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United States District Court, Northern District of Illinois, E.D

July 23, 1980


The opinion of the court was delivered by: Shadur, District Judge.


Defendant has moved to strike the allegations of "economic loss" in plaintiff's complaint and to dismiss the case. For the reasons stated in this opinion and order, that motion is denied.

Two legal questions are posed by defendant's motion:

  1. What state's substantive law is applicable to
     plaintiff's cause of action in this diversity

  2. Does the applicable state law permit a tort cause
     of action based on either strict liability or
     negligence where

     the only damage claimed is to the product that was
     allegedly designed and manufactured defectively or
     negligently — that is, where no injury to other
     property or to persons is charged?


Plaintiff's complaint charges that a bulldozer designed, manufactured and sold by defendant was either improperly or negligently designed and manufactured. In either case, the stated consequences were these:

  "[W]hen the hoist ram hydraulic crossover hose failed
  on the alleged bulldozer unit, hydraulic fluid
  escaped under pressure and sprayed upon the engine
  and turbocharger housing causing a subsequent fire
  and explosion which seriously, severely and
  substantially damaged and destroyed the entire
  aforesaid International Harvester Model TD-25C Pay
  Dozer, chassis number 4350064U006339; that as a
  result of the foregoing extensive damage, the
  plaintiff has been unable to repair said bulldozer
  and the same has been scrapped; that as a result of
  the foregoing damage to the bulldozer unit, the
  plaintiff has been caused to incur substantial costs
  in order to remove said damaged bulldozer unit from
  the job site for analysis, repair evaluation and
  ultimate demolition; that as a result of the
  foregoing damage to the bulldozer unit, the plaintiff
  has been caused to rent at great expense replacement
  equipment in order to continue with its operation all
  at its own costs; that as a result of the foregoing
  damage to the bulldozer unit, the plaintiff has been
  required to expend additional sums to obtain
  permanent replacement equipment and has lost earnings
  and profits thereby."

Choice of Law

Illinois choice of law doctrine of course applies under familiar Erie v. Tompkins principles, Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). In turn, Ingersoll v. Klein, 46 Ill.2d 42, 45, 262 N.E.2d 593, 595 (1970) states the Illinois conflicts rule in tort cases:

  "The local law of the State where the injury occurred
  should determine the rights and liabilities of the
  parties, unless Illinois has a more significant
  relationship with the occurrence and with the
  parties, in which case the law of Illinois should

For that purpose Illinois courts follow the Restatement (Second) of Conflicts of Law, under Section 145 of which the following contacts are to be evaluated in accordance with their relative importance to the particular issues presented by the lawsuit:

(a) the place where the injury occurred;

    (b) the place where the conduct causing the injury

    (c) the domicile, residence and nationality, place
        of incorporation and place of business of the
        parties; and

    (d) the place where the relationship, if any,
        between the parties is centered.

Effectively the Illinois (and the general) rule is that duplicate prizes are not awarded in case of ties. If the weighting of the several factors is equal, the conventional lex loci delicti approach that was once uniformly applied in torts cases prevails. Moreover, Section 158 of the same Restatement provides that in determining under Section 145 whether the interest affected is entitled to legal protection, "the applicable law will usually be the local law of the State where the injury occurred" (emphasis added).

Here we have (a) a Kentucky accident (b) caused by Illinois conduct (c) where plaintiff is a corporation organized and doing all its business in Kentucky and defendant is a corporation organized elsewhere but having its principal place of business in Chicago. Factor (d) really does not apply, because it cannot be said that the single purchase transaction gave rise to a "centered" relationship between the parties. On an unweighted basis, then, the relevant factors balance, and Kentucky law ("where the injury occurred") would apply.

Evaluating the factors "in accordance with their relative importance" to the lawsuit's issues does not lead to a different result:

    1. Illinois has a legitimate interest in the
       liability to be imposed on Illinois-based
       manufacturers under strict liability or
       negligence principles. However, Kentucky has an
       equally legitimate interest in the remedies to
       be afforded its residents who suffer such tort
       injuries. And if it is assumed that the
       substantive law of the two jurisdictions looks
       in different directions, each state would seem
       to have an equal interest in having its tort
       rule applied in the determination of the issue
       presented by this case.

    2. It may be somewhat more profitable to examine
       the issues and the proof that would be presented
       on trial of this suit. Matters relating to the
       design of the bulldozer are likely to have
       either an Illinois or a neutral situs (neutral,
       that is, to the extent that the case as to
       design is a paper case or that expert witnesses
       are involved). Matters relating to proof of
       plaintiff's claimed damages (involving a
       substantial number of elements under the
       allegations of the complaint) are apt to be
       entirely Kentucky-located. At worst the balance
       scales appear even; if anything, they tip toward

Accordingly the Court concludes that under Illinois conflict-of-law doctrines, the law of Kentucky — where the injury occurred — applies.

Kentucky's Substantive Law

As defendant states, Illinois law clearly supports the position defendants argue on the merits: that in actions for either product liability or negligence, a manufacturer's liability is limited to damages for physical injuries and there is no recovery for "economic loss" alone. And it may well be, as defendant asserts (though the Court expresses no view on this score), that the Illinois position represents the better-reasoned authority and the growing trend on the issue.

But this Court is not free to exercise original and independent judgment in this area unless Kentucky courts have left the question entirely open.*fn1 That is not the case here. Kentucky's Court of Appeals has spoken on this question in C.D. Herme, Inc. v. R.C. Tway Co., 294 S.W.2d 534, 537 (Ky. 1956) when it first extended manufacturers' liability in tort cases beyond the "dangerous instrumentality" doctrine:

  "Although the duty is stated in terms of the
  foreseeability of bodily harm, we think that if the
  duty has been violated, the mere fact that the actual
  injury in the particular happens to be to property
  does not relieve the offender from liability."

After so stating, the Court held that damage to the defective product was itself actionable.

Defendants' efforts to distinguish Herme because damage to other property was also involved are unavailing. It is the fact that the Kentucky court specifically granted relief for the damages to the product that controls.


As stated at the outset of this opinion and order, defendant's motion to strike and dismiss is denied. Defendant is directed to file its answer to plaintiff's complaint within twenty days from the date of this order.

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