The Kinds of Damages Recoverable in a Property-Damage Action Stemming from Allegedly Defective Doors and Windows Explained in Some Depth—Economic Loss Rule Re: Strict Products Liability and Negligence—Consequential and Special Damages Re: Contract—When an Issue Can Be Raised for the First Time on Appeal Explained

In an action stemming from allegedly defective windows and doors which allowed the intrusion of water, the Second Department sorted out the interplay between tort claims and contract claims and the types of damages recoverable under each legal theory.  Among the issues discussed in some depth: the economic loss rule re: strict products liability and negligence; and consequential and special damages re: contract.  The court noted that the “economic loss rule” issue was raised for the first time on appeal and then explained why it still could consider the argument:

…[W]e note that the appellant did not raise before the Supreme Court its contention that the causes of action to recover damages for negligence and based on strict products liability insofar as asserted against it are barred by the economic loss rule. Nevertheless, this is a purely legal argument that appears on the face of the record and could not have been avoided had it been brought to the attention of the Supreme Court. Thus, the issue may be considered by this Court even though it is being raised for the first time on appeal… .

“The economic loss rule provides that tort recovery in strict products liability and negligence against a manufacturer is not available to a downstream purchaser where the claimed losses flow from damage to the property that is the subject of the contract and personal injury is not alleged or at issue” … . The rule is applicable to economic losses to the product itself as well as consequential damages resulting from the defect … . Therefore, when a plaintiff seeks to recover damages for purely economic loss related to the failure or malfunction of a product, such as the cost of replacing or retrofitting the product, or for damage to the product itself, the plaintiff may not seek recovery in tort against the manufacturer or the distributor of the product, but is limited to a recovery sounding in breach of contract or breach of warranty … .

Here, the plaintiff alleges, inter alia, that it sustained economic losses generated by the repair and replacement of the glass doors and windows of a building due to the failure of such doors and windows to properly prevent water intrusion. The fabrication and/or installation of those doors and windows were the subject of its agreement with the appellant. To the extent that the plaintiff seeks to recover losses generated by the repair and replacement of these doors and windows pursuant to causes of action sounding in negligence or strict products liability, such causes of action are prohibited by the economic loss rule. …

However, the plaintiff also claims that the intrusion of water caused by the defective windows and doors resulted in injury to other structural elements of the building, such as flooring and walls. These losses constitute damage to “other property” that was not the subject of the parties’ agreement and, accordingly, support a valid tort cause of action … . We note that, while the other structural elements of the building may have been damaged as a consequence of the infiltration of water through allegedly defective windows and doors, such losses do not constitute “consequential damages,” also known as “special damages,” as that term is used in contract law. Consequential or special damages usually refer to loss of expected profits or economic opportunity caused by a breach of contract … . ). Although the plaintiff may not recover such traditional consequential contract damages pursuant to a tort cause of action, the complaint does state causes of action against the appellant to recover damages for negligence and based on strict products liability to the extent that those causes of action seek to recover damages for injury to structural elements of the building other than the allegedly defective windows and doors themselves, which were the subject of the parties’ contract… . 126 Newton St LLC v Allbrand Commercial Windows and Doors Inc, 2014 NY Slip Op 06563, 2nd Dept 10-1-14