SCOVT applies economic loss rule to bar product liability claims, holding no "special relationship" existed between user and supplier and that alleged misrepresentations by supplier did not justify exception to the rule.

PeakCM, LLC v. Mountainview Metal Systems, LLC , 2025 VT 50 [8/22/2025] (part two of two)

EATON, J.  In 2019, multiple siding panels fell off a newly constructed hotel in St. Albans, Vermont.  Plaintiff, PeakCM, LLC, the general contractor responsible for the hotel’s construction, sued the siding-panel installer, Mountainview Metal Systems, LLC.  Plaintiff amended its complaint to add a product-liability claim against the siding-panel manufacturer, ATAS International, Inc.  Plaintiff appeals from the trial court’s decision to grant ATAS summary judgment.   Plaintiff argues that the trial court erred in granting summary judgment to ATAS on plaintiff’s product-liability claim because both the “other-property” and “special-relationship” exceptions to the economic-loss rule apply.  Plaintiff also argues that the court improperly granted summary judgment to ATAS on Mountainview’s implied-indemnity claim.   We affirm

Product-Liability Claim and the Economic-Loss Rule..

 

The trial court granted ATAS’s motion for summary judgment on plaintiff’s product-liability claim because it concluded that the economic-loss rule barred the  claim.  Plaintiff argues that the trial court erred in granting summary judgment to ATAS because both the “other-property” and “special-relationship” exceptions to the economic-loss rule apply. 

 

Plaintiff does not contest that the economic-loss rule applies generally.  The economic-loss rule generally “prohibits recovery in tort for purely economic losses.”  Veljovic v. TD Bank, N.A., 2025 VT 38, ¶ 11 The economic-loss rule functions to separate claims that should be brought under contract law from those that should be brought under tort law. “Economic loss is defined as ‘damages other than physical harm to persons or property.’ ”  Id. ¶ 10   In the construction context, “the remedy for purely economic losses resulting from the reduced value or costs of repairs of . . . construction defects  sound [s] in contract rather than tort” law.  LongTrail House Condo. Ass’n, 2012 VT 80, ¶ 11  

 

This Court recognizes two exceptions to the economic-loss rule: the “other property” exception and the “special-relationship” exception.  See Walsh v. Cluba, 2015 VT 2, ¶ 28, 198 Vt. 453, 117 A.3d 789 (recognizing other-property exception); Veljovic, 2025 VT 38, ¶ 12 (describing special-relationship exception) Plaintiff argues that one or both of the exceptions to the rule allow plaintiff to bring its product-liability claim against ATAS.  We disagree. Plaintiff failed to demonstrate that either exception to the economic-loss rule applies here; accordingly, the economic-loss rule bars plaintiff’s product liability claim.  Thus, the trial court appropriately granted ATAS’s motion for summary judgment. 

 

 

 Under the other-property exception, the economic-loss rule does not apply if there has been some “accompanying physical harm” beyond purely economic loss.  Walsh , 2015 VT 2, ¶ 28 “The physical harm may be to property rather than persons, but injury to the product or property that is the subject of a contract is generally considered a disappointed economic expectation for which relief lies in contract rather than tort law.”  Id.  In the trial court, plaintiff argued that the other-property exception to the economic loss rule applied because the hotel was damaged in addition to the splice plates, and plaintiff was required to pay for the damage.  On appeal, rather than relying on damage to the hotel as it did in the trial court, plaintiff now argues for the first time that the other-property exception applies because there was minimal damage to “abutting properties”— namely, the neighboring building’s roof. This argument was not preserved, and we decline to consider it. 

 

 Under the special-relationship exception to the economic-loss rule a plaintiff asserting a negligence claim may be able to recover for purely economic losses where there is a special relationship between the plaintiff and the defendant.  The exception  typically involves  the defendant has assumed the responsibility not to violate a professional duty owed to the plaintiff.”  Facts other than a professional relationship  may support the establishment of a special relationship  Veljovic, 2025 VT 38, ¶ 14; Sutton v. Vt. Reg’l Ctr., 2019 VT 71A, ¶ 33, 212 Vt. 612, 238 A.3d 608).   Sutton is the sole case where this Court has held that a special relationship existed sufficient for the exception to apply.  In this case, unlike in Sutton, there is no evidence that plaintiff and ATAS had a “close relationship” where “exceptional oversight and management” was promised or performed.  Id. ¶ 33.  ATAS neither “personally solicited” the work, nor did it enter into an ongoing “individualized relationship[]” with plaintiff See  EBWS,LLC v. Britly Corp, 2007 VT 37, ¶ 32 (holding no special relationship existed even when defendant designed and built creamery for plaintiff because plaintiff “did not rely on the defendant to provide it with a professional service, and, consequently paid for the services of a contractor not a professional architect”); see also Restatement (Third) of Torts: Liab. for Econ. Harm § 4 (2020) (describing special-relationship exception justified by heightened standard of care and describing construction contractors and tradesmen as nonprofessionals).   

 

We are unpersuaded by plaintiff’s argument that the relationship between itself and ATAS rose to the level of a special relationship for the purpose of this exception The purchase of the panels by plaintiff’s subcontractor, plaintiff’s brief in-person encounter and emails with ATAS representatives, and plaintiff’s reliance on web-based information produced by ATAS, did not create a special relationship between plaintiff and ATAS sufficient for the purpose of this exception to the economic-loss rule. 

 

 Plaintiff finally argues that ATAS owed plaintiff a duty to provide accurate information that plaintiff was intended to rely on, and that this intended reliance is sufficient to support the existence of a special relationship.  See Limoge v.People’s Tr. Co., 168 Vt. 265, 268-69, 719 A.2d 888, 890 (1998) (outlining requirements for negligent-misrepresentation[1]claim). 

Essentially, plaintiff attempts to use the duty outlined in negligent-misrepresentation claims to establish a special relationship between ATAS and plaintiff.  This interpretation would drastically expand the special-relationship exception to the point of swallowing the economic-loss rule.  It ignores the typical determining factor that there be a professional service provided in the relevant interaction between the parties—with a corresponding heightened standard of care

 

Implied Indemnity Claim

Finally, plaintiff argues that the trial court erred when it granted summary judgment to ATAS on Mountainview’s implied indemnity claim because equity requires implied indemnity in this case.  ATAS argues that plaintiff lacks standing to bring this claim on appeal.  We agree. “The plaintiff generally must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties. Plaintiff does not explain how plaintiff—not Mountainview—has the right to appeal the trial court’s summary-judgment decision on Mountainview’s implied-indemnity claim.  On appeal, plaintiff does not contest the court’s ruling that nothing in the contract allows plaintiff to assume Mountainview’s claims, and plaintiff does not identify any other legal basis for it to do so.  Because plaintiff has not shown that it has the right to assert this argument on behalf of Mountainview, we decline to consider whether the trial court appropriately granted summary judgment on Mountainview’s implied-indemnity claim.  Ladd v. Valerio, 2005 VT 81, ¶ 3 (mem.) (holding “courts have no jurisdiction to grant the relief sought” when “the plaintiff lacks standing”). 

Affirmed.

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[1] SCOVT NOTE: Limoge  adopts Section 552(1) of the Restatement (Second) of Torts (1977), which provides:

• One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

Section 5 of the Restatement (Third) of Torts: Liability for Economic Harm is "largely identical" to Restatement Second Torts § 552; but there are three substantive changes. First, the requirement that the defendant's advice concern a “business transaction” has been eliminated. . Second, the requirement that the plaintiff's reliance be “justifiable” has been replaced with a statement that conventional rules of comparative responsibility are applicable. Third, liability under this Section has been eliminated when the plaintiff's representation comes in the performance or negotiation of a contract with the defendant. See Reporter's Notes, Restatement (Third) of Torts: Liability for Economic Harm  § 5 (2020).    Section 5, like Like § 552 (1), specifically refers to "pecuniary loss" :

• Restatement (Third) of Torts: Liability for Economic Harm  § 5:
• 
  
• (1) An actor who, in the course of his or her business, profession, or employment, or in any transaction in which the actor has a pecuniary interest, supplies false information for the guidance of others is subject to liability for pecuniary loss caused to them by their reliance upon the information, if the actor fails to use reasonable care in obtaining or communicating it.
• (2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered:
  • (a) by the person or one of a limited group of persons for whose guidance the actor intends to supply the information, or for whose guidance the actor knows the recipient intends to supply it; and
  • (b) through reliance upon the information in a transaction that the actor intends to influence, or that the actor knows the recipient intends to influence, or in a substantially similar transaction.
• (3) The liability of one who is under a public duty to supply the information extends to loss suffered by any of the class of persons for whose benefit the duty is created, in any of the transactions in which it is intended to protect them.
• (4) A plaintiff's recovery under this Section is subject to the same principles of comparative responsibility that apply to other claims of negligence.
• (5) This Section does not recognize liability for negligent misrepresentations made in the course of negotiating or performing a contract between the parties.

On their face, both Restatements allow recovery against professionals and non-professionals for economic loss due to negligent misrepresentation. Thus in Glassford v. Dufresne & Assocs. P.C., 2015 VT 77 the Court found it sufficient to analyze an economic loss claim under section 552, which is a self-contained rule.  The  Court has further  explained that the drafters of the current Restatement reject  "a broad rule precluding recovery for economic loss."   Sutton v. Vermont Regional Center, 2019 VT 71A ¶ 31 n. 7 (noting the "plethora of exceptions to the broad formulation of the economic-loss rule," has induced the drafters of the current restatement to articulate "'a more limited principle: not that liability for economic loss is generally precluded, but that duties of care with respect to economic loss . . .are recognized in specific circumstances'") (citing Restatement (Third) of Torts: Liability for Economic Harm  § 1 cut. b (2020)  In other words, recovery in tort for economic loss is not exceptional; there is no geneeral rule against it, 

Given the third Restatement's approch, the text of  section 552 and the specificerecognition in I that  Section 552  is among the" host of exceptions" to the tradiional  ecoonomic loss rule, Sutton, 2019 VT 71A ¶ 31(citing  Limoge),   it is difficult to understand the PeakCM, Court’s concern that section 552 might “swallow” the economic loss rule.  

The simple truth is that section 552 states a black-letter rule imposing liability for economic loss due to  negligent misrepresentation. As stated in Sutton, 2019 VT 7 ¶ 36,(amended and superceded by 2019 VT 71A)  "The economic-loss rule is not an impediment to this claim."

Indemnity denied where manufacturer did not assume responsibility for workplace safety and did not create the dangerous condition.

Hemond v. Frontier Communications of America, Inc., 2015 VT 67 (Hemond III)

REIBER, C.J.   Plaintiff alleged, among other things, negligence in the design, manufacture, installation, and construction of the substation, negligent selection and installation of the switch, and defective manufacture, design, and distribution of the switch. Defendant Frontier Communications of America, Inc. appeals decisions denying its cross-claims for indemnity against three codefendants, a consulting firm that provided services to Frontier in connection with the reconstruction of the Richford substation; the manufacturer of the switch; and the distributor of the switch. Frontier asserts that it is entitled to implied indemnification from all three codefendants, and that the court erred in granting summary judgment because there are disputed questions of fact. We affirm.

Implied indemnity will apply “only when the party seeking indemnity is vicariously liable to the third person because of a legal relationship or because of the party’s failure to discover a dangerous condition caused by the indemnifying party, ‘who is primarily responsible for the condition.’ ”  Hemond II, 2015 VT 66, ¶ 9 (quoting White, 170 Vt. at 29, 742 A.2d at 737).  Frontier has failed to meet the standard for implied indemnity because this case presents no facts that could demonstrate that its liability to plaintiffs was vicarious through Stantec, Turner, or Graybar, or that Frontier was not primarily responsible for creating the dangerous condition that caused the accident.  

Frontier asserts that it did not engage in “active” negligence, but rather that its negligence, if any, was in failing to discover that the switch was dangerous when used in a particular circumstance.  But Frontier has failed to demonstrate that those entities assumed the primary responsibility for ensuring safety.  As explained in Hemond II, it was Frontier’s responsibility to design a safe substation.  Frontier failed to show that any of the codefendants assumed primary responsibility for safely designing the substation or choosing the switch.  At most, the evidence highlighted by Frontier suggests that Frontier relied on Turner and Graybar to indicate whether the switch was suitable for its intended purpose.  Frontier has failed to show that it delegated primary responsibility over safety to any of its codefendants.

Further,  the undisputed facts show that Frontier’s own acts, not those of any other defendant, created the dangerous condition which led to plaintiff’s injury.  Implied indemnity is limited to circumstances where the violation of the duty was “ ‘the primary fault’ ” of the indemnitor. See Restatement (First) of Restitution § 95 (explaining that a party’s negligent failure to make safe a dangerous condition is excused only when the danger was caused by the act of another who, as between the two, is primarily responsible for the condition). 

The critical fact—undisputed by Frontier—is that Frontier retained responsibility for the safety of its equipment and its workplace, and that the injury was primarily caused by Frontier’s own actions in choosing, and installing the switch.

Implied indemnity barred by indemnitee’s independent vicarious culpability, even though not “primary” or “active” negligence.

Heco v. Foster Motors, 2015 VT 3 (Filed January 9, 2015)

SKOGLUND, J. Auto dealer appeals from a superior court judgment in favor a component manufacturer on dealer's scross-claim for indemnification of compensation paid to plaintiff in settlement of a personal-injury action.  We affrim.

Plaintiff was severely injured when a vehicle she was driving was struck from behind by another vehicle.  She filed a personal-injury action against Midstate, the automobile dealer that sold her the vehicle, Chrysler Group LLC, successor-in-interest to the company that manufactured the vehicle, and JCI, the manufacturer of the vehicle’s driver’s seat. The complaint alleged Midstate sold a vehicle that was not “crashworthy”  not only because of a defective and inadequate seat system, but also because of  defective design and inadequate warning. Plaintiff thus  alleged not only that Midstate was vicariously liable for the allegedly defective seating system supplied by JCI, but was also vicariously liable for Chrysler's role in selling a vehicle that was not crashworthy.

Plaintiff’s settled, releasing Midstate  from "any and all claims, demands, damages and causes of action under any state or federal law whatever the nature, which are known or unknown, foreseeable or unforeseeable, past, present or future, arising directly or indirectly out of the Vehicle, the Incident or the Lawsuit.” After trial and judgment for plaintiff and against JCI in the amount of $36,948,123, the trial court also entered a final judgment in favor of JCI and against Midstate on the cross-claim for indemnity. This appeal by Midstate is of that judgment. 

In support of its motion for summary judgment on the cross claim JCI asserted that the settlement agreement with plaintiff discharged Midstate from potential vicarious liability quite separate and independent from JCI's potential liability, and that Midstate could not therefore compel JCI to compensate it for the Midstate's "own vicarious liability for the conduct of Chrysler Group and Chrysler" in no way attributable to JCI.  We agree.

It is axiomatic that a party seeking implied equitable indemnity may recover only where its potential liability is vicariously derivative of the acts of the indemnitor and it is not independently culpable. Gen. Motors Corp. v. Hudiburg Chevrolet, Inc., 199 S.W.3d 249, 255 (Tex. 2006) ("Under the common law, a person is entitled to indemnity for products liability only if his liability is entirely vicarious and he is not himself independently culpable.")  This principle is carried forward in the current Restatement, which allows for noncontractual indemnity only where the indemnitee is "not liable except vicariously for the tort of the indemnitor," or where the indemnitee sells a product supplied by the indemnitor and the indemnitee is "not independently culpable." Restatement (Third) of Torts: Apportionment of Liability § 22(a)(2)(i) & (ii) (emphases added).

Such independent culpability need not arise exclusively from the primary or active negligence of the indemnitee. See, e.g., Hudiburg, 199 S.W.3d at 260. Midstate was sued based on its vicarious liability for the acts of both JCI and Chrysler Corporation, and  it chose to settle and compensate plaintiff in exchange for the discharge of any potential vicarious liability "arising directly or indirectly out of the Vehicle." Midstate's settlement discharged its potential vicarious liability not only for the acts of JCI, but also Chrysler, and as such Midstate may not assert equitable indemnity to compel JCI to reimburse it.

[SCOVT note: see also Restatement (Third) of Torts: Apportionment of Liability § 22, comment e (A vicariously liable person can obtain indemnity from the person whose negligence was imputed only if the vicariously liable person is not independently liable.)]

Refurbisher of propane tank not strictly liable for defects causing explosion because refurbisher never “sold” the tank.

Betz v. Highlands Fuel Delivery, LLC, No. 5: 10-cv-102 (D. Vt. Jan. 31, 2013) (Reiss, Chief District Judge)

The case arises out of a 2009 explosion of a propane tank owned by Highlands. After Ditech refurbished and recertified the Propane Tank, Highlands placed it on Plaintiffs' property where it exploded and caught fire, destroying Plaintiffs' home and other property. Ditech contends that it provided refurbishment services and was not a "seller" of goods, and did not "sell" the propane tank to anyone. We agree.

Vermont law requires "seller" status as an essential component of a strict product liability or breach of implied warranty claim. See Darling v. Central Vt. Pub. Serv. Corp., 171 Vt. 565, 569, (2000)  ("Because CVPSC did not sell the electricity that allegedly caused the fire in this case, the trial court correctly refused to instruct the jury to apply the doctrine of strict product liability."); 9A V.S.A. § 2-314(1) (providing for an implied warranty of merchantability when "the seller [of goods] is a merchant with respect to goods of that kind"); Restatement (Second) of Torts § 402(A) cmt. a ("This Section states a special rule applicable to sellers of products.").

At best, Highlands asserts that Ditech's refurbishment of the Propane Tank was so extensive that it was like the sale of a new product. This will not suffice where the primary objective of the transaction remains the provision of a service. The fact that Ditech supplied a new valve or other items in the processing of refurbishing the Propane Tank does not alter this conclusion. 

Because Highlands cannot establish that Ditech was a "seller" of the Propane Tank, or furnished a defective component part, summary judgment on their strict product liability and breach of implied warranty crossclaims is hereby GRANTED in Ditech's favor.