Court Opinion

ID: 4147430
Source: CourtListenerOpinion
Date Created: 2017-02-22 18:01:01.787818+00
Date Added: 2024-06-11T14:10:52.555039
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
                              Pursuant to Sixth Circuit I.O.P. 32.1(b)
                                     File Name: 17a0042p.06

                   UNITED STATES COURT OF APPEALS
                                 FOR THE SIXTH CIRCUIT

 STATE FARM MUTUAL AUTOMOBILE INSURANCE                 ┐
 COMPANY,                                               │
                         Plaintiff-Appellee,            │
                                                         >      No. 15-6410
                                                        │
       v.                                               │
 NORCOLD, INC.,                                         │
                                                        │
                                Defendant-Appellant.    │
                                                        ┘

                          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: October 16, 2016

                            Decided and Filed: February 22, 2017

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

                                     _________________

                                         COUNSEL

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.

     STRANCH, J., delivered the opinion of the court in which GIBBONS, J., joined.
GILMAN, J. (pp. 11–14), delivered a separate dissenting opinion.
 No. 15-6410              State Farm Mutual Auto. Ins. v. Norcold                        Page 2

                                      _________________

                                           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.
 No. 15-6410              State Farm Mutual Auto. Ins. v. Norcold                         Page 3

       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. ANALYSIS

       A.      Standard of Review & Applicable Law

       We review grants of summary judgment de novo. V & M Star Steel v. Centimark Corp.,
678 F.3d 459, 465 (6th Cir. 2012). “Summary judgment is appropriate only when the evidence,
taken in the light most favorable to the nonmoving party, establishes that there is no genuine
 No. 15-6410               State Farm Mutual Auto. Ins. v. Norcold                         Page 4

issue as to any material fact and the movant is entitled to judgment as a matter of law.” Id.
(citing Fed. R. Civ. P. 56(c)).

       As a federal court exercising diversity jurisdiction, the choice-of-law rules of the forum
state, Kentucky, determine what substantive law to apply. NILAC Int’l Mktg. Grp. v. Ameritech
Servs., Inc., 362 F.3d 354, 358 (6th Cir. 2004). The parties stipulate that Kentucky law applies.
There is a reasonable basis for this stipulation, as the damage in this case occurred with a fire in
Kentucky and there is a “provincial tendency in Kentucky choice-of-law rules.” Wallace
Hardware Co., Inc. v. Abrams, 223 F.3d 382, 391 (6th Cir. 2000).

       B.      Economic Loss Rule in Kentucky

       In Giddings & Lewis, Inc., the Supreme Court of Kentucky adopted the holding of the
U.S. Supreme Court 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.” Giddings
& Lewis, Inc. v. Indus. Risk Insurers, 348 S.W.3d 729, 738 (Ky. 2011) (quoting East River
Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 871 (1986) (applying admiralty
law)). Recognizing that, at the time, “virtually all states appl[ied] the rule in some form,” id. at
736, the Kentucky court adopted the economic loss rule in the commercial context, thus
preventing a “purchaser of a product from suing in tort to recover for economic losses arising
from the malfunction of the product itself.” Id. at 733. It also concluded “that such damages
must be recovered, if at all, pursuant to contract law.” Id.

       Giddings & Lewis involved a large machine that consisted of a turning lathe, two
machining assemblies, and a material handling system. Id. at 734. The machine had been
custom made by Giddings & Lewis for the purchaser, Ingersoll Rand, which had provided
detailed specifications. Id. The two parties negotiated a written contract that included an
express warranty. Id. Seven years after the system was installed and after the warranty had
expired, part of the lathe flew off the machine and caused approximately $2,800,000 in damage
to the machine. Id. The insurers of Ingersoll Rand brought tort claims against Giddings &
Lewis arguing, as pertinent here, that: 1) Kentucky should not adopt the economic loss rule and
2) if it did, a “calamitous event” exception should be recognized. Id. at 735.
 No. 15-6410               State Farm Mutual Auto. Ins. v. Norcold                        Page 5

        Giddings & Lewis traced the history of the economic loss rule in Kentucky beginning
with application of the doctrine in a commercial transaction context by the Kentucky Court of
Appeals in Falcon Coal Co. v. Clark Equipment Co., 802 S.W.2d 947 (Ky. App. 1990). The
Kentucky Supreme Court declined to review that case but expressed skepticism about the
doctrine a few years later by noting in dicta that the Falcon Coal holding was too broad. Real
Estate Marketing, Inc. v. Franz, 885 S.W.2d 921, 926 (Ky. 1994) (saying “[w]e do not go so far
as the Court of Appeals . . . in Falcon Coal, . . . limiting recovery under a products liability
theory to damage or destruction of property ‘other’ than the product itself.”). The Sixth Circuit
interpreted the dicta in Franz as “probably answer[ing] in the negative the question of whether
the economic loss doctrine applies to consumer purchases in Kentucky.” Mt. Lebanon Personal
Care Home, Inc. v. Hoover Universal, Inc., 276 F.3d 845, 848–49 (6th Cir. 2002).

        Giddings & Lewis acknowledged that the dicta in Franz was “not altogether clear” and
suggested either that: 1) there is an exception to the doctrine for damaging events, or
2) Kentucky would not apply the doctrine to consumer transactions. 348 S.W.3d at 737. The
court overruled Franz “[t]o the extent Franz’s alluded-to limitation of Falcon Coal can be read
to suggest that a commercial purchaser can recover economic losses under a strict liability theory
if a destructive event damages the product itself.”          Id. at 741.      The second possible
interpretation—that the economic loss doctrine did not apply to consumer transactions—was not
directly addressed by the court. Instead, the court observed in a footnote:

        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.

Holding that the economic loss rule applies in the commercial context, the Kentucky Supreme
Court then undertook a discussion of the “principles underlying” the rule and its application to
the facts presented. Id. at 738.
 No. 15-6410                     State Farm Mutual Auto. Ins. v. Norcold                                         Page 6

         1. Policies Underlying the Economic Loss Rule

         Giddings & Lewis listed the policies supporting the economic loss rule as: 1) maintaining
the distinction between tort and contract law; 2) protecting the freedom to contractually allocate
economic risk; and 3) encouraging the party best situated to assess the risk of economic loss to
insure against that risk. Id. at 739 (quoting Mt. Lebanon Personal Care Home, Inc. v. Hoover
Universal, Inc., 276 F.3d 845, 848 (6th Cir. 2002)). We therefore use those policies as the
framework for analyzing Norcold’s argument that Kentucky’s economic loss rule extends or
should extend to consumer transactions.

         a) Preserving the Line Between Tort and Contract Law

         The first policy—preserving the line between tort and contract law—can apply in both
commercial and consumer settings. Kentucky law, however, has drawn the distinction between
tort and contract differently depending on whether a transaction is in a commercial or consumer
context. See, e.g., Ky. Rev. Stat. § 367.120 et seq. (Kentucky Consumer Protection Act); Ky.
Rev. Stat. § 355.2-102 (exempting statutes regulating sales to consumers from modification by
Article II of the UCC).1

         b) Ability to Allocate Risk via Contract

         The second policy—protecting freedom to allocate risk by contract—has different
implications in the contexts of commercial and consumer transactions. Parties engaging in
commercial transactions are generally sophisticated and have relatively equal bargaining power.
Barkley Clark & Christopher Smith, Law of Product Warranties § 1:12 (rev. ed. 2016). Such
parties engage in active negotiations that permit meaningful allocation of risk. Consumers, on
the other hand, are usually less sophisticated—one cannot specialize in every product one
purchases—and bargain with unequal power when negotiations actually do occur. Consumers
frequently face adhesion contracts that render the purchase of products a take-it-or-leave-it

         1
           The dissenting opinion warns of “contract law . . . drown[ing] in a sea of tort” if tort relief is available for
purely economic losses. (Dissenting Op. 12) (quoting State Farm Mut. Auto. Ins. Co. v. Ford Motor Co., 592
N.W.2d 201, 20910 (Wis. 1999)). But the status quo in Kentucky is that the economic loss rule does not extend to
consumer transactions. It is under this circumstance, which maintains both tort and contract areas of law, that
insurers and purchasers have negotiated insurance contracts, including the one between Swerdloff and State Farm at
issue in this case.
 No. 15-6410                  State Farm Mutual Auto. Ins. v. Norcold                                  Page 7

proposition. In many cases, moreover, consumers are unaware of the risks inherent in a product,
let alone the opportunity to allocate that risk by contract.

        Manufacturers and sellers select warranty terms, but consumers have little or no
opportunity to engage in negotiations over those warranty terms and consumers often have few
meaningful alternatives for other products or different contracts.2                Though some producers
provide warranties to instill confidence in particular products and as a selling point over
competitors, many producers disclaim all warranties in the fine print of contracts that consumers
never read. And while there may be information provided concerning certain risks when a
warranty is marketed, those risks otherwise remain unidentified. That dynamic creates its own
information asymmetry as producers may strategically select when to make risk information
available or understandable to consumers and when to bury it in fine-print adhesion contracts. In
the many situations where there is no back-and-forth between the parties, it is difficult to allocate
risk in accordance with parties’ preferences. Albert Choi & George Triantis, The Effect of
Bargaining Power on Contract Design, 98 Va. L. Rev. 1665, 1701 (2012).

        Giddings & Lewis dealt with a more typically commercial transaction that involved active
negotiation and a written contract between the parties. 348 S.W.3d at 734. In this case, the
consumer had no interactions or contract with the producer. (R. 11, PageID 62) Although
contractual privity is not always a requirement of the economic loss doctrine, Mt. Lebanon
Personal Care, 276 F.3d at 852, this case exemplifies common features of consumer
transactions—the unequal positions of the parties and the lack of opportunity to negotiate. These
inherent distinctions support treating consumer transactions differently than commercial
transactions. In cases like this where consumers have no contact with the producer, let alone
negotiations or a written contract, Norcold’s argument that the freedom to contract will be
infringed absent application of an economic loss rule is simply misplaced.

        2
          Manufacturers and third parties do sometimes offer for purchase extended warranties on durable consumer
products, though such policies themselves are opaque or unavailable for review.
 No. 15-6410                   State Farm Mutual Auto. Ins. v. Norcold                                    Page 8

        c) Encouraging Best-Situated Party to Insure Against Risk of Loss

        The third policy—encouraging the party best situated to assess risk of economic loss to
insure against it—also differs between the commercial and consumer contexts. In commercial
transactions, purchasers are typically sophisticated parties that are well informed about both the
product and its intended use. In that context, the purchaser is usually well situated to assess the
risk of economic loss because it knows how it will be using the product and what it expects of
the product. Perhaps this is why the Supreme Court of Kentucky described the party best
situated to assess the risk of economic loss as “usually the purchaser” when discussing a
commercial transaction in Giddings & Lewis. 348 S.W.3d at 739 (quoting Mt. Lebanon,
276 F.3d at 848). Not only can commercial purchasers make an informed decision about how to
properly insure the product, they usually have adequate insurance options available. In the
consumer context, however, there is often a large information and capacity asymmetry between
the seller who specializes in the field and the purchasing consumer who is necessarily a
generalist. Although the consumer may best know what she wants to do with the product, the
seller usually has substantially better information about what to expect of the product’s
performance and what consequences might flow from that performance. Consumers are unlikely
to understand the risks inherent in the product’s use and even if they did, they may not have
insurance options available to insure against that risk.3 In this context, the producer is probably
in the better position to select proper liability insurance.

        2.       Other Indications from the Supreme Court of Kentucky

        Despite the cases referenced and the policy arguments explicated above, Norcold argues
that the Supreme Court of Kentucky would extend the economic loss rule to consumer
transactions. First, it notes that footnote five in the Giddings & Lewis opinion directs the reader
to the relevant section of the Restatement (Third) of Torts that does not distinguish between
commercial and consumer transactions. Id. at 737 n.5. Though this dicta explicitly declines to

        3
           The dissenting opinion points out that Swerdloff was able to adequately insure his RV through State Farm.
(Dissenting Op. 14) This is most likely a result of the circumstances in this case; the product in question—a
refrigerator—was installed as a component part of a larger durable product—an RV—that was insured. Extending
the economic loss rule to all consumer transactions sweeps up many circumstances involving everyday products and
smaller durable products—including stand-alone refrigerators—that are less likely to involve adequate insurance
options for consumers.
 No. 15-6410               State Farm Mutual Auto. Ins. v. Norcold                          Page 9

rule on the matter, Norcold argues it indicates that the court might treat the two contexts
similarly. It also argues that Kentucky would extend the economic loss rule to consumer
transactions because that it is the majority position among the states. See Frumer & Friedman,
Products Liability § 13.07(4) (rev. ed. 2015) (listing fifteen states that apply the doctrine to
consumer transactions and two states that explicitly do not). Norcold relies on the fact that the
Supreme Court of Kentucky previously looked at sister courts to determine the appropriate scope
of the economic loss rule. Giddings & Lewis, 348 S.W.3d at 739 (noting “a majority of our sister
courts do not recognize the [calamitous event] exception,” but also disclaiming that “[o]ur
position is not a matter of deference to the majority view or the nation’s highest court but rather a
matter of logic”).

       We draw a different conclusion. First, as explained above, two of the three policies
espoused by the Supreme Court of Kentucky as underlying the economic loss rule justify treating
commercial and consumer transactions differently. Kentucky’s highest court, moreover, has
provided two signals supporting this conclusion.         When the Supreme Court of Kentucky
announced the economic loss rule in Giddings & Lewis, it could have used broad language that
would encompass consumer transactions. The court chose not to do so. Instead, its opinion
regularly described the rule as applying to a “commercial purchaser,” 348 S.W.3d at 733, to a
“product sold in a commercial transaction,” id., to a “manufacturer in a commercial
relationship,” id. at 738, and to “commercial transactions.” Id. Likewise, the court could have
disagreed with the Sixth Circuit’s assessment that Kentucky case law justified not extending the
rule to consumer transactions, but instead cited the Sixth Circuit opinion with general approval.
See id. at 739.

       A second indication that the Supreme Court of Kentucky would not extend the economic
loss rule to consumer actions is its general skepticism of the rule. The rule was not announced in
Kentucky until 2011, twenty-five years after the foundational case on the matter from the U.S.
Supreme Court. See id. at 733 (citing East River Steamship, 476 U.S. 858 (1986)). At that point,
Kentucky was joining “virtually all states” in recognizing the doctrine. See id. at 736. In an area
of law where the Kentucky courts are generally skeptical, we are wary of expanding the scope of
 No. 15-6410               State Farm Mutual Auto. Ins. v. Norcold                     Page 10

the rule based on unclear dicta in a single footnote, particularly in light of Kentucky’s other
jurisprudence on the issue.

       We conclude that the Supreme Court of Kentucky would not extend the economic loss
rule to consumer transactions.

       C.      Applicability of Doctrine to Recalls

       State Farm claims that even if the economic loss rule applies to consumer transactions,
Norcold can be held liable for post-sale negligence by failing to conduct an effective recall. In
light of our holding that the economic loss rule does not apply to consumer transactions, we do
not decide whether the rule applies to recalls and claims for post-sale negligence.

       D.      Motion to Certify Questions to the Supreme Court of Kentucky

       Norcold has moved to certify two questions to the Supreme Court of Kentucky:
1) whether the economic loss rule applies to consumer transactions; and 2) whether the rule
extends to claims arising from product recall programs.          Because we perceive adequate
indications that the Supreme Court of Kentucky would not extend the economic loss rule to
consumer transactions, we find it unnecessary to certify the questions.

                                         CONCLUSION

       Based on the jurisprudence on this issue in Kentucky and because the policies underlying
the economic loss rule justify treating commercial and consumer transactions differently, we
hold that the economic loss rule does not extend to consumer transactions. We therefore affirm
the judgment of the district court. Norcold’s motion to certify questions to the Supreme Court of
Kentucky is denied.
 No. 15-6410                State Farm Mutual Auto. Ins. v. Norcold                      Page 11

                                       _________________

                                            DISSENT
                                       _________________

       RONALD LEE GILMAN, Circuit Judge, dissenting. Unlike my panel colleagues, I
believe that the Kentucky Supreme Court is more likely than not to extend the economic-loss
rule to consumer transactions. I draw this conclusion based on footnote five in Giddings &
Lewis, the policy considerations behind the economic-loss rule, the opinions rendered by the
overwhelming majority of other state courts that have ruled on the issue, and the facts of the case
before us. At the very least, this case cries out for certification of the issue to the Kentucky
Supreme Court. I would therefore reverse the judgment of the district court and grant Norcold’s
motion to certify. Accordingly, I respectfully dissent.

       I would first observe that the majority opinion presupposes its own conclusion by stating
that “the status quo in Kentucky is that the economic loss rule does not extend to consumer
transactions.” (Maj. Op. 6 n.1) To the contrary, the rule’s application to consumer transactions
is very much up in the air, which is precisely why we have been tasked with making an “Erie
prediction” in this case.    And the best evidence before us concerning what the Kentucky
Supreme Court would likely do about the issue before us is found in footnote five of Giddings
& Lewis, Inc. v. Industrial Risk Insurers, 348 S.W.3d 729 (Ky. 2011). Without deciding the
question, the Kentucky Supreme Court in that footnote dropped a conspicuous hint as to which
direction it would lean: “notably,” the Court wrote, “the Restatement (Third) of Torts . . . makes
no distinction between products produced for commercial consumers and those produced for
consumers.” Id. at 737 n.5. A natural reading of the text of the footnote—which, although not
binding, is nonetheless rather clear—strongly suggests that the Kentucky Supreme Court is
amenable to applying the economic-loss rule to consumer transactions, and would probably do so
if given the opportunity.

       The majority opinion denigrates the persuasive force of footnote five by stating that
“[w]hen the Supreme Court of Kentucky announced the economic loss rule in Giddings & Lewis,
it could have used broad language that would encompass consumer transactions.” (Maj. Op. 9)
To the contrary, the Kentucky Supreme Court is constrained to decide only those issues that are
 No. 15-6410              State Farm Mutual Auto. Ins. v. Norcold                      Page 12

before it and could not rule on the question of the economic-loss rule’s application in the
consumer context in Giddings & Lewis—a commercial-transaction case—because it is
“prohibited from producing mere advisory opinions.” See Med. Vision Grp., P.S.C. v. Philpot,
261 S.W.3d 485, 491 (Ky. 2008).

       That the Kentucky Supreme Court would go out of its way to say anything about the
economic-loss rule in the consumer context in a decision concerning commercial transactions
makes footnote five stronger, not weaker, evidence that the Court would extend the rule to the
consumer context. This conclusion is further bolstered by the fact that as many as fifteen states
have recognized the rule’s applicability to consumer transactions and only two explicitly have
not—a trend that we have no reason to suppose the Kentucky Supreme Court would buck. See
Frumer & Friedman, Products Liability § 13.07(4) (rev. ed. 2015).

       Nor do the three policies identified in Giddings & Lewis as justifying the economic-loss
rule support the distinction between commercial and consumer transactions as claimed by the
majority. First, distinguishing between commercial and consumer transactions blurs the line
between tort and contract, an outcome that flies in the face of the Kentucky Supreme Court’s
admonition that the economic-loss rule is designed to “maintain[] the historical distinction
between tort and contract law.” Giddings & Lewis, 348 S.W.3d at 739 (quoting Mt. Lebanon
Pers. Care Home, Inc. v. Hoover Universal, Inc., 276 F.3d 845, 848 (6th Cir. 2002)). This point
was aptly noted by the Wisconsin Supreme Court: “[W]hether a consumer or commercial
plaintiff, if tort law were allowed to provide tort relief for purely economic loss, contract law
would drown in a sea of tort.” State Farm Mut. Auto. Ins. Co. v. Ford Motor Co. (Wisconsin
Ford Motor Case), 592 N.W.2d 201, 209–10 (Wis. 1999). See also Clarys v. Ford Motor Co.,
592 N.W.2d 573, 575 (N.D. 1999) (“The separate and distinct functions served by tort and
contract law, upon which the economic loss doctrine is based, apply equally to consumer and
business purchasers of defective products.”); State Farm Mut. Auto. Ins. Co. v. Ford Motor Co.,
572 N.W.2d 321, 324–25 (Minn. 1997) (concluding that the economic-loss rule applies to
consumer transactions and collecting cases from other jurisdictions).      My panel colleagues
concede that this particular policy goal is furthered by the economic-loss rule’s application to
 No. 15-6410               State Farm Mutual Auto. Ins. v. Norcold                       Page 13

both types of transactions (Maj. Op. 6), but they fail to account for the deleterious effect their
decision will have on maintaining the tort-contract distinction.

       Second, I fail to see how not applying the economic-loss rule to consumer transactions
furthers the rule’s goal of protecting “parties’ freedom to allocate economic risk by contract.”
See Giddings & Lewis, 348 S.W.3d at 739 (quoting Mt. Lebanon, 276 F.3d at 848). My panel
colleagues opine that ordinary consumers, whom they characterize as “less sophisticated” than
commercial entities, “frequently face adhesion contracts that render the purchase of products a
take-it-or-leave-it proposition. In many cases,” they contend, “consumers are unaware of the
risks inherent in a product, let alone the opportunity to allocate that risk by contract.” (Maj.
Op. 6–7)

       But the experience of today’s consumer is at variance with this picture. Manufacturers
and sellers regularly encourage extended warranties on durable products. Insurance is also
available, as the case before us illustrates. And, as the Wisconsin Supreme Court has observed,
permitting tort recovery for pure economic loss to a consumer would ensure that the consumer
“would essentially receive full warranty protections against economic risk without ever having to
negotiate or pay for such warranty.” Wisconsin Ford Motor Case, 592 N.W.2d at 211; see also
Clarys, 592 N.W.2d at 576 (“Allowing a consumer exception to the economic loss doctrine
would undermine warranty agreements that are part of any product sale.”). Such an outcome
deprives the manufacturer or seller of the ability to allocate economic risk by contract—a result
precisely the opposite of what the economic-loss rule sets out to achieve.

       Third, the Kentucky Supreme Court has explained that the economic-loss rule is meant to
“encourage[] the party best situated to assess the risk of economic loss, usually the purchaser, to
assume, allocate, or insure against that risk.” Giddings & Lewis, 348 S.W.3d at 739 (emphasis
added) (quoting Mt. Lebanon, 276 F.3d at 848). The facts of this case illustrate the emphasized
clause’s importance. The majority opinion asserts that ordinary consumers are too “generalist”
(Maj. Op. 8) to be best situated to assess the risk of loss and insure themselves accordingly.
I respectfully disagree. Although ordinary consumers are often “generalists” in a broad sense,
they are nonetheless specialists in their own needs and are fully capable of protecting their
investments to the degree that they desire to do so.
 No. 15-6410               State Farm Mutual Auto. Ins. v. Norcold                          Page 14

       This case is a perfect example.         Larry Swerdloff, presumably an unsophisticated
“generalist” consumer, bought the RV containing the defective refrigerator and—as my panel
colleagues observe—“insured the RV through State Farm.”             (Maj. Op. 3)     The majority’s
concern that consumers are unable to accurately assess the value of a product and the importance
of insuring against the risk of the loss of its economic value is thus belied by the facts of the very
case before us. See Wisconsin Ford Motor Case, 592 N.W.2d at 212 (“Because the consumer
can allocate his or her economic risk by contract, the policy of protecting parties’ freedom to
allocate risk through contract applies equally to consumers as to commercial parties.”).

       I would offer the final observation that this case is not about an ordinary consumer and
his ill-fated transaction. Swerdloff was paid $145,193.20 per his State Farm insurance policy for
the loss of the RV. So what we have before us is the case of a commercial insurance company
suing a commercial manufacturer in tort for a pure economic loss. That fact alone places this
case squarely within the three policy rationales justifying the application of the economic-loss
rule. Giddings & Lewis, 348 S.W.3d at 739 (quoting Mt. Lebanon, 276 F.3d at 848).

       The majority’s decision, in fact, has the effect of allowing State Farm to “have its cake
and eat it too.” State Farm collected insurance premiums from Swerdloff for the risk it assumed
and is now being allowed to “double dip” by getting reimbursed from Norcold after making good
on Swerdloff’s loss. Such an outcome is at odds with the policies behind the economic-loss rule.

       In my opinion, the factors supporting the prediction that the Kentucky Supreme Court
would extend the economic-loss rule to consumer transactions outweigh the factors against such
a prediction. I would therefore reverse the judgment of the district court and grant Norcold’s
motion to certify the two questions that it has proposed to the Kentucky Supreme Court.