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State Farm Mutual Automobile Insurance Co. v. Norcold, Inc.

United States Court of Appeals, Sixth Circuit

February 22, 2017

State Farm Mutual Automobile Insurance Company, Plaintiff-Appellee,
v.
Norcold, Inc., Defendant-Appellant.

          Argued: October 16, 2016

         Appeal from the United States District Court for the Eastern District of Kentucky at Covington. No. 2:14-cv-00132-William O. Bertelsman, District Judge.

         ARGUED:

          David T. Schaefer, DINSMORE & SHOHL LLP, Louisville, Kentucky, for Appellant.

          Kenneth D. Dunn, BARNETT, PORTER & DUNN, Louisville, Kentucky, for Appellee.

         ON BRIEF:

          David T. Schaefer, Ryan A. Morrison, DINSMORE & SHOHL LLP, Louisville, Kentucky, for Appellant.

          Kenneth D. Dunn, BARNETT, PORTER & DUNN, Louisville, Kentucky, for Appellee.

          Before: GILMAN, GIBBONS, and STRANCH, Circuit Judges.

          OPINION

          JANE B. STRANCH, Circuit Judge.

         This diversity case involves claims that straddle the line between tort and contract and requires determination of the scope of Kentucky's economic loss rule. The damages at issue were incurred when an RV refrigerator manufactured by Norcold overheated and caused a fire that destroyed the RV. The district court held that the economic loss rule as adopted in Kentucky does not prohibit State Farm from bringing a tort claim against Norcold. We affirm.

         I. BACKGROUND

         This case turns on applicability of the economic loss rule to consumer transactions in Kentucky. The economic loss rule prevents a plaintiff from recovering in tort for damage caused by a defective product when the only damages are to the product itself and consequential damages such as lost profits; it requires any recovery for those types of damages to be sought through contract claims. Norcold stipulated that it was responsible for the damage to the RV if the economic loss rule did not apply, then appealed and moved to certify questions about the doctrine's scope to the Supreme Court of Kentucky.

         A. Factual History

         The parties stipulated to the facts in this case. Norcold manufactured the refrigerator in question in 2007. That same year, the refrigerator was installed by manufacturer Tiffin into a 2007 Phaeton model recreational vehicle (RV). The refrigerator came with a three-year express limited warranty. The RV was bought by its original purchaser that same year. In 2010, Norcold issued a recall on this model of refrigerator. The recall notice informed owners that they should immediately stop using their refrigerators and have repairs done to add a temperature-monitoring controller to help prevent overheating that could result in a fire. The recall repairs were performed on this RV by a third-party authorized service center in 2011. The RV was still owned by the original purchaser at the time of the recall notice and repair work.

         In 2012, Larry Swerdloff purchased the used RV. Swerdloff had no contact with Norcold when he bought the RV, and the three-year warranty had expired by its terms prior to Swerdloff's purchase. Swerdloff insured the RV through State Farm.

         In September 2013 a fire caused by the refrigerator destroyed the RV in Pendleton County, Kentucky. The fire did not cause any personal injuries, but the RV and its contents were a total loss. State Farm paid $145, 193.20 to Swerdloff under the insurance policy. Norcold has stipulated that it owes State Farm $145, 193.20 if the economic loss rule does not apply to the consumer transaction in this case.

         B. Procedural History

         State Farm filed suit against Norcold in Kentucky state court in 2014. Norcold removed the case to federal court based on diversity jurisdiction. The district court denied Norcold's motion for partial summary judgment and held that the Supreme Court of Kentucky would not apply the economic loss doctrine to consumer transactions. State Farm Mut. Auto. Ins. Co. v. Norcold, Inc., 89 F.Supp.3d 922, 928 (E.D. Ky. 2015). Norcold moved for interlocutory appeal of that order. The district court ordered briefing on whether the question should be certified to the Supreme Court of Kentucky. Following briefing, the district court denied the motion for interlocutory appeal and declined to certify the question of law to the Kentucky court.

         To expedite a final appealable judgment, Norcold stipulated to conditional liability and the amount of damages while reserving the right to appeal the question of whether the economic loss rule should apply in this action. State Farm moved for summary judgment, which the district court granted. Norcold appealed the final judgment and moved to certify questions of law to the Supreme Court of Kentucky.

         II. ...


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