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Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co.

decided: June 30, 1981.

PENNSYLVANIA GLASS SAND CORPORATION, APPELLANT
v.
CATERPILLAR TRACTOR COMPANY, APPELLEE



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA C.A. No. 79-0735

Before Adams, Rosenn and Hunter, Circuit Judges.

Author: Adams

Opinion OF THE COURT

In litigation involving an alleged defective product, the tort theory of products liability, derived from § 402A of the Restatement (2d) of Torts, often overlaps with the contract theory of warranties, embodied in §§ 2-314 and 2-315 of the Uniform Commercial Code. This appeal presents the question of which types of defects or injuries are to be committed to the principles and policies of tort law, and which are to be relegated to the realm of contract. Since both parties agree that Pennsylvania law governs this diversity suit, we must consider whether Pennsylvania courts would classify damage to a product, allegedly caused by an unreasonably hazardous design defect, as "economic loss" or as physical property damage. We must then decide whether Pennsylvania would permit the purchaser of the defective product to recover for this type of damage in an action founded solely on tort theories of products liability and negligence. The district court regarded the damage in this case as economic loss, and held that such loss could not be recovered in tort under Pennsylvania law. We conclude that the damage should be categorized as physical injury and that Pennsylvania would allow a tort recovery in this situation. We therefore vacate the judgment of the district court, and remand.

I.

Pennsylvania Glass Sand Corporation (PGS) initiated this diversity action against Caterpillar Tractor to recover damages it incurred as a result of a fire in a front-end loader purchased in 1971 from the manufacturer, Caterpillar.

The loader did not come equipped with a system to suppress or extinguish fires. In addition, the operating instructions were silent regarding the steps or precautions that should be taken in the event a fire occurred in the loader's hydraulic system.

For approximately four years, PGS used the loader daily at its quarry in Mapleton, Pennsylvania, without incident. Throughout this period of heavy use the loader did not evidence any defects of quality or other problems that would render the machine unfit in any way for its intended purpose. On September 20, 1975, however, while the machine was in operation, a fire suddenly broke out in the front portion near the hydraulic lines. The operator hastily evacuated the machine, but neglected to turn off the motor. Consequently, hydraulic fluid continued to fuel the fire, and the conflagration quickly spread. As a result of the fire the loader was severely damaged. PGS incurred expenses of approximately $170,000 for repairing the machine and for securing a temporary replacement. In the course of repairing the loader PGS outfitted it with automatic fire suppression equipment, including instructions to guide operators in the event of fire.

In June, 1979, PGS filed this suit in federal court against Caterpillar, seeking as damages the amount spent on repair and replacement. The complaint advanced theories of negligence and strict tort liability under § 402A of the Restatement (2d) of Torts.*fn1 PGS contends that Caterpillar's design of the loader was defective. It further alleges that Caterpillar sold the loader in a hazardously defective condition, because the machine was not equipped with a fire suppression system, or with adequate warnings of the steps to be taken if a fire occurred. PGS also asserts that had the loader been so equipped, the fire would have been extinguished promptly, and the resulting damage would have been minimal.*fn2

There is no allegation that the defect caused the fire; rather, the theory of PGS is that the faulty design enhanced the injury stemming from the accidental fire. This defective design theory is a recognized basis of recovery in tort law, grounded on the premise that a manufacturer's failure to provide safety devices or other elements of a safe design may create an unreasonable risk of harm within the meaning of § 402A. See, e. g., Heckman v. Federal Press Co., 587 F.2d 612, 617 (3d Cir. 1978). As part of the duty imposed by § 402A to market products free of unreasonably hazardous conditions, a manufacturer may be obligated to take reasonable steps to design and produce a product that will minimize the injuries flowing from unavoidable accidents. See, e. g., Huddell v. Levin, 537 F.2d 726, 735 (3d Cir. 1976); Dawson v. Chrysler Corp., 630 F.2d 950 (3d Cir. 1980), cert. denied, 450 U.S. 959, 101 S. Ct. 1418, 67 L. Ed. 2d 383 (1981); Wagner v. International Harvester Co., 611 F.2d 224, 230 (8th Cir. 1979).

Caterpillar moved for summary judgment, asserting that the items for which PGS sought damages repair and replacement costs constituted economic loss, and that such loss was not recoverable in tort. In addition, Caterpillar claimed that its liability was limited by the express warranty that had accompanied the loader. The warranty confined the purchaser's remedy to replacement of defective parts, and specifically excluded recovery for economic loss.

The district court granted summary judgment in favor of Caterpillar, reasoning that Pennsylvania courts would follow the evolving majority view that purely economic losses are encompassed within the policy of warranty law and therefore should not be recoverable in tort actions. Thus, the district judge concluded that the plaintiff could not succeed in its claim as a matter of law. Under this approach, it was unnecessary for the court to consider the effect of Caterpillar's warranty in limiting its liability.

II.

In this appeal, PGS urges that the injury it suffered was not economic loss. Rather, PGS maintains that it sustained physical injury to its property occasioned by a catastrophic event. It then contends that Pennsylvania law clearly ...


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