NASP 2008 Annual Conference Subro SUBRO GOES Goes

NASP 2008 Annual Conference Subro. SUBRO GOES Goes Hollywood! HOLLYWOOD NASP 2008 Annual Conference

Subro Goes Hollywood NASP 2008 The Economic Loss Doctrine: Is Your Claim Really Dead? Presenter: John W. Reis COZEN O’CONNOR Charlotte, NC jreis@cozen. com

Sample Title

Scenario • • • Kapton seals are “set” into position Kapton seals harden and crack Brake fluid enters switch cavity Semi-conductive slurry between brass contacts Dendritic growth Amps increase Heat from increased amps Switch exterior melts Small fire spreads Other issues – Thermodynamics, positioning of the switch, climate

Questions/Checklist 4 What is the VIN? 4 Make? 4 Model? 4 First purchaser? 4 Online search for vehicle history 4 Contact selling dealer and/or service dealers for records 4 Who insures the vehicle? 4 Can we purchase the vehicle from other insurer? 4 Did buyer get extended warranty? 4 Did seller disclaim warranties? 4 Who mostly drove the vehicle? 4 Where was vehicle parked?

Questions/Checklist 4 Was the fuse ever changed? 4 Every stuck in park? 4 Brake lights ever fail? 4 Cruise control stop working? 4 Other issues with car (stalling, electrical)? 4 Ever get a recall notice? 4 How first alerted to fire? 4 Hear a pop (tire)? 4 Overhead garage door open or closed? 4 If closed, did it open during the fire? 4 Any rags or carpet under the car? 4 Any neighbors witness? 4 Anyone take photographs? 4 Firefighters discuss their thoughts with you?

Questions/Checklist 4 Total mileage on vehicle? 4 Who last drove and how far driven? 4 Routes the vehicle took? 4 Who drove it and who else in car? 4 When was vehicle last service? 4 What type of service? 4 Who performed service work? 4 Did dealer perform any service work? 4 Still have records? 4 When was vehicle last fueled and amount of fuel? 4 After-market additions? 4 Personal items in car and, if so, where?

Put Responsible Party On Notice • Preserve evidence • Notify adverse party in writing and via facsimile • Give time period for response • Tell adverse party what you plan to do if they do not inspect vehicle • Provide all relevant information

Saving the Evidence • Shrink Wrap • Tow on Flat Bed • Store vehicle

Economic Loss Doctrine What is it?

No “tort” for you! Chocolate Truffle Torte

Economic Loss Doctrine • A court created “rule” • Involves a “product” • Involves a product that was purchased • Involves a contract or warranty • Involves a product • Involves damage to that product • Product damages “only itself” No personal injury No “other property” damage

Separate tort from contract Can’t sue in tort Stuck with your contract

Economic Loss = Damage Purely to the Product Itself Product only = contract/warranty Product only ≠ tort remedy

Other Property Product + “other property” = Tort law – the product “Other property” allowed in tort

Genesis of the Economic Loss Doctrine • “[P]roducts liability grew out of a public policy judgment that people need more protection from dangerous products than is afforded by the law of warranty. . [H]owever, if this development were allowed to progress too far contract law would drown in a sea of tort. ” Justice Harry Blackmun, East River Steamship Corp. at 866

Policy Reasons for the Doctrine • “Damage to a product itself is most naturally understood as a warranty claim. Such damage means simply that the product has not met the customer’s expectations. . ” East River Steamship Corp.

Policy Reasons for the Doctrine • Allowing tort claims “would allow a purchaser to reach back up the production and distribution chain, thereby disrupting the risk allocations…in the transactions comprising the chain. ” HDM Flugservice GMBH v. Parker Hannifin Corp. , 332 F. 3 d 1025, 1032 (6 th Cir. 2003) • Economic loss doctrine “is designed to place a check on limitless liability for manufacturers and establish clear boundaries between tort and contract law. ” Coker v. Daimler. Chrysler Corp. , 2004 WL 32676 (N. C. Super. Ct. Rowan County, Business Ct. Jan. 5, 2004), aff’d on other grounds, 172 N. C. App. 386, 617 S. E. 2 d 306 (2005), aff’d 6360 N. C. 389, 627 S. E. 2 d 461 (2006)

“Product” vs. “Other Property” • The classic case involves vehicle or vessel • Some states: A structure is treated like a “product” • In either event, “other property” includes: - Contents - Non-integral parts - After-market additions - Outside scope of contract

Examples of “Other Property” • Saratoga Fishing Co. v. J. M. Martinac & Co. - U. S. Supreme Court decision - Fishing boat’s hydraulic system failed; fire on engine room, flooding; boat sank; - Owner sued boat builder and hydraulic system designer - Court says no tort claim for value of boat - But tort claim could proceed for skiff, nets, spare parts added • Indemnity Insurance v. American Eurocopter – - MDNC decision - Helicopter and gearbox were the products sold - No negligence claim against gearbox overhauler for gearbox; but helicopter itself, medical equipment, ground damage were “other property”

What is and is not “integral component” of larger product • Steam turbines are integral to fishing boat East River S. S. Corp. • Oil pump is integral to fishing boat American Universal Group v. General Motors Corp. • Electrical converter is integral to motor coach Moore v. Coachmen Industries, Inc. • Turbocharger is integral to motor coach American Tours, Inc. v. Detroit Diesel Corp. , (W. D. Tenn 2005) • But coffee maker screwed under cabinet not integral to motor home Mc. Ateer v. Black & Decker, Inc. , (M. D. Fla. 1999)

What is and is not “integral component” of larger product • Helicopter engine is integral to helicopter Va. Sur. Co. v. Am. Eurocopter Corp. (D. Haw. 1996) • Pump driver gear in helicopter not integral to helicopter if installed as part of a postsale service Indemnity Ins. Co. of North America v. American Eurocopter, LLC (M. D. N. C. 2005)

What is and is not “integral component” of structure • Heating units are integral to the house Aetna Life & Casualty Co. v. Therm-ODisc, Inc. (Fla. 1987) • Roof is integral to house. Pulte Home Corp. v. Osmose Wood Preserving, Inc. (M. D. Fla. 1992)

What is and is not “integral component” of structure • Synthetic stucco is integral to house Land v. Tall House Building Co. , (NC Ct. App. 2004); Wilson v. Dryvit Systems, Inc. , (E. D. N. C. 2002) • Flooring underlayment is not integral to plywood on which it sits Terry’s Floor Fashions, Inc. v. Georgia-Pacific Corp. , (E. D. N. C. 1998) • Seawall is integral to entire home Fishman v. Boldt (Fla. 4 th DCA 1996) • Stone façade not integral to rest of house (if purchased separately) Gunkel v. Renovations, Inc. (Ind. 2005)

Improvements to real property • Masonry fireplace is improvement to real property – Hanna v. Mc. Williams, • Home elevator is improvement to real property – Beall v. Incinerator Company of America, Inc. , 182 Ga. App. 664, 356 S. E. 2 d 899 (1987) • Interlock device to wave pool is improvement to real property – Standard Fire Insurance Company v. Kent & Associates, Inc. , 232 Ga. App. 419, 501 S. E. 2 d 858 (1988) • Video surveillance system is improvement to real property – Foreline Security Corporation, 871 So. 2 d 906 (Fla. 5 th DCA 2004)

Exceptions • • Sudden calamitous event Consumer/commercial product distinction Service transaction (e. g. , repair or addition) Tort “independent” of contract – Post-sale duty to warn • • • Lack of privity Professional negligence Fraud (actual) Intentional misrepresentation Code violation Public safety exception