Defective Plans and Specifications Case In California
The Seely v. White Motor Co court, drawing a distinction between "tort recovery for physical injuries and warranty recovery for economic loss" ( Seely v. White Motor Co., supra, 63 Cal. 2d at p. 18), defines the difference primarily by implication.
The decision contains dicta that, had plaintiff proved the truck itself was damaged by the defective condition (the truck tended to "gallop"), he could have recovered strict liability damages. ( Id. at p. 19.)
Other courts in our jurisdiction have articulated the rule more definitively.
For instance, Huang v. Garner, supra, 157 Cal. App. 3d 404 instructs, "Economic loss is 'marked by the loss of the benefit of the bargain for the goods purchased, lost profits, and replacement costs for ineffective goods. Physical damage to property and personal injury, however, are not considered to be "economic loss." ' . . ." ( Id. at p. 420, citation omitted, italics added.)
In Huang, it was "undisputed . . . that the court properly drew the line between economic and physical damages, determining the cost to repair structural and other alleged defects which had not actually caused physical damage to be economic damage." (Ibid., italics added.)
With regard to defects, the Huang plaintiffs presented evidence "that the plans and specifications for the building were defective in several ways, including insufficient fire retardation walls, insufficient shear walls and inadequate structure . . . . Additional evidence indicated that deviation from the building plans during construction also contributed to faulty construction." ( Huang v. Garner, supra, 157 Cal. App. 3d at p. 411.)
The plaintiffs sought recovery "for physical damages to their property including damages to the structure caused by deflected and cracked beams and dry rot damages to the balcony area.
They also sought recovery of economic losses including the cost to repair firewalls, shear walls, fire stops, and other alleged defects in the structure which had not caused actual physical damages at the time of trial." ( Id. at pp. 419-420, italics added.)
The Huang court noted, "Apparently it was agreed by the parties that damages such as the cost to repair allegedly insufficient shear walls, insufficient fire retardation, and defects in the structure which did not cause actual physical damage were in fact economic damages." ( Id. at p. 420.)
Huang's definition and application of the economic loss rule, albeit in the context of a negligence theory, demonstrates defendant is just plain wrong in contending the physical damage to plaintiffs' real property caused by defective construction of the foundation is only "an injury to the product itself," and thus barred by the economic loss rule of Seely. Huang does not stand alone.
As we will discuss, other cases compel the conclusion that under California law, the physical damages to plaintiffs' property are entirely distinct from economic losses and are thus recoverable in strict liability.