Opinion ID: 2024606
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Heading: Property Damage Under Indiana's Strict Product Liability Act

Text: The Reeds assert that the damages they sustained are recoverable under the Act. Defendants maintain that the Reeds do not have a valid claim because (1) the feed presented no risk of personal injury; (2) the Reeds suffered only economic damage; or, (3) the damage suffered by the Reeds was gradually-evolving damage to property rather than sudden, major damage. The Reeds' claim is governed by Indiana's Strict Product Liability Act, which imposes strict liability in tort on one who places into the stream of commerce any product in a defective condition unreasonably dangerous to the property of a user or consumer. Ind. Code § 33-1-1.5-3. Prior to passage of the Act, Indiana recognized strict liability in tort as embodied in § 402A of the Restatement (Second) of Torts (1965) which imposes liability on manufacturers and sellers for injuries caused by unreasonably dangerous products. [4] Ayr-Way Stores, Inc. v. Chitwood (1973), 261 Ind. 86, 93, 300 N.E.2d 335, 340; Cornette v. Searjeant Metal Prod., Inc. (1970), 147 Ind. App. 46, 52, 258 N.E.2d 652, 656. Indiana courts justified imposing strict liability in tort on the same basis as the Restatement, viz.: the seller has undertaken a special responsibility toward the consuming public; the public has the right to expect sellers to stand behind their products; and public policy demands that the burden of accidents be placed upon those who market products and who can treat that burden as a cost of doing business. Cornette v. Searjeant, 147 Ind. App. at 52-3, 258 N.E.2d at 656; Restatement (Second) of Torts § 402A cmt. c. The liability imposed by § 402A is founded on tort, not on contract. As such, strict liability in tort eliminated the need for privity in cases involving defective goods that cause physical harm. See, e.g., Ayr-Way Stores, 261 Ind. at 93, 300 N.E.2d at 340; Cornette, 147 Ind. App. at 52, 258 N.E.2d at 656. Liability is strict because it is imposed on sellers even if they exercise all reasonable care in the manufacture of the product. Montgomery Ward & Co. v. Gregg (1990), Ind. App., 554 N.E.2d 1145, 1162. Liability will be attributed to a seller only if the product contains a defective condition rendering it unreasonably dangerous for its intended use. Conder v. Hull Lift Truck, Inc. (1982), Ind., 435 N.E.2d 10, 17. In 1978, the Indiana legislature passed the Strict Product Liability Act, Ind. Code Ann. §§ 33-1-1.5-1 through 33-1-1.5-8, and incorporated § 402A nearly verbatim. Ind. Code Ann. § 33-1-1.5-3 (West 1983) (amended 1983); Hoffman v. E.W. Bliss Co. (1983), Ind., 448 N.E.2d 277, 281. The 1978 Act placed no restriction upon the type of property damage recoverable; the Act allowed recovery for physical harm which was defined as bodily injury, death, loss of services, and rights arising therefrom, as well as damage to property.  Ind. Code Ann. § 33-1-1.5-2 (West 1983) (amended 1983) (emphasis added). Thus, in the same way that negligent tortfeasors are subject to liability for property damage caused by their negligence, sellers became subject to strict liability in tort for property damage caused by a defective product. The rule in § 402A applied to products which, if they are defective, may be expected to and do cause only `physical harm' in the form of damage to the user's land or chattels, as in the case of animal food or a herbicide. Restatement, § 402A, cmt. d (emphasis added). In 1983, the legislature made significant changes to the Act. General Electric Co. v. Drake (1989), Ind. App., 535 N.E.2d 156, 158. The 1983 Act changed the definition of physical harm to read: bodily injury, death, loss of services, and rights arising from such injuries, as well as sudden, major damage to property. The term does not include gradually-evolving damage to property or economic losses from such damage.  Ind. Code Ann. § 33-1-1.5-2 (West Supp. 1992) (emphasis added).
Defendants rely on Sanco, Inc. v. Ford Motor Co., 579 F. Supp. 893 (S.D.Ind. 1984) aff'd, 771 F.2d 1081 (7th Cir.1985) and General Electric Co. v. Drake (1989), Ind. App., 535 N.E.2d 156, for the proposition that the defect in the product must involve an occurrence of such an immediate and calamitous nature that human life and limb are exposed to a clear and significant danger before recovery is available under the Act. Otherwise, they assert, only contract remedies are available. We do not agree. Tort law has traditionally allowed recovery for property damage even in the absence of personal injury. Barnes v. MacBrown and Co. (1976), 264 Ind. 227, 230, 342 N.E.2d 619, 621; Drake, 535 N.E.2d 156, 160. In fact, a tort action traditionally presupposes that the plaintiff has been exposed to an unreasonable risk of harm to his person or property. Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal. Rptr. 17, 403 P.2d 145 (1965). Moreover, the Act itself contains no requirement of personal injury, but expressly allows recovery for physical harm to property even in the absence of personal injury. Ind. Code § 33-1-1.5-2. Defendants' reliance on Sanco is misplaced. Sanco involved a fleet of trucks that had been plagued with a number of problems, including nonfunctioning gauges, electrical shorts, and cracking windshields. The purchaser sued in negligence for the cost of repair and lost profits. Defendants point to the statement in the opinion of the district court that as a general rule, when damage is sudden and calamitous, resulting from an occurrence hazardous to human safety, recovery may be had in tort, 579 F. Supp. at 898, as support for their assertion that tort remedies are available only where personal injuries are alleged. However, Sanco involved a claim for economic loss, not property damage, and was decided on that basis. On appeal, the Seventh Circuit also recognized the distinction between a tort recovery for physical injury or property damage, and a contract remedy for economic loss. 771 F.2d at 1085. Sanco does not stand for the proposition that one must be exposed to the risk of personal injury to recover on a strict liability in tort theory. Defendant's reliance on General Elec. v. Drake, 535 N.E.2d 156, is similarly misplaced. In Drake, the plaintiffs owned rental property which was damaged when an electrical cord caused a fire. They sought recovery for property damage under the Act. The manufacturer argued that plaintiffs could not recover because they were not exposed to the risk of bodily injury. Id. at 159. Defendants here rely on the statement in Drake that the only type of property damage recoverable under the Act is damage to property under circumstances in which the absence of personal injury is merely fortuitous, such as when an object explodes but does not inflict personal injuries on anyone. Id. at 159. National fails to note, however, that the Drake court also noted that the plain language of the Act permits a consumer to recover for physical harm without distinctions between personal injury and property damage. Id. at 159. The Reeds' claim does not fail because they allege only property damage. The Act continues to follow the common law rule that allows a tort recovery for property damage alone.
Alternatively, the defendants claim that the loss allegedly suffered by the Reeds was solely economic in nature and that such losses are not recoverable under the Act. Instead, they argue, such damages are more appropriately recovered through contract remedies. Economic loss is not defined in the Act, but has been defined by Indiana courts as the diminution in the value of a product and consequent loss of profits because the product is inferior in quality and does not work for the general purposes for which it was manufactured and sold. Prairie Production, Inc. v. Agchem Div.-Pennwalt Corp. (1987), Ind. App., 514 N.E.2d 1299, 1304 (addressing whether lost profits are recoverable in negligence actions) quoting Comment, Manufacturers' Liability to Remote Purchasers for Economic Loss Damages  Tort or Contract? 114 U.Pa. L.Rev. 539, 541 (1966). Economic loss includes such incidental and consequential losses as lost profits, rental expense and lost time. Dutton v. International Harvester Co. (1987), Ind. App., 504 N.E.2d 313, 318. See also Babson Bros. Co. v. Tipstar Corp. (1983), Ind. App., 446 N.E.2d 11, 15; Richard v. Goerg Boat & Motors, Inc. (1979), 179 Ind. App. 102, 112, 384 N.E.2d 1084, 1092. The Act allows recovery for sudden, major damage to property, but excludes recovery of gradually evolving damage to property or economic losses from such damage.  Ind. Code § 33-1-1.5-2 (emphasis added). Like the court in Yasuda Fire & Marine Ins. v. Lake Shore Elec. Corp., 744 F. Supp. 864, 871 (S.D.Ind. 1990), we find the statute ambiguous: Does the term economic losses from such damage refer to sudden, major damage or to gradually evolving damage? Employing a rule of statutory construction, the court in Yasuda correctly held that the term related to gradually evolving damage rather than to the more remote sudden, major damage. Id. at 872. Thus, where the damage evolves gradually, one may not recover under the Act either for the gradually evolving property damage or for the economic damages incurred on account of that gradual damage. On the other hand, where one sustains sudden, major damage to property, one may recover economic losses arising out of that damage pursuant to the Act. Where, however, only economic loss is alleged, no recovery is allowed under the Act. This has been the rule in Indiana for some time. For example, in Dutton v. International Harvester, 504 N.E.2d 313, plaintiff sought recovery under the Act for lost profits, rental expense, lost time and other expenses resulting from a planter that failed to operate properly. The Court of Appeals affirmed summary judgment in favor of the manufacturer because the only losses alleged were incidental and consequential damages not recoverable under the Act. Id. at 318. That purely economic interests, such as deterioration, internal breakage, or other non-accidental causes, are not entitled to protection under strict liability in tort is also the majority view among other states. W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 101 (5th ed. 1984). We hold that where the loss is solely economic in nature, as where the only claim of loss relates to the product's failure to live up to expectations, and in the absence of damage to other property or person, then such losses are more appropriately recovered by contract remedies. The justifications for adhering to this rule are several. The law of sales set out in Article 2 of the Uniform Commercial Code governs the economic relations between buyer and seller; the dissatisfied buyer may avail himself of those statutory remedies fashioned by the legislature. [5] Allowing a buyer to recover in tort where he has suffered only economic loss allows him to circumvent the seller's effective limitation or exclusion of warranties under the UCC, and subjects manufacturers to liability for damages of unknown and unlimited scope. Clearly, the legislature has determined that economic loss, unaccompanied by property damage, is not recoverable in strict liability in tort. Contract law remains the appropriate vehicle to redress a purchaser's disappointed expectations when a defect renders a product inferior or unable adequately to perform its intended function. The Reeds claim they have suffered the following damages as a result of thirty-eight cows ingesting the feed: reduced milk production, aborted calves, stillborn calves, cows that would not breed, and cows which could not be used to harvest embryos for sale. In short, assert the Reeds, the cows became worthless as breeding stock. As a result, the Reeds claim a decrease in the fair market value of the affected cows. Defendants assert that diminution in the value of cows is economic loss, not property damage. Domestic cattle are regarded as property. Greives v. Greenwood (1990), Ind. App., 550 N.E.2d 334, 338. The basic measure of damages for loss of cows is the market value of the animal, if there is a market value, immediately prior to the wrongful act. Greives, 550 N.E.2d at 338. Thus, if the feed caused the decrease in the fair market value of the cows, then they have suffered property damage, rather than mere economic loss. Accordingly, the Reeds claim is not barred because they seek to recover only economic losses.
The Restatement and the original 1978 Indiana Strict Product Liability Act would have allowed the Reeds to proceed with their claim for property damage because neither imposed any restrictions on the nature of the property damage sustained. The 1983 amendment to the Act, however, limited recovery for property damage to that which is sudden and major. Ind. Code § 33-1-1.5-2. The words sudden and major are not defined in the statute and few cases have discussed the meaning of these words in the context of the Act. In our attempt to discern the meaning intended by the legislature, we keep the Act's purpose and scope in mind and give words their common and ordinary meaning without overemphasizing a strict, literal or selective reading. Indianapolis Convention & Visitors Ass'n. v. Indianapolis Newspapers, Inc. (1991), Ind., 577 N.E.2d 208, 212. Our duty is to ascertain and give effect to the intent of the legislature. Dague v. Piper Aircraft (1981), 275 Ind. 520, 524, 418 N.E.2d 207, 210. Webster's Third New International Unabridged Dictionary (1976) defines sudden as happening without notice or with very brief notice; coming or occurring unexpectedly. Thus sudden contemplates both the elements of time during which the damage occurs, as something marked by abruptness or haste, and the element of surprise in relation to the damage. Major is defined as greater in number or extent, notable or considerable in effect or scope or involving grave risk, which connotes some qualitative relationship, either in number or extent, to the damage. Thus, where recovery for property damage is sought under the Act, such damage must have happened quickly, unexpectedly and have been significant in scope. The question of whether the damage suffered by a plaintiff is sudden, major damage is a question of law, just as the existence of a duty in negligence is a question of law, taking into account such things as the nature of the defect alleged, the type of risk presented and the manner in which the injury arose. We conclude that this approach is consistent with the intent of the legislature that property damage claims under the Act are of the nature traditionally recoverable on a strict liability theory by eliminating recoveries for damages that otherwise are more appropriate for breach of contract actions. The Act does, for example, exclude from strict liability recoveries damage which manifests itself incrementally over time rather than in a calamitous event. Our interpretation of this definition is consistent with previously decided Indiana cases. Mac's Eggs, Inc. v. Rite-Way Agri Dist., 656 F. Supp. 720 (N.D.Ind. 1986), involved a farmer who sued the manufacturer of poultry cage equipment alleging that defects in the equipment were responsible for killing thousands of chickens over a period of several months. The District Court determined that, as a matter of law, the type of injury alleged by the farmer was not the sudden sort of calamitous injury to which the [Strict Product Liability Act] applied, but was more akin to disappointment with the equipment's performance. Id. at 732. By comparison, Yasuda Fire & Marine Ins. v. Lake Shore Elec. Corp., 744 F. Supp. 864, involved the malfunction of an electrical switch which resulted in numerous chickens suffocating in a single episode. Defendants moved pursuant to Federal Rules of Civil Procedure 12(b)(6) to dismiss the complaint for failure to state a claim. The court held that the allegations were sufficient to support the inference, at the 12(b)(6) stage, that suffocation of chickens is `sudden' and `major damage' to property. 744 F. Supp. at 871. Here, the defendants argue that the damage allegedly suffered was not sudden and major because it occurred gradually over a number of years. In support, they point to the Reeds' statement that the claimed losses were still evolving five years after consumption of the tainted feed. They claim that the damage was not major because not every cow was affected. We agree with defendants that the reaction of the cows to the feed from January 8 through February 20 is not the type of sudden, major damage contemplated by the Act. According to the Reeds, the damage to cows manifested itself incrementally over a period of time; it did not occur in a calamitous event. Thus summary judgment is appropriate on the strict liability claims.