State Farm Mutual Automobile Insurance Co. v. Norcold, Inc.
849 F.3d 328
| 6th Cir. | 2017Background
- A Norcold-manufactured RV refrigerator overheated and caused a 2013 fire in Kentucky destroying the RV; State Farm paid the insured $145,193.20 and sued Norcold to recover the loss.
- The refrigerator was manufactured in 2007, installed in an RV sold new in 2007, recalled in 2010, repaired in 2011, and resold used to Swerdloff in 2012 (warranty had expired and Swerdloff had no contract with Norcold).
- Norcold stipulated to the amount of damages and conditional liability but reserved the right to appeal whether Kentucky’s economic loss rule bars State Farm’s tort claim.
- The district court held Kentucky would not apply the economic loss rule to consumer transactions and entered summary judgment for State Farm; Norcold appealed and sought to certify questions to the Kentucky Supreme Court.
- The Sixth Circuit affirmed, predicting the Kentucky Supreme Court would not extend the economic loss rule to consumer transactions and denying certification.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Kentucky’s economic loss rule bar tort recovery for damage to a product in a consumer transaction? | State Farm: tort recovery should be allowed because consumer transactions fall outside Kentucky’s commercial-focused economic loss rule. | Norcold: the rule should apply to consumer transactions; tort claims are barred where only the product and its economic value are damaged. | The court held the economic loss rule does not extend to consumer transactions under Kentucky law. |
| Would Kentucky likely allow a “calamitous event” or consumer exception to the rule? | State Farm: Giddings & Lewis did not adopt a consumer exception and consumer circumstances warrant tort remedies. | Norcold: Kentucky may recognize broad applications or exceptions consistent with other states. | Court predicted Kentucky would not extend the rule to consumers and declined to create or apply a recall-specific exception issue. |
| Should the Sixth Circuit certify questions about consumer-transaction scope and recall liability to the Kentucky Supreme Court? | State Farm: certification unnecessary—existing state precedent and policy indicate result. | Norcold: the issue is unsettled and should be certified for state resolution. | Court denied certification, finding adequate indicators of Kentucky’s approach. |
| Can insurer (State Farm) pursue tort recovery after paying insured where loss is purely economic? | State Farm: may sue in tort for the destructive event damaging the product in consumer context. | Norcold: allowing insurer recovery undermines contract allocation and duplicates remedies. | Court allowed insurer’s tort claim because economic loss rule does not bar consumer tort claims in Kentucky. |
Key Cases Cited
- Giddings & Lewis, Inc. v. Indus. Risk Insurers, 348 S.W.3d 729 (Ky. 2011) (Kentucky Supreme Court adopted economic loss rule in commercial transactions and discussed underlying policies)
- East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (U.S. 1986) (Supreme Court opinion recognizing no tort duty to prevent a product from injuring itself in commercial context)
- Mt. Lebanon Personal Care Home, Inc. v. Hoover Universal, Inc., 276 F.3d 845 (6th Cir. 2002) (district–court choice-of-law discussion and treatment of economic loss rule in products cases)
- State Farm Mut. Auto. Ins. Co. v. Ford Motor Co., 225 Wis.2d 305 (Wis. 1999) (dissent cited decisions warning that allowing tort recovery for pure economic loss threatens the tort/contract distinction)