No Product Liability Claim for Economic Loss Where Final Product Damaged by Defective Component
Int’l Flavors & Fragrances, Inc. v. McCormick & Co., Inc. 2008 WL 4183907 (Sept. 12, 2008, D.N.J.)
The United States District Court for the District of New Jersey recently considered whether a plaintiff may recover damages under a products liability theory when the damages alleged are to the product itself. Over a three-month period, defendant, McCormick, shipped close to 20,000 pounds of paprika to plaintiff’s two manufacturing facilities in both New Jersey and Texas. Shortly after McCormick sent the last shipment of paprika, plaintiff discovered that the paprika powder was infested with cigarette beetles. Plaintiff then quarantined the paprika at both its New Jersey and Texas facilities and notified McCormick. which requested permission to inspect the areas at plaintiff’s facilities where the paprika had been stored. Plaintiff denied that request and returned the remaining paprika to McCormick.
Following its discovery of the infestation and its notification to McCormick, plaintiff determined that a portion of the infested paprika stored at its Texas facility had been incorporated into barbeque seasoning it had manufactured for Frito-Lay. As a result, plaintiff had to isolate and halt shipments of all remaining stock of the barbeque seasoning, and notify Frito-Lay. In turn, Frito-Lay informed plaintiff that it would not accept barbeque seasoning from plaintiff’s then current inventory. Plaintiff alleged that it consequently incurred “significant expense attempting to supply Frito-Lay with barbeque seasoning from an alternate source.”
Plaintiff sued, alleging breach of express warranty, breach of implied warranty, products liability and fraudulent concealment. McCormick moved for partial summary judgment on the product liability and fraud claims. Specifically, McCormick claimed that plaintiff was precluded from recovering under the products liability claim because pursuant to the economic loss doctrine, “a plaintiff cannot sue in tort to recover for purely monetary loss, as opposed to physical injury, or property damage caused by the defendant.”
As both New Jersey and Texas law were implicated by plaintiff’s product liability claim, either states’ substantive law could have applied. The court determined that both Texas and New Jersey state law limit product liability claims to damage to property other than to the product itself, and that neither state had addressed the issue of whether a final product that has been damaged by a defective component is the “product itself.” It therefore found no conflict, and consequently applied New Jersey law. However, as the New Jersey Supreme Court had not addressed the latter issue, the court looked to the law in other jurisdictions, including Texas and Michigan. The court held that products containing components manufactured by a defendant are generally not considered “other property,” and therefore there could be no recovery for economic loss with respect to the whole product. In other words, products assembled from other products containing a defect are not considered “other property” that would allow recovery under a product liability theory. Accordingly, as New Jersey law explicitly limits tort claims in product liability to damage to property other than the product itself, the court granted McCormick’s partial motion for summary judgment on plaintiff’s product liability claim. The court reasoned that when a defective product is used as a component in a final product, the damaged final product is still the “the product itself.” Therefore, any damage is economic and recovery is only available in contract. Noting also that the damage “occurred at the core of a commercial transaction,” the court reasoned that parties to commercial transactions should protect their interests via contracts, and that “injury to other property is not actionable in tort if the injury was or should have been reasonably contemplated by the parties to the contract.”
Contact for more information: Melina T. Hipskind
"Consumer Expectation" vs. "Risk-Utility" Test for Defective Design: Both Available in Illinois Depending on Theory of Case and Supporting Evidence
Mikolajczyk v. Ford Motor Company 2008 WL 4603565 (Oct. 17, 2008, Supreme Court of Illinois)
On February 4, 2000, the Ford Escort operated by a driver was struck from behind while stopped at a red light. The driver consequently suffered severe injuries, ultimately resulting in death. Plaintiff, the deceased driver’s widow, sued: (1) the other motorist, for negligence; (2) the car manufacturer, for strict products liability; and (3) the designer of an allegedly defective seat in the vehicle, also for strict products liability.
Plaintiff alleged in her strict liability claims that the allegedly defective seat collapsed when the deceased’s vehicle was struck from behind, and that that design defect proximately caused the driver’s death. The jury found that the driver’s seat was in an unreasonably dangerous condition, which proximately caused the death. The jury returned a verdict in favor of plaintiff, and awarded $2 million for loss of money, goods and services, and $25 million for loss of society.
On appeal, defendants argued that the jury was improperly instructed. The appellate court rejected this argument, but reversed the judgment in part, finding the $25 million award for loss of society excessive. The Supreme Court of Illinois granted defendants’ petition for leave to appeal, to consider whether the trial court erred in its instructions to the jury. Defendants argued that with respect to the instruction regarding the proper measure of defective design, the trial court erred when it instructed the jury on the consumer-expectation test, rather than the risk-utility test. In the alternative, defendants asserted that even if Illinois has not yet adopted risk-utility as the exclusive test, the circumstances of this case warranted a risk-utility instruction.
The Court explained that in strict liability actions, Illinois recognizes that defective design claims can be proven by either the consumer-expectation test or the risk-utility test. Under the consumer expectation test, a plaintiff may introduce evidence that the product failed to “perform as safely as an ordinary consumer would expect when used in an intended or reasonably foreseeable manner.” In contrast, the risk-utility test allows the plaintiff to introduce evidence that the product’s design proximately caused the injury. Under such an approach, if the defendant does not prove “that on balance the benefits of the challenged design outweigh the risk of danger inherent in such designs,” the plaintiff’s claim will succeed.
More specifically, the consumer-expectation test focuses on the manner in which the allegedly dangerous product was used, whereas the risk-utility test hones in on the availability and feasibility of alternative designs for the product. In this case, the instruction given to the jury focused on the use of the allegedly dangerous product. The instruction did not contain “any content specific to the risk-utility test.” Defendants interpreted recent Illinois Supreme Court case law as holding that the risk-utility test is the only proper test in cases involving complex products and asserted that the failure to instruct on it was improper. The Court rejected this claim.
Nevertheless, while the Court rejected the argument that risk-utility is the exclusively proper test, it found merit in defendants’ alternative argument that the circumstances of this case warranted a jury instruction on the risk-utility test. Specifically, the Court reasoned that a plaintiff may not preclude the giving of a jury instruction that presents the defendants’ theory of the case, “so long as the defendants’ instruction accurately states the law and is supported by the evidence.” Accordingly, the trial court was required to determine whether the risk-utility test “was sufficiently implicated by the evidence presented during the trial.” Defendants argued that the risk-utility test was implicated by expert testimony concerning, among other things, “. . . the commercial availability of cars with alternative seat designs at the time the Escort was manufactured, the risks posed by rigid seats, and the circumstances in which a yielding seat would be safer than a rigid seat.” The Court found this evidence sufficient to warrant a risk-utility jury instruction. In addition, the Court found that defendants were prejudiced “by the failure to give an instruction that would have caused the jury to apply the risk-utility test in addition to the consumer-expectation test.” The Court reversed the decision of the appellate court, holding that a retrial on the issue of liability was warranted as the trial court’s refusal to submit the defendants’ risk-utility instruction to the jury precluded the jury from “applying the correct legal principles to the submitted evidence.”
Contact for more information: Melina T. Hipskind
This newsletter has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.