Product Manufacturer Post-Sale Duty to Warn Test

On May 9, 2018, the Minnesota Supreme Court issued an opinion which will have far-reaching implications for personal and property damage claims that are litigated under Minnesota law. In Great N. Ins. Co. v. Honeywell Int’l, Inc., the court clarified an exception to the Minnesota 10-year statute of repose for improvements to real property by defining what constitutes “machinery installed upon real property”, and adopted a four-part test for determining whether a product manufacturer has a post-sale duty to warn. Id., — N.W.2d —, No. A16-0997, 2018 WL 2123255, at *1 (Minn. May 9, 2018).

Great N. Ins. Co.arose out of a fire which destroyed a home in Eden Prairie, Minnesota. Two ventilators were installed in the home’s heating, ventilation, and air conditioning system as part of the home’s original construction. 16 years later, a fire occurred in one of the ventilators, causing substantial property damage but no physical injuries. The ventilators carried the name of Honeywell International, Inc. (“Honeywell”) but were actually designed and manufactured by Nutech R. Holdings, Inc. (“Nutech”), a Canadian company. Motors used in the ventilators were manufactured for Nutech by McMillan Electric Company (“McMillan”).

The home was insured by Great Northern Insurance Company (“Great Northern”). After the fire, the homeowners filed a property damage claim which Great Northern paid in full. Great Northern, as subrogee of the homeowners, then sued Honeywell, Nutech, and McMillan, asserting claims for product liability, breach of warranty, and negligence, as well as a claim for breaching a post-sale duty to warn consumers of the risk of fires in motors installed in Nutech ventilators.

The issues addressed by the Minnesota Supreme Court arose out of McMillan’s motion for summary judgment. McMillan argued that Great Northern’s claims were barred by a 10-year statute of repose for improvements to real property, Minn. Stat. §541.051, subd. 1(a), and that it did not owe the homeowners a post-sale duty to warn. The district court granted McMillan’s motion, concluding the motors McMillan manufactured qualified as improvements to real property for purposes of Minn. Stat. § 541.051, and that McMillan did not have a post-sale duty to warn. The Minnesota Court of Appeals reversed, and the case proceeded to the Minnesota Supreme Court.

The Minnesota Supreme Court affirmed in part, and reversed in part, the Court of Appeals’ decision. First, the Supreme Court held that an exception to the statute of repose for “equipment or machinery installed upon real property”, Minn. Stat. §541.051, subd. 1(e), applied to McMillan’s motors because they fit within a dictionary definition of “machinery” as referring to “[m]achines or machine parts considered as a group” and “the working parts of a particular machine.” “Machine” was defined as a “device consisting of fixed and moving parts that modifies mechanical energy and transmits it in a more useful form” or “[a] system or device for doing work … together with its power source and auxiliary equipment.” (Id.) The McMillan motors were a component in the ventilators, along with fans, air filters, and a heat-exchange core that have an external power source, and therefore fit within the definitions of “machinery” and “machine.” The statutory exception therefore applied, Great Northern’s claim was not barred by the statute of repose, and the Court of Appeals ruling on that issue was affirmed.

Second, the Minnesota Supreme Court adopted, for the first time, a test set forth in the Restatement (Third) of Torts: Products Liability § 10, for determining whether a manufacturer has a post-sale duty to warn. In Minnesota, manufacturers have a duty to warn of a safety hazard that is present at the time of sale. Id. (citing Gray v. Badger Mining Corp., 676 N.W.2d 268, 274 (Minn. 2004). But after Great N. Ins. Co., a manufacturer does not have a post-sale duty to warn of a product-related risk unless:

(1) it knows or reasonably should know that the product poses a substantial risk of harm to persons or property;

(2) those to whom a warning might be provided can be identified and can reasonably be assumed to be unaware of the risk of harm;

(3) a warning can be effectively communicated to and acted on by those to whom a warning might be provided; and

(4) the risk of harm is sufficiently great to justify the burden of providing a warning.

As the court observed, the four factors are conjunctive, meaning a plaintiff must establish all requirements for a post-sale duty to attach.

Applying this test the court held that McMillan had no post-sale duty to warn. While McMillan knew its product posed a substantial risk of harm to persons or property after Nutech informed McMillan of fires in the ventilators sometime after 2003, and the risk of harm was sufficiently great justify the burden of providing a warning, Great Northern was unable to establish the remaining two factors. McMillan had no records of the ventilators’ distribution because the motors were custom made for Nutech, which then sold the ventilators. McMillan could not reasonably predict where and by whom Nutech’s ventilators would be purchased or used. Accordingly, McMillan did not have a post-sale duty to warn and the Court of Appeals’ ruling on that issue was reversed.

Great N. Ins. Co.will have a far-reaching impact on personal and property damage claims that are litigated under Minnesota law. Whereas the 10-year statute of repose may at one time have provided a defense to manufacturers, suppliers or installers of machinery used in an improvement to real property, the court’s adoption of dictionary definitions of “machinery” and “machine” increases the likelihood the statutory exception will apply, thereby reducing the likelihood that claims will be barred by the statute of repose.

Equally impactful, if not more so, is the court’s adoption of a four-factor test for determining whether a manufacturer owes a post-sale duty to warn. While McMillan avoided liability under the particular facts of its case, the test provides plaintiffs with a road map for developing the evidence they will need to impose such a duty in future cases. Careful consideration of Great N. Ins. Co. and its impact on future claims involving product manufacturers is therefore essential.

Access the full opinion here.