New Jersey Supreme Court Clarifies The Economic Loss And Integrated Product Doctrines
January, 2011
In New Jersey, the economic loss doctrine typically bars recovery under the Product Liability Act (the "Act"), for damages to the product itself. In Dean v. Barrett Homes, Inc., 204 N.J. 286 (November 15, 2010), the issue involved whether the Act would preclude recovery for damage to a home caused by defective synthetic stucco siding.
Plaintiffs/homeowners purchased their home equipped with a stucco siding system, which acted as both insulation and finishing. Soon thereafter, Plaintiffs discovered that toxic mold leaked into their home, allegedly as the result of the defective siding system. Plaintiffs sued the manufacturer of the siding system under the Act seeking recovery for the cost of replacing the defective siding and remediation of consequential damage to other parts of the home. The trial court granted the manufacturer's summary judgment motion, holding that the economic loss rule barred recovery, and the Appellate Division affirmed.
The question the Supreme Court confronted was whether the stucco siding system was fully integrated into the home, or whether it constituted a separate product. The implications were significant because if the stucco siding system was considered to be fully integrated into the home, Plaintiffs' products liability claim for damages caused to the rest of the home would be completely barred by the economic loss doctrine.
The New Jersey Supreme Court reversed in part. The Court noted that many federal courts have "expand[ed] the economic loss rule through the adoption of an approach referred to as the integrated product doctrine." Id. at 6. That doctrine "extend[s] the economic loss rule to preclude tort-based recovery when a defective product is incorporated into another product which the defective product then damages." Id. While declining to resolve whether New Jersey adhered to the integrated product doctrine, the Court concluded that the siding system "did not become an integral part of the structure itself, but was at all times distinct from the house." Id. at 10. Therefore, the Court held that Plaintiffs could recover in tort for damages the siding caused to other parts of the house; however, the economic loss rule precluded recovery for replacing the siding itself.
Learning Point
Plaintiffs and Defendants involved in a products liability action in New Jersey must first consider whether the failed product caused damage to other property. Then, the parties must determine whether the product was an integral part of the other property. If the product was at all times distinct from the other property, recovery may be allowed for the damage to the other property. However, recovery will not be allowed for damage to the product itself, unless an exception within the Product Liability Act applies.
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