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Dean v. Barrett Homes, Inc.

204 N.J. 286, 8 A.3d 766 (2010)

PRODUCTS LIABILITY; DAMAGES; ECONOMIC LOSS RULE — Although the economic loss rule prevents a party from recovering tort damages when the damages are essentially a contract claim (because the claiming party has other contract remedies available), defective stucco merely attached to a house is not an integral part of the house and therefore the homeowner can sue for damages that the defective stucco may have caused to the rest of the house. relating to the removal and replacement of the stucco.

Buyers purchased a house that had been finished with synthetic stucco. When they purchased it, they were advised by their home inspector about potential problems with synthetic stucco. One of the issues with synthetic stucco is that any moisture that had penetrated the stucco may not drain properly and this could cause the underlying wood to rot or develop mold. Nonetheless, the purchasers proceeded with the purchase. A year later, they noticed black lines on the exterior of the house and discovered that, due to moisture penetrating the stucco, they had toxic mold. The buyers removed the old stucco and replaced it. Then, they sued the manufacturer of the stucco, among other parties. Their suit alleged strict products liability. The lower court granted the manufacturer’s motion to dismiss, finding that, under the Products Liability Act, the buyers were precluded from suing for pure economic losses. It found that the buyers did not sustain any injuries related to the defective stucco and therefore held there was no basis for recovery.
The buyers appealed, and the Appellate Division affirmed. The Appellate Division concluded that the “economic loss” rule prevented the buyers from recovering damages because their damage claim was to replace the stucco itself. The Appellate Division also found that under the “integrated products” doctrine, the stucco was integrated into the house and the buyers were therefore not entitled to damages caused by the stucco to other parts of the house.

In doing so, the Appellate Division noted that, under the Products Liability Act, damages are limited to physical damage to property other than to the product itself. The “economic loss rule” prevents a party for recovering tort damages when the damage is essentially a contract claim because, in a contract claim, the buyer has other contract remedies available. For example, if the essence of a claim is that there is something wrong with the product, then the buyer has contract remedies under the Uniform Commercial Code. The Appellate Division also noted that, in prior cases involving defective stucco, the Appellate Division, in applying the “integrated products” doctrine, concluded that a house is a product that “cannot be subdivided into its component parts to support a Products Liability claim.” The Appellate Division had previously found that the stucco could not be separated from the rest of the house. Therefore, for products liability purposes, according to the Appellate Division one cannot sue for mold damage to the rest of the house caused by defective stucco.

The buyers appealed, and the Supreme Court reversed. The Court differentiated between the stucco and the rest of the house. It characterized the stucco as a product that was merely attached to the house, but not an integral part of the house. The Court therefore found that although the buyers could not sue for damages relating to the removal and replacement of the stucco, they could sue for the damages the defective stucco caused to the rest of the house.

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