Giddings & Lewis, Inc. v. Industrial Risk Insurers
2011 Ky. LEXIS 90
| Ky. | 2011Background
- Giddings & Lewis sold a Diffuser Cell System to Ingersoll Rand for use in Kentucky; system integrated a vertical turning lathe, two vertical machining centers, and a material handling system.
- Ingersoll Rand’s engineers specified high RPMs (690) and G&L redesigned bearings and pallet material to meet specifications, with an eight-page written contract including an express warranty.
- After seven years of operation, a catastrophic malfunction caused the clamp, pallet, and metal chunk to eject, damaging only the Diffuser Cell System and nearby property minimally.
- Insurers paid about $2.8 million for repairs and then sued G&L to recover those costs, asserting various negligence, strict liability, and misrepresentation theories.
- Trial court granted summary judgment for defendants, concluding the economic loss rule barred tort claims and that the Diffuser Cell System was the product; Court of Appeals affirmed in part and reversed in part.
- This Court granted review to determine the reach of the economic loss rule, whether a calamitous-event exception exists, whether the entire system is the product, and whether misrepresentation/fraud claims survive.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Kentucky apply the economic loss rule to negligence/strict liability in commercial product malfunctions? | IR Insurers: rule should bar such torts unless exceptions apply. | G&L: rule precludes tort recovery for economic loss in product defect cases. | Yes, economic loss rule applies to negligence/strict liability. |
| Is there a calamitous-event exception to Kentucky’s economic loss rule? | IR Insurers seeks a calamitous-event exception. | G&L argues no such exception should exist. | No calamitous-event exception adopted. |
| What constitutes the “product” under the economic loss rule here? | System components may be separately damaged; disputed whether VTL alone or entire Diffuser Cell System is the product. | System bargained-for item is the entire Diffuser Cell System. | The product is the entire Diffuser Cell System; economic loss rule bars tort claims for its damage. |
| Are damages to ‘other property’ beyond the Diffuser Cell System recoverable? | IR Insurers argued other property damages were recoverable. | G&L contends such issues were not properly preserved. | Issue not preserved; court declines to consider. |
| Do negligent misrepresentation and fraud-by-omission survive under the economic loss rule? | IR Insurers rely on these tort theories. | Such claims repackaged as contract remedies should be barred. | Negligent misrepresentation barred; fraud by omission claim lacks duty to disclose and is unsustainable. |
Key Cases Cited
- East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (U.S. 1986) (adopts economic loss rule; product defects not recovered in tort for economic loss)
- Falcon Coal Co. v. Clark Equipment Co., 802 S.W.2d 947 (Ky. App. 1990) (early state application of economic loss rule in a product case)
- Real Estate Marketing, Inc. v. Franz, 885 S.W.2d 921 (Ky. 1994) (limiting tort recovery where only economic loss; implied warranty discussion)
- Presnell Construction Managers, Inc. v. EH Construction, LLC, 134 S.W.3d 575 (Ky. 2004) (adopts negligent misrepresentation standard; discusses economic loss rule context)
- Mt. Lebanon Personal Care Home, Inc. v. Hoover Universal, Inc., 276 F.3d 845 (6th Cir. 2002) (recognizes economic loss rule under federal imputation principles)
- Miller's Bottled Gas, Inc. v. Borg-Warner Corp., 955 F.2d 1043 (6th Cir. 1992) (negligent misrepresentation treated as barred by economic loss rule in product sale context)