On February 20, 2009, Cedar Valley Aviation, a wholly owned subsidiary of Aerial Services, Inc. (ASI), brought a Piper 522AS (Cheyenne II) in for maintenance
to Des Moines Flying Service, Inc. (DMFS). Among numerous other checks and repairs, DMFS noted both the pilot’s and copilot’s windshields were
“delaminated” and installed new windshields. The replaced windshields were original to the aircraft, thirty-three years old. The new windshields cost \($19,323.63
each\) with an additional \($6,300\) charge for labor. The entire bill, dated August 31, 2009, included many other services and totaled \($69,655.58.\) No warranties or
disclaimers were contained on the invoice.
On June 24, 2010, ASI was making a routine photography flight at 24,000 feet when the copilot’s windshield cracked without impact from another object. The
pilot performed an emergency descent and proceeded to Des Moines for inspection and repair. The crack occurred a few days shy of 10 months after the new
windshield was installed and the plane had been returned to ASI. ASI submitted an affidavit from an expert stating that the average life of the windshield should
be “ten (10) or twenty (20) years absent improper installation, a product defect, or an impact with a foreign object.” No person or property (other than the
windshield) was harmed by the crack in the windshield. Only economic losses resulted—the cost of the windshield repair and the cost to hire another aviation
company to complete contracted work during the repairs.
On June 29, 2010, DMFS replaced the windows and invoiced ASI. ASI refused to pay the invoice and DMFS brought this suit for non-payment. ASI claimed
that it owed nothing to DMFS since the original replacement windows were defective and DMFS was liable and had an obligation to cure the defective
installation or defective window. DMFS stated that under Iowa tort law, it was immune from liability since it was not the manufacturer of the windshields and
that no allegation had been made of defective installation. DMFS interpretation of Iowa tort was was indeed correct, if the lawsuit sounded in tort law and not
breach of contract under the UCC, which has no such immunity provision. The trial court ruled in DMFS’s favor that it was immune under Iowa’s tort law
provisions.
The issue to be decided is whether the lawsuit is in tort or contract. If it is tort, then immunity lies for DMFS. If the law suit is in contract under the UCC, then
DMFS can be liable.
The court wrote:
We hold a products liability case must exist—requiring that personal injury or property damage occur due to a manufacturing or design defect—to trigger the
immunity provision of section 613.18(1)(a). In so holding, we utilize the same distinctions consistently used in our cases to determine if a party is liable for
damages under tort products liability law and [UCC breach of contract claims].
If a defective product results only in economic loss, we only allow the buyer to bring a claim under … [breach of contract] for direct economic losses against
a remote seller and [breach of contract] claims for consequential economic losses against the seller in privity with them unless disclaimed. Once any property
damage or personal injury exists resulting from a manufacturing or product defect, the manufacturer becomes the liable party under tort law and Iowa Code
section 554.2318. [Defendant]’s statutory protection [under section 613.18(1)(a)] from claims of breach of the [UCC contract] is coextensive with its statutory
protection from product defect claims, the tort defenses and any permissible disclaimers made in the warranty. See Iowa Code §§ 554.2316, .2318; id. § 668.12
(products liability defenses). In economic loss cases, the immediate seller is liable for the breach of {the UCC contract], subject to any warranty exclusions,
modifications, or disclaimers found in the sales contract. Id. § 554.2316.
Conclusion. For the reasons stated, we conclude the district court erred in its application of Iowa Code section 613.18(1)(a) in a case limited to economic
losses. HN18[ ] Section 613.18(1)(a) immunity only applies to claims that include claims of personal injury or property damage … the district court summary
judgment dismissing ASI’s implied warranty claim is reversed.
CRITICAL THINKING:
Why is the distinction in the claims for tort damages vis a vis the more limited claims in contract law? We get a hint from the court itself in the case when it
claims “We have found that a plaintiff who has suffered only economic loss … has not been injured in a manner which is legally cognizable or compensable”
whether that loss arose out of negligence or strict liability cases. Instead, the parties to a contract are assumed to have allocated that risk of economic loss as part
of the contract; therefore, “that document should control the party’s rights and duties.” (emphasis added) What do you think?
ETHICAL DECISION MAKING:
Look at the court’s conclusion. What values is the court pursuing with the ruling it provides?