Court Opinion

ID: 8927771
Source: CourtListenerOpinion
Date Created: 2022-11-27 06:49:48.288264+00
Date Added: 2024-06-11T17:09:26.691413
License: Public Domain

OPINION OF THE COURT
JAMES HUNTER, III, Circuit Judge.
The issue on this appeal, considered by the court in banc, is whether, under admiralty law, damage to a product caused by a design defect is recoverable in tort. We hold that such damage is not recoverable in tort where the design defect does not pose an unreasonable risk of harm to persons or property other than the product itself, as measured by the nature of the design defect, the manner in which the defect manifests itself, and the nature of the inherent risk, if any, created by the design defect.
I.
The plaintiffs-appellants (“the charterers”) are bareboat charterers of four supertankers, who seek recovery for losses caused by allegedly defective turbines de*905signed and manufactured by defendant-appellee Delaval Turbine, Inc. (“Delaval”), and installed on the supertankers. Component parts on the turbines of all four ships were replaced after problems in operation arose, causing loss to the charterers in the nature of costs of replacement and repair, and lost profits from “down-time.” No personal injury or property damage, however, other than to the turbine parts, resulted from the malfunctions.
The four supertankers were constructed by Seatrain Shipbuilding Corporation (“Sea-train”) in Brooklyn, New York, and were christened the STUYVESANT, the WIL-LIAMSBURGH, the BROOKLYN, and the BAY RIDGE. Seatrain contracted with Delaval to provide high pressure turbines to serve as the main propulsion units in these vessels, and to supervise the installation of the turbines.
The STUYVESANT was completed on or about July 1, 1977, and commenced service. In December 1977, near the port of Valdez, Alaska, the STUYVESANT’s high pressure turbine malfunctioned. Superheated steam was leaking from the junction between the turbine’s casing and the steam inlet control valve chest. Interim repairs were made at Valdez, but problems with the high pressure turbine recurred shortly after the STUYVESANT departed from the port. The charterers allege that these problems, which lowered turbine pressure and reduced the ship’s speed, endangered the STUYVESANT during a storm that it encountered off the coast of Alaska. An unsworn document submitted by the charterers in opposition to summary judgment represents that because of the lack of power and “mountainous seas,” estimated to be at least 65 feet high, the vessel drifted toward the lee shore of the Gulf of Alaska. The STUYVESANT eventually made headway, however, and continued on a seven-week journey to Panama. After leaving Panama and upon further traveling to San Francisco, an inspection of the STUYVESANT revealed damage to several parts of the turbine, including the first stage steam reversing ring. The damaged parts were replaced by parts taken from the BAY RIDGE, which was still under construction.
In April 1978, following another voyage, the first stage steam reversing ring of the STUYVESANT’s high pressure turbine, which had been taken from the BAY RIDGE, was found to have deteriorated, and was replaced by another ring taken from the BROOKLYN. In August 1978, the ring was again replaced — this time by a newly-designed ring manufactured by Delaval, which presumably corrected the defect in the earlier ring.
The BROOKLYN was completed in December 1973, and the WILLIAMSBURGH was completed in December 1974. After the inspection of the STUYVESANT turned up problems with its turbine, both the BROOKLYN and WILLIAMSBURGH, which were already in service, were inspected. These inspections revealed damage similar to that found in the STUYVESANT’s high pressure turbine. The damaged parts were repaired and reinforced by Delaval. Subsequently, in the summer of 1978, the first stage steam reversing rings of both ships were replaced by newly-designed rings identical to the one placed in the STUYVESANT. Between December 8, 1979, and January 24, 1980, additional repairs were made on the WILLIAMS-BURGH’s low pressure turbine. All of these repairs and replacements took place in port.
The BAY RIDGE was completed in early 1979. Although its high pressure turbine operated with one of Delaval’s newly designed rings, its low pressure turbine suffered damage in March 1980, allegedly as a result of the improper installation of the vessel’s astern guardian valve. The BAY RIDGE was temporarily repaired in Talcahuano, Chile, after which it resumed its journey to Valdez.
The charterer’s second amended complaint contains five counts. The first four counts allege strict liability in tort, based on the alleged defects in the turbines manufactured by Delaval for the STUYVESANT, the WILLIAMSBURGH, the BROOKLYN, and the BAY RIDGE, re*906spectively. The fifth count alleges negligence in the installation of the astern guardian valve of the BAY RIDGE. The second amended complaint invokes jurisdiction on the basis of Fed.R.Civ.P. 9(h) (admiralty), and the district court treated all of the counts of the complaint as being governed by federal maritime law. Delaval moved for summary judgment, arguing that the charterers’ claims were solely for economic loss, and that such loss was not recoverable in tort.
In an opinion filed on October 5, 1982, the district court adopted the majority common-law position that losses caused by qualitative product defects are not recoverable in tort absent unreasonable risk of harm to persons or property other than the product. See Pennsylvania Glass Sand v. Caterpillar Tractor Co., 652 F.2d 1165 (3d Cir.1981). The court granted summary judgment on counts one through four on the basis that the strict liability allegations failed to state a cause of action in admiralty with respect to any of the vessels. The district court denied summary judgment on the negligence claim at that time, but in an opinion and order filed on January 24,1983, reversed itself and granted Delaval’s motion for summary judgment in its entirety. We affirm.
II.
The first issue we must decide is whether the charterers’ claims are within the maritime jurisdiction of the federal courts. 28 U.S.C. § 1333(1) (1982). The district court found that all five counts were within maritime jurisdiction because the “nature of the vessels as mammouth oil tankers engaged in international commercial trade places them and the functioning vel non of their turbines close to the heart of federal admiralty concerns.” (A-259). We agree.
In Executive Jet Aviation, Inc. v. Cleveland, 409 U.S. 249, 93 S.Ct. 493, 34 L.Ed.2d 454 (1972), the Supreme Court set forth a flexible two-part test for determining whether a claim is maritime in character and hence within the admiralty jurisdiction of the federal courts. First, there must be a “maritime locale” to the event that led to the litigation, and second, there must be a relationship between the wrong and traditional maritime activity. Addressing the second test first, we believe it undisputable that a close nexus exists between a malfunctioning turbine in a sea-going supertanker and the traditional maritime activity of shipping. The alleged wrong in this case involves commercial facets of maritime activity, and also implicates the traditional maritime concern of safe shipping. See, e.g., Sperry Rand Corp. v. Radio of America, 618 F.2d 319 (5th Cir.1980).
We also find that that a “maritime locale” is involved in all five counts of the charterers’ second amended complaint. The parties agree that the events that form the basis for the first and fifth counts occurred at sea. The damage to the STUYVESANT’s high pressure turbine (first count) and the BAY RIDGE’s low pressure turbine (fifth count) occurred while the turbines were in use and while the ships were at sea, and was discovered while the ships were at sea. Similarly, although the damage to the BROOKLYN (second count) and WILLIAMSBURGH (third count) turbines was not discovered until the ships were in port, the damage in fact occurred at sea while the turbines were in use, and thus a maritime locale exists.1 Finally, although the question is close, we find that a maritime locale also exists for the claim arising from damage to the BAY RIDGE’s high pressure turbine (fourth count), even though the BAY RIDGE itself was never put to sea.
The charterers of all four supertankers allege the same basic claim: an alleged defect existed in each high pressure turbine’s first stage steam reversing ring, which caused the ring to deteriorate and disintegrate in operation, with resulting damage to other component parts of the turbines. (App. at 26-31). This defect *907manifested itself over a period of time during the turbines’ operation. After the STUYVESANT experienced initial problems with its turbine while at sea, an inspection was made, and the defective and damaged parts were removed, including the first stage steam reversing ring. Instead of ordering new parts from Delaval, arrangements were made to transfer certain component parts from the BAY RIDGE turbine, which was then in construction, to the STUYVESANT. (App. at 198-99). These allegedly defective component parts, from which flow the basis of. the BAY RIDGE claim for damages, were then installed in the STUYVESANT. The STUYVESANT went back to sea, and again experienced problems with its turbine. Upon docking and inspection, it was discovered that the first stage steam reversing ring, the ring originally installed in the BAY RIDGE, had deteriorated and was thus damaged. (App. at 199). Thus, as with the other three supertankers, the defect in the central component part of the BAY RIDGE turbine manifested itself while the part was in operation on the sea. Although the ship itself never left port, the allegedly defective part did, and the basic damage for which recovery flows occurred in operation and on the sea. Accordingly, a maritime locale exists for all counts of the charterers’ second amended complaint, including the fourth, and admiralty jurisdiction properly exists in the federal courts.
III.
Because this case properly falls within the maritime jurisdiction of the federal courts, the appropriate law to apply is the federal common law of admiralty. This court has recognized that concepts of products liability, including Restatement (Second) of Torts § 402A (1965), are applicable in admiralty law. See Ocean Barge Transport Co. v. Hess Oil Virgin Islands Corp., 726 F.2d 121, 123 (3d Cir.1984). In defining the contours of products liability doctrine in admiralty law, courts have consistently looked to the law of the land, and have relied on many of the same policy concerns that underlie the land-based products liability decisions. See, e.g., Pan-Alaska Fisheries, Inc. v. Marine Construction & Design Co., 565 F.2d 1129, 1134 (9th Cir.1977); Lindsay v. McDonnell-Douglas Aircraft Corp., 460 F.2d 631, 635 (8th Cir.1972); Schaeffer v. Michigan-Ohio Navigation Co., 416 F.2d 217, 221 (6th Cir.1969).
The charterers argue that there is no need to look to the law of the land, and invoke venerable precepts and cases that are said to demonstrate admiralty’s hospitability to total compensation for casualty inflicted by the fault of another, including total loss of the use of a vessel. They cite, inter alia, to the principle of “restitutio in integrum,” see Natalie Tankships Corp. v. Panama Canal Commission, 506 F.Supp. 281, 285 (D.Canal Zone 1980), and to Justice Story’s opinion in The Apollon, 22 U.S. (9 Wheat.) 362, 6 L.Ed. Ill (1824), and argue that admiralty has traditionally allowed recovery in tort for losses incurred when a ship is rendered inoperable by the act of another. Although the charterers’ argument is based on cases involving traditional maritime torts, such as collisions and unlawful detention, it is submitted that these eases are indistinguishable in principle from this case.
It is true that recovery for the value of the use of a ship for the time it is put out of use by tortious conduct is traditionally an element of damages in a tort suit. This element of damages is known as “demur-rage.” See, e.g., The Conqueror, 166 U.S. 110, 125, 17 S.Ct. 510, 516, 41 L.Ed. 937 (1897); Williamson v. Barrett, 54 U.S. (13 How.) 101, 110-12, 14 L.Ed. 68 (1851) (collision case); The Apollon, 22 U.S. (9 Wheat.) 362, 376, 6 L.Ed. 111 (1824) (detainer case); Skou v. United States, 478 F.2d 343, 345 (5th Cir.1973) (detainer case); The Hygrade No. 24 v. The Dynamic, 233 F.2d 444, 445-6 (2d Cir.1956) (collision case). In these cases, the traditional tort policy of full compensation is enforced in admiralty, as it is on land.
The question we address, however, is not what losses can be recovered once an act has been characterized as a tort, but *908whether under the modern law of products liability, as it has been imported into the law of admiralty, a products liability complaint that seeks recovery for damage to a product caused by a design defect states a cause of action in tort. We believe that the better view, and one in accord with the prevailing view on land, is that damage to a defective product is not actionable in tort unless the design defect creates an unreasonable risk of harm to persons or property other than the product itself. See, e.g., Seely v. White Motor Corp., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965). But see Santor v. A & M Karagheusian, Inc., 44 N.J. 52, 207 A.2d 305 (1965) (loss for qualitative product defects without risk of harm may be recoverable in a tort action).
The requirement of unreasonable risk of harm is consistent with the policies behind tort law. As Judge Adams noted in Pennsylvania Glass Sand v. Caterpillar Tractor Co., 652 F.2d 1165, 1169-70 (3d Cir.1982) (“PGS”):
Tort law rests on obligations imposed by law, rather than by bargain, and the thrust of § 402A is that as a matter of public policy a duty should be imposed on manufacturers to “warrant” the safety of their products. The gist of a products liability tort case is not that the plaintiff failed to receive the quality of product he expected, but that the plaintiff has been exposed, through a hazardous product, to an unreasonable risk of injury to his person or his property. On the other hand, contract law, which protects expectation interests, provides the appropriate set of rules when an individual wishes a product to perform a certain task in a certain way, or expects or desires a product of a particular quality so that it is fit for ordinary use.
In PGS, for example, the plaintiff sought recovery for damages incurred as a result of a fire in a front-end loader manufactured by the defendant. The loader did not come equipped with a system to suppress or extinguish fires, a defect which manifested itself one day when a fire suddenly broke out near the loader’s hydraulic lines. Because the operator hastily evacuated the machine without turning off the motor, the fire quickly spread, fueled by hydraulic fluid. As a result of the fire, the plaintiff incurred expenses in repairing the machine and securing a replacement.
In determining whether tort law should provide a remedy for the plaintiff’s losses, the court in PGS considered the nature of the defect, the manner in which the defect manifested itself, and the nature of the risk which was inherent in the defect. The court held that because the design defect was safety-related, because the defect could and did manifest itself in a sudden and calamitous manner, and because the safety hazard posed a serious risk to persons and property, the plaintiff stated a cause action in tort for the damages it suffered.
In our view, the test enunciated by Judge Adams in the PGS decision correctly balances the competing policies present in maritime law as well as in the law of the land. The charterers have not offered, and we do not discern, any persuasive difference between an action which seeks recovery for a defective ship engine and an action which seeks recovery for a defective car engine. In both cases, the law seeks to leave the parties to their bargain, while at the same time protecting consumers of both ships and cars from hazardous defects in the engines. Cf. Ocean Barge Transport Co. v. Hess Oil Virgin Islands Corp., 726 F.2d 121 (3d Cir.1984) (applying land-based products liability decisions to suit alleging defect in ship’s crane).2
*909IV.
Applying the test of PGS to the instant case, therefore, requires us to examine the circumstances of the charterers’ claims, including the nature of the alleged defect, the manner in which the injury to the defective product occurred, and the type of risk that is inherent in the defect. The nature of the defect in this case appears qualitative, as opposed to safety-related. The charterers contend that certain component parts of the Delaval turbine were defective, and that they caused the turbine to malfunction. The defect involved internal deterioration and breakdown of the turbine’s parts, and thus directly implicates the intended performance level of the turbine and the charterers’ disappointed expectations in their purchase. Unlike the defect in those cases in which tort recovery is allowed for a damaged product, the defect in this case is not intimately related to the safety of the product, nor is it associated with calamitous events like fire or sudden collision. See, e.g., PGS, 652 F.2d at 1174 (front loader defective because of lack of fire suppression system); Cloud v. Kit Mfg. Co., 563 P.2d 248 (Alaska 1977) (mobile home defective because of highly-flammable carpet padding).
We also find that the manner in which the damage to the turbine occurred implicates the expectation-bargain policy of warranty law rather than the safety-insurance policy of tort law. PGS, 652 F.2d at 1173. In all the ships, the damage to the turbines occurred during normal operation of the turbine, and resulted from the gradual and unnoticed deterioration of the turbines’ component parts. Indeed, it was not until the STUYVESANT experienced steam leakage and decreased power because of the disintegration of the first stage steam reversing ring that the charterers’ discovered the defects in all the ships and the damage it caused. Unlike PGS, there was no “sudden or calamitous” event which triggered the manifestation of the defect and the resulting damage. See, e.g., PGS, 652 F.2d at 1174 (sudden fire, combined with lack of fire suppression system, caused total loss of front loader); Cloud v. Kit Mfg. Co., 563 P.2d 248 (Alaska 1977) (fire, combined with highly-flammable padding, severely burned mobile home); Cornell Drilling Co. v. Ford Motor Co., 241 Pa.Super. 129, 359 A.2d 822 (1976) (sudden fire in unoccupied, sitting truck damaged cab).
Finally, we must consider the type of risk, if any, that is inherent in this type of qualitative defect. Because the defect involved gradual deterioration of the turbine’s inner mechanisms, the defect did not pose a risk of sudden or calamitous injury to persons or property. Instead, the risk created by the defect was that the turbine would operate at a lower capacity, thus reducing the ship’s speed and causing the charterers’ losses in the form of down-time for repair and lost profits. We believe that this type of risk, rather than implicating a manufacturer’s obligation to place safe products in the stream of commerce, only concerns the charterer’s expectations as to the commercial suitability of the product.
Consideration of the three PGS factors, therefore, leads us to the conclusion that the defective turbine did not pose an unreasonable risk of harm to persons or property, and thus that the charterers have failed to state a cause of action in tort. The charterers contend, however, that the defective turbine placed the STUYVESANT and its crew in peril during a storm off the Gulf of Alaska, and thus that tort recovery is appropriate. Even assuming that such allegations of imminent danger are credible,3 we nonetheless find that because no *910persons or property were injured or damaged, no tort recovery is appropriate in this case given the qualitative nature of the defect and the gradual manner in which the defect manifested itself.
We find, therefore, that the district court, applying the rationale of PGS, properly granted summary judgment in favor of Delaval on all five counts of the second amended complaint. The judgment of the district court will be affirmed.

. We also note that a ship in port is considered to be in a "maritime locale.” See, e.g., Southern Steamship Co. v. NLRB, 316 U.S. 31, 41, 62 S.Ct. 886, 892, 86 L.Ed. 1246 (1942).

. Our reasoning in this case is equally applicable to products liability cases brought in negligence and those brought in strict liability, and thus is applicable to all five counts of the second amended complaint. One of the cases we rely on in the text, Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965), involved negligence as well as strict liability claims, and the court in that case did not distinguish between the two theories in applying the rule against recovery of damages where an unreasonable risk of harm is not present. See also Flintkote Co. v. Dravo Corp., 678 F.2d 942, 950 (11th Cir.1982) (applying Georgia law); Jones & *909Laughlin Steel Corp. v. Johns-Manville Sales Corp., 626 F.2d 280, 285-88 (3d Cir.1980) (applying Illinois law).

. In an unsworn letter, the STUYVESANT's master noted that because of the turbine's malfunction, the STUYVESANT could not reach top speed, and thus had difficulty making headway into a storm off the Gulf of Alaska. (App. at 206). The difficulty caused the master to fear that the ship would drift hazardously close to the lee shore of the Gulf. The ship, however, did successfully travel against the storm, and in fact proceeded to Panama, a voyage of some *910seven weeks. Indeed, after unloading its cargo at Panama, the ship proceeded to San Francisco, where the turbine was examined for problems. As the district court stated, "any nascent allegations of acute peril to the ship or crew resulting from the turbine defect are belied by the course of action undertaken after the defect manifested itself." (App. at 264).