Court Opinion

ID: 4469223
Source: CourtListenerOpinion
Date Created: 2020-01-03 10:06:55.255407+00
Date Added: 2024-06-11T15:03:02.070690
License: Public Domain

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
                 revision until final publication in the Michigan Appeals Reports.

                            STATE OF MICHIGAN

                            COURT OF APPEALS

STATE FARM FIRE AND CASUALTY,                                        UNPUBLISHED
                                                                     January 2, 2020
               Plaintiff-Appellant,

v                                                                    No. 345992
                                                                     Midland Circuit Court
GENERAL ELECTRIC COMPANY and MIDEA                                   LC No. 17-004795-NP
USA, INC.,

               Defendants-Appellees,

and

LG ELECTRONICS USA,

               Defendant.

Before: LETICA, P.J., and GADOLA and CAMERON, JJ.

PER CURIAM.

        In this subrogation case, plaintiff, State Farm Fire and Casualty, appeals the trial court’s
order granting summary disposition in favor of defendants General Electric Company and Midea
USA, Inc.1 Plaintiff argues that the trial court erred by concluding that the economic loss
doctrine applied and that plaintiff’s claims were therefore time-barred under the statute of
limitations in the Uniform Commercial Code (“UCC”). We reverse and remand for further
proceedings consistent with this opinion.

1
 During the trial court proceedings, the trial court entered a stipulation and order dismissing LG
Electronics USA. The term “defendants” in this opinion refers only to defendants-appellees.

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                       I. FACTS AND PROCEDURAL BACKGROUND

        On June 8, 2015, a dehumidifier in Carla Kolka’s home caught fire. A joint destructive
laboratory examination of the dehumidifier revealed that the fire was caused by “an internal
failure of the overload protector.” As a result of the fire, Kolka’s home and personal property
was damaged, and she was forced to evacuate her home for a period of time. Kolka submitted a
claim to plaintiff that exceeded $60,000, and plaintiff paid the claim.

        Plaintiff, as subrogee for Kolka, sued defendants alleging product liability, breach of
express and implied warranties, and negligence. After the close of discovery, defendants moved
for summary disposition. Defendants argued that because plaintiff was only seeking to recover
for property loss, as opposed to personal injuries, the economic loss doctrine applied and plaintiff
was limited to contract-based recovery under the UCC. Defendants further argued that plaintiff’s
claims were barred by the UCC’s four-year limitation period, which begins to run “when the
breach occurs, regardless of the aggrieved party’s lack of knowledge of the breach.” MCL
440.2725(2). In response, plaintiff argued that summary disposition was improper because the
statute of limitations for product liability cases was applicable.

       The trial court granted defendants’ motion for summary disposition on the basis that the
economic loss doctrine applied to the case and therefore, the UCC provided plaintiff’s exclusive
remedy. The trial court also concluded that any claim under the UCC was barred by MCL
440.2725. Plaintiff filed a motion for reconsideration from the trial court’s decision, which was
denied. This appeal followed.

                                         II. ANALYSIS

       Plaintiff argues that the trial court erred by applying the economic loss doctrine and by
concluding that the UCC’s four-year statute of limitations barred plaintiff’s claims. We agree.

        “[We review] a trial court’s ruling on a motion for summary disposition de novo.” Pugno
v Blue Harvest Farms LLC, 326 Mich. App. 1, 11; 930 NW2d 393 (2018). “A party may support
a motion under MCR 2.116(C)(7) by affidavits, depositions, admissions, or other documentary
evidence.” Maiden v Rozwood, 461 Mich. 109, 119; 597 NW2d 817 (1999). “The contents of
the complaint are accepted as true unless contradicted by documentation submitted by the
movant.” Id. “If there is no relevant factual dispute, whether a plaintiff’s claim is barred under a
principle set forth in MCR 2.116(C)(7) is a question of law for the court to decide.” Snead v
John Carlo, Inc, 294 Mich. App. 343, 354; 813 NW2d 294 (2011). “If, however, a pertinent
factual dispute exists, summary disposition is not appropriate.” Id.

                               A. ECONOMIC LOSS DOCTRINE

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        “The economic-loss doctrine is a judicially created doctrine that bars all tort remedies
where the suit is between an aggrieved buyer and a nonperformance seller, the injury consists of
damage to the goods themselves, and the only losses alleged are economic.” Sullivan Indus, Inc
v Double Seal Glass Co, Inc, 192 Mich. App. 333, 339; 480 NW2d 623 (1992). When explaining
the rationale of the economic loss doctrine, the Sullivan Court cited Mid-Continent Aircraft Corp
v Curry Co Spraying Serv, Inc, 572 S.W.2d 308, 312 (Tex, 1978):

       A distinction should be made between the type of “dangerous condition” that
       causes damage only to the product itself and the type that is dangerous to other
       property or persons. A hazardous product that has harmed something or someone
       can be labeled as part of the accident problem; tort law seeks to protect against
       this type of harm through allocation of risk. In contrast, a damaging event that
       harms only the product should be treated as irrelevant to policy considerations
       directing liability placement in tort. Consequently, if a defect causes damage
       limited solely to the property, recovery should be available, if at all, on a contract-
       warranty theory. [Sullivan Indus, Inc, 192 Mich. App. at 340 (quotation marks
       omitted).]

         The economic loss doctrine was officially adopted in Neibarger v Univ Coops, Inc, 439
Mich. 512, 527-528; 486 NW2d 612, 618 (1992). In Neibarger, the plaintiffs were commercial
dairy farmers who purchased a milking system. Id. at 516, 518. After the milking system was
installed, the cattle developed severe mastitis, lost part of their udders, and suffered a reduction
in their milk production. Id. Some of the cattle became sick and died, while some had to be sold
as beef because they were not producing enough milk and were unsuitable as milking animals.
Id. at 516-518. Ultimately, the plaintiffs filed a lawsuit, alleging breach of express warranty,
breach of implied warranty, and negligence. Id. at 516-517, 519.

        The Neibarger Court held that the plaintiffs’ claims fit within the parameters of the
economic loss doctrine. Id. at 532-533. In so holding, the Court noted that the plaintiffs had
purchased the milking machine for a business purpose: to “expand the size of their herds” in
order to “increase their incomes.” Id. at 533. Therefore, the Neibarger Court concluded that the
damages the plaintiffs suffered (e.g., decreased milk production and cattle medical problems)
were nothing more than defeated commercial expectations, which the UCC could best remedy.
Id. Although the plaintiffs argued that the economic loss doctrine should not apply in cases
where a defective product caused injury to property other than the product itself, id. at 530, the
Neibarger Court disagreed:

       The proper approach requires consideration of the underlying policies of tort and
       contract law as well as the nature of the damages. The essence of a warranty
       action under the UCC is that the product was not of the quality expected by the
       buyer or promised by the seller. The standard of quality must be defined by the
       purpose of the product, the uses for which it was intended, and the agreement of
       the parties. In many cases, failure of the product to perform as expected will
       necessarily cause damage to other property; such damage is often not beyond the
       contemplation of the parties to the agreement. Damage to property, where it is the
       result of a commercial transaction otherwise within the ambit of the UCC, should
       not preclude application of the economic loss doctrine where such property

                                                -3-
       damage necessarily results from the delivery of a product of poor quality.
       [Neibarger, 439 Mich. at 531 (citations omitted).]

        Although Neibarger only applied to commercial transactions, in Sherman v Sea Ray
Boats, Inc, 251 Mich. App. 41, 53-55; 649 NW2d 783 (2002), this Court applied the economic
loss doctrine to consumer transactions. In Sherman, the plaintiff was a consumer who purchased
a boat from the defendant, which manufactured the boat. Id. at 42. The plaintiff bought the boat
with the “legitimate expectation” that the boat would last 25 years. Id. The plaintiff maintained
the boat in accordance with the owner’s manual, which did not indicate special care was needed
to maintain the wood. Id. After the plaintiff noticed an area of decaying wood shelving 12 years
after the purchase, the plaintiff filed suit against the defendant. Id. at 42-43. The Sherman Court
held that the economic loss doctrine applied to the plaintiff’s negligence and design defect
claims. Id. at 53-55. The Court reasoned:

       While [the] plaintiff alleges that the application of the economic loss doctrine is
       contingent on whether a consumer is involved in the transaction, the test
       enunciated by the Neibarger Court provides that “the proper approach requires
       consideration of the underlying policies of tort and contract law as well as the
       nature of the damages.” In this case, even if [the] plaintiff could support a claim
       of negligence [or design defect], any harm did not result in physical injury, but
       structural damage to the boat only. The nature of damages arises not from
       physical harm, but loss of economic expectation in the product. Additionally, the
       overriding concern of the economic loss doctrine provides that where a plaintiff
       seeks damages for economic losses only, tort concerns with product safety no
       longer apply, and economic expectation issues prevail. [Sherman, 251 Mich. App.
       at 53-54.]

        We conclude that this case is distinguishable from Neibarger and Sherman. In this case,
plaintiff’s claim rests upon real and personal property damage that went beyond damage to the
allegedly defective dehumidifier. Such damages are not the result of disappointment with the
dehumidifier’s unsatisfactory performance, but of a sudden event allegedly caused by the
dehumidifier. See Neibarger, 439 Mich. at 524, quoting SM Wilson & Co v Smith Int’l, Inc, 587
F2d 1363, 1376 (CA 9, 1978) (distinguishing the terms “disappointment” and “disaster”). In
Sherman, the consumer only complained of disappointed economic expectations—namely that
the boat began to decay more quickly than the consumer expected. Although the damages in this
case are economic losses in the sense that they are assigned monetary values, there is no basis to
conclude that fire damage to Kolka’s property “was within the contemplation of the parties”
when Kolka purchased the dehumidifier, such that “the occurrence of such damage could have
been the subject of negotiations between” Kolka and defendants when Kolka made the purchase.
See Neibarger, 439 Mich. at 532. Indeed, unlike the plaintiffs in Neibarger, Kolka is not a
sophisticated user with the knowledge and ability to allocate liability in the purchase and sale
agreement. Moreover, in Sherman, there were no tort concerns regarding the safety of the boat.
In this case, however, tort concerns with product safety clearly exist, and allowing plaintiff’s
action to proceed outside of the UCC would further the public-policy consideration of tort law to
encourage the design and production of safe products. See id. at 523, 525.

                                                -4-
        In sum, after considering “the underlying policies of tort and contract law as well as the
nature of the damages,” see Neibarger, 439 Mich. at 531, we conclude that the losses caused by
fire damage to the property are of the sort traditionally remediable in tort. Therefore, the trial
court erred by concluding that the economic loss doctrine applied to the case. Consequently,
plaintiff’s negligence and product liability claims are not limited to claims under the UCC, and
the UCC’s four-year statute of limitations in MCL 440.2725 does not apply to those claims.

                     B. ALTERNATIVE GROUND FOR AFFIRMANCE

        Defendants argue, as an alternative ground for affirmance, that even without application
of the economic loss doctrine, the trial court correctly granted summary disposition in favor of
defendants because plaintiff “failed to establish any basis upon which Defendants would have
known or had reason to know of an alleged defect.” See MCL 600.2947(6). This argument was
not addressed by the trial court when the court decided defendants’ motion for summary
disposition. Furthermore, after reviewing the record, we conclude that the arguments were not
fully developed and that it would be beneficial for the trial court to address the issue of whether
plaintiff “failed to establish any basis upon which Defendants would have known or had reason
to know of an alleged defect.” Consequently, we decline to consider the argument and reverse
and remand to the trial court for proceedings consistent with this opinion. We do not retain
jurisdiction.

                                                            /s/ Anica Letica
                                                            /s/ Michael F. Gadola
                                                            /s/ Thomas C. Cameron

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