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04/27/95 FEDERAL INSURANCE COMPANY v. VILLAGE

April 27, 1995

FEDERAL INSURANCE COMPANY, AS SUBROGEE OF SUBURBAN TRUST AND SAVINGS BANK, PLAINTIFF-APPELLANT,
v.
THE VILLAGE OF WESTMONT, DEFENDANT-APPELLEE (ROCKWELL INTERNATIONAL; BTR, INC., D/B/A SENSUS TECHNOLOGIES, INC., DEFENDANTS).



Appeal from the Circuit Court of Du Page County. No. 91-L-2527. Honorable Robert R. Thomas, Judge, Presiding.

Released for Publication May 31, 1995.

The Honorable Justice Inglis delivered the opinion of the court: Geiger and Doyle, JJ., concur.

The opinion of the court was delivered by: Inglis

JUSTICE INGLIS delivered the opinion of the court:

Plaintiff, Federal Insurance Company, appeals the order of the circuit court of Du Page County granting the motion for summary judgment filed by defendant, the Village of Westmont. We reverse and remand.

Plaintiff was the insurer of the Suburban Trust & Savings Bank (Bank). The Bank was the owner of a building under construction in Westmont, Illinois. During the pendency of the construction, a water meter supplied by defendant leaked, causing substantial damage to the building. Plaintiff paid out $180,380.52 on the insurance policy and became subrogated to the rights of the Bank. Plaintiff subsequently filed a complaint against defendant seeking damages.

The water meter assembly in question was supplied by defendant. Whenever a developer applies for a building permit, it is required to provide defendant with a set of blueprints. From these blueprints, defendant determines the type of meter required and then sells an applicable meter to the developer. Defendant regularly buys and stocks the water meters for resale to developers. Defendant does not, however, inspect the meters before selling them to developers.

Plaintiff filed a complaint against Rockwell International, the manufacturers and designers of the meter, and defendant. Plaintiff alleged four theories of recovery against defendant, specifically: (1) products liability; (2) negligence; (3) breach of an implied warranty of merchantability; and (4) breach of an implied warranty of fitness for a particular purpose. Defendant filed a motion to dismiss the complaint, which the court granted as to the products liability count pursuant to section 2-621 of the Code of Civil Procedure. (735 ILCS 5/2-621 (West 1992).) The court denied the motion as to the warranty and negligence counts.

Defendant filed a motion for summary judgment, arguing that according to deposition excerpts defendant was not liable on the warranty counts. Defendant further argued that plaintiff could not recover under the Uniform Commercial Code (UCC) for noneconomic damages. The court granted defendant's summary judgment motion on all counts and found that there was no just reason to delay appeal or enforcement of the order. This timely appeal followed.

On appeal, plaintiff argues that noneconomic damages are recoverable in an action pursuant to the UCC and that plaintiff is entitled to damages because defendant breached certain implied warranties. We reverse and remand.

Resolution of this appeal hinges on whether consequential damages are recoverable pursuant to a warranty theory when those damages are categorized as noneconomic damages. Noneconomic losses are defined as those damages which result from a product having a defect which causes personal injury and/or property damage as a result of a sudden and calamitous occurrence. ( Board of Education v. A, C, & S, Inc. (1989), 131 Ill. 2d 428, 441-42, 137 Ill. Dec. 635, 546 N.E.2d 580.) Economic loss has been defined as "damages for inadequate value, cost of repair and replacement of the defective product, or consequential loss of its profits." Seegers Grain Co. v. United States Steel Corp. (1991), 218 Ill. App. 3d 357, 369, 160 Ill. Dec. 793, 577 N.E.2d 1364.

In the case at bar, the damages are the result of a water meter that failed, causing extensive flooding in the basement of a building under construction. We find these damages are properly categorized as noneconomic damages. Thus, we must examine whether they are recoverable pursuant to a contract theory of recovery.

The seminal case of Moorman Manufacturing Co. v. National Tank Co. (1982), 91 Ill. 2d 69, 61 Ill. Dec. 746, 435 N.E.2d 443, held that purely economic damages are not recoverable in an action based on tort because otherwise a manufacturer would be liable for business losses of other purchasers caused by a failure of its product to meet the specific needs of the purchasers' businesses, even though those needs were never communicated to the manufacturer. Moorman, 91 Ill. 2d at 88.

The Moorman court did not, however, answer the question whether noneconomic damages were available in contract. The Appellate Court, First District, answered this question in the negative, holding that an action to recover noneconomic damages pursuant to an implied warranty action under the UCC would not lie. ( Seegers, 218 Ill. App. 3d at 369.) The plaintiff filed a complaint seeking to recover damages for a grain silo which exploded, alleging that defendant breached implied warranties of merchantability and fitness for a particular purpose pursuant to the UCC. ( Seegers, 218 Ill. App. 3d at 368.) The court noted that there have been cases in which noneconomic losses have been allowed in a warranty action, but those instances involved a personal injury and not merely property damage (see Berry v. G.D. Searle & Co. (1974), 56 Ill. 2d 548, 558, 309 N.E.2d 550). ( ...


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