Strict Liability Now Applies to Manufacturers, Distributors or Retailers of Products Installed in Mass Produced Homes. Does it REALLY matter?!

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1 Strict Liability Now Applies to Manufacturers, Distributors or Retailers of Products Installed in Mass Produced Homes. Does it REALLY matter?! By: Alexander S. Polsky, JAMS The California Supreme Court extended strict liability to the manufacturer of a component part installed in a mass produced home during its construction. The Court further held that the manufacture is liable for resulting damages to other parts of the home, rejecting the notion that the home is the product as contemplated by the Economic Loss Doctrine. So what? As seen below, nothing has really changed! In Jimenez v. Superior Court (2002) S the California Supreme Court examined allegations arising from a construction defect case in connection with a development constructed in Plaintiffs brought the action against the window manufacturers and against companies that supplied and installed the windows. Plaintiffs asserted the defendant s designed, developed, manufactured, produced, supplied and placed into the stream of commerce defective windows that made their way into the homes. The manufacture argued that a maker of a product installed in a mass produced home cannot be held strictly liable to a homeowner for a defective condition, unless the manufacture had ownership or control over the housing development. This garden-variety argument asserted that the product might have been damaged during installation of the window another party (usually the framer). The homeowners asserted that the defective windows damaged stucco, insulation, framing, drywall, paint, wall coverings, floor coverings, baseboards and other parts of the

2 home. Further, that the manufacturer is in the best position to defend its product, and to demonstrate if the damages were caused by installation, rather than defect. The trial court agreed with the manufacturer and granted summary adjudication. Upon writ of mandate, the Court of Appeal directed a trial court vacate its order. The California Supreme Court reversed the Appellate Court. The Supreme Court examined decisions dating back 40 years where it was held that a manufacturer should be liable for placing on the market a defective product that causes personal injury. This liability was justified because of a consumer s frequent inability to prove that a flaw in the manufacturing process caused a defect, and because the manufacturer is in the best position to reduce the risk of injury caused by product defects. It was held that this finding was necessary to protect injured consumers who are powerless to protect themselves because the law of Contractual Warranties offers no protection to those harmed by defective products. (See Greenman v. Yuba Power Products Inc. (1969) 59 Cal. 2d 457). Noting that Vandermark v. Ford Motor Company (1964) 61 Cal. 2d. 256 extended strict product liability to retailers and Cronin v. J. B. E. Olson Corporation (1972) 8 Cal. 3d 121 extended it to distributors and suppliers and Kriegler v. Eichler Homes, Inc. (1969) 269 Cal. 2d 224 applied the doctrine to mass produced homes, this Supreme Court extended strict liability protection to suppliers and manufacturers of component parts of mass produced homes. The Supreme Court paid particular to attention to the rational that manufacturers, suppliers, and retailers of completed products, component manufacturers and suppliers are an integral part of the overall producing and marketing enterprise, and are in the best position both to ensure product safety and to pass the costs of liability across the

3 broad spectrum of product users..they are also in the best position to seek indemnity from one another. So who cares? Did this opinion really change anything??? It is important to recognize what the Supreme Court did not address. First, they did not address the argument that since the windows are shipped in parts, and assembled and installed by others, substantial change in the product may occur. The court noted that the mere assembly of a product that is sold in parts does not constitute a substantial change but, rather, the issue is: whether the defect causing damage existed when the product left the manufacturer s control. That factual contention was not before the Supreme Court because the underlying summary adjudication motion did not rely on a claim of either improper assembly or installation. One might expect to see these allegations more clearly developed in future cases. This is especially true since, practically, the manufacturer frequently asserts that the product was fine when it left the warehouse. Secondly, the Supreme Court did not address the ten-year statute of limitations. The manufactures acknowledged since they did not furnish designs or specifications, and did not supervise construction, the ten-year stature does not technically apply to them. Nevertheless, they asserted that if component manufacturers are ultimately held liable for defects they might then seek equitable indemnity from developers or designers thereby subjecting the developers or designers to liability in suits brought long after expiration of the ten-year statute of limitations. Again, because this argument was not raised at the trial court level, this issue was not addressed.

4 Economic Loss Doctrine No Major Change On This Issue, Either: The window manufactures argued that the product is the entire house in which the windows were installed, and the damage caused to other parts of the house is damage to the product itself, within the meaning of the rule, thus precluding the application of strict liability damages. The Economic Loss Rule allows a plaintiff to recover in strict product liability when a product defect causes damage to other property, that is, property other than the product itself. Applying this principle, the Supreme Court concluded that the manufacturer of a defective window installed in a mass produced home may be held strictly liable for damages that the defect causes to other parts of the home in which it is installed. In other words, the home is not the product, rather the product is the window and the other component parts of the home are more akin to damage to one part of the product caused by another, different, defective part. (Stearman v. Centex Homes (2000) 78 Cal. 4th 611). Conclusion It has long been the contention of component part manufacturers of mass-produced homes that because they merely supply component parts and do not complete the homes that they should not be subject to strict product liability. The Court of Appeal disagreed and now, in a unanimous opinion, the Supreme Court has also rejected the contention. Thus, component part manufacturers of product installed by others in the manufacture of mass produced housing will be held strictly liable for damages caused to other parts of the home. That is, unless they can prove that their product was altered at installation, or

5 that liability should be apportioned between multiple defendants, such as the builder, developer, framer and stucco subcontractor. In other words, in the world of construction defect litigation, issues have been clarified but nothing has really changed! The Author: Alexander Polsky is a member of JAMS where he provides mediation, arbitration and referee services worldwide. He is an adjunct Professor of Law at the University of Southern California and Pepperdine University, where he teaches ADR and Negotiation. Alex has resolved thousands of complex commercial and serious injury disputes and was named one of the top 20 mediators/arbitrators in California by the Daily Journal. He can be reached via www/jamsadr.com, www/adr-mediate.com or