The Products Liability Act, the Economic Loss Rule and the Integrated Product Doctrine

This article provides a summary and analysis of the recent New Jersey Supreme Court decision, Dean v. Barrett Homes, Inc., 204 N.J. 286 (2010). This case is of particular interest as it dealt with the application of the New Jersey Products Liability Act, N.J.S.A. ” 2A:58C-1 to 2A58C-11, the economic loss rule, and the integrated products doctrine in a factual context not previously considered by the New Jersey Supreme Court. (The economic loss rule precludes tort-based remedies when the claim only seeks damages for harm that the product caused to itself.) Although they are separate legal principles, they often work in conjunction. Understanding their history and how they work can be helpful when considering potential strategies and defenses to use if product liability and negligence claims are brought against your client.

The Case

In Dean v. Barrett Homes, Inc., the New Jersey Supreme Court considered the continuing viability of the economic loss rule and its application to a claim arising out of the purchase of a residence from the original owners. The residence was constructed with an allegedly defective exterior finishing system. The context of this case sets it apart from previous New Jersey Supreme Court opinions applying this doctrine because the plaintiffs were secondary, and not primary, purchasers of the residence. This is an important distinction because primary purchasers would clearly have contract remedies against the manufacturer of the allegedly defective exterior finishing system. Secondary purchasers, however, are without that remedy because they lack privity with the manufacturer of the allegedly defective product. Here, the plaintiffs challenged the scope of the Products Liability Act in an attempt to create a new tort-based remedy for secondary purchasers because a contract remedy was not available.

Factual Background

Plaintiffs Robert, Jennifer and Mary Sue Dean bought a house from the original owners in 2002. The house was built by defendant Barrett Homes, Inc. in 1995 and included an Exterior Insulation and Finish System (“EIFS”) that was designed by defendant Sto Corporation (“Sto”). The EIFS consisted of an adhesive, an expanded polystyrene board, a ground coating with reinforcing fiberglass fabric, a primer, and a synthetic plaster finish coating. The purpose of the EIFS was to create a combined insulation and wall finish system when it was affixed to the house. One year after purchasing the house, the plaintiffs noticed black lines on the exterior, which were later determined to be toxic mold. Because of the toxic mold, the plaintiffs had the EIFS removed and replaced.

Procedural History

The plaintiffs filed suit against several defendants and claimed that the EIFS was defective because it did not allow for drainage of penetrating moisture underneath it. This defect caused the underlying structure to rot and develop mold. The plaintiffs alleged negligence, strict product liability claims under the New Jersey Products Liability Act, N.J.S.A. ” 2A:58C-1 to 2A:58C-11, breach of warranty, and Consumer Fraud violations. The plaintiffs settled their claims with all the defendants except the manufacturer of the EIFS, Sto, which moved for summary judgment.

The trial court granted the defendant's summary judgment motion and rejected the plaintiffs' product liability claim because the plaintiffs sought damages that were purely economic in nature. The appellate court affirmed the lower court's decision, concluding that the plaintiffs' claims were precluded by the economic loss rule because the defendant sought damages for the replacement cost of the product. In its analysis, the appellate court “traced the development of the common law economic loss rule, reasoning that it was designed to disallow a tort-based product liability claim if the parties could have addressed their dispute on contract grounds.” Dean v. Barrett Homes, Inc., 204 N.J. at 292 (citing the appellate court decision). Additionally, the appellate court considered whether recovery should be available on a tort-based theory “where a defective building component damages other parts of the building's structure, [and] conclud[ed] that the integrated product doctrine, which would preclude that relief, is consistent with this Court's precedents.” Id. at 292 (citing appellate court decision).

The Restatement (Third) of Torts: Products Liability defines the integrated product doctrine as when “[a] product that nondangerously fails to function due to a product defect has clearly caused harm only to itself. A product that fails to function and causes harm to surrounding property has clearly caused harm to other property. However, when a component part or machine or a system destroys the rest of the machine or system ' [if] the product or system is deemed to be an integrated whole, courts treat such damage as harm to the product itself. When so characterized, the damage is excluded from coverage.” ' 21 comment e (1998). While the appellate court recognized that its approach would preclude all of the plaintiffs' potential remedies against the EIFS manufacturer, the appellate court “concluded that the economic loss rule and the integrated product doctrine equitably and appropriately balance the different policies served by tort and contract law.” Dean, 204 N.J. at 292 (citing appellate court decision). The plaintiffs subsequently filed a petition for certification, which was granted by the New Jersey Supreme Court.

The Court Provides the Context Upon Which It Will Rule

Although New Jersey Supreme Court precedent previously analyzed the interplay between the Products Liability Act and the economic loss rule, Dean v. Barrett Homes provided a factual context not previously addressed. First, the court laid the foundation for its analysis by explaining that while the definition of tort liability is broad, it does not encompass all types of harm:

A manufacturer or seller of a product shall be liable in a product liability action only if the claimant proves by a preponderance of the evidence that the product causing the harm was not reasonably fit, suitable, or safe for its intended purpose. N.J.S.A. 2A:58C-2. Although broad in scope, it is significant for this dispute that the statute defines harm, and does so in terms that are specific. Harm for which there can be compensation under the Act, by definition, is limited to 'physical damage to property, other than the product itself[,]' and certain personal injuries. N.J.S.A. 2A:58C-1(b)(2).

Id. at 294-95 (emphasis included) (alterations included).

Next, the court explained that the economic loss rule was developed in an effort to establish the boundary line between contract and tort remedies, and bars tort remedies in strict liability or negligence cases when the claim is only for damage to the product itself. Id. at 295. While the economic loss rule was initially applied by the New Jersey Supreme Court to address economic losses in commercial transactions, the court subsequently has applied the rule to transactions between individual customers. Id. at 297 (citing Alloway v. Gen Marine Indus., 149 N.J. 620, 642 (1997) (concluding that the U.C.C. “amply protects all buyers[,] commercial purchasers and consumers alike[,] from economic loss arising out of the purchase of a defective product”)).

Against this historical background, the court explained that “[i]n enacting the Products Liability Act, and in codifying the economic loss rule within the definition of 'harm' found in the Act's general provision, N.J.S.A. 2A:58C-1(b)(2), the Legislature both recognized and agreed with its designation of the line that divides tort and contract remedies.” Id. at 298. As such, the court confirmed that the economic loss rule is “firmly established as a limitation on recovery through tort-based theories, not only because of this Court's longstanding common law precedents differentiating between remedies sounding in tort and contract, but also through the pronouncement of our Legislature as embodied in the Products Liability Act.” Id.

The court also noted that the Third U.S. Circuit Court of Appeals has begun to expand the economic loss rule to include the integrated product doctrine. Id. Under the integrated product doctrine, the economic loss rule was extended to “preclude tort-based recovery when a defective product is incorporated into another product, which the defective product then damages.” Id. (citing King v. Hilton-Davis, 855 F.2d 1047,1051 (3rd. Cir. 1988), cert. denied, 488 U.S. 1020 (1989) (applying Pennsylvania law) (concluding that the potato starter fungicide was integrated into potato starters, precluding tort claim for crop failure)). Essentially, “[b]y focusing on whether the defective product was integrated into a larger one, the federal courts have concluded that 'harm to the product itself' means harm to whatever else the defective product became integrated into.” Id.

While the Third Circuit originally analyzed the integrated product doctrine using Pennsylvania law, the District of New Jersey has more recently analyzed the doctrine applying New Jersey law. Id. (citing Int'l Flavors & Fragrances, Inc., v. McCormick & Co., 575 F. Supp. 2d 654, 662-63 (D.N.J. 2008) (“damage done to a final product by a defective component or ingredient does not constitute damage to property 'other than the product itself'”)); Travelers Indem. Co. v. Dammann & Co., 592 F. Supp. 2d 752, 762-63 (D.N.J. 2008) (barring product liability claim as defective vanilla beans were incorporated into vanilla extract and other flavorings); Easling v. Glen-Gery Corp., 804 F. Supp. 585, 590-91 (D.N.J. 1992) (rejecting apartment complex purchaser's product liability claim for damaged studs and interiors caused by defective brick facing because the defective bricks were not viewed as a separate product but were included as an integrated part of the completed apartment complex).

The court also acknowledged that the New Jersey Appellate Division had previously applied the integrated product doctrine to preclude a homeowner's claim for recovery that arose from an EIFS that had damaged portions of the home. See Marrone v. Green & Polman Constr., 405 N.J. Super. 288, 302-33 (App. Div. 2009). The appellate court found that the EIFS was not separate from the house, but was integrated into it, therefore making the EIFS and the house “one product” for purposes of the Act's definition of harm. Id. at 297 (quoting N.J.S.A. 2A:58C-1(b)(2)). As such, the Marrone court concluded that plaintiff's claims were barred by the economic loss rule because any damage the EIFS caused to the house was done to the product itself. Id.

It was against this procedural and substantive background that the New Jersey Supreme Court granted plaintiffs' petition for certification.

Application of the Rules to the Facts Presented

The court explained that “[o]n its surface, the dispute is about whether we will adopt the integrated product doctrine, and if so, whether the EIFS was sufficiently integrated into the home plaintiffs purchased that any recovery for damages to it or the home is barred by the economic loss rule.” Dean, 204 N.J. at 300-01. However, making a decision on this question required the court “to consider fundamental issues about the roles played by contract and tort in addressing defective products and in affording a remedy for the losses that are caused by or flow from them.” Id. at 301. The court then noted that, “[t]he issue is not whether a home is a product, but whether this Court will adopt the integrated product doctrine to address whether a product, like EIFS, which causes damages to the house, falls within the economic loss rule, thus barring recovery.” Id. at 302.

At the outset, the court stated that “[w]hether we adopt the integrated product doctrine or not, it would not alter the outcome here, because our analysis turns on whether the EIFS was sufficiently integrated into the home to become a part of the structure for purposes of broadly applying the economic loss rule.” Id. In deciding whether a product is “sufficiently integrated into another for purposes of applying the doctrine is a sufficient undertaking ' . Particularly in the case of houses, a product that is merely attached to or included as part of the structure is not necessarily considered to be an integrated part thereof.” Id.

To support its position, the court cited several instances where asbestos found in a building was not deemed to be an integrated product and the contamination constituted harm to the building. See, e.g., Tioga Pub. Sch. Dist. No. 15 v. United States Gypsum Co., 984 F.2d 915, 918 (8th Cir. 1993) (permitting recovery in a tort claim for costs of asbestos abatement); Northridge Co. v. W.R. Grace & Co., 471 N.W.2d 179, 185-86 (Wis. 1991) (same); Kershaw County Bd. of Educ. v. United States Gypsum Co., 396 S.E.2d 369, 371 n.1 (S.C. 1990) (same).

Similarly, the court noted that California courts have declined to apply the integrated product doctrine to products used in constructing a house. Id. In this regard, the court quoted Jiminez v. Superior Court, 58 P.3d 450, 457 (Cal. 2002), which held that “'the economic loss rule does not necessarily bar recovery in tort for damage that a defective product ' caused to other portions of a larger product ' into which the former has been incorporated.'” Id. at 303. In Jiminez, the California Supreme Court “permitted plaintiff home buyers to recover in strict liability for damage that the windows caused to other parts of the home for purposes of the rule.” Id. (citing Jiminez, 58 P.3d at 457).

In the end, the court overruled the appellate division's decision and found that because the EIFS was affixed to the exterior walls to create a moisture barrier, it was not an integral part of the structure itself, and was at all times distinct. Therefore, it remained a separate product. Applying the Products Liability Act in conjunction with the economic loss rule, the court reasoned that “[a]lthough the EIFS is a separate product, the economic loss rule precludes plaintiffs from recovery [for damage to the EIFS itself] on a strict liability theory.” Id. at 303. Essentially, the court found that while the EIFS was not fully integrated, the economic loss rule precluded any recovery for the costs of removing the EIFS or purchasing a new one because on those claims, the plaintiffs sought economic recovery for damage done to the product itself and, accordingly, those were not covered by the Products Liability Act. Nevertheless, because the EIFS was not integrated into the house, the court held that the plaintiffs could recover under the Products Liability Act for any tort-based damages to the house or to the house's structure/environment caused by the EIFS. Id.

Scope of the Products Liability Act

The plaintiffs also claimed that the economic loss rule should not bar their claims because they were purchasers in a non-commercial setting and did not have a contract remedy against the EIFS manufacturer. Id. The plaintiffs argued that the court should expand the Products Liability Act to allow them to recover all costs for the removal of the EIFS and repair of their home under a tort-based remedy because no contractual remedy existed to recover damages caused by the EIFS to itself, including out-of-pocket expenses to remove the defective EIFS and purchase a new one. Id.

The court stated that “whether or not plaintiffs now have a contract remedy is irrelevant to whether they have a cause of action under the Products Liability Act.” Id. at 304. The court stated that the Legislature “did not regard the Act as a means to create an expansive tort remedy that would become available in the event that a plaintiff had no contract remedy or failed to pursue an available contract remedy; instead, it defined the role of tort remedies with care and precision.” Id. at 305. As such, the court found there was no room within the Products Liability Act to create a new remedy for plaintiffs and held that the economic loss rule precluded recovery for any damages the EIFS caused to itself. Id.

In sum, the court confirmed that the sole focus of the Products Liability Act is to provide a remedy for harm that defective products cause to people or other property. Quite simply, “the Act is not concerned with providing a consumer with a remedy for a defective product per se; it is concerned with providing a remedy for the harm or the damage that a defective product causes to people or to property.” Id. at 304. It was not the Legislature's intent for the Products Liability Act to be a catch-all remedy that would allow plaintiffs to recover for damage done by a product if a contract remedy did not exist. Despite the limitation this judicial policy places on plaintiffs' potential remedies, the court refused to create a new interpretation that had no basis in New Jersey law.

Conclusion and Analysis

Understanding the economic loss rule is essential to a dutiful analysis of the Products Liability Act. While recently decided in November 2010, Dean v. Barrett provides insight into the dynamic relationship between the Products Liability Act, the economic loss rule and the integrated product doctrine. Product liability attorneys should be aware of the interplay between these legal doctrines as they often implicate one another and can serve as a helpful defense to strict liability and negligence claims.

Whether a product is viewed as an integrated part of the home can make the difference between a case with no damages and one with substantial damages and will determine the scope of the economic loss rule. If a plaintiff sues under the Products Liability Act for damages caused to the product itself, the economic loss rule will preclude recovery as a plaintiff can only recover for harm the product does to the plaintiff or other property. However, if the court determines that the product has not been integrated and exists as a separate product, a plaintiff can recover for any harm done to the plaintiff or property not considered part of the subject product. Thus, the consideration of whether a product is substantially integrated can be the definitive factor when determining whether a defendant manufacturer can seek to dismiss a product liability claim on summary judgment. Considering the time and expense involved with defending a lawsuit of this nature, it is necessary to be aware of the relationship between these legal concepts if your client is ever sued in New Jersey.

Christopher P. DePhillips, a member of this newsletter's Board of Editors, is a principal of Porzio, Bromberg & Newman, and a member of the Complex Tort Practice Group and the Governmental Affairs Group. He is Vice President and General Counsel of Porzio Governmental Affairs, LLC, a wholly owned subsidiary of the law firm. Phillip C. Bauknight is an associate at the firm and a member of its Commercial and Complex Tort Practice Groups.

This article provides a summary and analysis of the recent New Jersey Supreme Court decision, Dean v. Barrett Homes, Inc. , 204 N.J. 286 (2010). This case is of particular interest as it dealt with the application of the New Jersey Products Liability Act, N.J.S.A. ” 2A:58C-1 to 2A58C-11, the economic loss rule, and the integrated products doctrine in a factual context not previously considered by the New Jersey Supreme Court. (The economic loss rule precludes tort-based remedies when the claim only seeks damages for harm that the product caused to itself.) Although they are separate legal principles, they often work in conjunction. Understanding their history and how they work can be helpful when considering potential strategies and defenses to use if product liability and negligence claims are brought against your client.

The Case

In Dean v. Barrett Homes, Inc., the New Jersey Supreme Court considered the continuing viability of the economic loss rule and its application to a claim arising out of the purchase of a residence from the original owners. The residence was constructed with an allegedly defective exterior finishing system. The context of this case sets it apart from previous New Jersey Supreme Court opinions applying this doctrine because the plaintiffs were secondary, and not primary, purchasers of the residence. This is an important distinction because primary purchasers would clearly have contract remedies against the manufacturer of the allegedly defective exterior finishing system. Secondary purchasers, however, are without that remedy because they lack privity with the manufacturer of the allegedly defective product. Here, the plaintiffs challenged the scope of the Products Liability Act in an attempt to create a new tort-based remedy for secondary purchasers because a contract remedy was not available.

Factual Background

Plaintiffs Robert, Jennifer and Mary Sue Dean bought a house from the original owners in 2002. The house was built by defendant Barrett Homes, Inc. in 1995 and included an Exterior Insulation and Finish System (“EIFS”) that was designed by defendant Sto Corporation (“Sto”). The EIFS consisted of an adhesive, an expanded polystyrene board, a ground coating with reinforcing fiberglass fabric, a primer, and a synthetic plaster finish coating. The purpose of the EIFS was to create a combined insulation and wall finish system when it was affixed to the house. One year after purchasing the house, the plaintiffs noticed black lines on the exterior, which were later determined to be toxic mold. Because of the toxic mold, the plaintiffs had the EIFS removed and replaced.

Procedural History

The plaintiffs filed suit against several defendants and claimed that the EIFS was defective because it did not allow for drainage of penetrating moisture underneath it. This defect caused the underlying structure to rot and develop mold. The plaintiffs alleged negligence, strict product liability claims under the New Jersey Products Liability Act, N.J.S.A. ” 2A:58C-1 to 2A:58C-11, breach of warranty, and Consumer Fraud violations. The plaintiffs settled their claims with all the defendants except the manufacturer of the EIFS, Sto, which moved for summary judgment.

The trial court granted the defendant's summary judgment motion and rejected the plaintiffs' product liability claim because the plaintiffs sought damages that were purely economic in nature. The appellate court affirmed the lower court's decision, concluding that the plaintiffs' claims were precluded by the economic loss rule because the defendant sought damages for the replacement cost of the product. In its analysis, the appellate court “traced the development of the common law economic loss rule, reasoning that it was designed to disallow a tort-based product liability claim if the parties could have addressed their dispute on contract grounds.” Dean v. Barrett Homes, Inc. , 204 N.J. at 292 (citing the appellate court decision). Additionally, the appellate court considered whether recovery should be available on a tort-based theory “where a defective building component damages other parts of the building's structure, [and] conclud[ed] that the integrated product doctrine, which would preclude that relief, is consistent with this Court's precedents.” Id. at 292 (citing appellate court decision).

The Restatement (Third) of Torts: Products Liability defines the integrated product doctrine as when “[a] product that nondangerously fails to function due to a product defect has clearly caused harm only to itself. A product that fails to function and causes harm to surrounding property has clearly caused harm to other property. However, when a component part or machine or a system destroys the rest of the machine or system ' [if] the product or system is deemed to be an integrated whole, courts treat such damage as harm to the product itself. When so characterized, the damage is excluded from coverage.” ' 21 comment e (1998). While the appellate court recognized that its approach would preclude all of the plaintiffs' potential remedies against the EIFS manufacturer, the appellate court “concluded that the economic loss rule and the integrated product doctrine equitably and appropriately balance the different policies served by tort and contract law.” Dean, 204 N.J. at 292 (citing appellate court decision). The plaintiffs subsequently filed a petition for certification, which was granted by the New Jersey Supreme Court.

The Court Provides the Context Upon Which It Will Rule

Although New Jersey Supreme Court precedent previously analyzed the interplay between the Products Liability Act and the economic loss rule, Dean v. Barrett Homes provided a factual context not previously addressed. First, the court laid the foundation for its analysis by explaining that while the definition of tort liability is broad, it does not encompass all types of harm:

A manufacturer or seller of a product shall be liable in a product liability action only if the claimant proves by a preponderance of the evidence that the product causing the harm was not reasonably fit, suitable, or safe for its intended purpose. N.J.S.A. 2A:58C-2. Although broad in scope, it is significant for this dispute that the statute defines harm, and does so in terms that are specific. Harm for which there can be compensation under the Act, by definition, is limited to 'physical damage to property, other than the product itself[,]' and certain personal injuries. N.J.S.A. 2A:58C-1(b)(2).

Id. at 294-95 (emphasis included) (alterations included).

Next, the court explained that the economic loss rule was developed in an effort to establish the boundary line between contract and tort remedies, and bars tort remedies in strict liability or negligence cases when the claim is only for damage to the product itself. Id. at 295. While the economic loss rule was initially applied by the New Jersey Supreme Court to address economic losses in commercial transactions, the court subsequently has applied the rule to transactions between individual customers. Id . at 297 (citing Alloway v. Gen Marine Indus. , 149 N.J. 620, 642 (1997) (concluding that the U.C.C. “amply protects all buyers[,] commercial purchasers and consumers alike[,] from economic loss arising out of the purchase of a defective product”)).

Against this historical background, the court explained that “[i]n enacting the Products Liability Act, and in codifying the economic loss rule within the definition of 'harm' found in the Act's general provision, N.J.S.A. 2A:58C-1(b)(2), the Legislature both recognized and agreed with its designation of the line that divides tort and contract remedies.” Id. at 298. As such, the court confirmed that the economic loss rule is “firmly established as a limitation on recovery through tort-based theories, not only because of this Court's longstanding common law precedents differentiating between remedies sounding in tort and contract, but also through the pronouncement of our Legislature as embodied in the Products Liability Act.” Id.

The court also noted that the Third U.S. Circuit Court of Appeals has begun to expand the economic loss rule to include the integrated product doctrine. Id. Under the integrated product doctrine, the economic loss rule was extended to “preclude tort-based recovery when a defective product is incorporated into another product, which the defective product then damages.” Id . (citing King v. Hilton-Davis , 855 F.2d 1047,1051 (3rd. Cir. 1988), cert. denied, 488 U.S. 1020 (1989) (applying Pennsylvania law) (concluding that the potato starter fungicide was integrated into potato starters, precluding tort claim for crop failure)). Essentially, “[b]y focusing on whether the defective product was integrated into a larger one, the federal courts have concluded that 'harm to the product itself' means harm to whatever else the defective product became integrated into.” Id.

While the Third Circuit originally analyzed the integrated product doctrine using Pennsylvania law, the District of New Jersey has more recently analyzed the doctrine applying New Jersey law. Id . (citing Int'l Flavors & Fragrances, Inc., v. McCormick & Co. , 575 F. Supp. 2d 654, 662-63 (D.N.J. 2008) (“damage done to a final product by a defective component or ingredient does not constitute damage to property 'other than the product itself'”)); Travelers Indem. Co. v. Dammann & Co. , 592 F. Supp. 2d 752, 762-63 (D.N.J. 2008) (barring product liability claim as defective vanilla beans were incorporated into vanilla extract and other flavorings); Easling v. Glen-Gery Corp. , 804 F. Supp. 585, 590-91 (D.N.J. 1992) (rejecting apartment complex purchaser's product liability claim for damaged studs and interiors caused by defective brick facing because the defective bricks were not viewed as a separate product but were included as an integrated part of the completed apartment complex).

The court also acknowledged that the New Jersey Appellate Division had previously applied the integrated product doctrine to preclude a homeowner's claim for recovery that arose from an EIFS that had damaged portions of the home. See Marrone v. Green & Polman Constr. , 405 N.J. Super. 288, 302-33 (App. Div. 2009). The appellate court found that the EIFS was not separate from the house, but was integrated into it, therefore making the EIFS and the house “one product” for purposes of the Act's definition of harm. Id. at 297 (quoting N.J.S.A. 2A:58C-1(b)(2)). As such, the Marrone court concluded that plaintiff's claims were barred by the economic loss rule because any damage the EIFS caused to the house was done to the product itself. Id.

It was against this procedural and substantive background that the New Jersey Supreme Court granted plaintiffs' petition for certification.

Application of the Rules to the Facts Presented

The court explained that “[o]n its surface, the dispute is about whether we will adopt the integrated product doctrine, and if so, whether the EIFS was sufficiently integrated into the home plaintiffs purchased that any recovery for damages to it or the home is barred by the economic loss rule.” Dean, 204 N.J. at 300-01. However, making a decision on this question required the court “to consider fundamental issues about the roles played by contract and tort in addressing defective products and in affording a remedy for the losses that are caused by or flow from them.” Id. at 301. The court then noted that, “[t]he issue is not whether a home is a product, but whether this Court will adopt the integrated product doctrine to address whether a product, like EIFS, which causes damages to the house, falls within the economic loss rule, thus barring recovery.” Id. at 302.

At the outset, the court stated that “[w]hether we adopt the integrated product doctrine or not, it would not alter the outcome here, because our analysis turns on whether the EIFS was sufficiently integrated into the home to become a part of the structure for purposes of broadly applying the economic loss rule.” Id. In deciding whether a product is “sufficiently integrated into another for purposes of applying the doctrine is a sufficient undertaking ' . Particularly in the case of houses, a product that is merely attached to or included as part of the structure is not necessarily considered to be an integrated part thereof.” Id.

To support its position, the court cited several instances where asbestos found in a building was not deemed to be an integrated product and the contamination constituted harm to the building. See, e.g., Tioga Pub. Sch. Dist. No. 15 v. United States Gypsum Co. , 984 F.2d 915, 918 (8th Cir. 1993) (permitting recovery in a tort claim for costs of asbestos abatement); Northridge Co. v. W.R. Grace & Co. , 471 N.W.2d 179, 185-86 (Wis. 1991) (same); Kershaw County Bd. of Educ. v. United States Gypsum Co. , 396 S.E.2d 369, 371 n.1 (S.C. 1990) (same).

Similarly, the court noted that California courts have declined to apply the integrated product doctrine to products used in constructing a house. Id. In this regard, the court quoted Jiminez v. Superior Court , 58 P.3d 450, 457 (Cal. 2002), which held that “'the economic loss rule does not necessarily bar recovery in tort for damage that a defective product ' caused to other portions of a larger product ' into which the former has been incorporated.'” Id . at 303. In Jiminez, the California Supreme Court “permitted plaintiff home buyers to recover in strict liability for damage that the windows caused to other parts of the home for purposes of the rule.” Id. (citing Jiminez, 58 P.3d at 457).

In the end, the court overruled the appellate division's decision and found that because the EIFS was affixed to the exterior walls to create a moisture barrier, it was not an integral part of the structure itself, and was at all times distinct. Therefore, it remained a separate product. Applying the Products Liability Act in conjunction with the economic loss rule, the court reasoned that “[a]lthough the EIFS is a separate product, the economic loss rule precludes plaintiffs from recovery [for damage to the EIFS itself] on a strict liability theory.” Id. at 303. Essentially, the court found that while the EIFS was not fully integrated, the economic loss rule precluded any recovery for the costs of removing the EIFS or purchasing a new one because on those claims, the plaintiffs sought economic recovery for damage done to the product itself and, accordingly, those were not covered by the Products Liability Act. Nevertheless, because the EIFS was not integrated into the house, the court held that the plaintiffs could recover under the Products Liability Act for any tort-based damages to the house or to the house's structure/environment caused by the EIFS. Id.

Scope of the Products Liability Act

The plaintiffs also claimed that the economic loss rule should not bar their claims because they were purchasers in a non-commercial setting and did not have a contract remedy against the EIFS manufacturer. Id. The plaintiffs argued that the court should expand the Products Liability Act to allow them to recover all costs for the removal of the EIFS and repair of their home under a tort-based remedy because no contractual remedy existed to recover damages caused by the EIFS to itself, including out-of-pocket expenses to remove the defective EIFS and purchase a new one. Id.

The court stated that “whether or not plaintiffs now have a contract remedy is irrelevant to whether they have a cause of action under the Products Liability Act.” Id. at 304. The court stated that the Legislature “did not regard the Act as a means to create an expansive tort remedy that would become available in the event that a plaintiff had no contract remedy or failed to pursue an available contract remedy; instead, it defined the role of tort remedies with care and precision.” Id. at 305. As such, the court found there was no room within the Products Liability Act to create a new remedy for plaintiffs and held that the economic loss rule precluded recovery for any damages the EIFS caused to itself. Id.

In sum, the court confirmed that the sole focus of the Products Liability Act is to provide a remedy for harm that defective products cause to people or other property. Quite simply, “the Act is not concerned with providing a consumer with a remedy for a defective product per se; it is concerned with providing a remedy for the harm or the damage that a defective product causes to people or to property.” Id. at 304. It was not the Legislature's intent for the Products Liability Act to be a catch-all remedy that would allow plaintiffs to recover for damage done by a product if a contract remedy did not exist. Despite the limitation this judicial policy places on plaintiffs' potential remedies, the court refused to create a new interpretation that had no basis in New Jersey law.

Conclusion and Analysis

Understanding the economic loss rule is essential to a dutiful analysis of the Products Liability Act. While recently decided in November 2010, Dean v. Barrett provides insight into the dynamic relationship between the Products Liability Act, the economic loss rule and the integrated product doctrine. Product liability attorneys should be aware of the interplay between these legal doctrines as they often implicate one another and can serve as a helpful defense to strict liability and negligence claims.

Whether a product is viewed as an integrated part of the home can make the difference between a case with no damages and one with substantial damages and will determine the scope of the economic loss rule. If a plaintiff sues under the Products Liability Act for damages caused to the product itself, the economic loss rule will preclude recovery as a plaintiff can only recover for harm the product does to the plaintiff or other property. However, if the court determines that the product has not been integrated and exists as a separate product, a plaintiff can recover for any harm done to the plaintiff or property not considered part of the subject product. Thus, the consideration of whether a product is substantially integrated can be the definitive factor when determining whether a defendant manufacturer can seek to dismiss a product liability claim on summary judgment. Considering the time and expense involved with defending a lawsuit of this nature, it is necessary to be aware of the relationship between these legal concepts if your client is ever sued in New Jersey.

Christopher P. DePhillips, a member of this newsletter's Board of Editors, is a principal of Porzio, Bromberg & Newman, and a member of the Complex Tort Practice Group and the Governmental Affairs Group. He is Vice President and General Counsel of Porzio Governmental Affairs, LLC, a wholly owned subsidiary of the law firm. Phillip C. Bauknight is an associate at the firm and a member of its Commercial and Complex Tort Practice Groups.