An Electric Complex: Wire Service or Powered Product?

ATTORNEYS ARE all charged up over a hot issue: whether electricity defectively flowing through transmission lines to a home or business is a service or a product. The distinction is critical in determining whether a strict liability cause of action can be commenced because, as a general rule, the furnishing of services is not subject to a strict product liability claim.

According to the Restatement (Second) of Torts Sec. 402A, "strict product liability" generally applies to an entity that "sells any product in a defective condition [which renders the product] unreasonably dangerous," causing injuries. The Restatement's requirements are now embodied in case law or statutory law in many states.

A Three-Pronged Inquiry

In turning to defective electricity cases, three dispositive legal questions must be answered:

(1) Is electricity a "product"?

(2) When is electricity "sold" such that product liability principles apply?

(3) When does electricity contain a "defect" that renders it unreasonably dangerous?

Product vs. Service

Electricity has been categorized as a product for strict liability purposes because, in the words of the court in Ransome v. Wis. Elec. Power Co., 87 Wis. 2d 605, 275 N.W.2d 641 (Wis. 1979), it can be produced, confined, controlled, transmitted and distributed in the stream of commerce. In considering the status of electricity as a product or a service, the majority of courts that have addressed the issue have concluded that electricity is a product subject to strict liability. Even so, a strict liability cause of action has been accepted in fewer than a dozen states. (See box on Page 5.)

Power Shopping: When Is Electricity Sold?

Identifying the moment of sale has presented a more troubling question for courts. Some courts have found that electricity is sold when it passes from power lines into, but not through, a plaintiff's meter. In Stein v. S. Cal. Edison Co., 8 Cal. Rptr. 2d 907 (Cal. Ct. App. 1992), a California court of appeal made this distinction after investigators found that a fire at a plaintiff's home was caused by an electrical fault from outside the house that made the meter in the home explode. While California does not require an actual sale of a product for imposition of strict liability, the product must be "placed on the market, knowing that it is to be used without inspection for defects. . . (Citation omitted.)

But most courts have adopted a "bright line" test and held that electricity is sold when it passes through a customer's meter because, at that point, the seller relinquishes control over the product and the electricity has been reduced to a voltage suitable for consumer use. The case of Schriner v. Pa. Power & Light Co., 348 Pa. Super. 177, 189, 501 A.2d 1128, 1134 (Pa. Super. Ct. 1985), contains the oft-quoted standard: "While still in the distribution system, electricity is a service, not a product: electricity only becomes a product, for purposes of strict liability, once it passes through a customer's meter . . ."

Regardless of the semantics, it is at the point when electricity is intentionally made available to the public in its final marketing stage that most courts recognize that a legal metamorphosis has taken place, which allows a strict liability claim to stand. One illustration of this issue occurs in Mancuso v. S. Cal. Edison Co., 283 Cal. Rptr. 300 (Cal. Ct. App. 1991), where the court held that lightning-generated electricity is not a product because it was not marketed or placed in the stream of commerce.

Yet, some courts have found that injuries from electricity involving acts of God, like lightning, are foreseeable and should be anticipated. In Ransome v. Wis. Elec. Power Co., an electrical transformer exploded when struck by lightning and eventually caused a fire in the plaintiff's home. Defendant power company asserted an "act of God" defense. The court, however, held that lightning striking a utility pole is a fairly common problem, which an electric company should be equipped to handle.

Still other courts have abandoned the concept of a sale altogether and have found, as the Superior Court of New Jersey did in Aversa v. Pub. Serv. Elec. and Gas Co., 186 N.J. Super. 130, 451 A.2d 976, 980 (N.J.Super. Ct. Law Div. 1982), that electricity "may enter the stream of commerce when the electric company relinquishes exclusive control"; or, as an Indiana court held in Pub. Serv. Ind. Inc. v. Nichols, 494 N.E.2d 349, 355 (Ind. Ct. App. 1986), that while the transmission of electricity is a service governed by principles of negligence, electricity is a product when it merely reaches its destination in a home or business.

Public Policy Considerations

Although courts have not exhaustively examined the physical properties of electricity to determine whether it is a product for strict liability purposes, the judiciary has accorded product status when electricity reaches a location in the distribution system and then injures an unsuspecting customer.

Without statutory guidance, the decision often becomes one based on public policy considerations.

Take, for instance, Smith v. Home Light & Power Co., 734 P.2d 1051 (Colo. 1987), where the manager of a dairy farm and his son were electrocuted after they pulled a grain auger into a high-voltage overhead power line. The court considered two public policy arguments utility's duty to provide safe products to consumers and the need to provide incentives to improve safety. Interestingly, the court held that the imposition of strict product liability for injuries caused by contact with high-voltage overhead power lines is not justified given the regulated nature of public utilities.

Still other courts have abandoned the rigid requirement of a sale as a condition for imposing strict liability, and require merely that a product be placed in the "stream of commerce." Courts are generally in agreement that a requirement that a product be placed in the stream of commerce means that the Restatement (Second) of Torts Sec. 402A does not apply to injuries resulting from contact with high-voltage overhead power lines that are constructed in compliance with safety codes.

In Pierce v. Pac. Gas & Elec. Co., 166 Cal. App. 3d 68, 212 Cal. Rptr. 283 (Cal. App. 1985), a transformer malfunctioned and charged plaintiffs' house wiring with 7,000 volts, severely injuring the homeowner. After granting the defendant's nonsuit on the issue of product liability, the case went to the jury on a theory of negligence. On appeal, the court concluded that the utility company, as a commercial supplier of electricity, was subject to strict liability for personal injuries resulting from the delivery of electricity at a dangerously high voltage. In justifying this theory, the court looked to one of the policy grounds behind strict liability - to provide for liability where negligence may be present but is difficult to prove. The court explained that electrical injury cases require the plaintiff to present evidence of the "inner workings of an electrical power system of vast and complex proportions." Not only would such technical explanations be beyond the knowledge of the average juror, but the expert witnesses who could explain such systems are concentrated within the industry itself and may be reluctant to serve as plaintiffs' experts.

In Ransome v. Wis. Elec. Power Co., a utility company was held strictly liable regardless of electricity's status as a product given the "solid public policy considerations which underlie the rule." Lightning had struck a transmission line near a transformer and caused an electrical overload, which, four days later, sparked a fire and destroyed plaintiffs' home. "The relevant public policy considerations weigh heavily in favor of the consumer in the present case," the court explained. "Consumer self-protection from the defective and unreasonably dangerous product, namely, electricity of an excessively high voltage, is not feasible in the case of the ordinary consumer. Abstention from use of the product is unrealistic . . .I addition, the seller here is in a better position to anticipate, protect against and eliminate possible dangerous electricity overloads of this type."

The Electric Defect

In turning to the Restatement, strict liability attaches only where a defective condition makes a product unreasonably dangerous. But just what is unreasonably dangerous - or defective - electricity? Two standards have been developed in determining whether a product is defectively designed consumer expectation standard and a risk-utility standard. Under the first test, a product is defective if it fails to perform as safely as an ordinary consumer would expect when the product is used in its intended (or a reasonably foreseeable) manner. The second test requires a defendant to prove that the benefits of a product's design outweigh concomitant risks.

In deciding whether electricity in a particular instance was defective, courts, while often concluding that electricity is unreasonably dangerous, have not analyzed either theory in great detail given the amorphous nature of the product. Typically, a problem occurs in malfunctioning equipment, which may include defective power lines. Even though transmission lines are considered by most courts a means of distributing the product and are, as such, a service and not a product, some courts, as in Pub. Serv. Ind. Inc.v. Nichols, allowed recovery under a strict liability theory when injury was caused by a defect in a utility line. "If the end product is unsafe and results in injury, we will not deny the injured party's right to seek recovery under a theory of strict liability merely because the product is delivered through lines that are not a part of the end product," the court explained.

In the absence of specific statutes, many courts have crafted creative interpretations of the Restatement (Second) of Torts to apply strict liability principles to a utility.

Despite its everyday usefulness, electricity is generally found to be "unreasonably dangerous" in the context of strict liability litigation. Despite labeling electricity as a product, courts tend to find that a defect occurs in the equipment connected with electricity. And despite the uncertainty of the point of sale of the product, courts have found liability where the facts and public policy arguments so warrant.

In many cases, it is apparent that the Restatement's requirements have been loosely interpreted to allow liability. But, above all, courts appear to be motivated by fairness and the underlying rational of strict product liability: that the costs of injuries resulting from defective products be borne not by injured persons who are less able to protect themselves, but by manufacturers, which profit from selling the defective product.