Products Liability Law Daily Repair/replacement costs for damaged bushings unavailable under economic loss rule
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Friday, November 13, 2020

Repair/replacement costs for damaged bushings unavailable under economic loss rule

By Pamela C. Maloney, J.D.

Possible exceptions to the economic loss rule did not apply to a Nevada power company’s attempt to recover $35 million in costs to repair and replace allegedly defective bushings

The economic loss doctrine barred strict products liability and negligence claims brought against the manufacturers of allegedly defective bushings by a Nevada public utility seeking to recover the direct and indirect costs of repairing and replacing those components, the U.S. District Court for the District of Nevada ruled, rejecting the utility’s arguments that its claims were exempt from application of the doctrine. (Nevada Power Co. v. Trench France, S.A.S., November 12, 2020, Dorsey, J.).

NV Energy, a public utility that provided electrical power throughout Nevada, purchased and used bushings manufactured by Trench France, S.A.S., Trench Limited, and Trench Group at its power stations. In 2015, the bushings, which act as electrical insulators, began to explode, causing damage at the utility’s facilities. Alleging that the bushings exploded because they were poorly manufactured, the utility filed negligence and strict products liability claims against the manufacturers seeking to recover the approximately $35 million it would cost to repair and replace all of the manufacturers’ bushings. The manufacturers moved to dismiss the action on the grounds that the economic loss doctrine barred the utility’s recovery in tort and that the court lacked personal jurisdiction over them.

The utility argued that the economic loss doctrine did not bar its claim for the costs of repairing and replacing the allegedly defective bushings because (1) the complaint alleged property damage in addition to economic loss; (2) a state law permitting a public utility to recover economic losses incurred through repairs to its facilities superseded the economic loss doctrine; and (3) the claims were exempt from the doctrine because the manufacturers had negligently misrepresented the quality and capabilities of the bushings.

Property damage. Although the economic loss doctrine did not bar actions seeking damages for monetary losses that were accompanied by personal injury or property damage, the utility failed to allege any accompanying loss or injury. Instead, the utility argued that the bushings were inherently dangerous and sought recovery for its state-wide electrical distribution systems that allegedly were "injured" by the presence of the manufacturer’s bushings, which could explode and kill innocent bystanders. The court rejected the utility’s imminent-threat-of-harm theory, finding no support for it in Nevada law. Expanding tort recovery to include economic losses based on preventing a foreseeable risk of harm, as the utility requested, essentially would blur the line between tort and warranty law, effectively nullifying the economic loss doctrine because a defective product conceivably could present some future risk of personal injury at any point. Although from a public safety standpoint, the utility’s argument that the catastrophic nature of future risk should exempt the bushings from the reach of the doctrine was appealing, the district court noted that the Nevada Supreme Court had rejected such an exception when considering a defective engine in an airplane, which had crashed.

Public utility statutory exemption. The court further determined that the state law cited by the utility, which articulated a theory of common law liability for those who willfully or negligently damaged property belonging to a public utility’s property, did not provide a private right of action for the utility. Although the statute allowed the utility to recover the direct and indirect costs attributable to the property’s repair, it did not mention who could enforce its terms. In refusing to accept the utility’s argument that the statute created a private right of action, the court explained that neither the express language of the statute nor its legislative history indicated that the statute granted public utilities the right to recover costs of repairs in a common law action. The court further determined that the statute did not provide an exception to the economic loss doctrine, noting that its inclusion of negligence and willfulness standards appeared to preclude a strict liability recovery entirely.

Negligent misrepresentation exception. The utility’s argument that its claims fell within the negligent misrepresentation exception to the economic loss rule was rejected by the court as well. Although the Nevada courts had recognized an exception to the economic loss doctrine for negligent misrepresentation actions, the exception was limited to cases involving a special relationship or extra-contractual duty between the parties. In addition, the state courts had limited the exception to cases involving unintentional torts and had stated explicitly that negligent misrepresentation could not form the basis of liability solely for economic damages, which were better recovered in a breach of contract action.

The case is No. 2:19-cv-01252-JAD-VCF.

Attorneys: Charles Robert Messer (Carlson & Messer LLP) for Nevada Power Co. d/b/a NV Energy and Sierra Pacific Power Co. d/b/a NV Energy. Curtis Busby (Bowman and Brooke LLP) for Trench France, S.A.S. and Trench Ltd.

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