## Facts

- Cooperative Power Association (CPA), a commercial electric cooperative, purchased a 566 MVA generator step-up transformer and bushings from Westinghouse Electric Corporation for about $1.6 million for use at a North Dakota power station.
- Westinghouse delivered the transformer in January 1987, and CPA placed it into service in November 1987.
- During installation, CPA observed loose bushing caps; Westinghouse allegedly advised tightening the caps without specifying a torque amount.
- In December 1988, an electrical arc in a bushing damaged the bushing and contaminated the transformer coils with metal particles, requiring bushing replacement and coil rewinding.
- Westinghouse replaced the bushings but refused to pay for rewinding the coils.
- CPA sought damages exceeding $1.6 million for transformer repair and replacement-power costs; the claimed loss was limited to the transformer itself and related economic loss, with no personal injury or damage to other property.
- In a federal diversity action, CPA asserted contract and warranty claims and also alleged negligence and negligent misrepresentation; Westinghouse sought judgment on the tort theories based on the economic loss doctrine.
- The federal district court certified to the North Dakota Supreme Court whether tort recovery is available for economic loss when a component part fails and damages only the machine sold.

## Issues

1. Whether, under North Dakota law, a manufacturer in a commercial sale may be liable in negligence or strict products liability for purely economic loss when a component part fails and damages only the integrated product itself.
2. Whether damage by a component part to the rest of the machine constitutes damage to “other property” permitting tort recovery, or instead remains damage to the product itself governed by contract and warranty remedies.

## Decision

- The North Dakota Supreme Court answered the certified question “no.”
- A manufacturer of a machine sold in a commercial transaction is not liable in negligence or strict products liability for economic loss caused by failure of a component part when the failure causes direct damage only to the machine itself.
- The court treated the component and the overall machine as a single integrated product for purposes of distinguishing product damage from “other property” damage.
- The court indicated that the buyer’s remedies for such loss are confined to contract and warranty law, including U.C.C. remedies.

## Legal Principles

- In a commercial product transaction, purely economic loss from a defective product that harms only itself (including repair costs and loss-of-use-related expenses) is not recoverable in negligence or strict products liability.
- Tort law primarily addresses personal injury and damage to property other than the product; disappointed commercial expectations about product performance are addressed by contract and warranty law.
- When a component part and the finished machine are sold as a single unit, damage from the component to the rest of the machine is damage to the product itself, not “other property.”
- Permitting tort recovery for such economic loss would circumvent negotiated warranty and risk-allocation arrangements recognized by the U.C.C.

## Conclusion

North Dakota law bars negligence and strict products liability claims for economic loss in a commercial sale when a component part fails and damages only the integrated product; the commercial buyer must seek relief through contract and warranty remedies rather than tort.


Cooperative Power Ass'n v. Westinghouse Elec. Corp., 493 N.W.2d 661 (N.D. 1992)