Trans State Airlines v. Pratt & Witney Canada, Inc.

Annotate this Case

Trans State Airlines v. Pratt & Whitney, No. 81291

NOTICE: Under Supreme Court Rule 367 a party has 21 days after
the filing of the opinion to request a rehearing. Also, opinions
are subject to modification, correction or withdrawal at anytime
prior to issuance of the mandate by the Clerk of the Court.
Therefore, because the following slip opinion is being made
available prior to the Court's final action in this matter, it
cannot be considered the final decision of the Court. The
official copy of the following opinion will be published by the
Supreme Court's Reporter of Decisions in the Official Reports
advance sheets following final action by the Court.

Docket No. 81291--Agenda 15--November 1996.
TRANS STATE AIRLINES, Appellee, v. PRATT & WHITNEY CANADA, INC.,
Appellant.
Opinion filed June 19, 1997.

CHIEF JUSTICE FREEMAN delivered the opinion of the court:
This cause is before us on questions of Illinois law certified
by the United States Court of Appeals for the Seventh Circuit. 145
Ill. 2d R. 20. The certified questions are as follows: (1) "For
purposes of the economic loss doctrine, as developed by the
Illinois Supreme Court in Moorman Manufacturing Co. v. National
Tank Co., (1982) [and its progeny], does Illinois
recognize a `sudden and calamitous occurrence' exception to the
doctrine under which recovery in tort is possible for injury to the
single product?" (2) "Can a product and one of its component parts
ever constitute two separate products[?]" and (3) "[D]id the
airframe and the engine that failed in this case constitute a
single product or two distinct products?"
For the reasons which follow, we answer question number one in
the negative and question number two in the affirmative. Concerning
question number three, we conclude that the engine and airframe in
this case constitute a single product.

FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff, Trans States Airlines, is a common carrier
providing scheduled air service to the public. Defendant, Pratt &
Whitney Canada, is a manufacturer of gas turbine engines for use on
commercial aircraft.
In 1988 defendant manufactured the Pratt & Whitney PW120
engine bearing the serial number 120656. Defendant sold the engine
new to Societe Nationale Industrielle Aerospatiale, Usine de
Toulouse, Service de Comptabilte (Aerospatiale), a large French
aircraft manufacturer, under a written sales contract that included
an express warranty clause. The engine was sold with its own
operating and maintenance manuals prepared by defendant.
Aerospatiale incorporated the engine into one of its ATR 42-300
airplanes, N425TE, which it then sold to McDonnell Douglas Finance
Corporation (MDFC), passing defendant's warranty through to MDFC.
MDFC then leased the plane to a company called GPA ATR Inc. (GPA),
which in turn subleased the plane to plaintiff in this cause. The
engine was warranted separate and apart from the Aerospatiale
airframe warranty.
Although the engine had passed through a number of hands
between plaintiff and defendant, the engine warranty ran directly
to plaintiff. It appeared as section 4(a) of the sales contract
between defendant and Aerospatiale and provided for repair or
replacement of the engine for a defect discovered within the first
90 days or 150 flight hours of operation, whichever occurred first.
Section 4(d) of the sales contract made this express warranty
the "Buyer's" exclusive remedy, in lieu of any implied warranties
and "any obligation, liability, right, claim, or remedy in contract
or tort, whether or not arising from Seller's negligence, actual or
imputed." A subsequent warranty and service agreement modified the
express warranty, extending it to 1,000 flight hours, 1,000
flights, or six months, whichever occurred last.
The sublease agreement was solely between plaintiff and GPA.
Pursuant to its terms, at the end of the lease term, plaintiff was
obligated to return the aircraft with two engines. The agreement
further provided that, upon return of the aircraft, the engines
need not be the original engines which had been installed on the
airframe. As per the agreement, a Pratt & Whitney PW120 engine
certified for use on an ATR 42-300 was interchangeable with any
other Pratt & Whitney PW120 engine.
On July 17, 1991, aircraft ATR 42-300, N425TE, being operated
by plaintiff as flight 7128, experienced an overload failure of the
left engine, serial number 120656, and an in-flight fire while on
approach to landing at Greater Peoria Airport in Peoria, Illinois.
After executing an emergency landing, the passengers were evacuated
onto the runway, and the fire was extinguished by attending ground
crew. Two of the passengers suffered minor personal injury.
The post-accident investigation revealed that the engine
failed after some of its interturbine duct bolts loosened and
fractured in flight. Bolt fragments hit the engine's power turbine
blades, damaging the blades and causing an imbalance overload of
the power turbine rotor. The resulting fire damaged both the engine
and the body of the aircraft.
On March 6, 1992, plaintiff filed a three-count amended
complaint against defendant in the District Court for the Northern
District of Illinois. The complaint alleged claims based on (1)
negligence, (2) breach of warranty, and (3) strict liability, all
arising out of the defect in the engine which resulted in the in-
flight fire. Plaintiff prayed for damages to cover the costs of
repair of the engine and the airframe, lost revenues from cancelled
flights and recovery of settlement fees paid to passengers on their
personal injury claims against plaintiff.
Asserting the economic loss doctrine as a bar to plaintiff's
tort claims, defendant moved for summary judgment. Defendant's
motion was allowed in part and denied in part. See Trans States
Airlines v. Pratt & Whitney Canada, Inc., (N.D.
Ill. 1993). Plaintiff subsequently motioned the court to reconsider
the earlier ruling denying tort recovery of lost revenue and engine
repair costs. Upon reconsideration, the court held that plaintiffs
in Illinois may recover purely economic losses, including lost
revenue and engine repair costs, if plaintiffs proved that (1) the
product failed suddenly and calamitously, and (2) that the failure
caused at least some economic losses. See Trans States Airlines v.
Pratt & Whitney Canada, Inc., (N.D. Ill. 1995).
The case was subsequently set for trial. Prior to commencement
of trial, however, the parties requested that the district court
certify for interlocutory review the question whether defendant's
gas turbine engine and the Aerospatiale airframe were an integrated
unit of the plaintiff's airplane under the economic loss doctrine
as set forth in the United States Supreme Court's opinion in East
River Steamship Corp. v. Transmerica Delaval, Inc., ,
90 L. Ed. 2d 865, 106 S. Ct. 2295 (1986). The question was then
certified to the Seventh Circuit Court of Appeals (28 U.S.C.
1292(b) (1994)), and that court agreed to accept the appeal. See
Trans States Airlines v. Pratt & Whitney Canada, Inc., 86 F.3d 725,
729 (7th Cir. 1996).
The court of appeals found that the scope of Illinois'
economic loss doctrine was determinative of plaintiff's contract
and tort claims. The court perceived, however, that there was a
need for the Illinois Supreme Court to authoritatively decide
issues concerning the distinction between property damage and
economic loss. Accordingly, the court of appeals certified three
questions to this court. See Trans States Airlines v. Pratt &
Whitney Canada, Inc., 86 F.3d 725 (7th Cir. 1996).

Certification of Questions of State Law
Our Rule 20 permits the United States Court of Appeals for the
Seventh Circuit to certify a question of Illinois law to the
Supreme Court of Illinois, which question may be controlling in an
action pending before the Court of Appeals and upon which no
controlling Illinois authority exists. 145 Ill. 2d R. 20.

DISCUSSION
This court's 1982 opinion in Moorman continues to generate
questions concerning the scope of the economic loss doctrine. Our
answers to the Seventh Circuit's certified questions will further
define the parameters and operation of the doctrine in Illinois.
As an initial matter, we note that defendant's assertion that
Illinois does not recognize a sudden and calamitous occurrence as
an exception to the economic loss doctrine is only partially
correct. In Moorman, this court adopted the following definition of
economic loss: " `damages for inadequate value, costs of repair and
replacement of the defective product, or consequent loss of
profits--without any claim of personal injury or damage to other
property.' " (Emphasis added.) Moorman, 91 Ill. 2d at 82, quoting
Note, Economic Loss in Products Liability Jurisprudence, 66 Colum.
L. Rev. 917, 918 (1966). Recently, in In re Chicago Flood
Litigation, which like this case was presented to us with certified
questions on the parameters of Moorman, we made clear that Illinois
recognizes three exceptions to Moorman's economic loss rule: (1)
where the plaintiff sustains damage, i.e., personal injury or
property damage, resulting from a sudden or dangerous occurrence;
(2) where the plaintiff's damages are proximately caused by a
defendant's intentional, false representation; and (3) where the
plaintiff's damages are proximately caused by a negligent
misrepresentation by a defendant in the business of supplying
information for the guidance of others in their business
transactions. In re Chicago Flood Litigation, Nos. 80460, 80535
cons., slip op. at 3-4 (February 20, 1997), citing Moorman, 91 Ill.
2d at 86-89; see also In re Illinois Bell Station Litigation, , 240 (1994). "[T]he event, by itself, does not
constitute an exception to the economic loss rule. Rather, the
exception is composed of a sudden, dangerous, or calamitous event
coupled with personal injury or property damage." In re Chicago
Flood Litigation, slip op. at 16.
The questions posed to us today involve construal of the first
of the Moorman exceptions--the personal injury or property damage
exception.

Damage to the Product Itself
The first question presented for our consideration is whether
there can be tort recovery when the damage caused by a defective
product is confined to the product itself. Phrased differently, the
question is simply whether damage to the product itself constitutes
economic loss or Moorman property damage.
Generally speaking, a defective product can cause three types
of injury: personal injury, property damage, and economic loss.
Personal injury is, of course, self-explanatory. In Illinois,
property damage has been understood to include either damage to the
defective product itself, or damage to other property. See Vaughn
v. General Motors Corp., (1984) (applying Moorman
to permit tort recovery for damage to the product itself). We have
not, since our decision in Vaughn and the Supreme Court's later
decision in East River, however, addressed with particularity
whether the sudden and calamitous occurrence/property damage
exception continues to apply to cover damage to the product itself.
To answer the first of the certified questions, we necessarily
begin our analysis at the beginning--with a review of the analysis
and holdings in Moorman. In Moorman, the plaintiff purchased a
grain storage tank from the manufacturer, National Tank. After
several years, a crack appeared in one of the tank's steel plates.
The plaintiff brought suit on a variety of claims, including strict
liability in tort and negligence. The plaintiff sought damages
representing the cost of repairs and loss of use of the tank.
Relying on Justice Traynor's analysis in Seely v. White Motor
Co., , 403 P.2d 145, 45 Cal. Rptr. 17 (1965), this
court noted the distinction between strict liability in tort and
warranty rules. The court found that plaintiff's complaint was not
that the tank was unreasonably dangerous, but that it had failed to
live up to the plaintiff's expectations. As such, the court
concluded that the plaintiff sought to recover the benefit of its
bargain, an interest protected not by tort law but by contract law.
The plaintiff, asserting that recovery for economic loss was
not being sought, argued that he should be permitted tort recovery
because a "product defect existed [in the tank] 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.' " Moorman, 91 Ill. 2d at 82.
In response to the plaintiff's tort claim, this court noted
its agreement with the rationale expressed in Pennsylvania Glass
Sand Corp. v. Caterpillar Tractor Co., 652 F.2d 1165 (3d Cir.
1981), which allowed tort recovery for damages arising out of a
sudden and dangerous occurrence which posed a serious risk and
damaged the product itself, a front end loader. The Moorman court,
however, distinguished Pennsylvania Glass, finding that the damage
to the tanks (Moorman), unlike the damage to the front end loader
(Pennsylvania Glass), was not the type of sudden and dangerous
occurrence best served by the policy of tort law. Moorman, 91 Ill. 2d at 85.
The court in Moorman held that where only the defective
product is damaged, economic losses caused by the qualitative
defects falling under the ambit of a purchaser's disappointed
expectations cannot be recovered under a strict liability theory.
By its holding, Moorman firmly established that plaintiffs
suffering purely economic losses from defective products may not
avoid the regulatory scheme of the Uniform Commercial Code by suing
in tort. Note, The Problem of Economic Damages: Reconceptualizing
the Moorman Doctrine, 1991 U. Ill. L. Rev. 1169, 1180-81. More than
that, however, Moorman's reliance on Pennsylvania Glass set the
stage for the allowance of tort recovery for sudden and calamitous
occurrences which cause damage to the product itself. See C.
Chapman & T. Hoffman, Product Liability in Illinois VIII--1 (1993);
D. Bland & R. Watson, Property Damage Caused by Defective Products:
What Losses are Recoverable?, 9 Wm. Mitchell L. Rev. 1, 10-11, n.52
(1983).
A few short years after Moorman, this court decided Vaughn,
which purports to be a direct application of Moorman's sudden and
calamitous occurrence/property damage exception. Before considering
Vaughn, however, we pause to more closely consider the analysis and
holding in Pennsylvania Glass.
As we have stated, Pennsylvania Glass, 652 F.2d 1165, involved
damage to a front end loader which occurred as the result of a
fire--a sudden and dangerous occurrence, caused by an alleged
defect that posed a serious risk of harm to people and property.
The court there was squarely confronted with the question of
whether accidental damage to the product itself should be regarded
as economic loss recoverable only in contract warranty law.
The court first gave recognition to the fact that economic
loss frequently involves only damage to the defective product
itself, with no attendant injury to persons or other property.
Pennsylvania Glass, 652 F.2d at 1171. Further, the court
acknowledged the difficulty in classifying situations in which the
product alone is damaged as properly falling within the confines of
either tort or contract. Proper characterization of the damage as
either tort or contract, the court held, required analysis of
"interrelated factors such as [1] the nature of the defect, [2] the
type of risk, and [3] the manner in which the injury arose."
Pennsylvania Glass, 652 F.2d at 1173.
Applying its factors test, the Pennsylvania Glass court
determined that the complaint fell within the policy of tort law.
Underlying the court's disposition was the notion that tort law
imposes a duty on manufacturers to produce safe items, regardless
of whether the ultimate impact of the hazard is on people, other
property, or the product itself.
Moorman's acceptance of Pennsylvania Glass' analysis provided
fertile soil in which the holding in Vaughn is rooted. In Vaughn,
the plaintiff filed a complaint against both the manufacturer and
the dealer of a truck which the plaintiff had purchased. Plaintiff
alleged that the brakes on the truck had locked, causing the truck
and its load to overturn. Plaintiff sought recovery to compensate
him for the loss of the truck, expenses incurred in renting another
truck, extra time expended at work, cleanup of the spilled fuel,
expenditures for brake repairs prior to the occurrence, and the
cost of the repair of a bulk fuel tank being carried on the truck
at the time. Vaughn v. General Motors Corp., 118 Ill. App. 3d 201
(1983).
The appellate court held that if a defect in a product
"creates a dangerous condition and causes damages of a sudden and
calamitous nature, the loss, even if it is limited to the product
itself, is considered property damage and the injured party has a
tort action." Vaughn, 118 Ill. App. 3d at 204. In so deciding, the
appellate court relied largely on Moorman's acceptance of
Pennsylvania Glass and Dean Prosser's analysis of liability for
property damage. See W. Prosser, Torts 101, at 665 (4th ed. 1971).
This court affirmed the appellate court. Vaughn, 102 Ill. 2d at
436.
Incidentally, plaintiff offers Vaughn as dispositive of the
first certified question and would, therefore, end the analysis
here. Plaintiff notes that Vaughn continues to be the law in
Illinois and, further, that that case has been cited with approval
in other jurisdictions. Defendant counters that Vaughn is
inapposite because the damage in that case occurred to "other
property"--the bulk fuel tank.
This court, in Vaughn, made no express distinction between
other property damage and damage to the product itself. Neither did
this court reject the appellate court's characterization of the
damage as being to the product itself. We are therefore inclined to
treat the case as one standing for the proposition that when a
defect in the product causes a sudden and calamitous occurrence
damaging the product itself tort recovery is available. That said,
we hasten to add that the evolution of the economic loss doctrine
in Illinois and in other jurisdictions requires our reconsideration
of the holding in Vaughn and particularly what constitutes Moorman
property damage.
Until the Supreme Court's decision in East River, Vaughn
continued to be on solid footing. In East River, an admiralty case,
the Court decided whether there could be tort recovery on a theory
of products liability where the damage caused by the defect was
confined to the product itself. Central to the Court's analysis was
the notion that warranty and product liability should protect
different interests. The Court noted that in the traditional
" `property damage' " cases, the defective product damages other
property. East River, 476 U.S. at 867, 90 L. Ed. 2d at 874, 106 S. Ct. at 2300. A commercial product's damaging itself, however, is
not the kind of harm that public policy requires manufacturers to
protect against without contractual obligation. The Court reasoned
that whether the damage to the product itself resulted from gradual
deterioration or internal breakage or from a calamitous occurrence,
in either case, since no person or other property is damaged, the
resulting loss is purely economic. East River, 476 U.S. at 870, 90 L. Ed. 2d at 876, 106 S. Ct. at 2302.
Further, the Court opined, when a product injures only itself
the reasons for imposing a tort duty are weak and those for leaving
the party to its contractual remedies are strong. East River, 476 U.S. at 871, 90 L. Ed. 2d at 877, 106 S. Ct. at 2302. Damage to a
product itself is most naturally understood as a warranty claim.
Such damage means simply that the product has not met the
customer's expectations or, in other words, that the customer has
received " `insufficient product value.' " East River, 476 U.S. at
872, 90 L. Ed. 2d at 877, 106 S. Ct. at 2302, citing J. White & R.
Summers, Uniform Commercial Code 406 (2d ed. 1980).
The Court in East River expressly rejected Pennsylvania Glass'
three-factor test, or, as it is currently characterized, the
intermediate approach, leading the Third Circuit to overrule the
later decision in Aloe Coal Co. v. Clark Equipment Co., 816 F.2d 110 (3d Cir. 1987). Aligning itself with the approach taken in
Seely v. White Motor Co., , 403 P.2d 145, 45 Cal. Rptr. 17 (1965), the Court reasoned that a manufacturer in a commercial
relationship has no duty under either a negligence or a strict
products liability theory to prevent a product from injuring
itself. East River, 476 U.S. at 871, 90 L. Ed. 2d at 877, 106 S. Ct. at 2302.
The broadest holding in East River is that tort recovery is
not available for purely economic loss. That holding is not
inconsistent with Illinois law or, in particular, with Vaughn. See
In re Chicago Flood Litigation, slip op. at 14. However, in 1989
this court decided Board of Education v. A, C & S, Inc., (1989). A, C & S, aligning itself with East River, expressly
rejects Pennsylvania Glass, which, as we have stated, provided the
basis for Vaughn's damage to the product itself tort recovery.
Although A, C & S cites approvingly to the East River
decision, because A, C & S is an other-property case, the court
there was not required to and did not at that time authoritatively
decide whether damage to the product itself continues to constitute
Moorman property damage. Notably, Vaughn is cited in A, C & S
without reproof. It therefore remains subject to question whether,
after East River's and A, C & S's approval thereof, damage to the
product itself may continue to constitute property damage for
purposes of tort recovery, as this court held in Vaughn.
Before addressing that issue we pause to clarify a seeming
inconsistency in A, C & S. A, C & S analyzed the availability of
tort recovery for injury caused by the existence of asbestos in
several Illinois school buildings. In that case, the plaintiffs,
seeking to bring their claim within the bounds of tort recovery,
asserted that, pursuant to Moorman, an "allegation of risk" was
relevant to the tort versus contract determination. A, C & S, 131 Ill. 2d at 442.
The A, C & S court rejected a "risk analysis" as relevant in
the determination, noting instead that the test in Illinois
continues to require consideration of only two factors: (1) the
nature of the defect and (2) the manner in which the injury occurs.
A, C & S, 131 Ill. 2d at 441, 442-43. The court acknowledged that
the "risk analysis" approach to tort/contract determinations had
its origin in Moorman's "approval" of Pennsylvania Glass. However,
A, C & S read Moorman's "approval" as being limited to the
proposition that a tort action was not proper when seeking recovery
for economic losses alone. A, C & S, 131 Ill. 2d at 443. Further,
A, C & S stated that this court had previously rejected
Pennsylvania Glass' intermediate approach. A, C & S, 131 Ill. 2d at
445. See also Anderson Electric, Inc. v. Ledbetter Erection Corp.,
, 151 (1986) (discussing economic loss doctrine
generally and citing, with approval, the holding in East River).
It appears that A, C & S viewed Pennsylvania Glass'
intermediate approach to making the tort/contract determination as
consisting solely of a "risk analysis." In retrospect, however, we
recognize that although the determination under the intermediate
approach "essentially turn[s] on the degree of risk" (see East
River, 476 U.S. at 870, 90 L. Ed. 2d at 876, 106 S. Ct. at 2301),
that approach includes also consideration of two additional
factors--the nature of the defect and the manner in which the
injury occurred. See Pennsylvania Glass, 652 F.2d at 1173.
Illinois' two-factor test (nature of defect and manner of
occurrence) for making the tort/contract determination arose out of
and is incorporated as a part of Pennsylvania Glass' three-factor,
or intermediate, approach. Thus, A, C & S's simultaneous rejection
of the intermediate approach (A, C & S, 131 Ill. 2d at 445) and
retention of the two-factor test (A, C & S, 131 Ill. 2d at 441)
would appear inconsistent. See Trans States Airlines, 86 F.3d at
730-31. As the court viewed the intermediate approach as consisting
solely of the "risk analysis," rejection of the intermediate
approach was apparently perceived and intended to eliminate
consideration of the degree of risk only. Consistent with A, C & S,
we reiterate that the proper test for distinguishing tort and
contract is (1) the nature of the defect and (2) the manner in
which the injury occurred.
That said, we return to consider the proper redress for damage
to the product itself. Whether to allow tort recovery when the
damage is confined to the product itself involves consideration of
the policies which underlie tort recovery generally, and products
liability in particular. As an aid in our determination, we have
considered those policies as well as the three prevailing
approaches on this issue. See Annotation, Strict Products
Liability: Recovery for Damage to Product Itself, 72 A.L.R.4th 12
(1989).
East River, which represents the "majority approach," finds
its basis to deny tort recovery for injury to the product itself in
the reasoning of Seely, , 403 P.2d 145, 45 Cal. Rptr. 17 (1965). Seely held that preserving a proper role for the law of
warranty precludes imposing tort liability if a defective product
causes purely monetary harm.
Courts following the majority approach maintain that the goals
of tort theories of recovery simply are not implicated in a product
malfunction case involving only economic losses. Damage to the
product itself only means that the product has not met the
customer's expectations, or that the customer did not receive the
benefit of his bargain. See East River, 476 U.S. at 872, 90 L. Ed. 2d at 877, 106 S. Ct. at 2302. A contract action recognizes the
parties' abilities to structure their relative liabilities and
expectations regarding the product's performance by setting the
terms of their contractual bargain. REM Coal Co. v. Clark Equipment
Co., 386 Pa. Super. 401, (1989). Losses resulting from
damage to the product itself caused by the product's failure to
function properly can be recovered only through an action for
breach of warranty. Note, Asbestos in Schools and the Economic Loss
Doctrine, 54 U. of Chi. L. Rev. 277, 286 (1987). See, e.g., Richard
O'Brien Cos. v. Challenge-Cook Bros., Inc., (D.
Colo. 1987); Public Service Co. v. Westinghouse Electric Corp., (D.N.H. 1988); McConnell v. Caterpillar Tractor Co.,
(D.N.J. 1986); Dairyland Insurance Co. v. General
Motors Corp., (Ala. 1989); Nelson v. International
Harvester Corp., (Minn. App. 1986); Sharp Brothers
Contracting Co. v. American Hoist & Derrick Co.,
(Mo. 1986); Waggoner v. Town & Country Mobile Homes, Inc., (Okla. 1990); REM Coal Co., 386 Pa. Super. 401, ;
Continental Insurance v. Page Engineering Co., (Wyo.
1989).
A second approach is the Pennsylvania Glass, or, as it is
generally referred to, the "intermediate approach." As we have
stated, the intermediate approach essentially turns on the degree
of risk involved and would allow recovery despite the fact that the
risk is never realized. See, e.g., Fordyce Concrete, Inc. v. Mack
Trucks, Inc., (D. Kan. 1982) (applying Kansas
law); Capitol Fuels Inc. v. Clark Equipment Co., 181 W. Va. 258,
(1989). The approach actually embodies the sudden
and dangerous test, which is based on the rationale that sudden and
dangerous accidents pose a greater safety risk to both persons and
property than do simple product defects and so are property
actionable in tort. See Note, Asbestos in Schools and the Economic
Loss Doctrine, 54 U. of Chi. L. Rev. 277, 288-89 (1987). Courts
following the intermediate approach attempt to differentiate
between the " `disappointed users *** and the endangered ones.' "
East River, 476 U.S. at 869-70, 90 L. Ed. 2d at 876, 106 S. Ct. at
2301, quoting Russell v. Ford Motor Co., 281 Or. 587, 595, , 1387 (1978).
Third, some courts have taken the "minority approach," holding
simply that any injury to the defective product itself is
compensable regardless of whether it created an unreasonable risk
of harm. East River, 476 U.S. at 868-69, 90 L. Ed. 2d at 875, 106 S. Ct. at 2301 (citing cases). Based on the reasoning in Santor v.
A&M Karagheusian, Inc., 44 N.J. 52, (1965), these
courts believe that the responsibility of a manufacturer should be
no different where the product damages itself or other property. In
Santor, recovery turned not on the type of harm suffered, but on an
inquiry into whether the defendant's conduct was the originating
cause of that harm.
Under the minority approach, regardless of whether the damage
is economic loss or personal injury or property damage, all are
proximately caused by the defendant's conduct. See East River, 476 U.S. at 869, 90 L. Ed. 2d at 876, 106 S. Ct. at 2301. These courts
reject as arbitrary the distinction between injuries to persons and
other property (physical harm) and injury to the defective product
itself (economic loss). The type of damage does not change the
manufacturer's wrongful conduct. See also Note, Asbestos in Schools
and the Economic Loss Doctrine, 54 U. of Chi. L. Rev. 277, 286-90
(1987) (citing cases); see also Note, The Problem of Economic
Damages, Reconceptualizing the Moorman Doctrine, 1991 U. of Ill. L.
Rev. 1169, 1176.
The vast majority of jurisdictions now follow Seely or the
East River approach. See Note, The Problem of Economic Damages:
Reconceptualizing the Moorman Doctrine, 1991 U. of Ill. L. Rev.
1169, 1177 n.78 (citing cases). We find the East River approach
highly persuasive and are inclined to follow it. Before so
concluding, however, we must consider whether that approach
comports with the particular policies which underlie the law of
products liability in Illinois.
The purpose of strict liability in tort is to place the loss
caused by defective products on those who create the risks and reap
the profits by placing such products in the stream of commerce.
Liberty Mutual Insurance Co. v. Williams Machine & Tool Co., , 82 (1975). The rationale underlying this liability is
threefold: (1) the public interest in human life and safety demands
broad protection against the sale of defective products; (2) the
manufacturer solicits and invites the use of his products by
representing that they are safe and suitable for use; and (3) the
losses caused by defectively dangerous products should be borne by
those who have created the risks and reaped the profits by placing
the products into commerce. Suvada v. White Motor Co., , 619 (1965); see also 14 Ill. Jur. Personal Injury and Torts
33:1 (1994).
Critics of the East River approach assail it as unjustifiably
dismissive of the safety concerns upon which products liability is
grounded. They reason that if manufacturers can contract
successfully around liability for product injuries, a principal
deterrent to unsafe practices--the threat of legal liability--will
be lost. See, e.g., Washington Water Power Co. v. Graybar Electric
Co., , 863, , 1208-09 (1989); accord
Vulcan Materials Co. v. Driltech Inc., 251 Ga. 383, 387, , (1983).
We disagree. We note as an initial matter that where the
product damages itself only, the harm that products liability law
is designed to protect against is not realized. Thus, products
liability safety concerns are not compromised.
Further, we believe that the incentive to manufacture safe
products remains unabated under the East River approach. Like other
states which have chosen to follow East River, we conclude that the
rules which permit recovery in negligence and strict liability for
damage to other property or for personal injury adequately serve
this important social function. See Continental Insurance, 783 P.2d
at 648-49.
Specifically, acceptance of East River's approach merely
exempts damage to the product itself from the broad category of
property damage. Where the product causes personal injury or other
property damage, the manufacturer may yet be subject to liability
in tort. Because no manufacturer can predict with any certainty
that the damage his unsafe product causes will be confined to the
product itself, tort liability will continue to loom as a
possibility. Therefore, in our view, the incentive to build safe
products is not diminished.
Furthermore, strict products liability arose out of a concern
that consumers and remote parties are not on an equal footing with
the manufacturer or seller to bargain effectively for the
allocation of risk. However when commercial parties of equal
bargaining power enter into a contract which either expressly
allocates the risk or by omission is allocated under the terms of
article 2 of the Uniform Commercial Code (see 810 ILCS 5/2--101 et
seq. (West 1994)), this concern does not apply. See Sharp Brothers,
; REM Coal Co., 386 Pa. Super. 401, .
Incidentally, we recognize that some jurisdictions make a
distinction between commercial transactions and consumer
transactions, allowing tort recovery for consumer transactions.
When the dispute is between commercial parties, most courts refuse
to allow negligence or strict tort recovery for damage to the
product itself. W. Keeton, Prosser & Keeton on Torts 101 n.14.5
(5th ed. Supp. 1996). See, e.g., Sherman v. Johnson & Towers
Baltimore, Inc., (D. Md. 1990) (buyers and
manufacturer of yacht destroyed by fire in "consumer relationship"
rather than "commercial relationship" and therefore buyers could
maintain action in tort against manufacturer for purely economic
loss); cf. Utah International, Inc. v. Caterpillar Tractor Co., 108
N.M. 539, (1989) (in commercial transaction where
there was no great disparity in bargaining of parties, economic
losses from injury of product itself not recoverable in tort); but
see Wellcraft Marine v. Zarzour, (Ala. 1990) (under
Alabama's extended manufacturer's liability doctrine, no recovery
for damage to product itself regardless of whether product is sold
to consumer or commercial buyer); see also Note, Products Liability
in Commercial Transactions, 60 Minn. L. Rev. 1061 (1976). The cause
before us involves a purely commercial transaction. Although we are
not now persuaded that the consumer/commercial transaction
distinction makes any difference when the product damages only
itself, we express no opinion in that regard.
Additionally, we believe that the policy question presented
here was properly addressed by Dean Prosser as follows:
"It has been held that if a dangerously defective
product causes an accident, then any loss resulting from
that accident, including damage to the product itself,
should be recoverable on a theory of strict liability in
tort. Although this is a reasonable position, the risk of
harm to the product itself due to the condition of the
product would seem to be a type of risk that the parties
to a purchase and sale contract should be allowed to
allocate pursuant to the terms of the contract. This is
especially so as regards transactions involving
commercial or industrial products. Therefore, contract
law and the rules pertaining to contract restrictions on
warranty liability should control rather than the rules
and principles of tort law." W. Keeton, Prosser & Keeton
on Torts 101(3), at 708-09 (5th ed. 1984).
Consistent with the views expressed in East River, Dean
Prosser states that the policy considerations dictating strict
liability in tort for dangerously defective products are not
subverted so long as the seller is held strictly accountable for
physical harm to persons and tangible things other than the
defective product itself. W. Keeton, Prosser & Keeton on Torts
101(3), at 709 (5th ed. 1984).
In the context of damage to the product itself, we find
additional reasons to follow the East River approach. East River
eliminates the conceptually difficult problem of distinguishing
damage caused by an accident to the product itself from that caused
by ordinary wear and tear. In the case of personal injury or other
property damage, however, we continue to require, for purposes of
tort recovery, the coupling with a sudden and calamitous
occurrence. In those instances, our strong interest in keeping the
spheres of tort and contract separate outweighs the difficulties in
making the deterioration versus calamitous occurrence distinctions.
Further, the tort rationale of risk distribution and the
doctrine of assumption of the risk, while appropriate in personal
injury cases, seem wholly inappropriate when the injury is only to
the product itself. "It would indeed be ironic if the tort doctrine
which was evolved to rescue the personal injury area from the
`intricacies of the law of sales' were to imprison the economic
loss area with inapposite tort concepts." Note, Manufacturers'
Liability To Remote Purchasers For "Economic Loss" Damages--Tort or
Contract?, 114 U. of Pa. L. Rev. 539, 549 (1966).
After considering the purposes and policies which underlie
products liability law, we are persuaded that the East River
approach is the better reasoned one. In sum, when the product
damages itself only, the risks against which products liability law
was designed to protect simply are not realized. Additionally, to
follow East River will not result in manufacturers' losing their
incentive to make safe products; therefore, our strong interest in
human life and safety is not compromised. Further, the East River
approach better serves our interest in preserving the distinction
between tort and contract. Therefore, and consistent with East
River, we answer the inquiry as to whether there may be tort
recovery for damage to a single product resulting from a sudden and
calamitous event in the negative. To the extent that Vaughn is
inconsistent with this holding, it is overruled.

One Product or Two?
The second and third questions certified to this court are:
(2) "Can a product and one of its component parts ever constitute
two separate products[?]" and (3) "[D]id the airframe and the
engine that failed in this case constitute a single product or two
distinct products?" If the engine constitutes a single product
separate from the airframe, plaintiff's cause may fall within
Moorman's property damage exception.
In this case, the engine caused damage to itself as well as to
the airframe in which it was housed. Plaintiff, citing East River,
concedes that the engine with its faulty bolts constituted a single
integrated product, but claims that the engine and the airframe
constitute two separate products. Defendant takes the contrary
position concerning the engine and airframe. We agree that the
engine, an integrated product complete with bolts, constituted a
single product. See East River, 476 U.S. at 867, 90 L. Ed. 2d at
874, 106 S. Ct. at 2300. What remains is whether the engine and its
airframe constitute two separate products.
Prior to addressing that issue, we note plaintiff's argument
that where there is "other property" damage, there is no additional
requirement under Moorman that the damage have been the result of
a sudden and calamitous occurrence. In support, plaintiff cites to
language in A, C & S, which states that to prevent recovery in tort
merely because the physical harm did not occur suddenly would
defeat the underlying purposes of strict products liability.
Significantly, A, C & S is an asbestos case. The court there,
prior to rejecting the sudden and dangerous occurrence requirement,
noted that asbestos damages do not easily fit within the framework
delineating tort and contract. Further, the court stated that, in
that instance, the critical inquiry was whether the product had an
unreasonably dangerous defect and whether the defect caused the
property damage alleged. We do not read the proffered language in
A, C & S as a wholesale rejection of the "sudden and calamitous"
requirement for other property cases. Clear from the language is
that the court was attempting to confine its reasoning to the
particular facts of the case.
As we pointed out in response to defendant's version of the
property damage exception, Moorman requires a sudden and calamitous
event coupled with personal injury or other property damage.
Neither (1) an injury (personal injury of other property damage)
standing alone nor (2) a sudden and calamitous occurrence standing
alone is sufficient to bring a claim within the bounds of tort
recovery. In re Chicago Flood Litigation, slip op. at 16.
Concerning the separate-products question, plaintiff largely
argues that the manner in which the parties treated the products
should be dispositive. In this case, the parties treated the engine
and the airframe as two separate products. Following a "separate-
treatment" approach, plaintiff contends that damage to the airframe
by the engine must be considered damage to other property.
Plaintiff offers the following facts as evidence of how the
engine and airframe were treated. The engines are type certificated
at Pratt & Whitney separate and apart from the airframe type
certification; each engine receives an airworthiness certificate
separate and apart from the airframe airworthiness certificate; the
engine comes with its own maintenance, parts, and service
publication manuals prepared by Pratt & Whitney which are separate
from the airframe manuals; each engine has its own logbook into
which engine maintenance entries are recorded and which is kept
independently of the airframe maintenance logbook; the engine came
with its own warranty issued by Pratt & Whitney which is separate
and distinct from the airframe warranty; each engine has its own
title documentation separate and apart from the airframe; and
service publications and bulletins for the engine are the
responsibility of Pratt & Whitney.
Additionally, pursuant to the terms under the sublease
agreement, each PW120 engine is interchangeable with any other of
the same model type; at the end of the lease period, the airframe
need not be returned with the same engines that were attached to
the airframe when it first arrived. Given these facts, plaintiff
maintains, the engine and airframe should be considered separate
products.
Notably, the separate treatment of the engines in this case
was not solely the result of the manner in which defendant
conducted business. The fact that the engine could be interchanged
with other engines or that the aircraft could be returned to GPA
with different engines was a provision in the sublease which
plaintiff negotiated with GPA, not with defendant. Incidentally, we
recognize that plaintiff was not a party to the sales agreement
between the airframe manufacturer, Aerospatiale, and defendant,
Pratt & Whitney Canada, and, therefore, plaintiff had no
opportunity to negotiate the allocation of risks with defendant.
However, plaintiff was not similarly foreclosed from negotiating
and allocating particular risks in the sublease agreement with GPA.
Defendant, citing to several cases in support, argues that the
proper focus of a separate-products, or "other-property" inquiry,
should be on what the parties bargained for. Defendant contends
that plaintiff in this case bargained for and received a fully
integrated aircraft, complete with engine. The two are joined
together physically and conceptually and should be treated as one
product.
Plaintiff counters that defendant's cases are factually
distinguishable because, unlike in this case, those cases do not
involve a scheduled airline with a pool of common engines which are
easily removed and reinstalled on similar airframes for maximum
utilization and maintenance coordination. Plaintiff maintains that
a determination as to whether a product constitutes "other
property" should turn simply on how the parties treated the product
or products.
It may well be that defendant's cases are distinguishable due
to the manner in which different airlines operate. That
notwithstanding, though the defective engine in this case was
interchangeable, it appears from the complaint that the engine was
in fact the same engine which was delivered and installed in the
aircraft at the time plaintiff entered into its sublease agreement
with GPA. Further, as we have stated, the interchangeability of
engines was a part of plaintiff's sublease agreement with GPA, not
with defendant. Thus, even accepting the offered distinction, it is
of no benefit to this plaintiff.
Furthermore, we find plaintiff's "separate-treatment"
approach, which is unsupported by any authority, problematic for at
least three reasons. First, most products, like the aircraft in
this case, are comprised of components, many of which are capable
of removal and interchangeability. If the capability to remove or
interchange is determinative of the separate-products inquiry, then
practically every component of every product would be considered a
separate product. Second, plaintiff's approach creates the
potential for difficult factual determinations concerning the
degree of separate treatment. For instance, would the fact that the
engines in this case came with separate manuals and warranty be
sufficient to conclude separate treatment, or must there be several
factors in combination, and if so, how many? Third, and although we
are not told here, in this case it is conceivable that some of
defendant's treatment of the engines was in satisfaction of the
dictates of a particular regulatory agency as opposed to the manner
in which defendant chose to conduct business. Given these concerns
alone, the "separate-treatment" approach is, to us, unappealing.
To aid us in our determination on this question, we have
reviewed cases from several jurisdictions. In S.N.A. Inc. v.
Hartzell Propeller, Inc., No. 95--1397 (E.D. Pa. May 29, 1996)
(applying Pennsylvania law), a faulty valve had been attached to a
propeller and the propeller was then attached to the plaintiff's
plane. The valve caused damage to itself as well as to the
aircraft. In rejecting the economic loss doctrine as applicable to
bar tort recovery, the plaintiff argued that the allegedly
defective propeller system damaged "other property," namely, the
aircraft onto which it had been incorporated.
Following the reasoning in King v. Hilton Short-Davis, 855 F.2d 1047, 1052 (3d Cir. 1988), the court in S.N.A. held that to
determine whether a defective product caused damage to "other
property" the court must focus on the injured party's bargained-for
expectation. The court determined that the lease was the relevant
bargain and, pursuant to its terms, plaintiff bargained for an
aircraft. Since plaintiff S.N.A. lost no more than it bargained for
in that lease--use of a prototype aircraft--S.N.A. was barred from
recovering lost profits under the economic loss doctrine. But see
Lease Navajo, Inc. v. Cap Aviation, Inc., (E.D.
Pa. 1991) (where defendant purchased component parts for
installation on engines from third-party defendant, as opposed to
purchasing engines as a whole, damage to components, engines and
aircraft considered other property damage for purposes of tort
recovery).
Similarly, in American Eagle Insurance Co. v. United
Technologies Corp., 48 F.3d 142 (5th Cir. 1995) (applying Texas
law), the defendant manufactured and sold an aircraft engine to the
Cessna aircraft company. Subsequent to the engine's installation,
Cessna sold the aircraft to the Federal Express Corporation. The
aircraft was then sold to Martinaire, Inc.
The airplane subsequently crashed and was destroyed. There
were no personal injuries; however, there was damage on the ground
to property owned by a third party. A service policy between
Federal Express and Pratt & Whitney Canada, Ltd., disclaimed
implied warranties, liability in tort and contract, and limited
remedies to repair or replacement. The policy also contained an
express warranty against defects in the engine which had previously
expired.
The court held that had the parties bargained for separate
components making up the aircraft, then the individual defective
component parts could be perceived as having caused damage to the
whole. However, there was no evidence that the parties had
bargained separately for individual components. Consequently, the
aircraft hull did not qualify as "other property" damaged by the
defective engine component. American Eagle, 48 F.3d at 144-45. See
also National Union Fire Insurance Co. v. Pratt & Whitney Canada,
Inc., 107 Nev. 535, (1991) (where buyer did not
purchase airplane and engine separately, but rather had bought
single integrated product, economic loss doctrine barred airplane
lessor's tort suit against manufacturer of defective engine,
despite damage to entire plane caused by engine failure); Shipco
2295, Inc. v. Avondale Shipyards, Inc., 825 F.2d 925 (5th Cir.
1987) (parties had not bargained separately for vessel's defective
steering mechanism; therefore, defective components making up
vessel as a whole could not cause "other property" damage); cf.
Midwest Helicopters Airways, Inc. v. Sikorsky Aircraft, A Division
of United Technologies Corp., (E.D. Wis. 1994)
(applying "integrated system test," court held where defendant
provided whole helicopter, damage to helicopter by defective tail
rotor drive did not constitute other-property damage).
Not all courts, however, follow the "product bargained-for
approach" in making "other-property" determinations. Under Ohio
law, "a product's self-inflicted damage is by definition `property
damage.' " Chemtrol Adhesives Inc., v. American Manufacturers
Mutual Insurance Co., 42 Ohio St. 3d 40, 44, 537 N.E.2d 624, 630
(1989). In determining whether damage to the product constitutes
economic loss, Ohio focuses not on the nature of the product and
its components, but rather on the relationship between the parties.
See Chemtrol Adhesives, Inc. v. American Manufacturers Mutual
Insurance Co., 42 Ohio St. 3d 40, 44, 537 N.E.2d 624, 630 (1989).
Where there is privity of contract and the parties have negotiated
that contract from relatively equal bargaining positions, the
parties are able to allocate the risk of all loss, including loss
of the subject product itself, between themselves. Chemtrol
Adhesives, 42 Ohio St. 3d at 45, 537 N.E.2d at 631.
Epps Flying Services, Inc. v. Hartzell Propeller Inc., No. 94-
-4863 (E.D. Pa. October 13, 1995) (applying Ohio law), is exemplary
of the "privity" approach. There, the plaintiff alleged damages to
his aircraft caused by defendant's defective propeller. The
district court held that under the Ohio Supreme Court's
characterization, plaintiff's losses constituted property damage.
Because the parties were not in privity of contract, the property
damage was potentially recoverable in a negligence action.
Still some other courts, as in Pennsylvania Glass, make no
distinction between damage to the product itself and other property
damages. The relevant inquiry for tort recovery in those cases is
whether damage to the property was from an unreasonably dangerous
product. If so, tort recovery is permissible regardless of whether
the damage was to the defective product or upon other property.
See, e.g., Fordyce Concrete, Inc. v. Mack Trucks, Inc., , 121 (D. Kan. 1982). Accord Sunbird Air Services Inc., v.
Beech Aircraft Corp., Pratt & Whitney Aircraft, No. 89--2181--V (D.
Kan. June 24, 1992) (applying Kansas law) (tort recovery permitted
for defective fuel control unit installed in engine which was
subsequently installed in and damaged aircraft); Mississippi Power
& Light Co. v. Branson Aircraft Corp., (D. Colo.
1992) (defective fuel tank which created unreasonably dangerous
condition in aircraft resulted in property damage recoverable in
tort).
Of the three approaches to the separate-products inquiry, we
favor the "product bargained for" approach, which to us seems the
most logical, fair and easy to apply. The privity approach is
problematic because of the burdens it places on manufacturers,
particularly in the context of consumer transactions where, more
often than not, privity is absent. The unreasonably-dangerous
approach is simply a restatement of Pennsylvania Glass, which we
have here expressly rejected.
Dean Prosser once characterized the law of products liability
as a "hybrid, having its commencement in contract and its
termination in tort." W. Prosser, Law of Torts 648-51 (3d ed.
1964). We find it apt, therefore, that the proper starting point in
the separate-products determination is the contract. The relevant
inquiry is, What is the object of the contract or bargain that
governs the rights of the parties? See Shipco, 825 F.2d at 928. In
this case, we necessarily look to the sublease agreement which was
the relevant bargain. See S.N.A. Inc., No. 95--1397 (E.D. Pa. May
29, 1996). Interpretation of the terms of the agreement, as in the
case of any written and unambiguous contract, presents a question
of law. See Hufford v. Balk, , 172 (1986), citing
Chicago Daily News, Inc. v. Kohler, 360 Ill. 351, 363 (1935); see
also 12A Ill. L. & Prac. Contracts 512, at 378 (1983); Petroleum
Helicopters, Inc. v. Avco Corp., 930 F.2d 389, 393 n.9 (5th Cir.
1991) (noting that the phrase "other property" is construed by
looking to nature of contract between the parties and that such
determination rests upon contractual interpretation, i.e., a legal
analysis, and not upon a separate factual determination).
Pursuant to the article 2.01 of the sublease-agreement,
plaintiff and GPA agreed to the sublease of "the Aircraft."
Aircraft is defined in article 1 of the sublease agreement as
follows:
" `Aircraft' " means the Airframe to be delivered and
subleased hereunder together with the Engines initially
installed on such Airframe when delivered and subleased
hereunder or any Engine as defined herein ***."
Under the terms of the sublease agreement, plaintiff bargained
for and received a fully integrated aircraft. Plaintiff did not
bargain separately for an engine and separately for an airframe.
Had plaintiff done so, then damage to the airframe by the engine
could be perceived as damage to "other property." Plaintiff has
lost no more than it bargained for in the sublease agreement.
Therefore, in this case, damage to the airframe caused by the
defective engine constitutes damage to a single product.
Moreover, it seems reasonable to us that the economic loss
doctrine should bar tort recovery when a defective product causes
the type of damage one would reasonably expect as a direct
consequence of the failure of the defective product. Given the
foreseeable consequences that a defective engine would result in
damage to the airframe, we believe that parties to the sublease
agreement could have bargained in consideration of such risks. See
Hartford Fire Insurance Co. v. Huls America, Inc., , 469 (E.D. Pa. 1995).
We therefore answer the certified question "Can a product and
one of its component parts ever constitute two separate products"
in the affirmative. However, we answer the certified question
whether the airframe and the engine that failed in this case
constituted two separate products in the negative.

Certified questions answered.

JUSTICE HEIPLE, concurring in part and dissenting in part:
I agree with Justice Harrison that it is inappropriate for
this court to answer certified question number three because the
question is primarily factual, not legal. I would express no
opinion on this question. I therefore dissent only from that
portion of the majority opinion which addresses question number
three.

JUSTICE HARRISON, also concurring in part and dissenting in
part:
I agree with the majority's conclusions regarding the first
two certified questions. I disagree with its response to the third
question, which asks whether the airframe and engine constitute a
single product or are actually two distinct products.
As a preliminary matter, I question whether this court should
even have addressed that question. Supreme Court Rule 20 (145 Ill.
2d R. 20) gives this court discretion to answer certified questions
of law. Question three, however, does not present a legal question.
What it asks us to do is apply the legal principle at issue in
question two to the particular facts of this case. That is a matter
the federal court should be able to manage without our help. The
purpose of Rule 20 is to give the federal courts direction on
unsettled questions of Illinois law, not to decide specific cases
for them.
That aside, the majority's analysis is unpersuasive. Pratt &
Whitney's engine was used with the airframe, but was not part of
it. As the majority details, the engine was freely removable and
interchangeable. It was separately certified and warranted and was
maintained independently of the airframe. How the engine could
reasonably be characterized as a mere component of the airframe
under these circumstances I do not understand. The airframe and
engine were, in fact, two separate products, as both of the two
United States district judges who have thus far considered the
issue correctly recognized.

JUSTICE McMORROW joins in this partial concurrence and partial
dissent.

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