East River Steamship Corp. v. Transamerica Delaval Inc.
476 U.S. 858 (1986)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A manufacturer in a commercial relationship has no duty under either a negligence or strict products-liability theory to prevent a product from injuring only itself, resulting in purely economic loss. Such claims are the core concern of contract and warranty law, not tort law.
Facts:
- Seatrain Shipbuilding Corp. contracted with Transamerica Delaval Inc. (Delaval) to design, manufacture, and supervise the installation of main propulsion turbines for four supertankers.
- Upon completion, the supertankers were chartered by East River Steamship Corp. and other Seatrain subsidiaries, who assumed full responsibility for maintenance and repairs.
- In 1977, the high-pressure turbine on the supertanker Stuyvesant malfunctioned at sea when a steam reversing ring disintegrated, causing damage to the turbine itself.
- In 1978, inspections of two other supertankers, the Williamsburgh and the Brooklyn, revealed similar turbine damage.
- In 1980, the supertanker Bay Ridge experienced a separate issue where an astern guardian valve, installed backwards under Delaval's supervision, damaged the low-pressure turbine.
- In all incidents, the damage was confined to the turbine systems themselves; no persons were injured, and no property other than the turbines was damaged.
- The charterers incurred significant costs for repairing the turbines and lost income while the ships were out of service.
Procedural Posture:
- The charterers (plaintiffs) filed a suit invoking admiralty jurisdiction against Delaval (defendant) in the U.S. District Court for the District of New Jersey, alleging claims for strict products liability and negligence.
- Delaval moved for summary judgment, contending that the charterers’ actions were not cognizable in tort.
- The District Court granted summary judgment in favor of Delaval.
- The charterers (appellants) appealed to the U.S. Court of Appeals for the Third Circuit.
- The Court of Appeals, sitting en banc, affirmed the District Court's grant of summary judgment for Delaval (appellee).
- The U.S. Supreme Court granted certiorari to resolve a conflict among the circuit courts.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a manufacturer of a product sold in a commercial transaction have a duty in tort, under either a negligence or strict products liability theory, to prevent the product from injuring only itself and causing purely economic loss?
Opinions:
Majority - Justice Blackmun
No. A manufacturer in a commercial relationship has no duty under either a negligence or strict products-liability theory to prevent a product from injuring only itself. The Court recognized that products liability, including strict liability, is a part of general maritime law. However, it drew a sharp distinction between the functions of tort law and contract law. Tort law is primarily concerned with safety and protecting persons and property from physical harm, while contract law is designed to enforce the expectations of the parties to a bargain. When a product defect causes injury only to the product itself, the loss is the failure of the purchaser to receive the benefit of its bargain, which is the traditional domain of warranty law. Permitting tort recovery for such purely economic loss would undermine the ability of commercial parties to allocate risks by contract and would expose manufacturers to indefinite and unforeseeable liability. Therefore, the charterers' remedies are properly governed by contract and warranty law, not tort.
Analysis:
This case establishes the economic loss rule as a fundamental principle of general maritime and commercial products liability law. By precluding tort recovery for purely economic losses, the Court created a clear demarcation between tort and contract law. This decision provides predictability for manufacturers and commercial purchasers, allowing them to allocate the risk of product non-performance through warranties and negotiation without the threat of unpredictable tort liability. The ruling effectively channels commercial disputes over product quality and performance into the realm of contract law, reinforcing the importance of the Uniform Commercial Code (UCC) in governing such transactions.
