Economic Loss Rule Update in Car Fire Cases: 'State Farm v. Ford'

Author:Mr John Reis
Profession:Cozen O'Connor
 
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On March, 11, 2010, a Michigan appellate court dealt a significant blow to Ford Motor Company and a major victory for subrogated insurers litigating product liability cases in that state. In State Farm Fire & Casualty Co. v. Ford Motor Company, __ N.W.2d __, Case no. No. 287512 (MI Ct. App. March 11, 2010), the Michigan Court of Appeals reversed summary judgment granted to Ford on a case involving $123,926 in damages to a car, the car next to it, and the entire house and its contents from a fire originating in the speed control deactivation switch of a used 1994 Ford F-150 while parked in the garage. Because the case involves the nuances of the economic loss rule, a refresher on the rule is in order.

The Economic Loss Rule/Doctrine

What is often referred to as the "economic loss rule" is found in no rulebook. More aptly named the economic loss doctrine, it is a court-created principle of law limiting recovery for product liability damages pursued under tort theories (e.g., negligence or strict liability claims) where the only thing damaged is the product itself. The easy example is when a car breaks down on the side of the road and the only damage is to the car itself. In that circumstance, the manufacturer will seek to bar all theories of liability other than breach of express warranty, especially where the express warranty has expired or has limitations, as the effect is to bar the entire case.

The "Other Property" Exception

The main exception recognized by most courts pertains to "other property." The general rule bars recovery to the product itself, but it does not bar tort recovery for property other than the product. However, in many cases, it is difficult to separate the "product" from other property. For example, if a light fixture in a commercial building malfunctions and sets fire to the fixture and to the building, is the building "other property" in relation to the fixture? It depends on the view of that particular state and particular facts of the case.

The "Integrated Systems" Approach and "Contemplated Damages" Approach

To assist in distinguishing a product from other property, many courts have adopted the "integrated systems approach." Under this approach, the court looks to the physical integration of "the product" and the purported "other property." When a defective product such as an engine is physically integrated into a system, such as a boat, the system is not "other property" and the rule thus bars damage not only to the engine but also to the boat. This approach is the majority view, but a few courts have adopted a contemplated damages approach. Under that approach, property that is physically distinct from the product is nonetheless not "other property" if such property was anticipated...

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