FILIPINA JIMENEZ et al., Petitioners, v. THE SUPERIOR COURT OF SAN DIEGO COUNTY, Respondent; T.M. COBB COMPANY et al., Real Parties in Interest, 29 Cal. 4th 473

Opinion KENNARD, J. In California, a manufacturer, distributor, or retailer of a defective product is strictly liable in tort for any resulting harm to a person or to property other than the product itself. This case presents two issues:

(1) Can a manufacturer of windows installed in a mass-produced home during its construction ever be strictly liable in tort for harm resulting from defects in those windows?

(2) If so, is that manufacturer strictly liable in tort for resulting physical damage to other parts of the house in which the windows have been installed? We answer “yes” to both questions. I. Facts and Proceedings In 1988, developer McMillin Scripps II completed the Galleria and Renaissance housing developments in the Scripps Ranch area of San Diego. Viking Industries, Inc. (Viking) manufactured the windows in the Galleria development; T.M. Cobb Company (Cobb) manufactured the windows in the Renaissance development.

Plaintiffs Filipina and Nestor Jimenez, owners of one of the Galleria homes, brought this action against window manufacturers Viking and Cobb, and also against two companies (Medallion Industries, Inc., and Minnoch Supply Co.) that had supplied and installed the windows. On behalf of themselves and all homeowners in the Galleria and Renaissance developments, plaintiffs asserted that defendants had “designed, developed, manufactured, produced, supplied and placed into the stream of commerce” defective windows installed in the Galleria and Renaissance homes, and that the defects caused property damage.

They alleged strict liability and negligence causes of action. Window manufacturer Cobb moved for

summary adjudication of the strict liability cause of action. Cobb argued that the manufacturer of a product installed in a mass-produced home, unless it has ownership or control over the housing development, cannot be held strictly liable to a homeowner for a defective or dangerous condition in the home.

In response, plaintiffs conceded that Cobb did not own or control the Renaissance housing development, but they argued that manufacturers of component parts of mass-produced houses are strictly liable for damages caused by those component parts, including damage to other parts of the houses in which they are installed. Plaintiffs asserted that the allegedly defective windows installed in their home had damaged the “stucco, insulation, framing, drywall, paint, wall coverings, floor coverings, baseboards, and other parts of the home.” The trial court granted window manufacturer Cobb’s motion for

summary adjudication. The parties later stipulated, and the trial court ordered, that the ruling also applied to window manufacturer Viking. Plaintiffs petitioned the Court of Appeal for a writ of mandate. The Court of Appeal issued a writ directing the trial court to vacate its order granting the defense motion for

summary adjudication. It held that the doctrine of strict products liability applied to manufacturers of defective component parts installed in mass-produced homes, and that this strict liability extended to injuries to other parts of the house in which the defective component was installed. We granted the petitions for review of defendant window manufacturers Cobb and Viking. II. Relevant Case Law Nearly 60 years ago, in a concurring opinion in Escola v.

Coca Cola Bottling Co. (1944) 24 Cal.2d 453 [150 P.2d 436], then Justice Roger Traynor expressed his view that a manufacturer should be liable in tort for placing on the market a defective product that causes personal injury. (Id. at p. 461 (cone. opn. of Traynor, J.).) Such liability, Justice Traynor reasoned, was justified because of a consumer’s inability to prove that a defect was caused by a flaw in the manufacturing process, because the manufacturer is best able to reduce the risks of injury caused by product defects, and because a manufacturer can equitably distribute the loss broadly among the buying public as a cost of doing business. (Id. at pp. 462-463.) Two decades later, in Greenman v.

Yuba Power Products, Inc. (1963) 59 Cal.2d 57 [27 Cal.Rptr. 697, 377 P.2d 897, 13 A.L.R.3d 1049] (Greenman), this court embraced Justice Traynor’s view, and California became the first state to allow recovery for strict products liability. We held: “A manufacturer is strictly liable in tort when an

article he places on the market, knowing that it is to be used without inspection for defects, proves to have a defect that causes injury to a human being.” (Id. at p. 62.) We explained that such liability was necessary to protect injured consumers “who are powerless to protect themselves” because the law of contractual warranties developed for commercial transactions offered no protection to those harmed by defective products. (Id. at p. 63.) The next year, in Vandermark v. Ford Motor Co. (1964) 61 Cal.2d 256 [37 Cal.Rptr. 896, 391 P.2d 168] (Vandermark), we extended strict products liability to retailers.

We said: “Retailers like manufacturers are engaged in the business of distributing goods to the public. They are an integral part of the overall producing and marketing enterprise that should bear the cost of injuries resulting from defective products.” (Id. at p. 262.) We reasoned: “In some cases the retailer may be the only member of that enterprise reasonably available to the injured plaintiff. In other cases the retailer himself may play a substantial

part in insuring that the product is safe or may be in a position to exert pressure on the manufacturer to that end; the retailer’s strict liability thus serves as an added incentive to safety. Strict liability on the manufacturer and retailer alike affords maximum protection to the injured plaintiff and works no injustice to the defendants, for they can adjust the costs of such protection between them in the course of their continuing business relationship.” (Id. at pp. 262-263.) Thereafter, distributors and suppliers were also held strictly liable in tort for injuries caused by defective products. (Cronin v.

J.B.E. Olson Corp. (1972) 8 Cal.3d 121, 130 [104 Cal.Rptr. 433, 501 P.2d 1153]; Barth v. B.F. Goodrich Tire Co. (1968) 265 Cal.App.2d 228, 252-253 [71 Cal.Rptr. 306].) In 1969, the Court of Appeal in Kriegler v. Eichler Homes, Inc. (1969) 269 Cal.App.2d 224 [74 Cal.Rptr. 749] applied strict products liability to mass-produced homes. There, the plaintiff homeowner successfully sued the developer of mass-produced homes in strict liability for damages caused by the failure of a radiant heating system in the home. The Court of Appeal affirmed the judgment.

It pointed out that a developer of defective mass-produced homes, like a manufacturer, retailer, or supplier of another product, is responsible for dangerous conditions in its own products and is in a better economic position to bear the resulting loss than the consumer, who justifiably relied on the developer’s expertise in constructing mass-produced homes. (Id. at p. 228.) The Kriegler court explained: “We think, in terms of today’s society, there are no meaningful distinctions between Eichler’s mass production and sale of homes and the mass production and sale of automobiles and that the pertinent overriding policy considerations are the same.” (Id. at p. 227.) Thereafter, the Court of Appeal in La Jolla Village Homeowners ’ Assn. v.

Superior Court (1989) 212 Cal.App.3d 1131 [261 Cal.Rptr. 146] (La Jolla Village) held that a subcontractor hired by a developer cannot be strictly liable for defects in mass-produced homes, unless it also owns or controls the housing development.

Although earlier decisions had concluded that strict products liability did not apply to ordinary subcontractors because they provided services rather than products, the La Jolla Village court suggested a broader subcontractor exception, under which strict products liability did not apply to “subcontractors in the typical real estate construction project regardless of whether they provided ‘services ’ or a ‘product. ’ ” (Id. at p. 1146, italics added.) Courts in later cases have disagreed on the soundness of this expansion. (Compare Monte Vista Development Corp. v.

Superior Court (1991) 226 Cal.App.3d 1681, 1686 [277 Cal.Rptr. 608] [treating statement as nonbinding dictum] with Casey v. Overhead Door Corp. (1999) 74 Cal.App.4th 112, 119-120 [87 Cal.Rptr.2d 603] [treating statement as controlling].) The Court of Appeal in this case was the same Court of Appeal (that is, the same division of the same appellate district) that decided La Jolla Village, supra, 212 Cal.App.3d 1131.

Interestingly, the Court of Appeal in this case criticized its own earlier statement in La Jolla Village that even subcontractors who provide products generally cannot be strictly liable in tort for defects in mass-produced houses. The court characterized its earlier statement as “overstated” and “dictum” and this time concluded that subcontractors providing products may be strictly liable for defects in mass-produced homes. The court retained the limitation, consistent with established law, that persons providing only services are not subject to strict products liability. (See Murphy v. E.R.

Squibb & Sons, Inc. (1985) 40 Cal.3d 672, 677 [221 Cal.Rptr. 447, 710 P.2d 247] [strict products liability law does not apply to services]; Gagne v. Bertran (1954) 43 Cal.2d 481, 487 [275 P.2d 15] [those who sell services not liable in absence of negligence or intentional misconduct]; Pierson v. Sharp Memorial Hospital, Inc. (1989) 216 Cal.App.3d 340, 345 [264 Cal.Rptr. 673] [law of negligence, not strict liability, governs services]; Rest.3d Torts, Products Liability, § 19, subd. (b) [“Services, even when provided commercially, are not products”].) III.

Strict Products Liability of Component Manufacturers Citing La Jolla Village, supra, 212 Cal.App.3d 1131, defendant window manufacturers contend that because they merely supplied component parts (the windows) of mass-produced homes, not the completed homes themselves, they should not be subject to strict products liability. They argue that extending strict products liability to component manufacturers would not serve the purposes of strict products liability. We disagree.

The policies underlying strict products liability in tort, restated in our decision in Vandermark, supra, 61 Cal.2d 256, are equally applicable to component manufacturers and suppliers.

Like manufacturers, suppliers, and retailers of complete products, component manufacturers and suppliers are “an integral part of the overall producing and marketing enterprise,” may in a particular case “be the only member of that enterprise reasonably available to the injured plaintiff,” and may be in the best position to ensure product safety. (Id. at p. 262.) And component manufacturers and suppliers, like manufacturers, suppliers, and retailers of complete products, can adjust the costs of liability in the course of their continuing business relationship with other participants in the overall manufacture and marketing enterprise. (Id. at pp. 262-263.) For purposes of strict products liability, there are “no meaningful distinctions” between, on the one hand, component manufacturers and suppliers and, on the other hand, manufacturers and distributors of complete products; for both groups, the “overriding policy considerations are the same.” (Kriegler v.

Eichler Homes, Inc., supra, 269 Cal.App.2d at p. 227.) Defendant window manufacturers here argue that subjecting them to strict liability would be improper because they had no physical control over the windows at the time of the alleged harm. In support, they cite Preston v. Goldman (1986) 42 Cal.3d 108 [227 Cal.Rptr. 817, 720 P.2d 476]. But that case is distinguishable.

At issue there was the negligence liability of a former landowner for a dangerous property condition that caused injury after the land was sold. (Id. at p. 110.) It did not involve strict liability for defects in mass-produced homes (id. at p. 117), which is at issue here. In any event, we have never held or implied that strict products liability applies only to those injuries that defective products cause while still under the manufacturer’s ownership or control. Rarely, if ever, are defective products still in the control of a manufacturer, distributor, or retailer at the time of injury to the consumer.

What matters is whether the windows were defective when they left the factory, and whether these alleged defects caused the injuries. (See Wiler v. Firestone Tire & Rubber Co. (1979) 95 Cal.App.3d 621, 629 [157 Cal.Rptr. 248]; Rest.3d Torts, Products Liability, § 5; id., § 19, com. b, p. 268.) Insisting that they should not be held strictly liable, defendant window manufacturers point out that their windows are shipped in parts, assembled by others, and installed by others. They rely on language in subdivision (l)(

b) of

section 402A of the Restatement Second of Torts. That subdivision says that the seller of a defective product “is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if [f] . . . [ID (

b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.” (Italics added.) The mere assembly of a product that is sold in parts is not a “substantial change” in the product within the meaning of the Restatement. The issue is not whether the product was sold fully assembled or in parts, but rather whether the defect that resulted in the alleged damage existed when the windows left the manufacturers’ control. To the extent defendants argue that any defect in their windows resulted from improper assembly or installation, their argument is not properly before us here. A motion for

summary adjudication may be granted only if there is no triable issue of material fact. (Code Civ. Proc., § 437c, subd. (d)(1).) Defendants’ motion for

summary adjudication did not rely on a claim of improper assembly or installation. Defendant window manufacturers argue that to subject them to strict liability would nullify the California Legislature’s intent when it enacted Code of Civil Procedure

section 337.15. This statute requires that an action for damages based on latent deficiencies against any person “who develops real property or performs or furnishes the design, specifications, surveying, planning, supervision, testing, or observation of construction” be brought within 10 years after substantial completion of the development. (Ibid.) Defendants acknowledge that, as they are not developers, do not furnish designs or specifications, and do not supervise construction, the statute does not apply to them.

Nevertheless, they assert that if they (or other component manufacturers in other lawsuits) are ultimately held strictly liable for defects in component parts of mass-produced homes, they might then seek equitable indemnity from developers or designers of the homes, thereby subjecting those developers or designers to liability for defects in their homes in suits brought after expiration of the 10-year statutory limitation period. We do not consider this argument because defendants did not raise it in the trial court, in the Court of Appeal, or in their petitions for review by this court.

Finally, defendant window manufacturers contend that applying strict liability to them would “open the litigation floodgates.” They predict a massive increase in litigation as manufacturers and distributors of component products used in the mass production of homes bring actions and cross actions against each other for indemnity and other claims. We are not convinced. The same dire predictions were made in response to the original development of strict products liability.

As we have explained, the policy reasons favoring strict products liability for component manufacturers are the same as for other participants in the general enterprise of manufacturing and marketing consumer goods, and these interests, including the incentives for improved product safety, outweigh the burden imposed by increased litigation. Accordingly, we hold that the manufacturers of component parts, here windows, that are installed in mass-produced homes can be subject to strict products liability in tort when their defective products cause harm.

We now consider defendants’ contention that the particular injuries for which plaintiffs here seek recovery are barred by the economic loss rule. IV. The Economic Loss Rule Two years after our 1963 decision in Greenman, supra, 59 Cal.2d 57, which held that manufacturers are strictly liable in tort for injuries that their defective products cause to consumers, we decided Seely v. White Motor Co. (1965) 63 Cal.2d 9 [45 Cal.Rptr. 17, 403 P.2d 145] (Seely).

In that case, the plaintiff purchased a truck for use in his business, but he discovered that the truck bounced violently, preventing normal use of the truck for his business. Eventually the truck overturned when its brakes failed.

The plaintiff then sued the truck manufacturer to recover the cost of repairing the damage to the truck caused by the accident, the amount he had paid on the purchase price, and business profits he lost because of the truck’s bouncing problem. (Id. at pp. 12-13.) The action was tried to the court, which found that the bouncing problem was a defect in the truck for which the manufacturer was responsible under its written warranty, but that this problem had not caused the accident in which the truck overturned. (Id. at p. 13.) The court awarded the plaintiff damages for breach of warranty, consisting of the amount paid on the purchase price of the truck and lost business profits attributable to the bouncing problem. (Ibid.) The truck manufacturer appealed, and we affirmed the judgment.

We rejected a contention that strict products liability had entirely superseded the law governing product warranties. We explained: “The distinction that the law has drawn between tort recovery for physical injuries and warranty recovery for economic loss is not arbitrary and does not rest on the ‘luck’ of one plaintiff in having an accident causing physical injury.

The distinction rests, rather, on an understanding of the nature of the responsibility a manufacturer must undertake in distributing his products.” (Seely, supra, 63 Cal.2d at p. 18.) We concluded that the nature of this responsibility meant that a manufacturer could appropriately be held liable for physical injuries (including both personal injury and damage to property other than the product itself), regardless of the terms of any warranty. (Id. at pp. 18-19.) But the manufacturer could not be held liable for “the level of performance of his products in the consumer’s business unless he agrees that the product was designed to meet the consumer’s demands.” (Id. at p. 18.) This reasoning ultimately outlined the framework of our economic loss rule, which the United States Supreme Court later adopted in large part for purposes of tort liability under admiralty jurisdiction. (See East River S.S.

Corp. v. Transamerica Delaval (1986) 476 U.S. 858, 871 [106 S.Ct. 2295, 2302, 90 L.Ed.2d 865].) As we stressed in Seely, recovery under the doctrine of strict liability is limited solely to “physical harm to person or property.” (Seely, supra, 63 Cal.2d at p. 18.) Damages available under strict products liability do not include economic loss, which includes “ ‘ “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 damages to other property . . . (Sacramento Regional Transit Dist. v.

Grumman Flxible (1984) 158 Cal.App.3d 289, 294 [204 Cal.Rptr. 736].) Most recently, in Aas v. Superior Court (2000) 24 Cal.4th 627, 632 [101 Cal.Rptr.2d 718, 12 P.3d 1125], we applied the economic loss rule in a negligence action by homeowners against the developer, contractor, and subcontractors who built their dwellings. In Aas, the plaintiffs alleged that their homes suffered from many construction defects, but they conceded that many of the defects had caused no bodily injury or property damage.

The trial court barred them from introducing evidence of the defects that had caused no injury to persons or property. We upheld the trial court’s ruling. We explained that under the economic loss rule, “appreciable, nonspeculative, present injury is an essential element of a tort cause of action.” (Id. at p. 646.) “Construction defects that have not ripened into property damage, or at least into involuntary out-of-pocket losses,” we held, “do not comfortably fit the definition of ‘ “appreciable harm” ’—an essential element of a negligence claim.” (Ibid.) In

summary, the economic loss rule allows a plaintiff to recover in strict products liability in tort when a product defect causes damage to “other property,” that is, property other than the product itself. The law of contractual warranty governs damage to the product itself. (E.g., Aas v. Superior Court, supra, 24 Cal.4th at p. 639; Seely, supra, 63 Cal.2d at pp. 17-19; Zamora v. Shell Oil Co. (1997) 55 Cal.App.4th 204, 208-211 [63 Cal.Rptr.2d 762]; San Francisco Unified School Dist. v. W.R. Grace & Co. (1995) 37 Cal.App.4th 1318, 1327-1330 [44 Cal.Rptr.2d 305]; Sacramento Regional Transit Dist. v.

Grumman Flxible, supra, 158 Cal.App.3d at pp. 293-298.) To apply the economic loss rule, we must first determine what the product at issue is. Only then do we find out whether the injury is to the product itself (for which recovery is barred by the economic loss rule) or to property other than the defective product (for which plaintiffs may recover in tort).

Defendant window manufacturers argue that here the “product” is the entire house in which their windows were installed, and that the damage caused to other parts of the house by the allegedly defective windows is damage to the product itself within the economic loss rule, thus precluding application of strict liability. We disagree. California decisional law has long recognized that the economic loss rule does not necessarily bar recovery in tort for damage that a defective product (e.g., a window) causes to other portions of a larger product (e.g., a house) into which the former has been incorporated. In Aas v.

Superior Court, supra, 24 Cal.4th at page 641, we observed that “the concept of recoverable physical injury or property damage” had over time “expanded to include damage to one part of a product caused by another, defective part.” The list of examples we gave (ibid.) included Stearman v. Centex Homes (2000) 78 Cal.App.4th 611 [92 Cal.Rptr.2d 761], in which the Court of Appeal affirmed a judgment making a builder strictly liable in tort for damages that a defective foundation caused to the interior and exterior of a home. Aas also cited with approval the part of Casey v.

Overhead Door Corp., supra, 74 Cal.App.4th 112, in which the Court of Appeal affirmed a nonsuit for the defendant on a tort claim for defective windows only because the plaintiffs had failed to prove that the windows damaged other property. The nonsuit would not have been proper, the Court of Appeal explained, had the plaintiffs been able to support their assertion that the windows had “caused damage to the drywall and framing and resulted in insect infestation and damage to personal property.” (Id. at p. 123; see Aas v.

Superior Court, supra, 24 Cal.4th at p. 641.) Defendants’ argument here that the house is the relevant product for purposes of applying the economic loss rule is inconsistent with these and other decisions recognizing that the duty of a product manufacturer to prevent property damage does not necessarily end when the product is incorporated into a larger product.

Applying this principle to the facts before us here, we conclude that the manufacturer of a defective window installed in a mass-produced home may be held strictly liable in tort for damage that the window’s defect causes to other parts of the home in which it is installed. We have no occasion here to consider whether defective raw materials should be treated in the same manner as component parts or whether there may be situations in which the economic loss rule would bar recovery for damages that a defective component

part causes to other portions of the finished product of which it is a part. We hold only that, under California decisional law, the economic loss rule does not bar a homeowner’s recovery in tort for damage that a defective window causes to other parts of the home in which it has been installed. V. Propriety of Order Granting

Summary Adjudication We now consider whether the trial court acted properly in granting the defense motion for

summary adjudication. The court relied on La Jolla Village, supra, 212 Cal.App.3d 1131, and on Casey v. Overhead Door Corp., supra, 74 Cal.App.4th 112, both of which we have disapproved insofar as they hold or suggest that a manufacturer of components installed in a mass-produced home can never be strictly liable in tort for physical injuries caused by defects in those components. (See ante, fn. 1.) A motion for

summary adjudication may be granted only if the moving party shows that a cause of action has no merit, that is, that there is no triable issue of material fact as to the challenged cause of action. (Code Civ. Proc., § 437c, subds. (f)(1), (o)(l).) Here, the record does not demonstrate as a matter of law that defendant window manufacturers may not be held strictly liable in tort for the alleged damages to parts of the homes other than the windows themselves.

Conclusion and Disposition This court assumed a leading role in holding manufacturers, distributors, and retailers of defective products strictly liable for physical injuries resulting from the defects. We imposed this strict liability to assure just compensation to innocent victims, to give all those in the distributive chain an incentive to improve product safety and performance, and to promote equitable spreading and apportionment of the losses resulting from physical injuries as a cost of doing business.

These policy considerations support the conclusions we reach here: to impose strict liability on the manufacturers of windows installed in mass-produced homes for physical injuries caused by defects in those windows, and to include within the scope of this strict liability damage to other parts of the houses in which these defective windows are installed. The judgment of the Court of Appeal is affirmed. George, C. J., Baxter, J., Werdegar, J., Chin, J., and Moreno, J., concurred. La Jolla Village Homeowners’ Assn. v. Superior Court, supra, 212 Cal.App.3d 1131, and Casey v.

Overhead Door Corp., supra, 74 Cal.App.4th 112, are disapproved to the extent they are inconsistent with the views expressed here. In the wake of our decision in Aas v. Superior Court, supra, 24 Cal.4th 627, the Legislature established a limited new cause of action for certain specified housing defects. (Stats. 2002, ch. 722, § 3 [enacting new Civ. Code, § 895 et seq., eff. Jan. 1, 2003].)