Makers of Component Parts Are Subject to Strict Liability

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The California Supreme Court has held that manufacturers of defective component parts installed in mass-produced homes are subject to strict liability in tort when the component parts cause harm to some other part of the home. See Jimenez v. Superior Court, 2002 DJDAR 13639 (Cal. Dec. 4, 2002).

In Jimenez, two homeowners brought product-liability claims against window manufacturers alleging that defective windows installed by the developer leaked and damaged the rest of their homes. The Supreme Court granted review to decide two issues: "(1) Can a manufacturer of windows installed in a mass-produced home during its construction ever be strictly liable in tort for harm resulting from defects in those windows? (2) If so, is that manufacturer strictly liable in tort for resulting physical damage to other parts of the house in which the windows have been installed?"

In a 6-1 opinion by Justice Joyce L. Kennard, the court answered "yes" to both questions. In doing so, it disapproved two Court of Appeal decisions holding that subcontractors and suppliers in real estate projects are not strictly liable for providing defective products: La Jolla Village Homeowner Ass'n v. Superior Court, 212 Cal.App.3d 1131 (1989) (developer's subcontractor cannot be strictly liable for defects in mass-produced homes unless it also owns or controls housing development); and Casey v. Overhead Door Corp., 74 Cal.App.4th 112 (1999) (lacking control or special relationship with developer, window supplier in real estate project is not subject to strict product liability).

Relying on these and other cases, the window manufacturers argued that because they merely supplied component parts (the windows) of mass-produced homes, not the product sold to the ultimate consumer (the completed homes), they should not be subject to strict product liability.

They based their argument on the purposes of strict product liability, their lack of physical control over the windows at the time that they caused the harm, the fact that the windows were shipped in parts and therefore underwent substantial change by the time that they reached the ultimate consumer, and the notion that imposing liability would "open the litigation floodgates."

Rejecting these arguments, the court explained that strict liability is imposed "to assure just compensation to innocent victims, to give all those in the distributive chain an incentive to improve product safety and performance, and to promote equitable spreading and apportionment of the losses resulting from physical injuries as a cost of doing business."

The court explained that manufacturers of component parts are an integral part in the production and marketing enterprise and may be the only defendants available to an injured plaintiff.

The court next discarded the defendants' "lack of physical control" argument, noting that rarely are defective products in the control of their manufacturers or distributors when they cause injury.

The court then took up the defendants' argument that because the windows "are shipped in parts, assembled by others, and installed by others," they undergo a substantial change that precludes liability. The defendants relied on Section 402A(1) (b) of the Restatement Second of Torts, which allows liability for a defective product if "it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold."

Signaling the future of the component-part doctrine, the court reasoned that "[t]he mere assembly of a product that is sold in parts is not a 'substantial change' in the product." Instead, the central question is "whether the defect that resulted in the alleged damage existed when the windows left the manufacturers' control."

Stated in more familiar terms, one can read the court's holding to mean that a change only will be considered a "substantial" one if it is not foreseeable, anticipated or intended.

The Jimenez court's final consideration was the defendants' "floodgates" argument. The court recounted that similar arguments were made and proved false when strict product liability originally was adopted. More profoundly, the court held that even assuming increased litigation, the policy reasons for strict product liability, such as increasing product safety, "outweigh the burden imposed by increased litigation."

Although the court expressly stated that its holding does not address the liability of raw-material manufacturers and suppliers, the Jimenez court's "substantial change" analysis does not bode well for those peddling raw materials.

As articulated in Artiglio v. General Electric Co., 61 Cal.App.4th 830 (1998), raw material suppliers (there, silicon gel) are not liable in tort to ultimate consumers where the goods that they provide are not inherently dangerous, are sold in bulk to a sophisticated buyer, are substantially changed during the manufacturing process and where the supplier has a limited role in designing and developing the end product.

The absence of any of these invalidates the component-part defense. Artiglio held that "cooking" the silicone gel in preparation for its use was a substantial change in the product that prevented the imposition of strict liability. The court so held even though the silicone was defective for its intended use at the time that it left the manufacturer's control.

The Supreme Court presently faces an opportunity to further refine the economic-loss rule as applied to raw-material suppliers in Acosta v. Synthetic Industries, S098279.

Acosta involves a claim for strict product liability arising out of the use of Fibermesh, a fiber sold in bulk with instructions for use in reinforcing concrete.

Perhaps the most profound application of the component-part exception is its effect on the "economic loss rule." Simply stated, "the economic loss rule allows a plaintiff to recover in strict products liability in tort when a product defect causes damage to 'other property,' that is, property other than the product itself."

As the Jimenez court explained, the first step in economic-loss-rule analysis is to identify the product. To avoid liability, the Jimenez defendants argued that the "product" at issue was the whole house that was sold to the ultimate consumer, and not the windows that they manufactured.

The court rejected the argument, citing Aas v. Superior Court, 24 Cal.4th 627 (2000), where it observed that "'the concept of recoverable physical injury or property damage' had over time 'expanded to include damage to one part of a product caused by another, defective part.'" The court observed that when applying the economic-loss rule, courts and counsel should recognize that "the duty of a product manufacturer to prevent property damage does not necessarily end when the product is incorporated into a larger product."

Both Aas and Jimenez cite cases with approval that permitted strict liability for a defective foundation that caused damage to the interior and exterior of a home and that affirmed a nonsuit for the defendant on a tort claim for defective windows only because the plaintiffs failed to prove that the windows damaged other property.

Kennard wrote separately (in concurrence) to discuss her view, based upon the Restatement Third of Torts, "that the crucial inquiry for applying the economic loss rule in this context is whether the component part has been so integrated into the overall unit that it has lost its separate identity."

To illustrate the point, she pointed to two U.S. Supreme Court cases applying an economic-loss rule similar to California's: East River S.S. Corp. v. Transamerica Delaval, 476 U.S. 858 (1986) (holding defective part of turbine to be part of an integrated turbine and thus subject to economic-loss rule), and Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875 (1997) (holding that skiff, net and various spare parts added to ship after its original sale were "other property").

The distinction in the degree of integration may be one of perspective. The restatement looks backward from the damage rather than forward from the manufacture to determine whether something is sufficiently integrated to avoid strict liability. Kennard's analysis attempts to merge the two perspectives, suggesting that the determination should be based upon whether a component is "readily separated from the overall unit." Because windows can be "readily removed" and installed into another house, they are not integral components.

Justice Janice Rogers Brown's dissent, however, found no void in the law of contract to support the majority's view of strict product liability and adopted the defendants' floodgates argument: "In a world full of complex, integrated products, the general malfunction of a product is almost always traceable to the malfunctioning of a component."

Brown recognized that the economic-loss rule seeks to draw a line between tort and contract remedies. She stated that because the only damages alleged were to the house, there was no danger of personal injury or any issue of consumer safety - the original justifications for strict liability.

By focusing on the damage at issue in this case, the dissent ignored the safety implications for other cases that pose otherwise indistinguishable facts, for example, a defective water heater or stove installed in a mass-produced home.

The public policies endorsed by the majority in Jimenez deserve consideration in both component-part and economic-loss analysis. Even in the face of technological advancement in product design and integration, those public policies remain sufficiently important to maintain the breadth of strict product liability.