Progressive Insurance v. General Motors Corp.

ATTORNEYS FOR PROGRESSIVE INSURANCE COMPANY

Mitchell M. Pote
Michael E. Simmons
Indianapolis, Indiana

ATTORNEY FOR UNITED FARM BUREAU INSURANCE

Ronald W. Frazier
Indianapolis, Indiana

ATTORNEY FOR FOREMOST INSURANCE COMPANY

Marshall W. Grate
Grand Rapids, Michigan
ATTORNEYS FOR FORD MOTOR COMPANY

Julia Blackwell Gelinas
Jeffrey J. Mortier
Kevin C. Schiferl
Indianapolis, Indiana

ATTORNEYS FOR GENERAL MOTORS CORPORATION

Julia Blackwell Gelinas
Jeffrey J. Mortier
Indianapolis, Indiana

_________________________________________________________________

IN THE

SUPREME COURT OF INDIANA

__________________________________________________________________

PROGRESSIVE INSURANCE )
COMPANY, )
)
Appellant (Plaintiff Below), ) Indiana Supreme Court
) Cause No. 56S03-0106-CV-266
v. )
) Indiana Court of Appeals
GENERAL MOTORS ) Consolidated
CORPORATION, ) Cause No. 56A03-9812-CV-534
)
Appellee (Defendant Below). ) Original Cause No. 56A03-9812-
) CV-534

APPEAL FROM THE NEWTON COUNTY SUPERIOR COURT
The Honorable Daniel J. Molter, Judge
Cause No. 56D01-9712-CP-29
_________________________________
FORD MOTOR COMPANY, )
)
Appellant (Defendant Below), )
)
v. ) Indiana Court of Appeals Original
) Cause No: 49A02-9905-CV-363
PROGRESSIVE INSURANCE )
COMPANY, )
)
Appellee (Plaintiff Below). )
)

APPEAL FROM THE MARION SUPERIOR COURT
The Honorable David A. Jester, Judge
Cause No. 49D01-9805-CP-744
_________________________________

GENERAL MOTORS )
CORPORATION, )
)
Appellant (Defendant Below), )
)
v. ) Indiana Court of Appeals Original
) Cause No: 49A04-9908-CV-351
UNITED FARM BUREAU )
INSURANCE, as Subrogee of Cecil L. )
Marshall, and Cecil L. Marshall, )
Individually, )
)
Appellees (Plaintiffs Below). )
)

APPEAL FROM THE MARION SUPERIOR COURT
The Honorable John L. Price, Judge
Cause No. 49D11-9808-CT-1130
_________________________________

FORD MOTOR COMPANY, )
)
Appellant (Defendant Below), )
)
v. ) Indiana Court of Appeals Original
) Cause No. 20A03-9909-CV-372
FOREMOST INSURANCE )
COMPANY, )
)
Appellee (Plaintiff Below). )
)

APPEAL FROM THE ELKHART CIRCUIT COURT
The Honorable Teresa L. Kline, Judge Pro Tempore
Cause No. 20C01-9805-CP-122
________________________________

PROGRESSIVE INSURANCE )
COMPANY, )
)
Appellant (Plaintiff Below), )
)
v. ) Indiana Court of Appeals Original
) Cause No. 49A04-0001-CV-24
FORD MOTOR COMPANY, )
)
Appellee (Defendant Below). )
)

APPEAL FROM THE MARION SUPERIOR COURT
The Honorable Cynthia J. Ayres, Judge
Cause No. 49D04-9804-CP-594
__________________________________________________________________

ON PETITION FOR TRANSFER

__________________________________________________________________

June 6, 2001

BOEHM, Justice.
Once again we are faced with a policy argument that precedent from
this Court construing a statute is ill conceived. We agree that valid
arguments are raised for and against recovery under the Products Liability
Act for damages to a product sustained as a result of the product’s own
defect. However, we believe these policy considerations are for the
legislature and adhere to the view that the Indiana Products Liability Act
does not support such a claim.

Factual and Procedural Background

This case involves five consolidated appeals from the grant or denial
of summary judgment on the issue of whether a vehicle owner may recover
under the Products Liability Act from the manufacturer for damage to the
vehicle sustained when the vehicle caught fire. In each of these five
cases, only the vehicle was severely damaged, allegedly due to defects in
the wiring, the fuel lines, or the transmission line. The plaintiffs are
insurance companies[1] who sued as subrogees to recoup the amounts they
paid to their insureds as owners of the vehicles. The plaintiffs contend
that these claims are cognizable under the Products Liability Act. The
manufacturers, General Motors Corporation and the Ford Motor Company,
assert that the owners, and therefore their subrogees, are restricted to
their contractual rights under their warranties where the only damage is to
the product itself.
The Court of Appeals agreed with the insurance companies’ contention
that the Products Liability Act was unclear on this point, and expressed
the view that policy considerations favored the plaintiffs’ claims under
the Act. However, the Court of Appeals considered itself bound by our
decisions in Martin Rispens & Son v. Hall Farms, Inc., 621 N.E.2d 1078
(Ind. 1993), and Reed v. Central Soya Co., 621 N.E.2d 1069 (Ind. 1993),
modified on other grounds by 644 N.E.2d 84 (Ind. 1994). Progressive Ins.
Co. v. General Motors Corp., 730 N.E.2d 218, 221 (Ind. Ct. App. 2000). In
Rispens and Reed, we concluded that there is no recovery under the Products
Liability Act where the claim is based on damage to the defective product
itself. Because this is a recurring subject of transfer petitions, we
grant transfer to settle this issue. We reaffirm the view taken in Reed
and Rispens.
Standard of Review
On appeal, the standard of review of a summary judgment ruling is the
same as that used in the trial court: summary judgment is appropriate only
where the evidence shows there is no genuine issue of material fact and the
moving party is entitled to a judgment as a matter of law. Ind.Trial Rule
56(C); Shell Oil Co. v. Lovold Co., 705 N.E.2d 981, 983-84 (Ind. 1998).
All facts and reasonable inferences drawn from those facts are construed in
favor of the non-moving party. Id.; Colonial Penn Ins. Co. v. Guzorek, 690
N.E.2d 664, 667 (Ind. 1997). The review of a summary judgment motion is
limited to those materials designated to the trial court. T.R. 56(H); Rosi
v. Business Furniture Corp., 615 N.E.2d 431, 434 (Ind. 1993). We must
carefully review decisions on summary judgment motions to ensure that the
parties are not improperly denied their day in court. Estate of Shebel ex
rel. Shebel v. Yaskawa Elec. Am., Inc., 713 N.E.2d 275, 277-78 (Ind. 1999).

Damage to the Product Under the Products Liability Act

The Products Liability Act provides, in relevant part[2]:
[A] person who sells, leases, or otherwise puts into the stream
of commerce any product in a defective condition unreasonably
dangerous to any user or consumer or to the user’s or consumer’s
property is subject to liability for physical harm caused by that
product to the user or consumer or to the user’s or consumer’s
property if:
(1) that user or consumer is in the class of persons that the seller
should reasonably foresee as being subject to the harm caused by the
defective condition;
(2) the seller is engaged in the business of selling the product; and
(3) the product is expected to and does reach the user or consumer
without substantial alteration in the condition in which the product
is sold by the person sought to be held liable under this article.

Ind.Code § 34-20-2-1 (1998) (emphasis added). Physical harm is defined as:
“bodily injury, death, loss of services, and rights arising from any such
injuries, as well as sudden, major damage to property.” Ind.Code § 34-6-2-
105 (1998).
The issue is whether this section imposes liability when the “harm”
caused by a “product” is damage to the product itself, and not personal
injury or damage to other property. The insurance companies urge, and the
Court of Appeals agreed, that the term “property” includes the “product,”
noting that the consumer or user presumably views the product that self-
destructs as his or somebody else’s property. Under this view, harm to the
“user’s or consumer’s property” would include harm to the product itself.
Although it is undoubtedly true that “products” are ordinarily somebody’s
“property,” we think that “property” as used in the statute does not
embrace the product itself. Some states have explicitly resolved this
issue in their version of the products liability act. Those that have go
both ways. Compare Conn. Gen. Stat. § 52-572m (Supp. 2001) (“‘Harm’
includes damage to property, including the product itself . . . .”), with
N.J. Stat. Ann. § 2A:58C-1 (West 2000) (under products liability act, harm
includes “physical damage to property, other than to the product itself”).
Indiana’s statute is silent on this point, but we are not writing on a
clean slate. To the contrary, this Court has consistently interpreted the
Products Liability Act to bar a tort action where no damage to person or
other property is present. Reed v. Central Soya Co., 621 N.E.2d 1069, 1074-
75 (Ind. 1993), modified on other grounds by 644 N.E.2d 84 (Ind. 1994);
Martin Rispens & Son v. Hall Farms, Inc., 621 N.E.2d 1078, 1089 (Ind.
1993); accord Interstate Cold Storage, Inc. v. General Motors Corp., 720
N.E.2d 727, 731 (Ind. Ct. App. 1999).
The courts have described the problem both as injury to the product
itself and as “purely economic loss.” The terminology may vary but the
result is the same. In Reed, we concluded that, where the loss is purely
economic, and there is no damage to other property and no personal injury,
the legislature has determined that the plaintiff’s remedy lies in contract
law. 621 N.E.2d at 1074-75; accord Rispens, 621 N.E.2d at 1089-90 (citing
W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 101, at 708
(5th ed. 1984)). In Rispens, this Court also observed that, “If a buyer
were allowed to recover economic loss under a negligence theory, he could,
in effect, circumvent the seller’s limitation or exclusion of warranties
permitted under the Uniform Commercial Code.” 621 N.E.2d at 1090-91;
accord Sanco, Inc. v. Ford Motor Co., 579 F. Supp. 893, 897-98 (S.D. Ind.
1984) (noting that subjecting a manufacturer to tort liability for economic
loss “would encroach on the decision of the legislature to enact the
carefully articulated sales provisions of the Uniform Commercial Code”
(citations omitted)), aff’d, 771 F.2d 1081 (7th Cir. 1985); Reed, 621
N.E.2d at 1075.
Indiana has had occasion to elaborate on what constitutes purely
economic loss to be governed by contract law. In Reed, 621 N.E.2d at 1074
(citations omitted), this Court defined economic damages under Indiana law
as:
the diminution in the value of a product and consequent loss of
profits because the product is inferior in quality and does not work
for the general purposes for which it was manufactured and sold.’ . .
. Economic loss includes such incidental and consequential losses as
lost profits, rental expense, and lost time.

See also Rispens, 621 N.E.2d at 1089-90. Progressive correctly points out
that “property damage” is distinct from “economic damage,” at least from
the point of view of the policyholder’s insurance coverage. And property
damage is distinct from business interruption losses even if both result
from the same event. However, when addressing the validity vel non of a
tort or products liability claim based on failure of a product, the self-
destruction of the product through property damage, if caused by an
external force, is indistinguishable in consequence from the product’s
simple failure to function. In both cases, the owner’s loss is the value
of the product. Thus, the United States Supreme Court and others refer to
damage to the product itself as “economic loss” even though it may have a
component of physical destruction. Viewing such a loss as purely “economic
loss” and not personal or property damage loss is consistent with Indiana
law in other contexts as well. See, e.g., Choung v. Iemma, 708 N.E.2d 7,
13-14 (Ind. Ct. App. 1999) (concluding that plaintiff could not maintain a
negligence suit for failure to disclose that home had been relocated onto a
newly constructed foundation where damages were purely “economic,” i.e.,
“they did not arise from physical harm to [plaintiff] or [plaintiff’s]
personal property”).
This Court’s prior construction of the statute is consistent with the
vast majority of other jurisdictions, with federal products liability law,
and with the Restatement of the Law of Torts.
A strong majority of courts have taken the position that the key to
whether products liability law or commercial law principles should
govern depends on the nature of the loss suffered by the plaintiff.
If the plaintiff has suffered loss because the defective product
simply malfunctioned or self-destructed, the loss is deemed economic
loss within the purview of the Uniform Commercial Code.

Restatement (Third) of Torts § 21 cmt. d (1998) (reporter’s note)
(collecting cases). Similarly, in East River Steamship Corp. v.
Transamerica Delaval, Inc., 476 U.S. 858, 859 (1986), the United States
Supreme Court unanimously held under its admiralty jurisdiction that no
“cause of action in tort is stated when a defective product purchased in a
commercial transaction malfunctions, injuring only the product itself and
causing purely economic loss.” The Court also concluded that contract law
was better suited to resolve these disputes. 476 U.S. at 872-73. Finally,
section 21 of the Restatement of Torts (Third) limits recovery under
products liability law for economic loss, defining harm as: “harm to
persons or property[, including] economic loss if caused by harm to . . .
(c) the plaintiff’s property other than the defective product itself.”
This is a familiar distinction in other contexts. See, e.g., Indiana Ins.
Co. v. DeZutti, 408 N.E.2d 1275, 1278-79 (Ind. 1980) (construing a
contractor’s general liability on an insurance policy to cover only damage
caused by his defective work or product to property other than that work or
product).
We also note that the legislature did not provide for recovery for
injury to the product itself, even though it amended the Act after this
Court’s rulings in Reed and Rispens. As this Court has recently noted, the
legislature is not without recourse if it disagrees with a court’s
interpretation of a statute. See U-Haul Int’l v. Durham, 745 N.E.2d 755,
761 (Ind. 2001). Here, the legislature has not acted in the face of two
opinions from this Court concluding that the legislature did not intend
that damage to the product itself be recoverable under the Products
Liability Act. That silence is not insignificant.
Rejection of a tort claim for self-inflicted damage to a product is a
choice the legislature is plainly free to make. It is grounded in the
distinction between tort and contract law. It also involves a number of
different policy considerations. As a general matter, when the product
does not operate up to expectations and deprives its user of the benefit of
the bargain, commercial law sets forth a comprehensive scheme governing the
buyer’s and seller’s rights. The Supreme Court in East River elaborated on
several reasons to view the issue as essentially one of commercial law as
opposed to a tort. The Court reasoned, “The tort concern with safety is
reduced when an injury is only to the product itself.” East River, 476
U.S. at 871. In addition, limiting the disappointed consumer to a contract
action leaves parties free to determine the terms of their contract under
this regime. The consumer may bargain for a warranty, or choose to pay
less and forego a warranty. A tort recovery, in effect, creates recovery
as a matter of law for some defects, irrespective of any warranty
limitation. Presumably the cost of that additional exposure on the part of
the manufacturer will be built into its pricing over time.
The insurance companies urge that the damage suffered here was sudden
and is therefore covered by the Products Liability Act. In this respect,
they argue, the damage is distinct from that suffered in Rispens, where
this Court cited as one reason that damage to a watermelon crop was not
compensable under the Products Liability Act that it was not “sudden”
within the meaning of the statute. 621 N.E.2d at 1088-89. In support of
this argument, one insurer notes that when the legislature amended the
statute to include coverage for negligence actions it left the “sudden,
major” damage requirement intact. We agree with these observations, but do
not agree that the issue turns on whether “sudden, major” damage is
incurred. That may be the case in many product malfunctions, including
those involving no fire or other self-destructive result.[3] It may be a
necessary component of a products liability claim, but it is not itself
sufficient.
Some of the insurance companies raise subsidiary arguments in
addition to the basic policy considerations discussed above. Progressive,
attempting to distinguish between the vehicle and its component parts,
argues that, if defective wiring in the GMC Jimmy was the cause of the
fire, “other property” was destroyed under the meaning of the statute. We
think this issue has been properly resolved by the United States Supreme
Court. East River dealt with a failure of components of a turbine. The
turbine was properly regarded as one unit, and there was no damage to
“other” property within the meaning of the statute. 476 U.S. at 867-68.
The Court reasoned, “‘Since all but the very simplest of machines have
component parts, [a contrary] holding would require a finding of ‘property
damage’ in virtually every case where a product damages itself.’” Id.
(quoting Northern Power & Eng’g Corp. v. Caterpillar Tractor Co., 623 P.2d
324, 330 (Alaska 1981)). We also observe that it stretches ordinary usage
to describe each component as a separate “product” of the manufacturer who
often assembles parts from various sources to produce its “product.”
The insurance companies’ policy arguments for holding manufacturers
liable in tort law are more persuasive. The insurers first argue that to
fail to hold manufacturers liable encourages them to produce poor quality
products. It is true that one rationale for holding manufacturers liable
under the Products Liability Act is to put the burden of producing safe
products on the party in the best position to do so. We do not believe
this argument supports imposition of tort liability in the face of evidence
of legislative intent to the contrary. First, if safety is an issue and
injury to person or property results, the Act is triggered without the
reading the insurance companies seek. Second, if these defects remain
uncorrected, manufacturers are exposed to enormous liability under tort
law. The rule the plaintiff companies urge would amount to an expanded
warranty as a matter of law, but one the consumer will ultimately pay for
in the form of pricing increases to support the expanded warranty exposure.
We acknowledge that in some cases, including some in this appeal, the
absence of personal harm was a matter of luck in an event that could have
resulted in personal injury. In Sanco, 579 F. Supp. at 897, although
recognizing the rule against recovery of purely economic damages in
Indiana, the court suggested that our courts might allow a claim where “the
absence of personal injury is merely fortuitous, such as when an object
explodes but does not inflict personal injuries on anyone.” This is the
“intermediate rule” adopted in some states, which generally relegates harm
to the product itself to contract law, but allows a claim under products
liability law when the product presents a risk of harm to person or
property. See, e.g., Northern Power, 623 P.2d at 329. This intermediate
approach was rejected by the Supreme Court in East River. 476 U.S. at 870
(“The intermediate positions, which essentially turn on the degree of risk,
are too indeterminate to enable manufacturers easily to structure their
business behavior.”). Whatever support there may arguably be for the
interpretation of the statute as covering damages to the product itself,
there is no support in the statute for the contention that the intermediate
rule is the law in Indiana.[4] If such a position is to be adopted, that
is for the legislature to do and not this Court.
Finally, the insurance companies urge that it is unfair for them to
bear the burden of the cost of compensating consumers for products that are
defective. The insurers can rewrite their policy exclusions to deal with
this if they choose. Presumably competitive forces compel them to cover
these risks, but if some insurers seek to write the coverage out of their
policies, this is their choice. To the extent insurance regulators insist
on such coverage, the fairness of that position is not an issue for this
Court. As the Supreme Court pointed out in East River, one efficient way
for economic losses to be managed is through insurers because they have the
ability to adjust their rates to reflect their loss experience. 476 U.S.
at 871-72. The legislative policy to favor this means of addressing the
problem is entirely rational. If it is to be changed, the General Assembly
must make that determination.

Conclusion

We affirm the trial court’s grant of summary judgment in Progressive
Insurance Co. v. General Motors Corp. and Progressive Insurance Co. v. Ford
Motor Co., and reverse and remand to the trial court for entry of summary
judgment in the manufacturers’ favor in Ford Motor Co. v. Progressive
Insurance Co., General Motors Corp. v. United Farm Bureau Insurance, and
Ford Motor Co. v. Foremost Insurance Co.

SHEPARD, C.J., and SULLIVAN, J., concur.
RUCKER, J., concurs in result with separate opinion in which DICKSON,
J., concurs.

ATTORNEYS FOR FORD MOTOR ATTORNEYSFOR PROGRESSIVE
COMPANY: INSURANCE COMPANY:

JULIA BLACKWELL GELINAS MICHAEL E. SIMMONS

JEFFREY J. MORTIER MITCHELL M. POTE

KEVIN C. SCHIFERL Hume Smith Geddes Green &
Locke Reynolds LLP Simmons, LLP
Indianapolis, Indiana Indianapolis, Indiana

ATTORNEYS FOR GENERAL ATTORNEY FOR UNITED FARM
MOTORS CORPORATION BUREAU INSURANCE:

JULIA BLACKWELL GELINAS RONALD W. FRAZIER
JEFFREY J. MORTIER Frazier Law Office

Locke Reynolds LLP Indianapolis, Indiana

Indianapolis, Indiana
ATTORNEY FOR FOREMOST
INSURANCE COMPANY:

MARSHALL W. GRATE
Roberts, Betz, & Bloss, P.C.
Grand Rapids, Michigan

IN THE

SUPREME COURT OF INDIANA

PROGRESSIVE INSURANCE COMPANY, ) Indiana Supreme Court Cause
) No.: 56S03-0106-CV-266
Appellant, )
) Indiana Court of Appeals
v. ) Consolidated Cause No.:
) 56A03-9812-CV-534
GENERAL MOTORS CORPORATION, )
) Indiana Court of Appeals
Original
Appellee. ) Cause No.: 56A03-9812-CV-534

APPEAL FROM THE NEWTON SUPERIOR COURT
The Honorable Daniel J. Molter, Judge
Cause No.: 56D01-9712-CP-29
______________________________________
FORD MOTOR COMPANY, )
)
Appellant, )
) Indiana Court of Appeals
Original
v. ) Cause No.: 49A02-9905-CV-363
)
PROGRESSIVE INSURANCE COMPANY, )
)
Appellee. )

APPEAL FROM THE MARION SUPERIOR COURT
The Honorable David A. Jester, Judge
Cause No.: 49D01-9805-CP-744
______________________________________
GENERAL MOTORS CORPORATION, )
)
Appellant, )
) Indiana Court of Appeals
Original
v. ) Cause No.: 49A04-9908-CV-351
)
UNITED FARM BUREAU INSURANCE, )
as Subrogee of Cecil L. Marshall, and Cecil L. )
Marshall, Individually, )
)
Appellees. )

APPEAL FROM THE MARION SUPERIOR COURT
The Honorable John L. Price, Judge
Cause No.: 49D11-9808-CT-1130
______________________________________
FORD MOTOR COMPANY, )
)
Appellant, )
) Indiana Court of Appeals
Original
v. ) Cause No.: 20A03-9909-CV-372
)
FOREMOST INSURANCE COMPANY, )
)
Appellee. )

APPEAL FROM THE ELKHART CIRCUIT COURT
The Honorable Teresa L. Kline, Judge Pro Tempore
Cause No.: 20C01-9805-CP-122

______________________________________
PROGRESSIVE INSURANCE COMPANY, )
)
Appellant, )
) Indiana Court of Appeals
Original
v. ) Cause No.: 49A04-0001-CV-24
)
FORD MOTOR COMPANY, )
)
Appellee. )

APPEAL FROM THE MARION SUPERIOR COURT
The Honorable Cynthia J. Ayres, Judge
Cause No.: 49D04-9804-CP-594

ON PETITION TO TRANSFER

June 6, 2001

RUCKER, Justice, concurring in result

Because of the doctrine of stare decisis, I concur in the result
reached by the majority. Both Martin Rispens & Son v. Hall Farms, Inc., 621
N.E.2d 1078 (Ind. 1993), and Reed v. Central Soya Co., Inc., 621 N.E.2d
1069 (Ind. 1993), compel the outcome in this case.

DICKSON, J., concurs.
-----------------------
[1] Progressive Insurance Company, United Farm Bureau Insurance, and
Foremost Insurance Company.
[2] The Products Liability Act was enacted in 1978. As originally
enacted, the Products Liability Act covered claims in tort under the
theories of negligence and strict liability. Ind.Code § 33-1-1.5-1 (1983).
In 1983, it was amended to apply to strict liability actions only. Pub.
L. No. 297-1983, § 1, 1983 Ind. Acts 1815. In 1995, the legislature
reversed course and changed it back. Pub. L. No. 278-1995, § 1, 1995 Ind.
Acts 4051. It is now codified at Title 34, Article 20 of the Indiana Code.
For purposes of this opinion, we refer to the current statute.
[3] The insurers’ reliance on Ford Motor Co. v. Reed, 689 N.E.2d 751 (Ind.
Ct. App. 1997), is misplaced. In that case, the subrogated insurer of a
vehicle that burst into flames was one of the plaintiffs. However, the
parties in Reed did not raise, and the Court of Appeals did not address,
the question whether the subrogated insurer could recover for damage to the
vehicle itself.
[4] Progressive argues Indiana’s approach to tort recovery parallels that
of “intermediate states,” in particular Oregon. Progressive finds support
for this proposition in Reed and Rispens, noting that this Court has
outlined three factors to consider in determining whether, as a matter of
law, property damage qualifies as “sudden” and “major.” These factors are:
the nature of the defect alleged, the type of risk presented, and the
manner in which the injury arose. Reed, 621 N.E.2d at 1075-76; Rispens,
621 N.E.2d at 1088-89. These factors mirror those identified in East River
as appropriate in intermediate states to determine whether a products
liability action should be permitted even though the product injures only
itself. 476 U.S. at 869-70. These factors may bear on whether the damage
was sudden and major but, as noted above, this issue is distinct from
whether the statute contemplates a claim even if the harm was limited to
damage to the product itself.