Tuesday, April 17, 2007, 4:30 PM

COA Holds Economic Loss Doesn't Block Tort Recovery From Product Manufacturer

In Lord v. Customized Consulting Specialty, Inc., filed today, the COA held that plaintiff home buyers could recover in tort from a company that made defective trusses used in their home. Lord may signal a diminishing of the economic loss rule, which generally bars recovery in tort for economic losses in the products arena.

Generally, the economic loss doctrine bars recovery in tort for economic losses, e.g., damage to a product caused by the defective product and not, e.g., personal injury. The COA in Lord noted the rationale for the doctrine: The sale of goods is accomplished by contract, and the parties are free to include, or exclude, provisions as to the parties' rights and remedies, should the product prove to be defective.

NC law indicates that economic losses are not limited not to damage to a defective component in a larger product but cover damage to a whole product damaged by a defective component. See, e.g., Atlantic Coast Mech. Inc. v. Arcadis, Geraghty & Miller, 175 N.C. App. 339, 623 S.E.2d 334 (2006); Moore v. Coachmen Indus., Inc., 129 N.C.App. 389, 499 S.E.2d 772 (1998); Gregory v. Atrium Door and Window Co., 106 N.C. App. 142, 415 S.E.2d 574 (1992).

NC courts have applied the economic loss doctrine in cases involving component suppliers where there was no indication that those suppliers were in privity with the plaintiffs, and the courts indicated that the components were covered by the whole product's warranty, i.e., by contract law. See Moore, 129 N.C. App. 389, 499 S.E.2d 772; Land v. Tall House Bldg. Co., 165 N.C. App. 880, 602 S.E.2d 1 (2004).

In Lord, plaintiffs were in privity with the contractor (though they weren't in privity with subcontractor 84 Lumber), and apparently suffered only economic loss, but their tort suit against the sub for product negligence was upheld. The plaintiffs bought a house constructed by Customized Consulting Specialty. Plaintiffs discovered that the trusses underneath the house were sagging and sued Customized Consulting Specialty, as well as 84 Lumber Company, the subcontractor who supplied Customized Consulting Specialty with the trusses. At trial, the jury found for Customized Consulting Specialty but against 84 Lumber Company for negligent design or manufacture of the trusses. 84 Lumber appealed, arguing the negligence claim was barred by the economic loss doctrine.

The COA held that the plaintiffs' claim was not barred by the economic loss rule. In reaching its result, the COA relied on Oates v. JAG, Inc., 314 N.C. 276, 333 S.E.2d 222 (1985), which allowed later home buyers not in privity with the contractor to sue the contractor for negligent construction. In Oates, the Supreme Court indicated that equity demanded the contractor's exposure, as otherwise a later home buyer had no form of recourse. (Here in Lord, in contrast, plaintiffs were in privity with the contractor and in fact sued (albeit unsuccessfully) that contractor.)

The COA also relied on Ellis-Don Constr., Inc. v. HKS, Inc., 353 F. Supp. 2d 603, 606 (M.D.N.C. 2004), in which the court refused to block a contractor's tort claim against a building designer based on the economic loss doctrine and in the absence of privity. Notably, though, the designer was not a products manufacturer--the realm from which the economic loss rule hails--and North Carolina case law long recognized a contractor's ability to go after an architect or building designer in circumstances such as those in Ellis-Don. See, e.g., Davidson and Jones, Inc. v. New Hanover County, 41 N.C. App. 661, 255 S.E.2d 580 (1979).

In Lord, the COA seems to go beyond Oates and Ellis and allow plaintiffs, who were in privity with the contractor and who could and did sue the contractor, to sue directly a products manufacturer for economic losses caused by the manufacturer's defective component product--here, trusses. Lord seems to be in tension with prior case law such as Moore and would seem to indicate manufacturers' increased exposure to direct tort suits by plaintiffs who suffer only economic losses.


Anonymous Jennifer Lord said...

Thank you much for the exposure in this dynamic turn of events. I am Jennifer Lord as in LORD v. .... We have pursued this as any sane and just consumer should, and suffered beyond what others could not tolerate.We have known from the very onset that "84" has much to hide, ... otherwise why would they have settled with other homeowners, and not us? It is because we perservered; always digging deeper into the sordid details of their legal posturing. Nothing had ever made any sense. By Monday or Tuesday of the coming second week of May, the Attorney for "84", one Thomas Morphis of Hickoey, NC needs to state their (his) case. There is clearly NO defense for their actions. Our resolve is not just for us and our misery, but for the others that have gone before us, those without the strength to carry on this far. We are praying for justic. Our savings and retirement wiped out, we would be happy to live in a cardboard box (not our AMERICAN citizen preference) just as long as there was justice served.
Blog On and please pray for our clear path to a fair remedy. You can please contact our Attorney, Ellis "Bo" Drew III, at 336-714-2575, for inquiries or comments.
Respectfully, Jennifer Lord

5:47 PM  

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