An aviation company challenged the application of a statutory immunity provision to its claim of a breach of the implied warranty of merchantability. Cedar Valley Aviation, a subsidiary of Aerial Services, Inc. (hereafter “ASI”), brought a Piper plane to Des Moines Flying Service, Inc. (hereafter “DMFS”) for maintenance. After inspection, DFMS replaced the plane’s windshields. The new windshields installed by DMFS were part specified by the manufacturer, Piper, and manufactured by PPG Industries, Inc. DFMS is an authorized dealer for Piper parts, and DFMS purchased the windshields from Piper. Piper provided a limited six-month warranty for the windshields. The invoice from DFMS to ASI for the costs of parts and labor contained no warranties or disclaimers. Approximately ten months after DMFS installed the windshields, the plane’s windshield cracked during a flight, without impact from another object. No person or property, other than the windshield, was harmed by the crack in the windshield. Only economic losses resulted.
Among other claims, ASI sued DMFS for breach of implied warranty of merchantability. The district court granted summary judgment in favor of DMFS because ASI failed to set forth facts under which the crack arose from anything other than a product defect and barred the claim under Iowa Code section 613.18. Section 613.18 provides immunity to non-manufacturers in products liability cases. ASI appealed and the Iowa Court of Appeals held the claim was barred under section 613.18 immunity because the statute did not contain limiting language excepting suits claiming economic loss based on contract law from its coverage.
On appeal, the Supreme Court analyzed whether the immunity provided in 613.18 extended to all retailer breaches of implied warranty of merchantability due to product defect, or if the legislature intended the immunity to be limited to cases resulting in property damage or personal injury. The Court examined the economic loss doctrine, relating to the recoverability of losses when no injuries are incurred or property is damaged or destroyed. Under the economic loss doctrine, a plaintiff who has suffered only economic loss has not been injured in a manner which is legally cognizable or compensable under theories of negligence or strict liability. Rather, the parties to a contract are assumed to have allocated the risk of economic loss as part of the contract, and therefore, the document should control the parties’ rights and duties. The Court recognized tort theory is available when the harm results from a sudden or dangerous occurrence, resulting from a genuine hazard in the nature of the product defect. Thus, “if the damage resulted from a failure of the product to work properly, the claim would sound in contract, but if it resulted from a genuine hazard resulting in a sudden or dangerous occurrence based on the nature of the product defect, the claim would sound in tort.” Ultimately, the Court held:
A products liability case must exist—requiring that personal injury or property damage occur due to a manufacturing or design defect—to trigger the immunity provision of section 613.18(1)(a)…In economic loss cases, the immediate seller is liable for breach of implied warranty, subject to any warranty exclusions, modifications, or disclaimers found in the sales contract.