contract remedies and second, whether the flooring subcontractor should be indemnified by the tile manufacturer on a theory of breach of implied warranty.
For the reasons that follow, we conclude that plaintiff's tort claim against the tile manufacturer should have been dismissed, and that the flooring subcontractor's indemnification claim should have been submitted to the jury.
In January 1973, plaintiff (Bellevue South Associates) entered into a contract with defendant HRH Construction Corporation for the construction of Henry Phipps Plaza West in New York City. The development was to consist of eight buildings containing 894 rental units intended for middle- and lower-income tenants. Financing was provided through the State Mitchell-Lama program. Included in the terms of the construction agreement was a requirement that Hartco wood foam-backed tiles, manufactured by Tibbals Flooring Company, be used.
HRH entered into a contract with defendant subcontractor Circle Industries Corporation in November 1974, calling for Circle to supply all wood flooring in the development for $702,000. Circle also agreed to indemnify and hold HRH harmless against liability arising out of performance of the subcontract.
Circle then attempted to substitute a flooring tile manufactured by Sykes Flooring Company for the specified Hartco tile. (Sykes later merged into defendant Masonite Corporation, and will be referred to as Masonite.) Prior approval of substitutions by the project architect and the Department of Housing and Community Renewal, the State supervisory authority, was required. At this time, Masonite did not manufacture a hardwood floor tile with an attached foam backing, and the sample submitted by Circle was rejected. The architect — Frost Associates — insisted that any substitution conform to the attached-backing requirement. Masonite then purchased equipment that enabled it to attach the foam backing to the tile and submitted a second sample.
The Masonite substitution was approved by Frost on condition that the adhesive coverage — binding the tile to the foam backing — match the 100% coverage of the Hartco tile. While Masonite acknowledged that its tile had only 60% adhesive coverage, Circle argued that there was no specification for adhesive coverage in the contract documents, that the only requirement was an attached foam backing. In August 1975, Frost and the Department of Housing and Community Renewal approved the Masonite tile.
At the time of discussions regarding product substitution, Circle, through a subsidiary, owned a 50% interest in Masonite. That interest — held until September 1976 — was not disclosed to HRH or Bellevue.
The first sale was made by Masonite to Circle in August 1975, and delivery took place between September 1975 and August 1976. All flooring work was completed by September 1976, when tenants began to occupy the rental units. By spring, there were problems with the tiles. A failure of the adhesion between the wood slats and foam backing — a process known as delamination — caused the slats to become loose and break free of the foam. Delamination was first reported in units occupied by wheelchair users.
In September 1977, Masonite reported that the adhesion failure was due to the wheelchair traffic, and that the tile had never been designed to withstand such use. Masonite recommended replacement with rigid nine-inch square block tiles, which HRH completed at no cost to the owner. By January 1978, however, Masonite tiles had begun to fail throughout the complex. Frost concluded that the failures were due to defective materials. In July 1979, HRH and Circle proceeded to replace tiles that had delaminated.
In the summer of 1980, while delamination continued, HRH and Circle refused to undertake further spot replacement. At this time, a rent increase application was being filed, prompting plaintiff to solicit bids for a program to replace the Masonite tile with the Hartco tile on an ongoing basis. As of 1986, Hartco tiles had been installed in 868 units at a cost of $1.7 million. It was projected that the cost of replacing the remaining tiles would be $400,000.
This action was commenced in June 1980. Plaintiff sued HRH and Circle on theories of breach of contract, breach of express warranty, breach of implied warranty of merchantability, and negligence. Plaintiff also sued Masonite for breach of implied warranty, negligence and in strict tort liability. Circle cross-claimed against Masonite for common-law indemnification. Damages alleged included the cost of removing and replacing the defective tiles, additional design and construction costs, carting costs, loss of rental income and diminution of value of the housing project.
The trial court dismissed plaintiff's Uniform Commercial Code claims for breach of implied warranty against all three defendants on the theory that none had supplied goods to plaintiff. All claims against Masonite, except the cause of action in strict products liability, were also dismissed. In addition, the court dismissed plaintiff's negligence claim against Circle and Circle's implied warranty claim against Masonite.
In its verdict sheet, the jury answered that HRH and Circle were liable to plaintiff for breach of contract, for which the jury separately awarded damages of $310,800 against HRH, and $620,600 against Circle. As to Masonite, the jury answered that the tile was defective when it left the factory and that the defect was a proximate cause of plaintiff's damages, and it fixed damages against Masonite in the amount of $1,157,900. No indemnification was allowed by the jury, but the trial court granted judgment notwithstanding the verdict on HRH's contractual indemnity claim against Circle.
The Appellate Division affirmed the judgment, holding that Circle was not entitled to indemnity from Masonite because of its relationship with that company and its involvement in the manufacture of the Masonite tile. The court also rejected Masonite's argument that strict liability could not include plaintiff's economic damages, finding that any such limitation did not extend to situations where the condition caused by the defective product is unduly dangerous. From that affirmance, both Masonite and Circle have appealed.
Plaintiff's Tort Claim Against Masonite
Masonite challenges plaintiff's verdict against it on the ground that the damages sought were not recoverable under tort law. Plaintiff responds that the floor tile was unduly dangerous, making the manufacturer strictly liable in tort for any damage resulting from the defective product.
The doctrine of strict products liability grew out of a public policy judgment that, with increasingly sophisticated, mass-marketed technologies, consumers hurt by defective products needed greater protection than that afforded by the law of warranty (see, East River S.S. Corp. v Transamerica Delaval, 476 U.S. 858, 866; Codling v Paglia, 32 N.Y.2d 330, 340-341; see generally, 2 American Law of Products Liability § 16:4, at 15 [3d ed]). In developing this doctrine — which allows injured consumers to be compensated by remote manufacturers of defective products, regardless of privity, foreseeability or due care — courts of recent decades have reasoned that the manufacturers could better sustain the losses, which could be spread among all their customers (see, Continental Ins. v Page Eng'g Co., 783 P.2d 641, 648-649 [Wyo]; Laurens Elec. Coop. v Altec Indus., 889 F.2d 1323, 1324 [4th Cir]).
Whether this extraordinary tort doctrine should be extended to cases where a product fails to meet the expectation of a commercial customer, where the claimed injury is solely to the product itself, and where the only damages sought are replacement costs, is a question that has concerned several courts, with varying outcomes.
In one of the earliest cases, New Jersey's Supreme Court allowed the purchaser of defective carpeting to recover from the manufacturer on a theory of strict liability (Santor v A M Karagheusian, 44 N.J. 52, 207 A.2d 305). Plaintiff's only injury in that case was the reduced value of the carpet — when installed it showed an unusual line.
New Jersey itself has stepped away from Santor, more recently holding that a commercial buyer seeking damages for economic loss resulting from the purchase of defective goods may recover under a warranty theory but not in strict liability (Spring Motors Distribs. v Ford Motor Co., 98 N.J. 555, 489 A.2d 660).
A contrary view was adopted by the Supreme Court of California in Seely v White Motor Co. ( 63 Cal.2d 9, 403 P.2d 145), a case involving an allegedly defective truck. The court held that the economic loss suffered by the plaintiff — including cost of repair and lost profits — could only be recovered under contract law. In such a case, the court concluded, the manufacturer can only be charged with the risk that its products will not match the purchaser's economic expectations if it agrees to assume that risk. Finally, the court appears to have left room for a claim for property damage to the product itself in cases where that damage flows from a manufacturing defect ( 63 Cal. 2d, at 19, 403 P.2d, at 152).
The only case to present the issue to us was Schiavone Constr. Co. v Mayo Corp. ( 56 N.Y.2d 667, revg on dissent 81 A.D.2d 221, 227-234), a strict liability claim for damage to a defective truck hoist. We concluded — with the Appellate Division dissenters — that a tort cause of action could not be sustained for product failure, choosing the approach of Seely over that of Santor.
In Schiavone, the truck hoist could not withstand ordinary use in the plaintiff's business and eventually had to be sold at a loss. Justice Silverman, dissenting at the Appellate Division, cited Seely to the effect that a manufacturer "can appropriately be held liable for physical injuries caused by defects by requiring his goods to match a standard of safety defined in terms of conditions that create unreasonable risks of harm. He cannot be held for the level of performance of his products in the consumer's business unless he agrees that the product was designed to meet the consumer's demands." ( 63 Cal. 2d, at 18, 403 P.2d, at 151.) The dissent concluded — and this Court agreed — that plaintiff sought to recover damages for failure of the product to function properly when used for normal business purposes, which was at best a breach of contract, not a tort.
The Schiavone dissent discussed a second case, which explicitly adopted the Seely approach but allowed recovery for injury to the product itself under a theory of product liability. In Dudley Constr. v Drott Mfg. Co. ( 66 A.D.2d 368 [Hancock, Jr., J.]), involving a crane with defective bolts, the court concluded that the manufacturer could be held liable for damage to the product resulting from an "accident" caused by the defective parts. As distinguished by Justice Silverman in Schiavone, plaintiff in Dudley was not trying to enforce the benefit of its bargain. Rather, a dangerously defective product was placed into the stream of commerce and caused injury — albeit to the product itself.
Since Schiavone, a third, more restrictive approach has been established by the United States Supreme Court, in East River S.S. Corp. v Transamerica Delaval ( 476 U.S. 858, supra). East River involved defective turbines that had been installed in several supertankers. Damage resulting from those defects raised the issue "whether a commercial product injuring itself is the kind of harm against which public policy requires manufacturers to protect, independent of any contractual obligation." ( 476 US, at 866.) The Court answered this question in the negative, holding that a manufacturer in a commercial relationship has no duty to prevent a product from injuring itself ( 476 US, at 872). Writing for a unanimous Supreme Court, Justice Blackmun expressly rejected the "intermediate" approach that would permit a tort action where users were "endangered" rather than merely "disappointed." ( 476 US, at 869-870.)
Although an admiralty case not binding on us as a matter of State tort or contract law, the East River analysis has had significant influence (see, e.g., Nathaniel Shipping v General Elec. Co., 920 F.2d 1256 [5th Cir]; Aloe Coal Co. v Clark Equip. Co., 816 F.2d 110 [3d Cir], cert denied 484 U.S. 853; Florida Power Light Co. v Westinghouse Elec. Corp., 510 So.2d 899 [Fla]; Lloyd Wood Coal Co. v Clark Equip. Co., 543 So.2d 671 [Ala]). Courts choosing the East River analysis have stressed that tort law is an improper tool for resolving commercial disputes, and represents an unwarranted extension into an area reserved for contract law (see, Miller v United States Steel Corp., 902 F.2d 573, 574 [7th Cir] [describing tort law as a "superfluous and inapt tool" for resolving commercial disputes]; O'Brien Cos. v Challenge-Cook Bros., 672 F. Supp. 466, 471 [D Colo] [citing the need to stem the "ceaseless march toward the merger of principles of tort and contract"]).
In addition, courts following East River have stressed that the theory behind products liability — the idea that the individual consumer who purchases or uses a defective product capable of inflicting injury should not have to shoulder the economic loss — is inapplicable to disputes between commercial parties over a damaged product (see, Laurens Elec. Coop. v Altec Indus., 889 F.2d 1323 [4th Cir], supra). In the case of this purely economic loss, there is no need to shift the loss to the manufacturer to be passed along to and shared by all consumers (see, Continental Ins. v Page Eng'g Co., 783 P.2d 641, 647 [Wyo], supra). The East River approach rejects any application of tort law to these commercial disputes.
Not all State courts have adopted the East River analysis. Instead, courts in several jurisdictions have opted for the intermediate approach, finding that the certainty of the East River bright line rule "comes at too high a price." (Washington Water Power Co. v Graybar Elec. Co., 112 Wn.2d 847, 864, 774 P.2d 1199, 1209; Capitol Fuels v Clark Equip. Co., 382 S.E.2d 311 [Ct of App W Va].) The intermediate or "risk of harm" approach focuses on several factors, including the nature of the defect, type of risk, and manner in which the injury occurred (see, Pennsylvania Glass Sand Corp. v Caterpillar Tractor Co., 652 F.2d 1165 [3d Cir]; and Consumers Power Co. v Curtiss-Wright Corp., 780 F.2d 1093 [3d Cir] [both pre- East River]). The risk of harm analysis has been used, for example, by courts in holding asbestos manufacturers liable under tort-law principles for creating a substantial and unreasonable risk of harm (see, e.g., City of Greenville v Grace Co., 827 F.2d 975, 978 [4th Cir]; Adams-Arapahoe School Dist. No. 28 v Celotex Corp., 637 F. Supp. 1207 [D Colo]; cf., Board of Educ. v A, C S, Inc., 131 Ill.2d 428, 546 N.E.2d 580 [rejecting intermediate approach but finding asbestos manufacturer liable for marketing an unreasonably dangerous product]).
In the present case, we find it unnecessary to accept or reject Masonite's invitation to adopt East River as a matter of State law, for plaintiff's tort claim fails even under the intermediate approach spelled out in Schiavone. The nature of the defect, the injury, the manner in which the injury occurred and the damages sought persuade us that plaintiff's remedy lies in the enforcement of contract obligations, not the enlargement of strict products liability beyond its intended purposes.
Looking first to the nature of the defect, it is evident that what was involved in "intermediate approach" cases such as Dudley and Pennsylvania Glass Sand is far different from what is at issue here. In those cases allowing tort recovery, the product was manufactured with an undiscovered hazard bound to produce a catastrophic accident or enhance the damages should such an accident occur. Here, no one has asserted that a floor tile with less than 100% adhesive coverage is such an inherently dangerous product. Unlike a crane with defective bolts, these floor tiles may be adequate for a number of uses, even if not the bargained-for use in plaintiff's apartment complex.
The dissent rests entirely on the tile's "dangerousness" — that it was hazardous to life and limb, that the safety risk was well documented, that there was an affirmed finding to this effect. In fact, during the 12 or more years the tile had been in use in plaintiff's 894 apartments, there was a total of one documented injury and two reported slip-and-fall incidents. As for the "affirmed finding," under the intermediate approach, the determination whether a tort claim is stated is one that must be made in the first instance by the court, applying factors such as the nature of the defect, type of risk, and manner in which the injury occurred. The jury in the present case of course had no opportunity or occasion to weigh those factors, and its finding on an issue that should have been resolved as a threshold law question in no way limits our review.
The dissent's distinguishing test, moreover — that liability should be allowed where the recovery sought is the cost of eliminating the hazard or making the product safe (dissenting opn, at 304) — is no distinction at all. Whether a defective piece of equipment such as a truck hoist, or floor tiles, or virtually any other product, recovery of replacement costs always can be said to be sought for eliminating the hazard or making the product safe.
The injury — delamination of the tile — was not personal injury or property damage, but solely injury to the product itself. The injury, moreover, was not an abrupt, cataclysmic occurrence, as in Dudley or Pennsylvania Glass Sand, but a process of failure of the product to perform as anticipated under normal business conditions — a traditional breach of contract situation. While there was indication that, over a dozen years, three residents of Phipps Plaza had fallen, plaintiff does not claim that it has been held responsible for any injuries to persons or property. Whether or not those accidents occurred, on this record plaintiff's injury and damages would be precisely the same — the cost of replacing the floor.
That this is simply a case of economic disappointment is brought home by plaintiff's statement that the "wood floor tiles should have lasted the life of the building, at least 40 to 50 years." In this situation where the bargained-for consideration has failed to meet the expectations of the purchaser — as in Schiavone — the remedy lies in contract-law theories such as express and implied warranties, through which a contracting party can recover the benefit of its bargain, not in a tort-law doctrine that strictly assigns the loss to a remote manufacturer to be shared by all its customers (see, Pennsylvania Glass Sand Corp. v Caterpillar Tractor Co., 652 F.2d, at 1175, supra).
Plaintiff further argues that, as a matter of policy, strict liability is necessary because there would otherwise be no incentive to fix the defective floor, making it necessary for someone to suffer a severe injury before remedial action was taken. Even without tort liability, however, a purchaser in plaintiff's circumstances has every incentive to seek a remedy for the breach of contract. Significantly, plaintiff itself stated that it sought replacement of the tile in relation to a proposed rent increase. Plaintiff would hardly forego legal action against the contractor or subcontractor because no recovery in strict liability was possible against the manufacturer. Commercial interests, together with the fear of liability for any injuries that might occur, are a powerful incentive for such plaintiffs, without the need to open another avenue of redress in the law of torts.
We hold, therefore, that plaintiff should not recover from Masonite in strict liability for failure of the tile to perform according to contract.
Circle's Indemnity Claim Against Masonite
Although Masonite is not directly liable to plaintiff in strict products liability, the issue remains whether Circle might shift its liability to Masonite on the theory of implied warranty of merchantability (see, UCC 2-314). We conclude that Circle's indemnification claim on this theory should have been submitted to the jury.
Circle's claim that it should be wholly absolved for liability to plaintiff — because plaintiff's architect approved the substitution — requires little discussion. The jury's rejection of Circle's contention that this was more than design approval is amply supported by the record (see also, 160 A.D.2d, at 190).
Originally, Circle claimed over against Masonite for common-law indemnity based on two separate theories — Masonite's active negligence in manufacturing the tile (its "negligence indemnity" claim), and breach of implied warranty (its "implied warranty indemnity" claim). The trial court dismissed plaintiff's implied warranty claims against HRH and Circle, concluding that those defendants supplied services, not goods. The court concomitantly dismissed Circle's implied warranty indemnity claim against Masonite, believing that it could not stand once plaintiff's implied warranty claims had been dismissed. Circle's negligence indemnity claim against Masonite was thus the only indemnity claim submitted to the jury, and it was rejected.
The right of one party to shift the entire loss to another — indemnification — may be based upon an express contract or an implied obligation, as is the case here. Implied indemnification claims, in turn, may rest on various independent grounds — for example, indemnity may be appropriate because of a separate duty owed the indemnitee by the indemnitor, or because one of two parties is considered actively negligent or the primary or principal wrongdoer (see, Mas v Two Bridges Assocs., 75 N.Y.2d 680, 689-690; D'Ambrosio v City of New York, 55 N.Y.2d 454, 461).
In the present case, the Uniform Commercial Code creates an implied warranty between Circle and Masonite, and Circle has grounded its indemnification claims in this legal relationship as well as Masonite's active negligence in manufacturing and furnishing the floor tiles. Although the issue has never been directly addressed by this Court, courts in other jurisdictions have recognized that implied warranty may provide the requisite basis for an indemnification claim (see, e.g., Crest Container Corp. v Bishop Co., 111 Ill. App.3d 1068, 445 N.E.2d 19, 23-25; see also, Walker Mfg. Co. v Dickerson, Inc., 619 F.2d 305 [4th Cir]). It is the implied warranty theory — not concern over primary fault — that is determinative of such an indemnity claim, and that warranty must be examined on its own terms.
We first consider the trial court's dismissal of Circle's implied warranty indemnity claim against Masonite based on the contemporaneous dismissal of plaintiff's warranty claims, and conclude that Circle's claim should not have been dismissed on that basis.
Unlike HRH and Circle, Masonite supplied goods, having delivered the floor tiles to Circle in August 1976. Masonite, as the seller, warranted to the buyer, Circle, that the goods were merchantable (see, UCC 2-314). While the trial court apparently believed that the warranty between buyer and seller could not be invoked if warranty liability was not being passed through the chain of distribution from the consumer through the distributor to the manufacturer, no such chain of events has been required as a precondition to warranty liability on the part of the seller to the initial purchaser. The warranty claim formed an independent basis for liability, available to the indemnitee against the indemnitor regardless of the ability of the plaintiff to assert a similar claim (see, e.g., Matter of Feehan v United States Lines, 522 F. Supp. 811, 815-816 [SD NY]).
It is possible that a plaintiff's theory of liability against the indemnitee would, as a matter of law, preclude recovery against the indemnitor (see, Mas v Two Bridges Assocs., 75 N.Y.2d 680, 689-690, supra; see also, Codling v Paglia, 32 N.Y.2d 330, 340, supra). In Mas, for example, the plaintiff, who had been injured while attempting to exit a disabled elevator, sued the owner of the building and Otis Elevator Company, the company that had contracted to maintain the elevator. The theories of liability asserted against the owner were failure to maintain and repair the elevator and failure to provide assistance. The jury apportioned 85% liability for failure to maintain and 10% liability for failure to respond. This Court upheld the owner's judgment on its indemnity cross claim against Otis for 85% of the damages, even though the owner had been found 10% liable for failure to respond. Had the only cause of action been for failure to respond, no indemnity based on the contract for repair would, as a matter of law, have been available to the owner.
Here, however, the basis for the cause of action asserted against HRH and Circle was entirely consistent with Circle's implied warranty indemnity claim against Masonite. Although falling under the general description of "breach of contract," the liability of Circle and HRH rested on the defective product. Dismissal of plaintiff's implied warranty claims should, therefore, have had no effect on Circle's claim against the supplier, Masonite (see, State Univ. Constr. Fund v United Technology Corp., 78 A.D.2d 748; Matter of Feehan v United States Lines, 522 F. Supp. 811, 815-816, supra).
Nor was Circle's implied warranty indemnity claim barred as a matter of law by its own conduct. The Appellate Division found that Circle's relationship with Masonite, along with the fact that Masonite did not manufacture a comparable tile until Circle obtained the subcontract, acted to bar any claim based on implied warranty, and it denied Circle's implied warranty indemnity claim because "Circle is not an innocent party entitled to shift liability to Masonite." ( 160 A.D.2d 189, 190.)
The "innocent party" language reveals the Appellate Division's belief that Circle's two separate indemnification theories share the same elements. A finding by the jury that Circle could not recover on the negligence theory thus would preclude recovery on the warranty theory. Indeed, the Appellate Division's holding echoes the instruction given by the trial court on the indemnity claim:
"If you determine that [Masonite] is primarily responsible for the damages sustained by plaintiff and that causing the defendant Circle to pay damages to the plaintiff would result in the unjust enrichment of the defendant [Masonite], then you must return a verdict in favor of the defendant Circle on its cross-claim against the defendant [Masonite]."
The elements of a negligence indemnity claim, however, are not necessarily relevant to an implied warranty indemnity claim.
As discussed above, Masonite — as the seller of the tiles — is deemed to have made an implied warranty as to their merchantability (UCC 2-314). To recover implied warranty indemnity, Circle must show both the existence and breach of the warranty and that the breach was the proximate cause of plaintiff's damages (see, UCC 2-314, Official Comment 13; see generally, 1 White Summers, Uniform Commercial Code § 9-9 [Practitioner's 3d ed]).
Defenses available to claims of breach of the implied warranty of merchantability include the buyer's contributory conduct, lack of privity, failure to give notice, and the Statute of Limitations (see generally, Special Project, Article Two Warranties in Commercial Transactions, 64 Cornell L Rev 30, 243 [1978]). Under the first of these defenses — the buyer's conduct — the focus is on "factors that may sufficiently attenuate the causal connection between defendant's acts and plaintiff's injury to bar recovery." (1 White Summers, Uniform Commercial Code § 11-8, at 541 [Practitioner's 3d ed].) For purposes of this claim the analysis of Circle's conduct thus must be made from the perspective of causation rather than from the perspective charged by the trial court, which was one of primary responsibility and unjust enrichment.
Masonite claims that the four-year limitations period — measured from delivery of the goods — expired prior to commencement of this action (see, UCC 2-725 [2]). It is clear, however, that Circle's quasi-contractual indemnity claim is governed by the six-year contract Statute of Limitations. Moreover, such a claim accrues upon payment by the party seeking indemnity (see, McDermott v City of New York, 50 N.Y.2d 211, 217).
Therefore, the jury's rejection of the indemnity claim that was submitted to it — rendered in response to the trial court's instructions on principles of primary responsibility and unjust enrichment — is not the final word on Circle's indemnity claim based on the implied warranty. Rather, it must be determined whether Circle has a meritorious implied warranty indemnity claim against Masonite and whether Masonite has any valid defenses to that claim. In that the trial court erroneously dismissed this indemnity claim, Circle's request for a new trial should be granted.
Accordingly, on Masonite's appeal, the order of the Appellate Division should be reversed, with costs, and plaintiff's products liability claim dismissed. On Circle's appeal, the order of the Appellate Division should be modified, with costs to Circle as against Masonite, by granting Circle a new trial on its implied warranty indemnity claim against Masonite and, as so modified, affirmed, with costs to plaintiff as against defendant Circle.
[4] Plaintiff asks that the verdict against Masonite be affirmed on an alternative ground — either Masonite's breach of implied warranty, or that Masonite should have been held jointly and severally liable to plaintiff for the total amount found against all three defendants. The trial court dismissed plaintiff's implied warranty claim against Masonite, and refused plaintiff's requests for a judgment in the total amount against each defendant jointly and severally. Thus, plaintiff's present requests, which if meritorious would require reversal of the trial court's rulings and a new trial, go beyond affirmance of the judgment and cannot be awarded to a nonappealing party (see, Parochial Bus Sys. v Board of Educ., 60 N.Y.2d 539, 545-546; Hecht v City of New York, 60 N.Y.2d 57).
Chief Judge WACHTLER and Judges SIMONS, ALEXANDER, HANCOCK, JR., and BELLACOSA concur with Judge KAYE; Judge TITONE dissents on Masonite's appeal only and, as to that appeal, votes to affirm in a separate opinion.
On Masonite's appeal, order reversed, with costs, and plaintiff's products liability claim dismissed. On Circle's appeal, order modified, with costs to Circle as against Masonite, by remitting to Supreme Court, New York County, for further proceedings in accordance with the opinion herein, and, as so modified, affirmed, with costs to plaintiff as against defendant Circle.
Faced with the question of whether New York's strict products liability doctrine permits recovery of economic loss in these circumstances, the majority has postponed decision on the point, holding instead that regardless of the analysis applied the defective product in question here was, as a matter of law, simply not within the category of those that would support a products liability claim. Since this conclusion ignores an affirmed and well-supported jury finding that the product was dangerous, I must take issue with that aspect of the majority's analysis. Moreover, I disagree with the majority's ultimate disposition of defendant Masonite's appeal, since I conclude that a recovery in strict products liability ought to be permitted where, as here, the "economic injuries" for which recovery was sought consisted principally of the expenses that the plaintiff, a remote purchaser, incurred in replacing the defective product specifically to eliminate the proven risk of personal injury that the defective product posed. Such a narrow rule is, in my view, consistent with the policies underlying both tort law in general and the doctrine of strict products liability in particular. Most importantly, it represents the fairest and most sensible means of balancing those policies against the policies underlying the UCC breach of warranty remedies. Accordingly, I dissent.
Initially, there can be little doubt that the jury's verdict on plaintiff's strict products liability claim represents a finding that the tiles manufactured by Masonite's predecessor were dangerously defective. The jury was charged that "[a] product is defective if it is not reasonably safe, that is, if the product is likely to be harmful to people so that a reasonable person who had knowledge of its potential for producing injury would conclude that it should not be marketed in that condition." When asked in a special interrogatory whether the tiles were "defective," the jury answered affirmatively, thus signaling its finding that the tiles were hazardous. Since the Appellate Division did not disturb that finding and, in fact, indicated that it too would have placed the tiles within the category of products that are "unduly dangerous" (see, 160 A.D.2d 189, 190), the finding cannot be disturbed unless it is, as a matter of law, not supported by the evidence (Cohen v Hallmark Cards, 45 N.Y.2d 493, 499; see, Siegel, N Y Prac § 529, at 827 [2d ed]). Certainly, that conclusion cannot be drawn here.
One representative of plaintiff, an architect by training, testified that he considered the emerging problem with the Masonite tiles to be a "dangerous and hazardous situation." An agreement between plaintiff, HRH (the general contractor) and Circle (the subcontractor) referred to the tile's condition in some areas as "hazardous." Most significantly of all, the trial evidence indicated that injuries such as a compressed and broken vertebra, an injured arm and a bruised leg and foot had been sustained as a result of accidents in which apartment occupants had tripped over defective tiles. While plaintiff was not called upon to pay personal injury damages as a result of these accidents, that fortuity does not in any way detract from the obvious inference that the tiles were dangerous.
The majority brushes aside the finding of dangerousness on the ground that the "intermediate approach" discussed in its opinion requires a legal rather than a factual analysis based on a consideration of three factors: the nature of the defect, the type of risk and the manner in which the plaintiff's injury occurred (majority opn, at 294, n 2; see, e.g., Pennsylvania Glass Sand Corp. v Caterpillar Tractor Co., 652 F.2d 1165). However, the dangerousness finding is highly relevant in this three-factor analysis. Indeed, courts which have invoked that analysis have most often "reach[ed] different results depending on the hazardous or non-hazardous nature of the defective product at issue" (Salt Riv. Project Agric. Improvement Power Dist. v Westinghouse Elec. Corp., 143 Ariz. 368, 377, 694 P.2d 198, 207 [analyzing and applying prior "intermediate approach" decisions]; accord, East River S.S. Corp. v Transamerica Delaval, 476 U.S. 858, 870 ["(t)he intermediate positions * * * essentially turn on the degree of risk"]). Thus, under the "intermediate approach," where the product defect "is qualitative in nature and relates to a consumer's expectations" the claim will be deemed to lie in contract not tort law; but the converse will be true where "`a product is sold in a defective condition that is unreasonably dangerous to the user'" (Board of Educ. v A, C S, Inc., 131 Ill.2d 428, 440, 546 N.E.2d 580, 585, quoting Moorman Mfg. Co. v National Tank Co., 91 Ill.2d 69, 88, 435 N.E.2d 443, 448).
In this case, the majority has concluded that the product defect falls within the former category because "the bargained-for consideration has failed to meet the expectations of the purchaser" (majority opn, at 294). However, the analysis plainly cannot stop at that point since, in addition to "failing to meet the [purchaser's] expectations," the tiles failed in a way that rendered them hazardous to life and limb. Thus, this is more than a case of mere "disappointed economic expectations." Rather it is one involving the risk of actual bodily harm, a subject that the "intermediate approach" would consider well within the policies and reach of tort law (see, Pennsylvania Glass Sand Corp. v Caterpillar Tractor Co., 652 F.2d 1165, 1174, supra).
The majority's observations that a wood tile with less than 100% adhesive coverage "may be adequate for a number of uses, even if not the bargained-for use in plaintiff's apartment complex" (majority opn, at 294) clearly does not provide a persuasive ground for denying recovery under the "intermediate approach." First, the majority's observation is highly speculative and, indeed, it is difficult to imagine what other use, apart from mere display, would be suitable for tiles that could not withstand ordinary residential use. Second, the theoretical alternative uses of these tiles, if any, are irrelevant, since the tiles were, in fact, dangerous when put to use in plaintiff's apartments — the precise use for which they were designed and fabricated.
Similarly, the fact that the product failed through a process of deterioration rather than a "catastrophic accident" — a fact on which the majority relies almost entirely (see, majority opn, at 294) is not decisive (see, Northern Power Eng'g Corp. v Caterpillar Tractor Co., 623 P.2d 324, 328 [Alaska] ["(t)here is nothing magical about the phrase `sudden and calamitous'"]). As one authority has observed, the rationale for some courts' emphasis on accidents of violence and collision with external objects "is that such situations present a greater safety risk." (Pennsylvania Sand Glass Corp. v Caterpillar Tractor Co., supra, at 1170, n 14.) In this case, the safety risk is well documented and there is thus no need to consider the nature of the occurrence that led to the product harm to determine whether the product failure implicated human safety as well as contractual expectations. In these circumstances, "[t]o prevent recovery in tort merely because the physical harm did not occur suddenly would defeat the underlying purposes of strict products liability" (Board of Educ. v A, C S, Inc., 131 Ill. 2 d, supra, at 449-450, 546 N.E.2d, supra, at 590 [applying "intermediate approach"]).
The majority first considers the fact that the tiles' defects were not "bound to produce a catastrophic accident" in connection with the first prong of the "intermediate approach," i.e., the inquiry into the nature of the defect (majority opn, at 293, 294). The majority then considers the same factor in connection with the second prong, i.e., the inquiry into the nature of the injury (id., at 294 [injury "was not an abrupt, cataclysmic occurrence"]).
Having concluded that the so-called "intermediate approach" would permit tort liability under these facts, I turn now to the question the majority has declined to answer: whether that approach should be adopted in New York. I begin with the premise that under well-established tort principles strict liability recovery has not previously been limited to personal injury claims. Section 402 A of the Restatement (Second) of Torts states that strict products liability recovery may be had where there has been injury to person or property. Although our Court has not explicitly adopted this aspect of the Restatement rule, other courts in this State have and there is no reason to believe that we would do otherwise if the question were squarely presented to us (see, e.g., Dudley Constr. v Drott Mfg. Co., 66 A.D.2d 368; see also, Schiavone Constr. Co. v Mayo Corp., 81 A.D.2d 221, 228-229 [Silverman, J., dissenting], revd on dissent 56 N.Y.2d 667). Indeed, in a case decided shortly after MacPherson v Buick Motor Co. ( 217 N.Y. 382), the paradigmatic strict products liability case, this Court anticipated section 402 A by holding that a manufacturer's duty to remote purchasers includes protecting their property as well as their persons (Genesee County Patrons Fire Relief Assn. v Sonneborn Sons, 263 N.Y. 463, 469, 473).
Adoption of the Restatement's position on property damage, however, does not end the inquiry. As the majority notes, the Supreme Court's 1985 decision in East River S.S. Corp. v Transamerica Delaval ( 476 U.S. 858, supra), an admiralty case, raised important questions about the viability of the so-called "intermediate approach" in cases where the product defect caused injury only to the product itself (see generally, Annotation, Strict Products Liability: Recovery for Damage to Product Alone, 72 ALR4th 12). Focusing on the narrow question of whether and when recovery should be permitted for injury to the defective product itself, the Court reviewed the various approaches and distinctions that had been tried elsewhere to permit recovery and concluded that none were satisfactory. The Court specifically rejected the "intermediate approach" as "too indeterminate" and instead held that, regardless of the degree or type of risk posed by the defective product, claims involving injury to the product itself are best resolved by application of "[c]ontract law, and the law of warranty in particular, [which] is well suited to commercial controversies of th[is] sort" (476 US, supra, at 870, 872).
The broad East River holding has many persuasive elements, particularly its assurance of clarity and certainty. Moreover, for most cases involving product harm leading to mere economic loss, the holding results in a sensible method of drawing the often elusive line between contract and tort law. However, in circumstances such as those presented here, the East River holding does not serve that salutary purpose, and instead actually operates to undermine the important public policies underlying our tort law. It is my concern for those policies that leads me to take the analysis yet one step further here.
Interestingly, the majority opinion, which attempts to avoid deciding whether or not to adopt East River, actually stumbles on the same indeterminacy problem that concerned the East River Court, i.e., the difficulty and unpredictability of making an abstract legal determination about a particular product's dangerousness.
The factor that, for me, distinguishes this case from the garden-variety injury-to-product cases discussed in the majority opinion is the nature of the damages the plaintiff here seeks. Unlike East River (supra), Seely v White Motor Co. ( 63 Cal.2d 9, 403 P.2d 145) and virtually every other case in the injury-to-product line (e.g., Trustees of Columbia Univ. v Mitchell/Giurgola Assocs., 109 A.D.2d 449; Schiavone Constr. Co. v Mayo Corp., supra; Dudley Constr. v Drott Mfg. Co., supra), the plaintiff in this case is seeking to recover the costs it incurred in removing and replacing the dangerously defective tiles before further accidents — and further injury — occurred. In this situation, the policies that inform tort law suggest that a strict products liability recovery should be permitted.
The majority's assertion that "recovery of replacement costs always can be said to be sought for eliminating the hazard" (majority opn, at 294, n 2 [emphasis added]) is manifestly inaccurate. In East River (supra), Seely (supra), Trustees of Columbia Univ. (supra), Schiavone (supra), Dudley (supra) and Pennsylvania Glass (supra), to name just a few, the recovery for replacement costs was sought after an accident had occurred and the product itself was either substantially destroyed or rendered nonfunctional. Thus, in none of these cases could an argument be made that the plaintiff was seeking reimbursement for the cost of making the defunct product safe.
The traditional concerns of contract law, and warranty law in particular, are the protection of the parties' freedom of contract and the fulfillment of reasonable economic expectations. Tort law, on the other hand, is concerned with deterring carelessness, preventing accidents and distributing risk in a socially useful way. Where a product malfunctions and, as a result, is itself damaged, it can fairly be said that the product simply "has not met the customer's expectations" — a disappointment that has traditionally been addressed through the breach of warranty remedies provided in the UCC (East River S.S. Corp. v Transamerica Delaval, supra, at 872). Furthermore, as the East River Court observed, "[t]he tort concern with safety is reduced when an injury is only to the product itself." (Id., at 871.) In contrast, where, as here, the product was provably hazardous and the recovery sought is the cost of eliminating the hazard or making the product safe, there is clearly more at stake than mere economic disappointment or frustrated expectations and the tort law's concern for safety is directly implicated.
Those concerns point to an analysis that considers the effect of the proposed rule on the goals of accident prevention and the fair social distribution of costs. Both of these goals are advanced by a rule that would permit a remote user/owner to recover in strict products liability for the costs actually and reasonably incurred in eliminating or ameliorating a hazard posed by a dangerously defective product. Just as "`[a] consumer should not be charged * * * with bearing the risk of physical injury when he buys a product on the market'" (Schiavone Constr. Co. v Mayo Corp., 81 A.D.2d, supra, at 231 [Silverman, J., dissenting], quoting Seely v White Motor Co., 63 Cal. 2d, supra, at 18, 403 P.2d, supra, at 151), so too should the consumer be able to shift the cost to the manufacturer when the latter's product poses an unreasonable safety risk requiring expensive repair or replacement. Indeed, the contrary rule would run directly counter to the tort aim of accident prevention, since it denies recovery to a conscientious remote purchaser who takes steps to ameliorate the risk of harm while permitting recovery by one who sits back and waits for an accident to happen (see, City of Greenville v Grace Co., 827 F.2d 975, 977).
Accordingly, under the facts in this case, I would hold that plaintiff may recover from Masonite the expenses it incurred in replacing the dangerously defective tiles. Since the majority's holding denies plaintiff its tort recovery, I respectfully dissent from that part of its decision.