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Alloway v. General Marine Industries

June 30, 1997

SAMUEL P. ALLOWAY, III, AND NEW HAMPSHIRE INSURANCE CO., PLAINTIFFS-RESPONDENTS,
v.
GENERAL MARINE INDUSTRIES, L.P., DEFENDANT-APPELLANT, AND MULLICA RIVER BOAT BASIN, DEFENDANT.



On certification to the Superior Court, Appellate Division, whose opinion is reported at: 288 N.J. Super. 479 (1996).

The opinion of the Court was delivered by Pollock, J. Chief Justice Poritz and Justices O'hern, Garibaldi and Coleman join in Justice POLLOCK's opinion. Justice Handler filed a separate Concurring opinion in which Justice Stein joins. Handler, J., Concurring.

The opinion of the court was delivered by: Pollock

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

Samuel P. Alloway, III, and New Hampshire Insurance Company v. General Marine Industries, L.P. and Mullica River Boat Basin (A-48-96)

Argued November 18, 1996 -- Decided June 30, 1997

POLLOCK, J., writing for the Court.

The primary issue in this appeal is whether New Hampshire Insurance Co. ("New Hampshire") and its insured, Samuel P. Alloway III ("Alloway"), may recover from General Marine Industries, Inc. ("GMI") in negligence and strict liability for economic loss caused by a defect in a power boat purchased by Alloway and insured by New Hampshire.

In 1990, GMI purchased from Glasstream, a company in bankruptcy, substantially all of its assets "free and clear of any interest in such property." At some point before then, Glasstream had made the boat at issue and sold it to Mullica. In July 1990, Alloway purchased the thirty-three foot Century Grande XL from Mullica for $61,070. Century had expressly warranted for twelve months following the purchase that the boat was free from defects. Following his purchase, Alloway obtained from New Hampshire a comprehensive general insurance policy on the boat.

Three months later, while docked at the Bayview Marina in Manahawkin, the boat sank as a result of a defective seam in the swimming platform. No other property was damaged nor was anyone injured. Alloway filed a claim with New Hampshire, which spent over $40,000 to repair the boat. Alloway paid approximately $2,500 towards the repairs pursuant to his deductible under the policy. After completion of the repairs, he received a trade-in credit of over $38,000 for the Grande on the purchase of a new boat.

Thereafter, Alloway filed a three-count complaint against Mullica and GMI, seeking recovery for his economic loss. In the first count of the complaint, Alloway sought to recover for Mullica's breach of the manufacturer's warranty for repair or replacement of any defective part. The second count alleged a strict-liability claim asserting that Century had manufactured a defective boat for which GMI was liable as Century's successor. The third count alleged that Glasstream negligently manufactured and inspected the boat, that GMI was liable to Century's successor, and that Mullica had failed to discover the defect. Alloway then assigned his claims to New Hampshire, but retained a claim for the loss in value of the boat and for the deductible he had paid towards the repair of the boat.

The Law Division subsequently granted GMI's motion to dismiss the complaint for failure to state a cause of action, holding that a purchaser could not maintain an action in strict liability for economic loss. The Law Division also relied on an Appellate Division case that held that a consumer who had purchased a yacht that was not as represented could sue the manufacturer under the Uniform Commercial Code ("U.C.C.") for breach of warranty, but not in strict liability. That case viewed the U.C.C. as providing the consumer with an exclusive remedy for economic loss resulting from breach of warranties.

The Appellate Division reversed, observing that one of the cases on which the Law Division relied precluded a commercial purchaser, but not a consumer, from recovering economic losses in strict liability. The Appellate Division further relied on a New Jersey Supreme Court case, Santor v. A&M Karagheusian, Inc., which recognized that a consumer could maintain a strict-liability claim against a manufacturer for loss in value of a defective carpet. Essentially, the Appellate Division held that GMI, as the successor to Glasstream, was liable to Alloway and New Hampshire in negligence and strict liability for economic loss caused by the sinking of the boat.

The Supreme Court granted GMI's petition for certification.

HELD: Under New Jersey law, GMI is not liable in tort for Alloway's and New Hampshire's economic loss resulting from a defect in a purchased product that destroyed or diminished the worth of only that product.

1. Generally, tort principles are better suited to respond to claims for personal injuries or damage to other property, while contract principles more readily respond to claims for economic loss caused by damage to the product itself. (pp. 6-8)

2. The relative bargaining power of the parties and the allocation of the loss to the better risk-bearer are relevant to the distinction between tort principles and contract principles of recovery. (pp. 9-10)

3. The Legislature adopted a comprehensive system for compensating consumers for economic loss arising from the purchase of defective products by enacting the U.C.C., which attempts to strike the proper balance between manufacturers and purchasers for economic loss arising from injury to a defective product. (pp. 10-11)

4. The vast majority of courts across the country have concluded that purchasers of personal property, whether commercial entities or consumers, should be limited to recovery under contract principles. (pp. 11-17)

5. The extension of strict liability to include claims for purely economic loss has been criticized by scholars and has been rejected by the American Law Institute's proposed Restatement of Torts. (pp. 17-19)

6. Several state courts have confined consumers to contract principles in actions for economic loss. (pp. 20-22)

7. Because Alloway and New Hampshire have not raised the issue, the Court does not resolve the issue whether tort or contract law applies to a product that poses a risk of causing personal injuries or property damage but has caused only economic loss to the product itself. (pp. 22-23)

8. The Legislature did not intend to codify in the New Jersey Products Liability Law all common-law remedies and, consequently, that law is not dispositive of claims involving fraud. (pp. 23-25)

9. Because judicial decisions and statutory enactments, including the U.C.C., protect consumers from overreaching, a tort cause of action for economic loss duplicating the one provided by the U.C.C. is superfluous and counterproductive. (p. 26)

10. To impose liability on GMI would impose the cost of an uncertain liability on one that did not agree to assume that cost. (pp. 26-27)

11. In view of the Court's holding, it does not reach the additional issues concerning GMI's liability as Glasstream's successor or the effect on GMI of the purchase in bankruptcy of Glasstream's assets free and clear of all claims. (pp. 28-29)

Judgment of the Appellate Division is REVERSED, and the judgment of the Law Division dismissing the complaint is REINSTATED.

JUSTICE HANDLER filed a separate Concurring opinion in which JUSTICE STEIN joins, expressing confidence that the Court's decision does not preclude tort remedies for economic loss where there is a gross inequality of bargaining power on the part of the purchaser, whether it be a commercial or a non-commercial purchaser.

CHIEF JUSTICE PORITZ and JUSTICES O'HERN, GARIBALDI and COLEMAN join in JUSTICE POLLOCK's opinion. JUSTICE HANDLER filed a separate Concurring ...


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