Author(s): Mark Shreve, Simeon R. Orlowski

Black Ice – Is it Open and Obvious?

On October 9, 2009, in Vol. XXI No. 28, Law Fax reported on the Court of Appeals decision in Jansen v Sajewski Funeral Home, 285 Mich App 396 (2009). In that case, the Court of Appeals rejected the defense argument that black ice in Michigan is an open and obvious danger as a matter of law. The court said that in the absence of some other visible indicia of an otherwise invisible hazard, black ice per se cannot be open and obvious.

Garan Lucow Miller has represented the defendant in Jansen v Sajewski Funeral Home both at the trial and appellate levels. Following the Court of Appeals decision reversing the trial court’s entry of a summary disposition in favor of the defendant, GLM filed on behalf of the defendant an Application for Leave to Appeal with the Supreme Court. On March 24, 2010, the Supreme Court issued an Order in which it said that it would consider the defendant – appellant’s Application for Leave. Oral arguments have since been scheduled for May 11, 2010, on whether to grant the Application or take other peremptory action.

Law Fax will continue to follow and report on this potentially important case.

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MORE OF THE ECONOMIC LOSS DOCTRINE IS THROWN INTO THE SEA OF TORTS

On March 11, 2010, the Michigan Court of Appeals, in an unpublished decision, continued the wholesale undercutting of the Economic Loss Doctrine as established by the Michigan Supreme Court in Neibarger v Universal Cooperatives, Inc., et al., 439 Mich 512 (1992). In State Farm Fire & Casualty Company v Ford Motor Company (No. 287512), the Court of Appeals unanimously reversed the trial court’s granting of summary disposition to Ford Motor Company based upon the Economic Loss Doctrine.3 The plaintiff’s subrogors purchased a used 1994 Ford F150 pickup truck.4 The Court found that the plaintiff subrogors used the pickup truck solely for personal rather than commercial purposes. On December 29, 2006, the vehicle caught fire while parked at the plaintiff’s subrogors’ home resulting in a severe fire that destroyed the home. State Farm brought a subrogation action against Ford Motor Company alleging negligent design, manufacturing defect, and breach of express and implied warranties. Ford responded by filing a motion for summary disposition asserting that the claims were barred by the Economic Loss Doctrine, which bars tort recovery and limits remedies to those available under the Michigan Uniform Commercial Code (UCC) where damages arise out of the sale of goods and losses are purely economic. The primary assertion was that the four year UCC statute of limitations as provided in MCL 440.2725 had expired since it began to run on the day the vehicle was sold in 1994.5

2Mr. Shreve is a Partner in the Firm’s Troy office and can be reached at (248)641-7600 or mshreve@garanlucow.com

3 Judge Brian Zahra issued a separate opinion concurring with the result, but criticized the majority opinion by Judges Meter and Murphy, on the grounds that he considered that they expanded the Economic Loss Doctrine to include consumer transactions, which Judge Zanra felt would be improper, rendering meaningless significant portions of product liability and tort law.

The Economic Loss Doctrine provides that the purchaser’s remedies sound in contract alone when a dispute arises over the sale of the product and the only damages suffered are economic in nature. The doctrine provides that where “A purchaser’s expectations in the sale are frustrated because the product he bought is not working his remedy is said to be in contract alone, for he has suffered only economic losses.” Neibarger at 512.

The Economic Loss Doctrine arises out of the UCC that was adopted in Michigan on January 1, 1964. The UCC is designed to govern all contract disputes arising from transactions for the sale of “goods”. The Economic Loss Doctrine also applies in Michigan even when a plaintiff is seeking to recover damages to property other than the product itself. Michigan courts have held as follows: “If a commercial purchaser were allowed to sue in tort to recover economic loss, the UCC provisions designed to govern such disputes, would allow limitation or elimination of warranties and consequential damages, require notice to the seller, and limit the time in which such a suit would be filed could be entirely avoided. In that event, Article II of the UCC would be rendered meaningless as stated by the [United States] Supreme Court . . . contract law would drown in a sea of tort.” Citizens Ins. Co. v Osmose Wood Preserving, Inc., 231 Mich App 40, 44 (1998).

In light of the potentially strict interpretation of the Economic Loss Doctrine under the UCC, Michigan courts have continued to attempt to limit its application and allow a tort remedy. The present case is another example of this trend. A number of Michigan decisions have attempted to draw a distinction between whether or not the sale of the goods were for “personal rather than commercial purposes”. If the sale was for commercial purposes, then the Economic Loss Doctrine would apply, however, if it was for personal purposes, the Economic Loss Doctrine would not apply. The Michigan Court of Appeals in Sherman v Sea Ray Boats, Inc., 251 Mich App 41 (2002) applied the Economic Loss Doctrine to consumer transactions. In that case, the Court found that Sherman’s claim was barred by the four year statute of limitations. However, in the Sherman case, the claim related to the boat in question and did not apply to property other than the product itself.

The Court in State Farm, finding itself limited by the prior case law, avoided the rather difficult issue of determining whether or not the purchase was for personal rather than commercial purposes. As noted, Judge Zahra wants to maintain that distinction.6 Instead, the Court took a new tactic by borrowing various quotes from the Neibarger case, creating a new exception which was not even raised by State Farm on appeal. This new exception deals with whether or not the loss was within the contemplation of the parties at the time of the transaction. Thus, the Court essentially created a new factual issue as to whether or not somebody in purchasing a good would contemplate the result of its potential failure. For example, the Court considered whether, if the pickup truck would not run properly, the claim would fall within the UCC.

When it came to the truck starting on fire, however, the Court concluded that this was not within the contemplation of the parties, and therefore, the Economic Loss Doctrine would not apply. The Court reached some unique distinctions of the prior case of MASB-SEG Property/Casualty Pool, Inc. v Metalux, 231 Mich App 393 (1998), where a subrogation action was brought following a failure of a faulty light fixture that was alleged to have caused a fire. In that case the Court concluded that the Economic Loss Doctrine applied to plaintiff’s tort claim arising from the fire damage and precluded the action. The State Farm Court chose to distinguish the MASB-SEG case on the basis that “a fire caused by a light fixture could reasonably be anticipated and contemplated should the fixture be faulty or defective.” How that differs from a car causing a fire is unexplained. By this new decision, the Court has now opened up a new “can of worms” where one must look at each product to see whether or not it could be contemplated as causing the eventual property damage from its failure. The Court also commented that the sale of the light fixture in MASB-SEG was to a commercial entity with knowledge and ability to allocate liability in the purchase and sale agreement, and that the light fixture was used for commercial purposes. One can only wonder what the result would be if a light fixture in a home started on fire and the Court was faced with the argument that the Economic Loss Doctrine would apply.7

Thus, the Court concluded that the test would entail whether the “damage was in the contemplation of the parties to the agreement to determine whether or not the Economic Loss Doctrine would apply.” Arguably, based upon this decision, even the alleged purchaser of goods for “commercial purposes” (as opposed to consumer purposes) can now argue that the damage caused by the alleged defective goods was not within the contemplation of the parties. By expanding the analysis to the contemplation of the parties, the Court attempts to circumvent the issue raised in the Sherman case that the damage was limited to the product itself and not “other property”. The Court noted that the “other property” issue is relevant because the damage to other property may not be within the contemplation of the parties, as it relates to the damages caused by the product.

The Court further chose to create another argument to circumvent the Economic Loss Doctrine in the form of a public policy argument. They return to the position “ that a consumer’s tort remedy for products liability derives from a duty imposed by law or from policy considerations that allocate the risk of dangerous and unsafe products to the manufacturer rather than the consumer, thereby serving to encourage the design and production of safe products.” (Quoting Neiburger, supra, at 523). The Court correspondingly ignores the policy regarding the uniform sale of goods and fails to weigh the policy of having uniform rules for the sale of goods throughout the United States (and internationally) with predictability as to the amount of time that a manufacturer would be responsible for the goods as to its economic exposure. Instead, the Court concludes that allowing State Farm to proceed outside the UCC would serve the purpose of encouraging the design and production of a safer product.

The Court then turns to a third reason for circumventing the Uniform Commercial Code and that is the argument that it is circumvented by the Michigan Product Liability Act, where Michigan law defines a “product liability action” as “an action based on legal or equitable theory of liability brought for the death of a person or for injury to a person, or damage to property caused by or resulting from the production of a product.” [emphasis supplied] MCL 600.4945(h). Thus, the Court concludes that, under the product liability law, the case may still be brought in tort pursuant to the Michigan Product Liability Act. The Court concluded, stating: “This case is a classic example of a products liability action, absent physical injury or death to a person.”

Although this is an unpublished decision, the Michigan Court of Appeals has again undermined the Economic Loss Doctrine, arguably in many potential circumstances. The Court has now essentially created two significant exceptions to the Economic Loss Doctrine and that is: 1) where the damages arising from the loss are not within the contemplation of the parties to the agreement, and 2) when the claim is brought under the Product Liability Act. It is fair to say that this Court may have created exceptions to the Economic Loss Doctrine for just about every case where other property is damaged unless it can be shown that the other damage would have been within the contemplation of the parties when the product was acquired.