Order Granting Plaintiff Summary Judgment

Order granting State Farm summary judgment in a classic RV refrigerator subrogation claim. Did Norcold just admit that its RV refrigerators are defective AND that its recall effort was inadequate?

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CIVIL ACTION NO. 2014-132 (WOB-JGW)

STATE FARM MUTUAL
AUTOMOBILE INS. CO.,
ET AL. PLAINTIFFS

VS. MEMORANDUM OPINION AND ORDER

NORCOLD, INC., ET AL DEFENDANTS

This matter is before the Court on State Farm and
Swerdloff’s motion for summary judgment (Doc. 28) and Norcold’s
motion for leave to file a surreply (Doc. 33). The Court has
reviewed this matter and concludes that oral argument is
unnecessary.
Factual and Procedural Background
  The facts of this case have been set forth in this Court’s
prior opinion. See State Farm Mut. Auto. Ins. Co. v. Norcold,
Inc., 89 F. Supp.3d 922, 927 (E.D. Ky. 2015).
In brief, plaintiff Larry Swerdloff owned an RV which was
insured by plaintiff State Farm Mutual Automobile Insurance
Company. The RV was destroyed on September 20, 2013, by a fire
allegedly caused by a refrigerator in the RV which was
manufactured by defendant Norcold, Inc. The RV and its contents
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were a total loss. State Farm paid Swerdloff $145,193.20 for
the loss of the RV.
Swerdloff and State Farm brought suit in state court and
the case was removed to this Court on July 15, 2014. Norcold
subsequently moved for partial summary judgment on the basis
that Swerdloff’s claim for the value of the RV was barred by the
“economic loss rule” (“ELR”).
On March 4, 2105, this Court issued an Opinion and Order
rejecting Norcold’s argument and predicting that the Supreme
Court of Kentucky would not apply the ELR to consumer
transactions. State Farm Mut. Auto. Ins. Co. v. Norcold, Inc.,
89 F. Supp.3d 922, 927 (E.D. Ky. 2015).
Thereafter, the Court declined to permit an interlocutory
appeal and also declined to certify the issue to the Supreme
Court of Kentucky. (Doc. 25).
In order to expedite this case, Norcold has now admitted
liability for the property damage caused by the fire, subject to
its right to appeal the Court’s ruling on the ELR. (Doc. 26)
Specifically, this admission states: “Defendant Norcold, Inc.
(“Norcold”) hereby admits it would be liable for all property
damage caused by the subject fire if the economic loss rule does
not apply.” Id. at 1. Norcold further stipulated that State
Farm properly paid the amount of $145,193.20 for the total loss
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of the RV, and that State Farm would be entitled to recover that
amount if the ELR does not apply. Id. Norcold denies that
Swerdloff is entitled to recover consequential damages. Id. at
2.
The parties also entered into a “Joint Stipulation
Regarding Damages Claim of Plaintiff Larry Swerdloff.” (Doc.
27). The parties stipulated as follows:
 Swerdloff sustained the loss of personal property
inside the RV in the amount of $18,320.06, and
Norcold agrees that Swerdloff is entitled to recover
that amount;

 Swerdloff incurred expenses of $1,744.21 to return
home to Florida from Kentucky after the fire, and
Norcold agrees that these expenses were reasonable
and necessary but denies that they are recoverable
if the ELR applies;

 Swerdloff purchased a replacement RV approximately
five or six months after the fire. In the interim,
Swerdloff did not rent an RV or otherwise pay to use
an RV on a temporary basis. If he had rented an RV
during the period of time he was without one due to
the fire, the reasonable cost to rent a comparable
RV would have been $2,500 per week. Such loss of
use value would be $25,000 ($2,500 times ten weeks),
but Norcold denies that Swerdloff is entitled to any
damages for loss of use.

State Farm and Swerdloff have now filed a motion for summary
judgment addressing three remaining issues for the Court to
resolve so it can then enter final judgment, allowing Norcold to
appeal.

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Analysis
A. Negligent Service or Repair
In addition to the product liability claim asserted in this
action, plaintiffs also asserted a claim for negligence based on
Norcold’s implementation and oversight of the Norcold
refrigerator recall and repair program. (Complaint ¶¶ 20-22)
That recall occurred in February 2011, almost a year after the
three-year warranty on the refrigerator expired and several
months before Swerdloff purchased the RV from its first owner.
In its March 4, 2015 opinion, this Court did not address
the question of whether, if the ELR did apply to consumer
transactions in Kentucky, it would also extend to post-warranty
negligence claims based on service and repair activities. The
parties now ask the Court to address this question so that the
Sixth Circuit can consider it when Norcold appeals.
This Court previously discussed the relevant policies that
underlie the ELR: maintaining the distinction between contract
and tort law; protecting parties’ freedom to allocate economic
risk by contract; and encouraging the purchaser to insure
against the risk of economic loss. State Farm Mut. Auto. Ins.
Co. v. Norcold, Inc., 89 F. Supp.3d 922, 927 (E.D. Ky. 2015)
(citing Giddings & Lewis, Inc. v. Ind. Risk Insurers, 348 S.W.3d
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729, 739 (Ky. 2011)). These policies would not seem to be
implicated by a claim for damages based on services performed on
a product after any warranty has expired, when there is no
contract in effect governing the seller’s liability for damage
to the product.
Indeed, federal courts in Kentucky have held — including
one decision issued after this Court’s March 4, 2015 opinion —
that the ELR does not apply to the provision of services or
service contracts. See NS Transp. Brokerage Corp. v. Louisville
Sealcoat Ventures, LLC, Civil Action No. 3:12-CV-00766-JHM, 2015
WL 1020598, at *5 (W.D. Ky. Mar. 9, 2015); Louisville Gas and
Elec. Co. v. Continental Field Sys., Inc., 420 F. Supp.2d 764,
769-70 (W.D. Ky. 2005).
In NS Transportation, the Court noted that the Restatement
(Third) of Torts, Product Liability, specifically states that
“[s]ervices, even when provided commercially, are not products.”
NS Transportation, 2015 WL 1020598, at *3 n.2. See also Nami
Res. Co., LLC v. Asher Land and Mineral, Ltd., No. 2012-CA-
000762-MR, No. 2012-CA-001438-MR, No. 2012-CA-001439-MR, 2015 WL
4776376 (Ky. Ct. App. Sept. 4, 2015) (“[W]e are of the opinion
that Kentucky law does not extend the economic loss rule beyond
the realm of commercial product sales . . .”) (emphasis added).
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Norcold cites two cases from other Circuits that hold that
post-sale negligence claims are not excepted from the ELR, but
these cases are not binding on this Court, which must predict
what the Supreme Court of Kentucky would do. See Turbomeca,
S.A. v. ERA Helicopters LLC, 536 F.3d 351, 357 (5th Cir. 2008)
(claim of negligence for a post-sale failure to warn of a pre-
sale product defect barred by ELR under Texas law); Sea-Land
Serv., Inc. v. Gen. Elec. Co., 134 F.3d 149, 156 (3rd Cir. 1998)
(claim for negligent repair barred by ELR where only damage was
to product itself).
Therefore, the Court holds that even if the ELR were to
apply in the sale of consumer products in Kentucky, it would not
bar a post-warranty claim of negligent repair.
A. Prejudgment Interest
“The longstanding rule in [Kentucky] is that prejudgment
interest is awarded as a matter of right on a liquidated demand,
and is a matter within the discretion of the trial court or jury
on unliquidated demands.” 3D Enter. Contracting Corp. v.
Louisville and Jefferson Cty. Metro. Sewer Dist., 174 S.W.3d
440, 450 (Ky. 2005) (citing Nucor Corp. v. General Electric Co.,
812 S.W.2d 136, 141 (Ky. 1991)).
Liquidated claims are “of such a nature that the amount is
capable of ascertainment by mere computation, can be established
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with reasonable certainty, can be ascertained in accordance with
fixed rules of evidence and known standards or value, or can be
determined by reference to well-established market values.” Id.
(citing 22 Am.Jur.2d DAMAGES § 469 (2004)). In determining if a
claim is liquidated or unliquidated, the Court must look at the
nature of the underlying claim, not the final award. Id.
Norcold concedes that Swerdloff is entitled to prejudgment
interest on the value of his lost personal property at the
applicable statutory rate of 8%. See KRS 360.010.
However, Norcold argues that plaintiffs are not entitled to
prejudgment interest on the other elements of their damages
because Norcold disputed its liability for those claims. There
is some case law to support this argument. See Wittmer v.
Jones, 864 S.W.2d 885, 891 (Ky. 1993) (“Interest should not be
required except for a claim which is for a liquidated amount,
and which is not disputed in good faith.”); Barnett v. Hamilton
Mut. Ins. Co. of Cincinnati, Ohio, No. 2009-CA-002234-MR, 2011
WL 43307, at *4 (Ky. Ct. App. Jan. 7, 2011) (“[I]t appears that
if damages are both undisputed and liquidated, prejudgment
interest is payable as a matter of law.”); Denzik v. Denzik, No.
2004-CA-000944, 2006 WL 3107110, at *3 (Ky. Ct. App. Nov. 3,
2006) (same); Owensboro Mercy Health Sys. V. Payne, 24 S.W.3d
675, 679 (Ky. Ct. App. 1999) (same).
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However, the Wittmer Court cited no authority for its
somewhat off-the-cuff statement, for which it gave no
explanation. In fact, the highest court in Kentucky had held as
early as 1890 that a dispute as to the merits of a claim for
money due under a contract did not negate the successful
plaintiff’s right to prejudgment interest. See City of
Louisville v. Henderson’ Trustee, 13 S.W. 111, 113 (Ky. 1890).
The Court reaffirmed in 1968 that a claim which qualifies as
“liquidated” may “not be rendered ‘unliquidated’ by virtue of a
good-faith denial of liability.” Shanklin v. Townsend, 434
S.W.2d 655, 656 (Ky. 1968) (citing Henderson’s Trustee, 13 S.W.
at 113).
Relying on Shanklin, the Sixth Circuit has at least twice
held that the right to prejudgment interest on a liquidated
claim under Kentucky law is not altered by a good faith denial
of liability. See Hale v. Life Ins. Co. of N. Am., 795 F.2d 22,
24 (6th Cir. 1986); W K Contracting Co., Inc., 478 F.2d 1046,
1049 (6th Cir. 1973). Federal District Courts in Kentucky, as
well as the Court of Appeals of Kentucky, have followed suit,
citing to both Shanklin and Hale. See Meridian Citizens Mut.
Ins. Co. v. Horton, Civil Action No. 5:08-CV-302-KKC, 2010 WL
1253084, at *9 (E.D. Ky. Mar. 25, 2010) (“The character of the
damages is not affected by a dispute over liability, as a
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liquidated claims ‘may not be rendered ‘unliquidated’ by virtue
of a good-faith denial of liability) (citing Shanklin, 434
S.W.2d at 656)); G.D. Deal Holdings, Inc. v. Cincinnati Ins.
Co., No. 1:05CV-3-R, 2007 WL 3306109, at *2 (W.D. Ky. Nov. 6,
2007) (same); Bradley v. Louisville Commc’ns, L.L.C., Civil
Action No. 3:05CV-734-H, 2006 WL 2620183, at *4 (W.D. Ky. Sept.
11, 2006) (“The claim is liquidated if the amount of it is
certain, even where, as here, the Company may have a meritorious
basis for denying payment or appealing.”); Rawlings v. Breit,
Nos. 2003-CA-002785-MR, 2004-CA-000017-MR, 2004-CA-000030-MR,
2005 WL 1415356, at *7 (Ky. Ct. App. June 17, 2005) (same,
citing Hale); Cooper v. Hubbard, 703 S.W.2d 494, 497 (Ky. Ct.
App. 1986) (same, citing Shanklin).
Therefore, it appears that the great weight of authority,
and long-standing precedent from Kentucky’s highest court,
teaches that a denial of liability will not affect the right to
prejudgment interest on a liquidated claim.
Plaintiff states that the first three categories of damages
herein — the value of the RV, the value of Swerdloff’s personal
property lost in the fire, and Swerdloff’s travel expenses —
became liquidated by October 18, 2013, approximately four weeks
after the fire. It was also on that date that State Farm paid
Swerdloff the value of the RV. Norcold does not dispute that
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these amounts are liquidated or that October 18, 2013 is an
appropriate date from which to calculate an interest award.
Therefore, the Court holds that plaintiff State Farm is
entitled to prejudgment interest on the amount it paid Swerdloff
for the value of the RV, and plaintiff Swerdloff is entitled to
interest on the value of his personal property and his travel
expenses. Interest should run from October 13, 2013 to the date
of entry of a final judgment herein.
Finally, as will be discussed next, Swerdloff is not
entitled to loss of use damages, so the issue of prejudgment
interest on that damages component is moot.
B. Loss of Use Damages
Plaintiff Swerdloff asserts that he is entitled to “loss of
use” damages under KRS 304.39-115, which states:
Loss of use of a motor vehicle, regardless of the type
of use, shall be recognized as an element of damage in
any property damage liability claim. Such a claim for
loss of use of a motor vehicle shall be limited to
reasonable and necessary expenses for the time
necessary to repair or replace the motor vehicle.

This statute, enacted in 1988, altered the common law that had
held that recovery for loss of use of a motor vehicle was
limited to vehicles used for a commercial purpose and that such
damages were not available for time needed to replace a vehicle
damaged beyond repair but only for time needed to repair a
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damaged vehicle. Am. Premier Ins. Co. v. McBride, 159 S.W.3d
342, 348 (Ky. Ct. App. 2004).
Swerdloff argues that he is entitled to loss of use damages
even though he did not actually rent another RV during the
period of time in question. There does not appear to be any
case law in Kentucky decided after the enactment of this statute
that addresses this issue, and cases from other states appear to
reach a variety of conclusions on this issue. See C.C. Marvel,
Annotation, Recovery for Loss of Use of Motor Vehicle Damaged or
Destroyed, 18 A.L.R. 3d 497 (1968) (collecting cases).
However, there is pre-enactment authority that supports
Swerdloff’s position. See Pope’s Adm’r v. Terrill, 214 S.W.2d
276, 278 (Ky. 1948) (noting that it is generally held that the
vehicle owner’s failure to rent replacement vehicle during
repair period does not preclude recovery for loss of use);
Chesapeake & Ohio Ry. Co. v. Boren, 259 S.W.711, 715 (Ky. 1924)
(jury was permitted to award plaintiff some amount for loss of
use of vehicle even though she did not procure another vehicle
during time in question).
The problem for Swerdloff, however, as Norcold points out,
is that the plain language of this statute limits recovery to
“reasonable and necessary expenses.” Here — presumably because
the RV was not Swerdloff’s only residence or vehicle — it was
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not “necessary” for him to rent a replacement RV to use until he
could purchase a new one.
The legislature’s inclusion of the word “necessary” makes
sense given that one purpose of the statute was to allow loss of
use compensation where the vehicle had been damaged beyond
repair, thereby necessitating replacement. Am. Premier Ins.,
159 S.W.3d at 348. Had the legislature intended otherwise, it
easily could have omitted the word “necessary.”
Therefore, because the plain language requires that any
loss of use expense be “necessary,” and by definition Swerdloff
had no “necessary” expense because he incurred none, he is not
entitled to damages under this statute.

Therefore, having reviewed this matter, and being
sufficiently advised,
IT IS ORDERED that:
(1) State Farm and Swerdloff’s motion for summary judgment
(Doc. 28) be, and is hereby, GRANTED IN PART AND DENIED IN PART,
consistent with the above discussion;
(2) Norcold’s motion for leave to file a surreply (Doc. 33)
be, and is hereby, GRANTED; and
(3) The parties shall confer and file a proposed judgment
that conforms to their stipulations and this Memorandum Opinion
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and Order on or before November 20, 2015. The Court notes that
by so conferring, Norcold does not waive any rights on the
issues it wishes to appeal.
This 6th day of November, 2015.

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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION AT COVINGTON

FILED ELECTRONICALLY

STATE FARM MUTUAL AUTOMOBILE )
INSURANCE COMPANY )
and )
LARRY SWERDLOFF )
)
PLAINTIFF )
)
v. ) CASE NO. 2:14-CV-00132-WOB-JGW
)
NORCOLD, INC. )
)
DEFENDANT )

* * * *

ADMISSION OF LIABILITY AND PARTIAL
STIPULATION OF DAMAGES

For the convenience of the Court and the parties, and without waiving any of its
legal defenses relating to application of the economic loss rule in this action, Defendant
Norcold, Inc. (“Norcold”) hereby admits it would be liable for all property damage
caused by the subject fire if the economic loss rule does not apply.
Further, Norcold hereby stipulates as follows:
1. Plaintiff State Farm Mutual Automobile Insurance Company (“State
Farm”) properly paid the amount of $145,193.20 for the total loss of the subject RV; and
2. State Farm would be entitled to recover $145,193.20 in this action if the
economic loss rule does not apply.
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Norcold makes no admissions or stipulations other than those specifically set
forth above. Norcold does not stipulate as to the amount of Plaintiff Larry Swerdloff’s
damages, and denies that Mr. Swerdloff is entitled to recover consequential damages.
In light of its legal defenses under the economic loss rule, which Norcold believes
are valid, Norcold does not consent to entry of judgment against it, and reserves the
right to appeal from any adverse judgment entered by the Court. This Admission of
Liability and Partial Stipulation of Damages is for purposes of this action only.

Respectfully submitted,

___sDavid T. Schaefer_____________
David T. Schaefer
Ryan A. Morrison
DINSMORE & SHOHL LLP
101 South Fifth Street, Suite 2500
Louisville, Kentucky 40202
(502) 581-8000
david.schaefer@dinsmore.com
ryan.morrison@dinsmore.com
Counsel for Defendant, Norcold, Inc.

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CERTIFICATE OF SERVICE

I hereby certify that the foregoing was this 8th day of May 2015 electronically
filed through the CM/ECF system and a copy served via the Court’s CM/ECF system
upon:

Kenneth E. Dunn
Robert E. Barnett
Barnett, Porter & Dunn
Lakeview Building, Ste. 401
100 Mallard Creek Road
Louisville, KY 40207
Counsel for Plaintiffs

___sDavid T. Schaefer
David T. Schaefer

9627871v1
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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION AT COVINGTON

FILED ELECTRONICALLY

STATE FARM MUTUAL AUTOMOBILE )
INSURANCE COMPANY )
and )
LARRY SWERDLOFF )
)
PLAINTIFFS )
)
v. ) CASE NO. 2:14-CV-00132-WOB-JGW
)
NORCOLD, INC. )
)
DEFENDANT )

* * * *

NORCOLD’S RESPONSE TO
PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT

Defendant, Norcold, Inc., by counsel, submits this Response in opposition to
Plaintiffs’ Motion for Summary Judgment.
INTRODUCTION AND SUMMARY
Plaintiffs’ motion comes to the Court as a consequence of the Court’s denial of
Norcold’s previous motion for summary judgment and upon several stipulations
entered into by the parties. The Court previously ruled that the economic loss rule does
not apply to consumer transactions and, therefore, Norcold may be liable for the
destruction of Larry Swerdloff’s recreational vehicle (“RV”), its contents, and
Swerdloff’s consequential damages. Subsequently, Norcold admitted liability for
property damage caused by the fire, subject to Norcold’s right to appeal the Court’s
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2
earlier ruling, and the parties entered into various stipulations regarding damages in
order to advance the litigation to a final and appealable resolution without the need for
a trial. At this point, there are no factual disputes and the Court can and should enter
its final judgment.
Respectfully, Norcold maintains its position that the economic loss rule applies
to this consumer transaction and, thus, limits Plaintiffs’ damages to the value of
Swerdloff’s personal property inside the RV when the RV was destroyed by fire.
Norcold therefore again urges the Court to deny any recovery except for Swerdloff’s
personal property claim of $18,320.06. Norcold concedes, however, that unless the
Court reverses its previous ruling, State Farm is entitled to judgment in its favor and
Swerdloff is entitled to recover $1,744.21 in expenses he incurred to return home.
Norcold opposes Plaintiffs’ additional argument that the economic loss rule does
not apply to their claim that Norcold was negligent in conducting its recall. Plaintiffs
cite no Kentucky or Sixth Circuit authority to support their position. Instead, they cite
Florida cases that hold that the economic loss rule applies to product liability cases and
bars recovery from manufacturers. Norcold is a manufacturer. Accordingly, under the
law from either state, Plaintiffs’ arguments are without merit.
Additionally, Plaintiffs’ claims for pre-judgment interest as a matter of right are
unpersuasive. Because Norcold disputes its liability, Plaintiffs are not entitled to pre-
judgment interest. While the Court may use its discretion to award pre-judgment
interest, it should decline Plaintiffs’ request under the facts and circumstances of this
case.
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Finally, KRS 304.39-115 allows recovery only for “necessary” loss of use
expenses. Because it was unnecessary for Swerdloff to rent a temporary replacement
after his RV was destroyed, he did not incur any “necessary” expenses that are
recoverable under the statute. Therefore, his claim for loss of use damages should be
denied.
FACTUAL AND PROCEDURAL HISTORY
The parties stipulated to the relevant facts. (See R. 11, Stipulation of Facts).
Swerdloff’s RV, which was insured by State Farm, was destroyed by fire on
September 20, 2013. The RV and its contents were a total loss. The fire did not cause
any personal injuries. There is no claim for damage to property outside of the RV.
Plaintiffs allege that the fire was caused by a defective condition in the RV’s
refrigerator. The refrigerator was a model 1210IM Norcold gas absorption refrigerator.
It was manufactured by Norcold on or about March 1, 2007 and installed in the RV by
Tiffin, the RV manufacturer. The RV was bought by the original purchaser on or about
June 20, 2007. The refrigerator came with Norcold’s three-year written express limited
warranty. Swerdloff purchased the RV with the refrigerator from the original owner in
2012. The refrigerator’s warranty expired by its terms prior to Swerdloff’s purchase of
the RV. Swerdloff had no contact with Norcold when he purchased the RV.
The refrigerator was subject to Norcold recall NHTSA 10E-049, which was
announced in October 2010. The recall repairs were performed on or about February
14, 2011 at a service facility in Florida called Spindrift, Inc. The RV was still owned by
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its original owner at the time. Norcold did not perform the recall work and Plaintiffs
did not sue Spindrift, Inc.
Plaintiffs allege that the design of the refrigerator was defective and
unreasonably dangerous at the time the refrigerator was initially sold because the
design of the refrigerator presented an unreasonable risk of fire. Plaintiffs also allege
that the recall campaign was negligently conducted by Norcold, because the recall
campaign did not fully or adequately address the allegedly defective and unreasonably
dangerous condition in the refrigerator and did not prevent the fire in question.
On October 9, 2014, Norcold moved for partial summary judgment based on
Kentucky’s economic loss rule. (See R. 10, Mot.; R. 10-1, Mem.). On March 4, 2015, the
Court denied Norcold’s motion on the basis that the economic loss rule did not apply to
consumer transactions. (See R. 16, Op. and Order). The Court subsequently declined to
permit an interlocutory appeal and also declined to certify the issue to the Kentucky
Supreme Court (R. 25, Order).
Subsequently, to expedite the litigation, Norcold admitted liability for property
damage caused by the fire, while reserving Norcold’s right to appeal the Court’s ruling
on Kentucky’s economic loss rule, and the parties stipulated various aspects of the
claimed damages. (See R. 26, Norcold’s Admission of Liability and Partial Stipulation of
Damages; R. 27, Joint Stipulation Regarding Damages Claim of Plaintiff Larry
Swerdloff). Specifically, the following admissions and stipulations are in effect:
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5
1. Norcold would be liable for all property damage caused by the subject
fire if Kentucky’s economic loss rule does not apply to the facts and
circumstances of this case.1

2. State Farm properly paid $145,193.20 for the total loss of the RV and
would be entitled to recover that amount if the economic loss rule does
not apply.

3. Swerdloff is entitled to recover $18,320.06 from Norcold for the loss of
personal property inside the RV when it was destroyed. This recovery
does not depend on whether the economic loss rule applies.2 Norcold
has never taken the position that Swerdloff’s claim for lost contents
was barred by the economic loss rule.

4. Swerdloff incurred expenses of $1,744.21 in order to return home to
Florida from Kentucky. Norcold denies that it is liable for these
expenses because they constitute consequential damages under the
economic loss rule. However, if the economic loss rule does not apply,
Swerdloff would be entitled to recover this amount.

5. For Swerdloff’s loss of use claim, the parties dispute whether
Swerdloff can recover on this claim as a matter of law, but stipulate
that the value of the claim is $25,000.00 if the Court rules that recovery
is permitted.

(Id.).
ARGUMENT
A. The Economic Loss Rule Should Apply to this Case.
The Court previously predicted that the Kentucky Supreme Court would decide
that Kentucky’s economic loss rule does not apply to consumer transactions. (See R. 16,
Op. and Order). Respectfully, Norcold disagrees and continues to believe that footnote
5 of the Giddings & Lewis opinion is compelling evidence that the Kentucky Supreme

1 Norcold does not consent to entry of judgment against it and reserves the right to appeal the Court’s
ruling on the economic loss rule and from any other adverse judgment entered by the Court. (See R. 26).

2 The economic loss rule does not apply to the contents of the RV (as opposed to the RV itself) because the
contents are considered “other property” under the rule.
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6
Court would join the strong majority of jurisdictions that apply the rule to both
consumer transactions and commercial transactions, if and when it has the opportunity
to do so. Giddings & Lewis, Inc. v. Indus. Risk Insurers, 348 S.W.3d 729, 737 n.5 (Ky. 2011);
Mt. Lebanon Pers. Care Home, Inc. v. Hoover Universal, Inc., 276 F.3d 845, 848 (6th Cir.
2002). In the interest of brevity, Norcold reiterates and incorporates by reference its
arguments on this issue from its previous motion. (See R. 10, Mot.; R. 10-1, Mem.; R. 13,
Reply). It is Norcold’s position, therefore, that the Court should deny all aspects of
Plaintiffs’ motion except for Swerdoff’s claim for lost contents in the amount of
$18,320.06. However, unless the Court reverses its previous ruling, Norcold
acknowledges that State Farm is entitled to summary judgment in its favor in the
amount of $145,193.20 and Swerdloff is entitled to recover consequential damages in the
amount of $1,744.21.
B. In Circumstances Where the Economic Loss Rule is Applicable, It Applies to
All Product Liability Claims, Including Claims of Post-Sale Negligence.

This is a product liability case. Plaintiffs brought this case against the
manufacturer of a refrigerator that they allege malfunctioned, destroyed itself, and
damaged Swerdloff’s personal property. The Court has previously decided that the
economic loss rule does not apply to this case because a consumer product is involved,
not a commercial product. Plaintiffs continue to make the argument that the economic
loss rule does not apply for another, independent reason — because of prior recall
repairs performed on the refrigerator.3 Plaintiffs persist with this argument even

3 As stated, the Court ruled that the economic loss rule did not apply to consumer transactions. (See R. 16,
Op. and Order). Accordingly, the Court was not required to decide, and did not decide, Plaintiffs’
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7
though these repairs were undisputedly not performed by Norcold. (See R. 11,
Stipulation of Facts, ¶ 4, Ex. D (indicating that the recall work was performed by
Spindrift, Inc. in Florida)). Plaintiffs do not cite any Kentucky or Sixth Circuit authority
to support their claims. Instead, Plaintiffs argue that because KRS 411.300 does not list
service or repair activities performed on a product then the rules for product liability
cases, i.e. the economic loss rule, do not apply when the product fails after repairs are
performed. (See R. 28-1, Mem. at 8-9).
When the economic loss rule applies, it “applies regardless of whether the
product fails over a period of time or destroys itself in a calamitous event” or whether the
tort claim is for negligence or strict liability. Giddings & Lewis, 348 S.W.3d at 733
(emphasis added). Whether a product fails before or after a recall is performed, the
economic loss rule applies to tort claims against the product’s manufacturer. Id. Many
courts have explicitly refused to carve out an exception to the economic loss rule for
post-sale negligence claims. See e.g., Sea-Land Service, Inc. v. General Electric Co., 134 F.3d
149 (3d Cir. 1998); Turbomeca, S.A. v. Era Helicopters LLC, 536 F.3d 351 (5th Cir. 2008);
Memorial Hermann Healthcare System v. Eurocopter Deutschland, 524 F.3d 676 (5th Cir.
2008).
As the manufacturer of the refrigerator, Norcold was responsible for conducting
the recall program. It did not perform the recall repairs. Any claim against Norcold for

alternative argument that the economic loss rule did not apply to this case because of the recall of the
refrigerator. (Id.). Unless the Court reverses its ruling on the application of the economic loss rule to
consumer transactions, a ruling on this issue remains unnecessary. Norcold nevertheless welcomes the
opportunity to brief this issue and agrees that a ruling on this issue could prove beneficial for appellate
review and judicial efficiency.
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8
negligently conducting the recall program is a product liability claim for post-sale
negligence. Importantly, this claim fails for lack of duty under Ostendorf v. Clark Equip.
Co., 122 S.W.3d 530 (Ky. 2003). In Ostendorf, the Kentucky Supreme Court refused to
adopt §11 of the Restatement (Third) of Torts: Products Liability (1998). Ostendorf, 122
S.W.3d at 539. Further, the requirements of §324A of the Restatement (Second) of Torts
(1965) are not met here for the same reasons they were not met in Ostendorf – no
reliance, no action inconsistent with a duty owed by another party, and no increased
risk of harm. Id. at 538-40. The upshot of Ostendorf is that Plaintiffs’ only real claim
against Norcold is for manufacturing a product that was defective at the time of its sale
-– in other words, a traditional product liability claim.
Because the economic loss rule applies to product liability claims against
manufacturers, whether the claim is for time-of-sale defects or post-sale negligence, it
should apply to this claim. Citing Florida law (see R. 28-1, Mem. at 9), Plaintiffs argue
that the economic loss rule does not apply to a company that provides services, and
quote the concurring opinion of a case where a service company, not a manufacturer,
was held liable for negligence. See Id.; Tiara Condo. Ass’n v. Marsh & McLennan Cos., 110
So. 3d 399, 400, 407 (Fla. 2013) (the rule does not apply to professional services); Indem.
Ins. Co. v. Am. Aviation, Inc., 891 So. 2d 532, 545 (Fla. 2004) (the rule does not apply to
services provided by an aircraft maintenance company) (overruled in part by Tiara
Condo. Ass’n) (Cantero, J., concurring).
In Florida, as in Kentucky, the economic loss rule only applies to product liability
cases. Tiara Condo. Ass’n, 110 So. 3d at 407; Giddings & Lewis, 348 S.W.3d at 733, 738-39.
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9
As in Kentucky, the economic loss rule in Florida would have barred the plaintiff’s
recovery in Am. Aviation if the defendant were a manufacturer instead of a company
that performed repairs or services. 891 So. 2d at 534; Giddings & Lewis, 348 S.W.3d at
733. And here, because Plaintiffs’ case is a product liability case against the
manufacturer, Norcold, the economic loss rule would apply, even under Florida law.
See Tiara Condo. Ass’n, 110 So. 3d at 401-07; Giddings & Lewis, 348 S.W.3d at 733.
Therefore, the Court should deny this aspect of Plaintiffs’ motion.
C. Plaintiffs Are Not Entitled to Pre-Judgment Interest.
Pre-judgment interest is subject to judicial discretion; Plaintiffs are not entitled to
it. The statutory pre-judgment interest rate is eight percent. KRS 360.010. It “is
awarded as a matter of right on a liquidated demand, and is a matter within the
discretion of the trial court or jury on unliquidated demands.” 3D Enters. Contr. Corp. v.
Louisville & Jefferson County Metro. Sewer Dist., 174 S.W.3d 440, 450 (Ky. 2005). “[I]n
general ‘liquidated’ means ‘made certain or fixed by agreement of parties or by
operation of law.’” Nucor Corp. v. General Electric Co., 812 S.W.2d 136, 141 (Ky. 1991)
(quoting Black’s Law Dictionary). Unliquidated means “’damages which have not been
determined or calculated, . . . not yet reduced to a certainty in respect to amount.’” Id.
But regardless, “in determining if a claim is liquidated or unliquidated, one must look
at the nature of the underlying claim, not the final award.” 3D Enters. Contr. Corp., 174
S.W.3d at 450.
Accordingly, when reviewing the circumstances of the underlying claim, pre-
judgment interest is only allowed as a matter of law for undisputed claims for liquidated
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10
damages. Wittmer v. Jones, 864 S.W.2d 885, 891 (Ky. 1993). In its sound discretion, the
Court may deny a claim for pre-judgment interest on liquidated damages when liability
is disputed. Owensboro Mercy Health Sys. v. Payne, 24 S.W.3d 675, 679 (Ky. App. 1999).
Norcold disputes liability for all of Plaintiffs’ claims, with the exception of
Swerdloff’s personal property, under the economic loss rule. As stated above, Norcold
stipulated both its liability and the amount of damages at issue in this matter, while
reserving its right to appeal the Court’s ruling on Kentucky’s economic loss rule.
Norcold took these measures not only to serve its interests but also for the interests of
judicial economy. The fact that Norcold entered into these admissions and stipulations
has saved the Court and the parties from the time and expense of a trial. If the Court
imposes pre-judgment interest on Norcold, it will discourage future litigants from
making similar decisions, increase costs, and frustrate expeditious litigation.
Accordingly, in the interests of judicial economy, the Court should deny Plaintiffs’
request for pre-judgment interest.
Plaintiffs’ reliance on Hale v. Life Ins. Co., 795 F.2d 22, 24 (6th Cir. 1986) is
misplaced. Hale was decided prior to the Kentucky decisions cited above, which
represent the current state of substantive law regarding pre-judgment interest on
liquidated and unliquidated damages. Accordingly, the Court should disregard Hale.
Kentucky law does not permit pre-judgment interest on disputed claims for liquidated
damages as a matter of course. Wittmer, 864 S.W.2d at 891. The Court should use its
discretion and decline to award pre-judgment interest. If the Court decides to award
pre-judgment interest on any of Plaintiffs’ claims, it should do so only on Swerdloff’s
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11
personal property claim of $18,320.06, because that is the only claim Norcold never
asserted was governed by the economic loss rule.
D. Kentucky Law Does Not Permit Swerdloff’s Loss of Use Claim.
Swerdloff cannot recover loss of use damages under Kentucky law. KRS 304.39-
115 provides for damages for the loss of use of a motor vehicle in any property damage
liability claim but limits recovery to “reasonable and necessary expenses for the time
necessary to repair or replace the motor vehicle.” Swerdloff claims that he is entitled to
$25,000 for the loss of use of the RV, which Norcold agrees would have been the
approximate cost if Swerdloff would have rented a replacement RV for ten weeks. (See
R. 27, Joint Stipulation at 2-3; R. 28-1, Pls. Mem. at 3, 6, 10, 14). He argues that when the
text of KRS 304.39-115 is strictly construed, it is clear that he is entitled to loss of use
damages. (Id. at 15-16). However, Swerdloff’s argument is plainly wrong.
Only “necessary expenses” are recoverable under KRS 304.39-115. Obviously, a
necessary expense is a replacement vehicle “for the time needed to replace a motor
vehicle that was damaged beyond repair,” which is why the statute was enacted. Am.
Premier Ins. Co. v. McBride, 159 S.W.3d 342, 348 (Ky. App. 2004). The situation would be
different if Swerdloff had needed a temporary replacement after the fire and spent
money to rent one. But Swerdloff admits that it was unnecessary to rent a replacement
vehicle after the RV was destroyed. (See R. 27, Stipulation). Accordingly, Swerdloff
cannot recover loss of use damages. KRS 304.39-115 only allows for “necessary
expenses” and Swerdloff admits a replacement vehicle was unnecessary. Plus, if the
economic loss rule were applicable, it would bar recovery of consequential damages,
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12
such as loss of use damages. Giddings & Lewis, 348 S.W.3d at 738; Hoover Universal, 276
F.3d at 848.
Paradoxically, Swerdloff argues an expense that was unnecessary for him to
incur is necessary and recoverable under the statute. “Simply stated, there is no case
law in Kentucky which supports [Swerdloff’s] strained construction of KRS 304.39-115.”
(See R. 28-1, Pls. Mem. at 16). Therefore, the Court should deny Plaintiffs’ motion to the
extent it seeks recovery of loss of use damages for Swerdloff.
CONCLUSION
Plaintiffs’ motion should be denied at least in part. Swerdloff is entitled to
$18,320.06 for his loss of personal property. Otherwise, Kentucky’s economic loss rule
should bar all remaining claims. Assuming, however, that the Court does not reverse
its previous ruling, then State Farm is entitled to recover the $145,193.20 it paid, and
Swerdloff is entitled to recover $1,744.21 for his expenses to return home to Florida.
Regardless, the Court should deny Plaintiffs’ request for pre-judgment interest and
should specifically deny Swerdloff’s claim for loss of use damages.

Respectfully submitted,

sDavid T. Schaefer
David T. Schaefer
Ryan A. Morrison
DINSMORE & SHOHL LLP
101 S. Fifth St., Suite 2500
Louisville, Kentucky 40202
(502) 581-8000
Counsel for Defendant
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13

CERTIFICATE OF SERVICE

I hereby certify that the foregoing was this 17th day of September, 2015
electronically filed through the CM/ECF system and a copy served via the Court’s
CM/ECF system upon:

Kenneth E. Dunn
Robert E. Barnett
Barnett, Porter & Dunn
Lakeview Building, Ste. 401
100 Mallard Creek Road
Louisville, KY 40207
Counsel for Plaintiffs

sDavid T. Schaefer
David T. Schaefer
9882601v1
Case: 2:14-cv-00132-WOB-JGW Doc #: 29 Filed: 09/17/15 Page: 13 of 13 – Page ID#: 233
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION
AT COVINGTON

CIVIL ACTION NO. 2:14-CV-132 (WOB-JGW)

STATE FARM MUTUAL AUTOMOBILE
INSURANCE CO., ET AL. PLAINTIFFS

VS.

NORCOLD, INC. DEFENDANT

ORDER
The Court after careful consideration having determined that
neither an interlocutory appeal under 28 U.S.C. §1292 or a
certification to the Kentucky Supreme Court is the most efficient way
to proceed in this matter, and being advised,
IT IS ORDERED THAT:
1. The motion for certification of interlocutory appeal to the
Sixth Circuit (Doc. 18), under 28 U.S.C. §1292(b), be, and it is
hereby DENIED;
2. That the Court declines to certify the question of law at
issue to the Kentucky Supreme Court;
3. That discovery in this matter shall be completed on or
before JULY 31, 2015;
4. Any dispositive motions shall be due within THIRTY (30)
DAYS after the close of discovery.
This 21st day of April, 2015.

Case: 2:14-cv-00132-WOB-JGW Doc #: 25 Filed: 04/22/15 Page: 1 of 1 – Page ID#: 170
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION
AT COVINGTON

FILED ELECTRONICALLY

STATE FARM MUTUAL AUTOMOBILE )
INSURANCE COMPANY )
)
and )
)
LARRY SWERDLOFF )
)
PLAINTIFFS ) CASE NO. 2:14-CV-0132-WOB-JGW
)
v. )
)
NORCOLD, INC. )
)
DEFENDANT )

* * * *

NORCOLD INC.’S NOTICE OF CONSENT TO CERTIFY
QUESTION TO THE KENTUCKY SUPREME COURT

Defendant Norcold, Inc. (“Norcold”), by counsel and in response to the Court’s
order (see R. 22, Order), states that the Court should certify the question presented in
Norcold’s 28 U.S.C. § 1292(b) motion for interlocutory appeal to the Kentucky Supreme
Court.
A. The Court Has the Authority to Certify the Question
The Court has the authority to certify a question to the Kentucky Supreme Court.
See Transamerica Ins. Co. v. Duro Bag Mfg. Co., 50 F.3d 370, 372 (6th Cir. 1995); Am.
Booksellers Found. for Free Expression v. Strickland, 560 F.3d 443, 444 (6th Cir. 2009); Ky.
Case: 2:14-cv-00132-WOB-JGW Doc #: 24 Filed: 04/10/15 Page: 1 of 3 – Page ID#: 164
2
Civil Rule 76.37(1). “The decision whether or not to utilize a certification procedure lies
within the sound discretion of the district court.” Transamerica, 50 F.3d at 372. The
Court may certify a question sua sponte, even without consent from the parties. See
Strickland, 560 F.3d at 444; Am. Booksellers Found. for Free Expression v. Strickland, 601 F.3d
622, 625-26 (6th Cir. 2010). Kentucky Civil Rule 76.37(1) provides a mechanism for the
Court to certify a question to the Kentucky Supreme Court and even allows certification
after the Court enters a judgment. Therefore, the Court is on firm footing if it chooses to
certify the issue in this case to the Kentucky Supreme Court.
B. The Court Should Certify the Question
The question presented is whether Kentucky’s economic loss doctrine applies to
consumer transactions. The Court is required to follow the substantive law of Kentucky
on this issue. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). (See also R. 16, Op. &
Order, Page ID# 108). The Kentucky Supreme Court specifically declined to decide this
issue in Giddings & Lewis, Inc. v. Industrial Risk Insurers, 348 S.W.3d 729, 737 n.5 (Ky.
2011). Accordingly, the Kentucky Supreme Court has not set “a reasonably clear and
principled course” for the Court to follow to conclusively resolve the issue. Berrington
v. Wal-Mart Stores, Inc., 696 F.3d 604, 610 (6th Cir. 2012).
“[T]he certification procedure is most appropriate when the question is new and
state law is unsettled.” Transamerica, 50 F.3d at 372. Because the question before the
court is new and clearly unsettled it is appropriate to certify it to the Kentucky Supreme
Court. Id. The Kentucky Supreme Court’s ruling “may be determinative” of the
outcome of this case. Kentucky Civil Rule 76.37(1). Therefore, the Court should certify
Case: 2:14-cv-00132-WOB-JGW Doc #: 24 Filed: 04/10/15 Page: 2 of 3 – Page ID#: 165
3
the question to the Kentucky Supreme Court so that the issue can be conclusively
resolved.
A proposed order that complies with the requirements of Kentucky Civil Rule
76.37(3) for a certification order to the Kentucky Supreme Court is attached for the
Court’s convenience.
Respectfully submitted,
/s/ David T. Schaefer
David T. Schaefer
Ryan A. Morrison
DINSMORE & SHOHL LLP
101 South Fifth Street, Suite 2500
Louisville, Kentucky 40202
(502) 581-8000
david.schaefer@dinsmore.com
ryan.morrison@dinsmore.com
Counsel for Defendant, Norcold, Inc.

CERTIFICATE OF SERVICE

I hereby certify that the foregoing was this 10th day of April, 2015 electronically
filed through the CM/ECF system and a copy served via the Court’s CM/ECF system
upon:

Kenneth E. Dunn
Robert E. Barnett
Barnett, Porter & Dunn
Lakeview Building, Ste. 401
100 Mallard Creek Road
Louisville, KY 40207
Counsel for Plaintiffs

/s/ David T. Schaefer
David T. Schaefer
Case: 2:14-cv-00132-WOB-JGW Doc #: 24 Filed: 04/10/15 Page: 3 of 3 – Page ID#: 166
TO BE PUBLISHED IN FEDERAL SUPPLEMENT THIRD

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
NORTHERN DIVISION
AT COVINGTON

CIVIL ACTION NO. 2:14-CV-132 (WOB-JGW)

STATE FARM MUTUAL AUTOMOBILE
INSURANCE CO., ET AL. PLAINTIFFS

VS.

NORCOLD, INC., ET AL. DEFENDANTS

OPINION AND ORDER
BERTELSMAN, District Judge.
I. INTRODUCTION
This case presents the Court with an issue of first impression:
would the Kentucky Supreme Court apply the economic-loss doctrine to
consumer transactions? For purposes of this motion, the Court must
assume that a used recreational vehicle (“RV”) was destroyed by fire
when a refrigerator included with the RV at the time of its original
purchase ignited, destroying itself, the RV, and the RV’s contents.
Plaintiff State Farm insured the RV and is subrogated to the
rights of the insured owner, Plaintiff Larry Swerdloff. Plaintiffs
brought suit in Pendleton Circuit Court against Defendant Norcold and
its parent company, Thetford, on June 11, 2014. Norcold removed the
action to this Court on July 15, 2014, and subsequently filed a motion
for partial summary judgment on October 9, 2014.

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2
II. FACTS
The parties conveniently have filed a joint stipulation of facts
for the purposes of this motion. Defendants reserve the right to
contest these facts if the Court denies the motion.
The following facts are stipulated as true:
1. A model year 2007 Tiffin Phaeton [RV] owned by
Larry Swerdloff and insured by State Farm was destroyed by
fire on September 20, 2013 in Pendleton County, Kentucky.
Plaintiffs allege that the fire was caused by a defective
condition in the RV’s refrigerator.
2. The refrigerator in question was a model 1210IM
Norcold gas absorption refrigerator. It was manufactured
by Norcold on or about March 1, 2007. It was installed
into the RV by Tiffin, the RV manufacturer. The RV was
bought by the original purchaser on or about June 20, 2007.
The refrigerator originally came with a three-year written
express limited warranty. . . .
3. Mr. Swerdloff bought the RV used in 2012. The
refrigerator came with the RV when Mr. Swerdloff purchased
the RV. The original three year [sic] warranty on the
refrigerator expired by its terms prior to Mr. Swerdloff’s
purchase of the RV. Mr. Swerdloff had no contact with
Norcold when he bought the RV in 2012.
4. The refrigerator was subject to one Norcold
recall, NHTSA recall 10E-049 announced in October of 2010.
. . . The recall repairs were performed at a facility in
Florida on or about February 14, 2011. . . . The RV was
owned by the original purchaser at the time . . . .
5. Plaintiffs allege that the design of the
refrigerator was defective and unreasonably dangerous at
the time the refrigerator was initially sold, in that the
design of the refrigerator presented an unreasonable risk
of fire. Plaintiffs also allege that Norcold’s recall
activities were negligently conducted, in that its recall
campaign did not fully or adequately address the allegedly
defective and unreasonably dangerous condition in the
refrigerator and did not prevent the fire in question.
6. As a result of the fire, the RV and its contents
were a total loss. The fire did not cause any personal
injuries. There is no claim for damage to other property
outside of the RV. The damages claimed in this action are
$145,193.20 in payments made by State Farm, including Mr.
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3
Swerdloff’s $250.00 deductible. Additionally, Mr.
Swerdloff seeks recovery for damage to other personal
property owned by him in the RV at the time of the fire,
and consequential damages claimed by Mr. Swerdloff.
7. The substantive law of Kentucky applies . . . .
(Doc. 11, Stipulation, at 2-3).
III. ANALYSIS
The Erie doctrine requires federal courts to follow the
substantive law of the forum state in substantive matters. See Erie
R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). If the law of the state
is not clear, federal courts must determine to the best of their
ability what the state’s appellate courts would hold if confronted
with the same issue. 17A James Wm. Moore et al., Moore’s Federal
Practice ¶ 124.22[3] (3d ed. 2014). While such analyses can be fairly
straightforward, the issue in the instant case is somewhat complex.
Plaintiff State Farm argues that the proper Erie analysis
requires the Court to overrule Norcold’s motion for partial summary
judgment because the Kentucky Supreme Court would not apply the
economic-loss doctrine to consumer transactions, although it has
applied the doctrine to commercial transactions. See Giddings &
Lewis, Inc. v. Indus. Risk Insurers, 348 S.W.3d 729, 733 (Ky. 2011).
The Court notes that Frumer, Friedman, and Sklaren’s Products
Liability contains an excellent, general discussion of different
approaches to the economic-loss doctrine. Louis R. Frumer, Melvin I.
Freeman, & Cary S. Sklaren, 2-13 Products Liability § 13.07 (2014).
Jurisdictions are divided as to the application of the doctrine to
consumer transactions, such as that in the instant case:
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4
The majority of courts apply the economic loss doctrine to
consumer purchases as well as business purchases, reasoning
that the separate and distinct functions served by tort and
contract law apply equally to consumer and business
purchasers of defective products. Several courts have
found support in § 21 of the Restatement (Third) of Torts:
Products Liability, for their decision to apply the
economic loss rule to all plaintiffs, including nonbusiness
consumers. Other courts focus on the availability of
insurance.
Courts holding the economic loss doctrine does not apply to
consumers are in the minority.
Id. § 13.07[4] (footnotes omitted).
As the parties’ highly informative briefs indicate, resolution of
the consumer-application issue requires an historical analysis of the
most significant Kentucky and federal cases. The Court therefore will
discuss those cases in chronological order.
A. Historical Overview
A foundational case is East River Steamship Corp. v. Transamerica
Delaval, Inc., 476 U.S. 858 (1986). In that admiralty case, certain
turbine engines malfunctioned, causing damage only to the turbines
themselves. Id. at 860-61. Although at that time the economic-loss
doctrine generally only applied to land-based-product actions, the
East River Court applied it also to admiralty actions. Id. at 868-71.
The Court held “that a manufacturer in a commercial relationship has
no duty under either a negligence or strict products-liability theory
to prevent a product from injuring itself.” Id. at 871 (emphasis
added).
The Court further observed: “[W]hen a product injures itself, the
commercial user stands to lose the value of the product, risks the
displeasure of its customers . . . , or, as in this case, experiences
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5
costs in performing a service. Losses like these can be insured.”
Id. (emphasis added). As the above quotations indicate, the East
River Court had no occasion to consider whether the economic-loss
doctrine should apply to consumer transactions.
Next, and closer to home, is the decision of the Kentucky Court
of Appeals in Falcon Coal Co. v. Clark Equipment Co., 802 S.W.2d 947
(Ky. Ct. App. 1991). In that case, a large, front-end loader
allegedly caught fire and destroyed itself. Id. at 947. The Falcon
Coal court denied recovery on the following basis:
Section 402A of the Restatement (Second) of Torts
provides in relevant part that “[o]ne who sells any product
in a defective condition unreasonably dangerous to the user
or consumer or to his property is subject to liability for
physical harm thereby caused to the ultimate user or
consumer, or to his property . . . .” (Emphasis added.)
Our reading of this section, as well as the official
comment to it, convinces us that Section 402A is aimed at
imposing liability for physical harm caused by an
unreasonably dangerous product to the user or his other
property, but not for harm caused only to the product
itself. The term “his property” simply does not appear to
be intended to embrace within its meaning the term “any
product” as those terms are used in Section 402A. Inasmuch
as this section now has been adopted by our highest court
as the standard for recovery in strict liability tort
cases, and from our reading of this section, it would not
permit such recovery in a case like this, we are left to
conclude that as it now stands the common law in this
jurisdiction does not support the appellant’s position
[that it could recover in tort where the product damaged
only itself].
Id. at 948. Falcon Coal of course involved a commercial transaction,
but Section 402A of the Restatement also applies by its terms to
consumer transactions.
The next case in the Court’s chronological survey comes from the
United States Court of Appeals for the Sixth Circuit. In a 1992 case
arising out of a commercial transaction, the Sixth Circuit predicted
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6
“that the Kentucky Supreme Court would not allow recovery for purely
economic losses in a product liability action based on negligence.”
Miller’s Bottled Gas, Inc. v. Borg-Warner Corp., 955 F.2d 1043, 1050
(6th Cir. 1992).
Another Kentucky case is next. Real Estate Marketing, Inc. v.
Franz, 885 S.W.2d 921 (Ky. 1994), was a consumer case involving
subsequent purchasers of a house who sued its builder for structural
defects. The Kentucky Supreme Court declined to apply the economic-
loss doctrine. Id. at 923. Addressing the applicability of the
Falcon Coal case discussed previously, the Franz court observed:
We do not go so far as the Court of Appeals’ opinion in
Falcon . . . limiting recovery under a products liability
theory to damage or destruction of property “other” than
the product itself. But we do recognize that to recover in
tort one cannot prove only that a defect exists; one must
further prove a damaging event.
Id. at 926. Of course, the consumer here can point to a damaging
event on the instant set of facts — the sudden fire that destroyed
his RV.
The Sixth Circuit had occasion to address the economic-loss issue
again in Mt. Lebanon Personal Care Home, Inc. v. Hoover Universal,
Inc., 276 F.3d 845 (6th Cir. 2002). In Mt. Lebanon, a nursing home
operator sued the manufacturer of chemicals used to treat the lumber
used in the trusses of a nursing home structure. The Sixth Circuit
ultimately held that “there [was] no reason . . . not to follow [its]
earlier decision in Miller’s Bottled Gas” that the Kentucky Supreme
Court would apply the economic-loss doctrine to commercial
transactions. Id. at 849.
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Before the Mt. Lebanon court reached that conclusion, however, it
discussed the Franz decision and the applicability of the economic-
loss doctrine to consumer transactions:
While the Kentucky Supreme Court agreed with the trial
court that the Franzes could not sustain a negligence
claim, it did so because there was no “damaging event,” not
because their claim was barred by the economic loss
doctrine. Id. at 926. Indeed, in its decision, the
Kentucky Supreme Court expressly refused to extend Franz to
a Kentucky Court of Appeals decision which had adopted the
economic loss doctrine. Id.
Thus, Franz forces us to reconsider our earlier ruling
in Miller’s Bottled Gas. In Franz, the Kentucky Supreme
Court declined to extend the economic loss rule to an end-
consumer’s second-hand purchase of a house. We think,
then, that Franz probably answers in the negative the
question of whether the economic loss doctrine applies to
consumer purchases in Kentucky.
276 F.3d at 848-49 (emphasis added). The Sixth Circuit thus has also
interpreted the Franz decision as a consumer case where the Kentucky
Supreme Court declined to apply the economic-loss doctrine.
Finally, the Court arrives at the most recent case: Giddings &
Lewis, Inc. v. Indus. Risk Insurers, 348 S.W.3d 729, 733 (Ky. 2011).
Although Giddings involved a commercial transaction, the Kentucky
Supreme Court made the following observation about Franz and Falcon
Coal:
While the manner in which the Franz Court would restrict
the holding in Falcon Coal Co. is not altogether clear,
given the immediately succeeding discussion, perhaps the
Court intended to suggest that the ban on recovery of
economic loss in a product liability action would not apply
in the event of a damaging event. Alternatively, the
rather cryptic statement has been read to suggest that
Kentucky would not apply the economic loss rule to consumer
transactions.
Id. at 737 (emphasis added). The Giddings & Lewis court then made an
additional statement about consumer transactions in dicta:
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8
The case sub judice does not require us to consider the
effect of the economic loss rule on consumer transactions
but, notably, the Restatement (Third) of Torts: Products
Liability makes no distinction between products produced
for commercial customers and those produced for consumers.
See Restatement (Third) of Tort § 19(a) (1998) defining
“product” in relevant part as “tangible personal property
distributed commercially for use or consumption.”
Id. at 737 n.5. The court went on to hold that the economic-loss
doctrine does apply in Kentucky to commercial transactions, even where
the loss occurs from defects in a component part of a product sold as
an integrated whole. Id. at 739-43.
In summary, the economic-loss doctrine finds its roots in cases
involving commercial transactions. But there exists authority from
the Sixth Circuit stating in dicta that the Kentucky Supreme Court
would not apply the economic-loss doctrine in the context of consumer
transactions, as well as dicta from the Kentucky Supreme Court noting
that the Restatement does not distinguish between consumer and
commercial transactions when it comes to recovery for economic loss.
The authorities are thus in relative equipoise on this question.
B. Application
Making an “Erie guess” as to whether the Kentucky Supreme Court
would apply the economic-loss doctrine to consumer transactions
requires consideration of the policies underlying the doctrine,
because the Court has not located — and the parties have not
identified for the Court — any decision of the Kentucky Supreme Court
or the Kentucky Court of Appeals addressing this precise issue.
In Giddings & Lewis, the Kentucky Supreme Court identified three
relevant policies that militate in favor of precluding recovery for
economic losses in commercial transactions: “(1) maintain[ing] the
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9
distinction between tort and contract law; (2) . . . protect[ing]
parties’ freedom to allocate economic risk by contract; and (3) . . .
encourag[ing] the party best situated to assess the risk of economic
loss, usually the purchaser, to assume, allocate, or insure against
that risk.” 348 S.W.3d at 739 (quoting Hoover Universal, 276 F.3d
at 848) (internal quotation marks omitted).
This Court does not believe, however, that the Kentucky Supreme
Court would apply to economic-loss doctrine to consumer transactions.
Although the Court recognizes that the manufacturer provides an
express warranty to purchasers of its refrigerators, that warranty is
limited in both scope and duration. It is reasonably foreseeable that
the refrigerators in question could cause serious problems for
consumers well beyond the duration of the express warranty. The
foreseeable nature of this harm is confirmed by the fact that the
manufacturer conducted a recall of the refrigerators after the express
warranty had expired by its terms.
The Kentucky courts have a strong interest in protecting Kentucky
citizens from this kind of foreseeable harm through tort law. The
Court thus concludes that the Kentucky Supreme Court would hold that
the first policy for application the economic-loss doctrine to
commercial transactions weighs against applying the doctrine to
consumer transactions.
This Court also believes that the Kentucky Supreme Court would
hold that allowing a consumer to sue on a products-liability theory
for economic loss does not impinge freedom of contract. As in the
overwhelming majority of consumer transactions, even the original
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10
purchaser of Swerdloff’s RV likely had little or no chance to allocate
economic risk by contract. Norcold decided how much economic risk it
was willing to undertake to increase sales of its refrigerator before
placing that product into the stream of commerce — in this case parts
and labor for repairs to the refrigerator for at most three years —
and then disclaimed all other express or implied warranties.
Finally, this Court does not believe that the Kentucky Supreme
Court would hold that a consumer is in the best position to allocate
risk of economic loss. At the time of purchase, a consumer has far
less information about a product than its manufacturer. Here, Norcold
was best positioned to identify potential problems with its products
and cure any defects before placing those products into the stream of
commerce. Given this difference, the Kentucky Supreme Court likely
would not impose on consumers a blanket requirement to insure every
product that they purchase to protect against the possibility that the
product might destroy itself.
The Court accordingly holds that the Kentucky Supreme Court would
not apply the economic-loss doctrine to consumer transactions.
Decisions of the Kentucky Supreme Court, Franz, 885 S.W.2d at 926, and
the Sixth Circuit, Hoover Universal, 276 F.3d at 848-49, bolster this
conclusion.
1

1 The Court notes that other District Judges applying Kentucky law have
relied on the Sixth Circuit’s statement in Hoover Universal that the
economic-loss doctrine does not apply to consumer transactions in Kentucky,
and at least one Judge did so following the Kentucky Supreme Court’s decision
in Giddings & Lewis. See, e.g., Rodrock v. Gumz, No. 4:11-cv-00141-JHM, 2012
WL 1424501, at *2-4 (W.D. Ky. Apr. 24, 2012); Highland Stud Int’l v. Baffert,
No. 00-261-JMH, 2002 WL 34403141, at *2-4 (E.D. Ky. May 16, 2002).
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11
C. Defendant Thetford Corporation
Defendant Thetford Corporation moved for summary judgment on the
basis that it did not manufacture or distribute Plaintiffs’ RV or
refrigerator. Counsel for Plaintiffs represented to the Court at oral
argument that he sued Thetford only out of an “abundance of caution.”
Because Plaintiffs do not oppose Thetford’s dismissal from this
action, the Court grants Defendants’ motion to the extent that it
seeks Thetford’s dismissal as a party.
III. CONCLUSION
For the foregoing reasons, the Court grants in part and denies in
part Defendants’ motion for partial summary judgment.
Therefore, the Court being advised,
IT IS ORDERED THAT:
Defendants’ motion for partial summary judgment (Doc. 10) be, and
is hereby, granted in part and denied in part. As indicated above,
Thetford Corporation is hereby dismissed as a defendant.
This 4th day of March, 2015.

Case: 2:14-cv-00132-WOB-JGW Doc #: 16 Filed: 03/04/15 Page: 11 of 11 – Page ID#: 116

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