In Nami Resources Company, LLC v. Asher Land and Mineral, Ltd., — S.W.3d –, 2015 WL 4776376 (Ky. App. Aug. 14, 2015), the Court of Appeals of Kentucky recently declined to expand the scope of the economic loss doctrine, holding that the doctrine precludes misrepresentation claims only in commercial product liability cases.
In Nami Resources, Nami Resources Company, LLC (“NRC”) extracted gas from property owned by Asher Land and Mineral, Ltd. (“ALM”) pursuant to a contract. Under the contract, NRC agreed to pay ALM 1/8th of the gas’ market price. A dispute developed over the amount of royalties that NRC paid to ALM under the contract. ALM sued NRC, asserting, among other things, a claim for breach of contract and a tort claim for fraudulent misrepresentation. NRC argued that ALM’s misrepresentation claim was barred by the economic loss doctrine, contending that ALM’s claims were founded on contractual duties and that, absent a basis independent of the alleged breach of contract, ALM could not maintain its tort claims.
The trial court held that, outside of the context of a commercial product sale, the economic loss doctrine does not bar misrepresentation claims. Thus, the court allowed ALM’s claims to proceed. The jury found for ALM on both claims and NRC appealed the verdict.
As noted by the appellate court, the economic loss doctrine “prevents [a] commercial purchaser from suing in tort to recover for economic losses arising from the malfunction of the product itself, recognizing that such damages must be recovered, if at all, pursuant to contract law.” Previous Kentucky case law held that, in the context of a commercial product sale, the economic loss doctrine precludes negligent misrepresentation claims but left open the question of whether the doctrine precludes misrepresentation claims in other contexts. The appellate court, agreeing that, outside of the context of a commercial product sale, a negligent misrepresentation claim exists independent of any contract between the parties, declined to “extend the economic loss rule beyond the realm of commercial product sales.”
In light of the court’s decision in Nami Resources, outside the context of a commercial product sale, the economic loss doctrine should not preclude a subrogating insurer from pursuing, where appropriate, tort-based misrepresentation claims against the defendant.