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10/25/89 the Board of Education of v. A

October 25, 1989

THE BOARD OF EDUCATION OF CITY OF CHICAGO ET AL., APPELLEES

v.

A, C AND S, INC., ET AL., APPELLANTS



SUPREME COURT OF ILLINOIS

546 N.E.2d 580, 131 Ill. 2d 428, 137 Ill. Dec. 635 1989.IL.1681

Appeal from the Appellate Court for the First District; heard in that court on appeal from the Circuit Court of Cook County, the Hon. Richard L. Curry, Judge, presiding.

APPELLATE Judges:

JUSTICE RYAN delivered the opinion of the court. WARD and CLARK, JJ., took no part in the consideration or decision of this case.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE RYAN

The issue presented in this case is whether the plaintiffs, 34 school districts, have sufficiently pleaded a cause of action to recover the removal and repair costs of asbestos-containing material in their buildings from the various defendants who are or were involved at some level of the manufacturing and distribution chain of ACM. The circuit court of Cook County granted the defendants' motion to dismiss each of the 13 causes of action alleged in the plaintiffs' complaints. The appellate court affirmed as to the concert of action and implied cause of action under the Asbestos Abatement Act (Ill. Rev. Stat. 1987, ch. 122, par. 1401 et seq.), but reversed on the strict liability, negligence, intentional and negligent misrepresentation, restitution, consumer fraud and breach of warranty counts. (171 Ill. App. 3d 737.) The remaining four counts were not raised on appeal. We agree with the appellate court that these complaints allege sufficient facts to survive a motion to dismiss as to the negligence, strict liability and negligent misrepresentation counts, but affirm the trial court's dismissal of the other counts.

This case involves three consolidated complaints filed in the circuit court of Cook County by the board of education of the City of Chicago, Evanston Community Consolidated School District No. 65, along with several suburban school districts, and the boards of education of Township High School Districts Nos. 211 and 207. There are 78 named defendants, ranging from lumber yards to multinational corporations. These business entities are alleged to "have been and/or are now engaged in the mining, manufacturing, marketing, sales and/or installation of asbestos, asbestos materials and/or friable asbestos materials."

The complaints were filed following the enactment of the Asbestos Abatement Act (Ill. Rev. Stat. 1985, ch. 122, par. 1401 et seq. ). The Act requires schools throughout the State to identify, contain and remove all asbestos materials that constitute a significant health hazard, and to repair or maintain asbestos materials that do not pose a significant health hazard in the schools. (Ill. Rev. Stat. 1987, ch. 122, par. 1402(d).) The Act directs that funding for this project includes "appropriations from the General Revenue Fund, proceeds from litigation against manufacturers, distributors and contractors of asbestos products, funds provided under the provisions of the federal Asbestos School Hazard Abatement Act of 1984, or any combination thereof." (Ill. Rev. Stat. 1987, ch. 122, par. 1409.) In anticipation of spending "substantial sums of money" to correct the conditions and comply with the Act, these plaintiffs brought suit seeking damages for the cost of such efforts.

The trial court held the complaints failed to allege sufficient facts to withstand the defendants' motion to dismiss and, further, that they were barred by the statute of limitations. Therefore, each of the 13 counts which were argued before the court was dismissed. The plaintiffs' appeal was based on nine of the causes of action. The appellate court ruled that the complaint pleaded sufficient facts for a cause of action in strict products liability, negligence, negligent and fraudulent misrepresentation, restitution, and breach of warranty, and for a cause of action based on "An Act to protect consumers and borrowers and businessmen against fraud, unfair methods of competition and unfair or deceptive acts or practices . . ." (Ill. Rev. Stat. 1985, 121 1/2, par. 261 et seq.) (hereinafter the Consumer Fraud Act), and that the school districts were exempt in these causes of action from the appropriate statutes of limitations. The court also held there was no private cause of action based on the Asbestos Abatement Act (Ill. Rev. Stat. 1985, ch. 122, par. 1401 et seq.), and that the concert of action claim was properly dismissed. The defendants appeal, in this court, as to the reinstatement of the eight causes of action and the plaintiffs cross-appeal the dismissal of the private right of action under the Asbestos Abatement Act.

While notice pleading prevails under the Federal rules, a civil complaint in Illinois is required to plead the ultimate facts which give rise to the cause of action. (People ex rel. Scott v. College Hills Corp. (1982), 91 Ill. 2d 138, 145.) Upon a motion to dismiss, all facts properly pleaded in the complaint are accepted as true and all reasonable inferences are drawn in favor of the nonmovant. (Anderson Electric, Inc. v. Ledbetter Erection Corp. (1986), 115 Ill. 2d 146, 148; United Air Lines, Inc. v. CEI Industries of Illinois, Inc. (1986), 148 Ill. App. 3d 332, 336.) "To see if a cause of action has been stated the whole complaint must be considered, rather than taking a myopic view of a disconnected part." (People ex rel. Scott v. College Hills Corp., 91 Ill. 2d at 145.) This court has held that a cause should not be dismissed on the pleadings unless it clearly appears that no facts can be proved which will entitle plaintiff to recover. (Wheeler v. Caterpillar Tractor Co. (1985), 108 Ill. 2d 502, 506.) This is a broad statement and is generally correct; however, it should not be construed as an adoption of notice pleading by this court.

Each of the three complaints essentially allege the same facts; in fact, the Chicago and Evanston complaints are nearly identical. The trial court, therefore, based its rulings using the Chicago complaint as the court's outline. Preliminarily, the facts alleged which are common to each count are that asbestos is a known carcinogen which can lead to lung cancer and other serious diseases; a disturbance or deterioration of ACMs causes the release of asbestos fibers into the air, where they may remain for long periods of time; defendants obscured medical and scientific data as to the link between asbestos and disease; defendants ignored and failed to act upon available medical and scientific data; by failing to warn, the defendants induced plaintiffs to purchase large quantities of asbestos products between 1946 and 1972; and the failure to warn deprived plaintiffs of a knowledgeable choice of alternatives. Plaintiffs admit that it may be impossible to identify a specific defendant with the products in a specific school, but allege that the existence of asbestos products in the schools continues to present a danger to the health and welfare of students, school personnel and others. It is also alleged that undertaking the corrective action required in the Asbestos Abatement Act will be very costly.

STRICT LIABILITY AND NEGLIGENCE

The first two causes of action sound in tort -- strict products liability and negligence. The parties and both the appellate and circuit courts dealt with the sufficiency of these counts together. The linchpin for both of these causes is whether the complaints sufficiently allege that asbestos has caused damage to other property or injury to persons so as to fall within a tort claim, as opposed to a contract cause of action. The defendants contend that the plaintiffs have, if anything, only suffered economic loss, which is recoverable in contract and not in tort. They argue that there is only alleged a risk of harm to people and no actual harm is pleaded. Further, they contend that no property damage is alleged in the complaint. The plaintiffs counter that there is alleged property damage to the extent that the buildings are contaminated with a toxic substance which renders them unsafe for their normal use. Both sides agree that the principles established in Moorman Manufacturing Co. v. National Tank Co. (1982), 91 Ill. 2d 69, and its progeny govern these counts, and we shall deal with them together in determining whether the complaints sufficiently allege a tort claim to survive the motion to dismiss. See Moorman, 91 Ill. 2d at 88 ("The policy considerations against allowing recovery for solely economic loss in strict liability cases apply to negligence actions as well").

We concluded, in Moorman, that when a defect in a product is qualitative in nature and relates to a consumer's expectation that the product is of a particular quality, resulting in economic loss but no personal injury or property damage, then the plaintiff has a claim for contract damages but not a tort action. (Moorman, 91 Ill. 2d at 88.) The court stated:

"hen a product is sold in a defective condition that is unreasonably dangerous to the user or consumer or to his property, strict liability in tort is applicable to physical injury to plaintiff's property, as well as to personal injury. When an unreasonably dangerous defect is present, such as the truck's nonfunctioning brakes in Seely, and physical injury does, in fact, result, then '[p]hysical injury to property is so akin to personal injury that there is no reason to distinguish them.' (Seely v. White Motor Co. (1965), 63 Cal. 2d 9, 19, 403 P.2d 145, 152, 45 Cal. Rptr. 17, 24. See Prosser I, 69 Yale L.J. 1099, 1143 (1960); Restatement (Second) of Torts sec. 402A (1965).) This comports with the notion that the essence of a product liability tort case is not that the plaintiff failed to receive the quality of product he expected, but that the plaintiff has been exposed, through a hazardous product, to an unreasonable risk of injury to his person or property. On the other hand, contract law, which protects expectation interests, provides the proper standard when a qualitative defect is involved, i.e., when a product is unfit for its intended use. Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co. (3d Cir. 1981), 652 F.2d 1165, 1169. See Seely v. White Motor Co. (1965), 63 Cal. 2d 9, 19, 403 P.2d 145, 152, 45 Cal. Rptr. 17, 24." Moorman, 91 Ill. 2d at 81-82.

The demarcation between tort recovery for physical harm and a contract recovery for economic losses usually depends on (1) the nature of the defect and (2) the manner in which the damage occurred. (Moorman, 91 Ill. 2d at 82.) As stated, the defect in a tort claim results in either personal injury or property damage. (Moorman, 91 Ill. 2d at 81.) Whereas, in the economic loss doctrine, the defect results in damages for the inadequate value of the product, costs of repair and replacement of the defective product, loss of profits, as well as diminution in the value of the product because of its inferior quality and failure to work for the general purposes for which it was manufactured and sold. (Moorman, 91 Ill. 2d at 82.) Typically, the manner in which a tort damage occurs is an accident involving some violence or collision with external objects. Damage resulting from deterioration, internal breakage or other nonaccidental causes most likely invokes contract law. Moorman, 91 Ill. 2d at 83, quoting Note, Economic Loss in Products Liability Jurisprudence, 66 Colum. L. Rev. 917, 918 (1966).

These principles have been applied and further examined in a number of cases since 1982. In Redarowicz v. Ohlendorf (1982), 92 Ill. 2d 171, because the plaintiff's home was built on loose soil, the chimney and adjoining wall began to pull away from the house. We rejected the negligence claim, reasoning that there must be a showing of harm above and beyond disappointed expectations, and that while his commercial expectations were not met, "the only danger to the plaintiff is that he would be forced to incur additional expenses for living conditions that were less than what was bargained for." (Redarowicz, 92 Ill. 2d at 177-78.) Subsequently, the court dismissed the tort claim in three other cases. (Foxcroft Townhome Owners Association v. Hoffman Rosner Corp. (1983), 96 Ill. 2d 150 (complaint for damages resulting from negligent installation and use of defective siding on a condominium did not allege physical injury, damage to other property, or that damage to the defective product itself was due to a sudden and dangerous occurrence); Morrow v. L.A. Goldschmidt Associates, Inc. (1986), 112 Ill. 2d 87 (numerous allegations of faulty workmanship in construction of townhouses; however, no allegation of physical injury or damage to property other than to the townhouses themselves); Anderson Electric, Inc. v. Ledbetter Erection Corp. (1986), 115 Ill. 2d 146 (plaintiff incurred additional costs in redoing defendant's allegedly negligent performance of electrical work).) Twice we have applied the Moorman doctrine and held that a cause of action has been pleaded in tort. Vaughn v. General Motors Corp. (1984), 102 Ill. 2d 431 (defective brakes caused sudden and calamitous event, resulting in truck and its load overturning); Scott & Fetzer Co. v. Montgomery Ward & Co. (1986), 112 Ill. 2d 378 (defective fire-warning system contributed to fire spreading throughout a warehouse, causing extensive damage to property).

The plaintiffs try to construe language in Redarowicz and Morrow to the effect that an allegation of risk is "a major factor in distinguishing economic loss from tortious injury to property." The appellate court also adopted this as a third element in the Moorman inquiry. We do not believe that it is a proper extension of those cases to read into them risk alone as an element of inquiry. Each case had in dicta a statement regarding risk of physical injury. (Redarowicz, 92 Ill. 2d at 177-78, quoting Crowder v. Vandendeale (Mo. 1978), 564 S.W.2d 879, 882; Morrow, 112 Ill. 2d at 98.) However, such statements should not distract from their holdings which reinforced the necessity of physical damage to other property or personal injury, not merely a risk of injury or damage. Though it is true that to recover in strict products liability there must be a defective condition which is unreasonably dangerous, there must also be physical harm caused by that product. The dangerousness which creates a risk of harm is insufficient standing alone to award damages in either strict products liability or negligence.

This risk analysis is apparently derived from Pennsylvania Glass Sand Corp. v. Caterpillar Tractor Co. (3d Cir. 1981), 652 F.2d 1165 (applying Pennsylvania law). In Pennsylvania Glass, a front-end loader was extensively damaged when a fire suddenly broke out in the front portion near the hydraulic lines. The court delineated the line between tort and contract by analyzing such factors "as the nature of the defect, the type of risk, and the manner in which the injury arose." (Pennsylvania Glass, 652 F.2d at 1173.) In upholding the tort cause of action, the court stated:

"he nature of the defect and the type of risk it poses are the guiding factors. Here, the damage to the front-end loader was the result of a fire -- a sudden and highly dangerous occurrence. [Citations.] Moreover, the alleged defect -- a faulty design that failed to contain the fire and led to greatly enhanced damage -- constitutes a safety hazard that posed a serious risk of harm to people and property. Thus, the complaint brought by PGS appears to fall within the policy of tort law that the manufacturer should bear the risk of hazardous products." Pennsylvania Glass, 652 F.2d at 1174-75.

Though Moorman cited with approval Pennsylvania Glass, it was for the proposition that a tort action was not proper when seeking recovery for economic losses alone. (Moorman, 91 Ill. 2d at 85.) Moorman involved a grain storage tank which cracked. The plaintiff claimed there was a cause of action in strict products liability, due in part to the risk of physical harm:

"Plaintiff argues that economic loss is not sought in this case. It asserts in its brief that a product defect existed that posed an 'extreme threat to life and limb, and to property of plaintiff and others, a defect which resulted in a sudden and violent ripping of plaintiff's tank, and which only fortunately did not extend the full height of the tank.'" (Moorman, 91 Ill. 2d at 82.)

In rejecting the tort claim, we stated that allegations of the unreasonably dangerous nature of the product are insufficient in tort when neither personal injury nor property damage is involved. Moorman, 91 Ill. 2d at 77.

While Pennsylvania Glass relied on risk in its inquiry, the validity of this element when analyzing the demarcation between tort and contract is suspect even in its own jurisdiction. Subsequent to the decision, the Supreme Court, sitting in admiralty, held that a manufacturer in a commercial relationship has no duty under tort theories to prevent a product from injuring itself. (East River Steamship Corp. v. Transamerica Delaval Inc. (1986), 476 U.S. 858, 871, 90 L. Ed. 2d 865, 877, 106 S. Ct. 2295, 2302.) The Court adopted in principle the rule of Seely v. White Motor Co. (1965), 63 Cal. 2d 9, 403 P.2d 145, 45 Cal. Rptr. 17, which precludes courts from imposing tort liability on a manufacturer if a defective product injures only itself. The Court labeled the Pennsylvania Glass formulation as an intermediate approach and rejected it as unsatisfactory. (East River, 476 U.S. at 870, 90 L. Ed. 2d at 876, 106 S. Ct. at 2301-02 ("[t]he intermediate positions, which essentially turn on the degree of risk, are too indeterminate to enable manufacturers easily to structure their business behavior").) The Third Circuit has since followed the Supreme Court's view and repudiated its position in Pennsylvania Glass. (Aloe Coal Co. v. Clark Equipment Co. (3d Cir. 1987), 816 F.2d 110, 111 (noting that the Supreme Court specifically rejected the Pennsylvania Glass position, predicted "that Pennsylvania courts, although not bound to do so, would nevertheless adopt as state law the Supreme Court's reasoning").) We have previously rejected this intermediate position and believe that it was improper for the appellate court to utilize it in this case.

Perhaps it is difficult, and may appear somewhat artificial, to fit a claim for asbestos damage within the framework which has been established for more traditional tort or contract actions. Indeed, the nature of the "defect" and the "damage" caused by asbestos is unique from most of the cases we have addressed. Nonetheless, we do believe that this complaint has alleged sufficient facts to establish a tort action under the principles established in Moorman ; however, the holding in this case should not be construed as an invitation to bring economic loss contract actions within the sphere of tort law through the use of some fictional property damage.

The nature of the defect in these ACMs is the asbestos fibers, which are toxic and which, it has been determined, may, in certain circumstances, be harmful. (See Hammond v. North American Asbestos Corp. (1983), 97 Ill. 2d 195 (asbestos worker contracted asbestosis); Asbestos School Hazard Abatement Act of 1984, 20 U.S.C.A. § 4011(a)(1) (Supp. 1989) ("exposure to asbestos fibers has been identified over a long period of time and by reputable medical and scientific evidence as significantly increasing the incidence of cancer and other severe or fatal diseases, such as asbestosis"); Ill. Rev. Stat. 1985, ch. 122, par. 1402(b) (Asbestos Abatement Act; exposure to asbestos fibers linked to asbestosis, bronchogenic carcinoma, mesothelioma and other malignancies); 83d Ill. Gen. Assem., Senate Proceedings, May 22, 1984, at 106-07 (statements of Senator Berman) (extensive testimony heard regarding the hazards of friable asbestos); Comment, Recovery for Risk Comes of Age: Asbestos in Schools and the Duty to Abate a Latent Environmental Hazard, 83 Nw. U.L. Rev. 512, 514 n.18 (1989) (school children are particularly vulnerable to asbestos exposure).) It is alleged in these complaints that friable asbestos exists in plaintiffs' buildings and asbestos has been released throughout the schools. We need not, in ruling on this motion to dismiss, determine whether the amounts of friable asbestos which exist in the buildings are harmful. Our focus is to take as true the facts alleged in the complaints and determine whether they sufficiently state a claim.

We conclude that it would be incongruous to argue there is no damage to other property when a harmful element exists throughout a building or an area of a building which by law must be corrected and at trial may be proven to exist at unacceptably dangerous levels. The view that asbestos fibers may contaminate a building sufficiently to allege damage to property has been recently adopted in a number of cases. A claim of property damages to the city hall of Greenville, South Carolina, caused by asbestos contamination was held actionable in tort in City of Greenville v. W.R. Grace & Co. (4th Cir. 1987), 827 F.2d 975. In City of Greenville, ACM was attached to steel beams in the building. The negligence action survived a motion to dismiss, and at trial, evidence was presented establishing its defective nature and that asbestos fibers had been released into ceiling tiles, ventilation and elevator shafts, carpets and computer equipment. The jury held in favor of the city and awarded damages. On appeal, the court held that the property damage alleged was sufficient for a tort action. In affirming the denial of a judgment notwithstanding the verdict, the court held that from the evidence presented the jury could have reasonably found that the product was unreasonably dangerous and defective and "that the city hall was contaminated by significant amounts of asbestos." City of Greenville, 827 F.2d at 980.

In City of Manchester v. National Gypsum Co. (D.R.I. 1986), 637 F. Supp. 646, the city sued, seeking damages for removal and replacement of asbestos products from 16 schools and other public buildings. In applying New Hampshire State law to determine whether sufficient property damage was alleged for a tort action, the court focused on the nature of the defect and the manner in which the damages occurred. The complaint alleged that the hazardous asbestos products contaminated the buildings and the objects in them in a way which made them harmful to the users. More specifically, the asbestos "purportedly contaminated the ceilings, walls, floors, furniture, drapes, and air quality of the buildings," and as such made them harmful to the users. (637 F. Supp. at 651.) The court found that the plaintiff made a sufficient allegation of physical harm to its property to state a claim for negligence and strict liability and was entitled to offer evidence to support the claims. City of Manchester, 637 F. Supp. at 652.

The ACM in Town of Hooksett School District v. W.R. Grace & Co. (D.N.H. 1984), 617 F. Supp. 126, was used as acoustical insulation and for fireproofing the plaintiff's school buildings. In denying the defendant's motion to dismiss, the court accepted the school district's argument that the asbestos fibers were released into the school's atmosphere, thus contaminating the air, the carpeting, the curtains, other school furnishings, personnel and occupants. Though the court also cited Pennsylvania Glass for the proposition that the product created an unreasonable risk of injury to the person and property, we believe that, apart from that, the court found asbestos fibers may constitute property damage via contamination of a building. (See also Shooshanian v. Wagner (Alaska 1983), 672 P.2d 455 (allegation that urea formaldehyde foam insulation in plaintiff's building released a toxic substance which resulted in physical damage to property was sufficient to state a cause of action in tort).) Each party before us has attached a number of trial court opinions from around ...


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