NJ Passes on the Integrated Product Doctrine in Construction Defect Cases

January 31, 2011
William L Ryan, Archer & Greiner, P.C

The New Jersey Supreme Court recently provided additional guidanceon the economic-loss doctrine in the context of a construction defect case. In Dean v. Barrett Homes, Inc., et al, 204 N.J. 286 (2010), the Court reversed the Appellate Division and trial court, ruling that the plaintiff homeowners were not precluded from pursuing claims against the manufacturer of their home’s exterior finish by virtue of the New Jersey Products Liability Act, N.J.S.A. 2A:58C-1 to 11 (the Act).The ruling is quite narrow, however, as the Court framed the issue before it as, ”whether, and in what circumstances . . . remote purchasers should be permitted to pursue a tort remedy against [a] manufacturer,“ for an allegedly defective product. In reaching its decision, the Court was called upon to consider whether or not it would adopt ”the integrated product doctrine“ as a corollary to the economic-loss rule. Ultimately, the Court concluded that while the integrated product doctrine did not apply to the facts of Barrett Homes, the economic-loss rule nevertheless limited the plaintiffs’ recovery to damages related solely to the structure of the home, exclusive of the home’s exterior, i.e., Exterior Insulation and Finish System (EIFS).The economic-loss rule bars tort remedies and strict liability when the only claim is for the damage to the product itself. The rule evolved as part of the common law, largely as an effort to establish the boundary line between contract and tort remedies.In recent years, the federal courts, including the Third Circuit, have expanded the economic-loss rule through the adoption of the “integrated product doctrine.”The courts have used this theory to extend the economic-loss rule to precludetort-based recovery when a defective product is incorporated into another product and causes damage.The plaintiffs in Barrett Homes purchased their home in 2002 from its original owners. The house was built in 1995 by Barrett Homes, Inc., who utilized EIFS that was designed and manufactured by Sto Corporation (Sto). Prior to purchasingthe property, the plaintiffs hired a professional to conduct a home inspection.The inspection report identified concerns regarding the EIFS and recommended that the plaintiffs retain an expert or contact the manufacturer before proceeding with the purchase of the house. The plaintiffs, however, did not read the report or make the inquiries suggested. As a result, the plaintiffs’ insurer would not transfer their existing homeowner’s policy to the new property because the insurer would not cover a stucco exterior. Without any further investigation of the EIFS, the plaintiffs obtained an insurance policy with another carrier and proceeded to purchase the property.The plaintiffs noticed problems with the EIFS approximately one year after moving into the home, and eventually learned that if moisture penetrates through the EIFS, it has no means to escape. They hired an industrial hygienist who inspected the home and discovered toxic mold attributed to leaks in the EIFS. The plaintiffs never claimed any personal injuries from the mold, but eventually removed and replaced all the EIFS.Read the full story... Reprinted courtesy William L. Ryan, Archer & Greiner, P.C., from the New Jersey Law Journal. Mr. Ryan can be contacted at wryan@archerlaw.com



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