By Leah S. Poniatowski, J.D.
Economic loss doctrine, terms of warranty, and absence of legal duty precluded building owners from recovering for building collapse as manufacturer had no role in door selection and installation.
Landowners in Iowa, who contracted with several companies to build a structure on their property, could not recover against the manufacturer of the pre-engineered building under negligent design and failure-to-warn claims because the owners had separately contracted with a company for the overhead door that did not meet the same wind rating as the structure and caused its collapse and, thus, did not owe the owners any duty for that failure, the state appellate court for Iowa ruled, affirming the lower court. Additionally, the economic loss doctrine applied to bar the owners’ claims and the warranty with the building’s manufacturer was valid to exclude their claims (Ziel v. Energy Panel Structures, Inc., August 5, 2020, Schumacher, J.).
The landowners contracted with several companies to build a structure for the Farm Progress Show, which was near their property. They chose a pre-engineered building composed of structural insulated panels (SIPs). Energy Panel Structures, Inc. (EPS) manufactured the panels and provided draft plans and engineering expertise to be used by one of a third-party construction contractor in a network. The owners entered into a contract with Lasco Construction Services, Inc., which acted between the owners and EPS. The owners participated in the design of the structure by providing the overall dimensions and where the windows, entry doors, and large overhead doors should be located. After review by two engineers, the plans were forwarded to Lasco with a price sheet. Although the building had been designed to withstand wind load up to 90 mph, the drawings did not provide any technical specifications for the doors or windows, nor did EPS or Lasco consult or otherwise work with the window and door installers.
Structure construction. The owners prepared and graded the site themselves and hired other contractors to complete the concrete and electrical work. Lasco began construction on the structure, but during a wind event, the building collapsed due to insufficient temporary bracing. Lasco and the owners worked out a new contract for a replacement building. When the replacement building was near completion, the Overhead Door Company installed the large overhead doors, including one positioned on the west face of the structure that was rated for winds up to 65 mph. Once the building was completed, Lasco presented EPS’ warranty to the owners.
EPS warranty. The warranty stated that the building would be engineered "to meet the wind and snow loads specified for the Building." In the event of a defective part or product, the warranty only covered repair or replacement, expressly not including "any cost to remove, install, reinstall, or ship the defective or replacement part or product." The warranty also contained disclaimers and purported to limit the warranties only to those enumerated in the contract.
Windstorm and lawsuit. After a year of use with no incident, the building collapsed during windstorm, which had winds measuring as fast as 75 mph, but none exceeding 90 mph. The owners and their insurer hired a professional engineer to inspect the collapse. The engineer’s report and deposition testimony provided the conclusion that when the western overhead door blew inward into the building, the structure collapsed. EPS hired a different professional engineer, who agreed that when the western overhead blew inward, the building collapsed, although he disagreed with many of the owners’ engineer’s findings.
The owners filed a lawsuit against EPS, Lasco, and Overhead. The owners settled with Overhead and later dismissed their claims against Lasco. EPS’ motion for summary judgment was granted. The trial court explained that the economic loss doctrine barred their claims, EPS had no legal duty to the owners vis-a-vis the negligent design and failure-to-warn claims, and the warranty’s liability limiting provisions barred the owners’ claims. After the lower court denied the owners’ motion to reconsider the summary judgment motion, the owners filed the present appeal.
Legal duty. According to a three-factor balancing test established by case law, the relationship between the manufacturer and the owners, the foreseeability of the overhead door failure, and public policy considerations all tilted in favor of the manufacturer. Specifically, on the issue of the relationship between the parties, there was limited contact between EPS and the owners. The appellate court noted that the warranty was the only written agreement between them, it was presented by Lasco, and the doors and windows had been excluded from EPS’ designs and the Lasco contract.
On the issue of foreseeability of harm, the appellate court did not characterize it as being reasonably foreseeable because EPS had not been asked or otherwise provided input on the specifications for the doors and windows. Additionally, EPS was not in the business of doors and windows in order to be imputed to have knowledge of how they would fail. With respect to the public policy considerations. Parties are free to contract to limit their responsibilities, and the owner had undertaken the work of part of the construction and hired other contractors piecemeal to complete the project. Accordingly, it would not be within public policy to hold EPS responsible to ensure the integrity of the construction when it only supplied the building. Thus, the manufacturer had no legal duty to the owners with respect to their negligent design and failure-to-warn claims.
Economic loss doctrine. Following precedent, the appellate court concluded that the building’s collapse did not expand the owners’ contract claim into a tort claim, thus triggering the economic loss doctrine. The appellate court also did not agree that any exceptions applied, namely the "other property" exception. The appellate court explained that there had not been an explicit adoption of the "other property" exception, which would allow recovery in tort for damage to property other than the product that failed.
The appellate court clarified that in the present case, "the presence of property is relevant only to characterize the type of loss, not the type of action." Other precedent supported this conclusion, reflecting the determination that damage to nearby property had been "a foreseeable result of the alleged failure to preform properly," which had been considered in the building’s construction agreement. Finally, the professional negligence exception to the economic loss doctrine was inapplicable because the owners did not plead it at the trial court level.
Warranty issues. The appellate court was not persuaded by any of the owners’ arguments pertaining to the warranty. First, the case law that the owners relied upon to support their assertion that the warranty was an affirmative defense was distinguishable. The appellate court determined that a persuasive ruling was applicable, holding that enforcement of a contractual liability limitation was not an affirmative defense that needed to be raised at the pleadings stage of litigation. Second, the argument that EPS repudiated its warranty was unpreserved because it was not raised prior to the appellate proceeding. Third, the appellate court determined that the warranty would meet its essential purpose, i.e., it met the wind loads. Finally, the warranty provisions were not unconscionable because the owners were not forced to sign the warranty document and the owners received a right to repair or replace in exchange for release of contractual and tort remedies, which similar provisions had been upheld in the state. Therefore, the lower court’s grant of summary judgment in favor of EPS was affirmed.
Dissent. Justice Doyle penned a partial dissent from the majority, contending that EPS had a duty to warn the owners that the overhead doors be installed with the same minimum wind rating as the building. Although the relationship between EPS and the owners lined against finding a duty, the harm of the doors failing was reasonably foreseeable, the justice asserted, because EPS had the "superior knowledge as to what it would take to maintain the building’s integrity in a wind storm" and would have known that an inadequate door could compromise the building’s integrity. However, the justice agreed that the economic loss doctrine applied to bar the claim.
The case is No. 19-0508.
Attorneys: Sean M. O'Brien (Bradshaw, Fowler, Proctor & Fairgrave, PC) for Eric Ziel and Carol Ziel. Brian P. Rickert (Brown, Winick, Graves, Gross, Baskerville & Schoenebaum, P.L.C.) for Engery Panel Structures, Inc. d/b/a EPS Buildings.
Companies: Engery Panel Structures, Inc. d/b/a EPS Buildings
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