The Subrogation Strategist

In Schueler v. Ad Art, No. 75688-COA, 2020 Nev. App. LEXIS 6, the Court of Appeals of Nevada recently considered whether a custom-made sign constituted a “product” for purposes of the doctrine of strict products liability. The court held that the sign ­­–– a large MGM Grand (MGM) sign located atop a 150-foot tall steel pylon –– was a product for the purposes of strict products liability. Thus, the court held that Ad Art, Inc. (Ad Art), who designed, engineered, and managed the production and installation of the sign, could be held strictly liable for injuries to Charles Schueler (Schueler), a service worker who fell and sustained serious injuries.

In Schueler, MGM contracted with Ad Art to design, manufacture, and install a large pylon sign between 1993 and 1994. The sign was built in sections at Ad Art’s manufacturing facility in Stockton, California and then shipped to Las Vegas. Once in Las Vegas, Ad Art employees and some necessary third-party contractors attached the sign to a newly installed 150-foot tall steel pylon. The instant cause of action arose when Schueler, who was hired to service the LED display on the sign in 2013, was servicing the sign. While he was servicing the sign and walking on the sign’s interior platform, a panel affixed to the floor as part of the sign’s original design allegedly failed, causing Schueler to fall 150 feet to the ground and sustain serious injuries. Schueler sought to recover for his injuries, alleging, among other things, that Ad Art, as the manufacturer of the product, was strictly liable.

Ad Art filed a motion for summary judgment, claiming, among other things, that the MGM sign was not a product within the context of strict products liability. The district court ultimately sided with Ad Art, finding that the sign was not a product for the purpose of strict liability because the sign was analogous to a building, and in Calloway v. City of Reno, 993 P.2d 1259 (Nev. 2000), the court held that buildings were exempt from strict liability. Additionally, the district court found that because the MGM sign was one of a kind and not massed produced, it was not in the stream of commerce for the purposes of strict liability. Schueler appealed the district court’s decision to the Court of Appeals.On appeal, the Court of Appeals held that courts should use a case-by-case methodology to determine whether an item or a good is a “product” for strict liability purposes. When determining whether an item or instrumentality is a product, courts must apply Restatement (Second) of Torts § 402A, including the policy objectives supporting the doctrine, as well as the relevant precedents interpreting § 402A. As noted by the court, the doctrine’s policy objectives focus on the consumer’s or ultimate user’s ability to recover. As stated in Calloway and summarized in Schueler, the policy objectives focus on: 1) promoting safety by eliminating the negligence requirement (deterrence); 2) spreading the costs of damage from dangerously defective products to the consumer by imposing them on the manufacturer or seller (loss spreading); and 3) concerns about a plaintiff’s ability to prove a remote manufacturer’s or seller’s negligence (representation and deterrence). As a general rule, where the doctrine’s policy objectives are not implicated, courts should avoid applying the doctrine.

Discussing the district court’s application of Calloway, the Court of Appeals held that, although the court found that a townhouse was not a product for strict liability purposes, the Callaway holding was narrow, and confined to its specific facts. As stated by the Court of Appeals, Callaway turned on the economic loss doctrine and whether the defendant was the seller or manufacturer of the faulty product.

Unlike in Calloway, the Court of Appeals found that the economic loss doctrine did not apply to Schueler’s injuries and Ad Art was in the business of manufacturing and selling commercial signs. In addition, the Court of Appeals in Schueler rejected the district court’s conclusion that because the MGM sign was one of a kind and not mass-produced, it was not in the stream of commerce for the purposes of strict liability. Ultimately, the Court of Appeals, reversing the district court, found that the MGM sign was a product for purposes of strict liability because Ad Art was engaged in the business of selling and producing commercial signs, and it marketed the signs to buyers. In addition, the Court of Appeals held that a product’s classification as a unique, custom, or one of a kind product will not, by itself, remove it from the doctrine of strict liability.

Based on the analysis in Schueler, when faced with Nevada-based claims arising a one of a kind custom product, subrogation professionals should be mindful of the specific circumstances of their claim in determining whether the product falls under the doctrine of strict liability. By focusing on the public policy objectives behind the doctrine, subrogation professionals may be able to recover on claims involving products that may seem, on their face, to be outside of the doctrine of strict product liability.