East River Steamship Corp. v. Transamerica Delaval Inc.

Brief Fact Summary.

East River Steamship Corp. (Plaintiff) sued the manufacturer of a defective turbine, Transamerical Delaval Inc. (Defendant) for tort damages resulting from the turbine’s failure.

Synopsis of Rule of Law.

A manufacturer in a commercial relationship is not liable in tort under a negligence or strict product liability theory when a product it manufactures injures itself.

Facts.

Plaintiff purchased a high-pressure turbine manufactured by Defendant for one of its supertankers. On its maiden voyage, the turbine malfunctioned and the ship had to be brought into port. An inspections showed that a ring in the turbine had disintegrated, causing damage to the turbine. Plaintiff sued Defendant for damages in tort for the cost of repairing the ship and for the income lost when the ship was out of service. Defendant moved for summary judgment on the tort claim and the district court granted it. Plaintiff appealed and the court of appeals affirmed. The U.S. Supreme Court granted certiorari.

Issue.

Is the manufacturer in a commercial relationship liable in tort under a negligence or strict product liability theory for a product that injures itself?

Held.

(Blackmun, J.) No. A manufacturer in a commercial relationship is not liable in tort under a negligence or strict product liability theory when a product it manufactures injures itself. Even when the product failure occurs in a sudden manner, the damages to the buyer are considered the buyer’s failure to receive the benefit of the bargain. This is a matter properly handled under contract law. Allowing recovery in tort would increase costs to the public in a manner that is not justified. Damage to the purchased product itself is most appropriately handled as a warranty claim. In this case, contract law and the law of warranty will properly compensate the parties because the parties set the terms of their own agreements. The parties have allocated their risks in their contract and there is no disparity of bargaining power that merits the court’s intrusion into that agreement. Even if Defendant was found to be negligent, it owed no duty under products liability law to avoid causing purely economic loss. Thus, under either negligence or strict products liability theories, Plaintiff cannot recover for economic loss with a products liability claim.

Discussion.

Courts frequently use a comparative liability approach to defenses in tort cases. However, in contracts cases brought under the Uniform Commercial Code, shared liability does not exist. Contracts law contemplates proximate cause and once a purchaser discovers, or reasonably should have discovered, a defect, the purchaser can no longer rely on, or recover under, the warranty.