Suburban SW12DEL Water Heater On/OFF switch melts???

Your best bet is to eliminate the outside switch if you have an indoor one. Using it as a "fuse" is asking for trouble as the overheating and melting can cause fires if things go wrong. Unless it is a heater, nothing electric should be hotter than what you can hold in your hand. Best to eliminate anything that causes unacceptable heat.

Had that issue on a Starcraft that I had. I removed the switch and moved the wiring to the side of the vanity with a box and switch that had a light that went on when the electric side was energized. Never had to go out in the rain again because I forgot to turn the wh on. Used aluminum duct tape to seal the switch hole. Did the same as soon as I got the next one. Current one came with interior control of the electric side.

I would change the element also. Perhaps it is drawing more current than the setup is designed for. You could also use an amp meter to see how much current it is drawing. 

Kind of sounds like they are saying "Yeah, maybe powering the refrigerator straight from the switch wasn't such a good idea after all. Let's add a relay"

Suburban says the new SW12DEL units don't have an ON/OFF switch at the heater itself - power goes through a relay not the little switch. Maybe if I have more problems I'll wire a relay into the circuit so the switch doesn't have to carry much current.

I don't see the second schematic. But based on your first schematic I would try disconnecting the black wire right at the upstream or switch side of the Hi-Limit. Then turn on the switch and see if it lights up. If it does light up then there is a relay somewhere allowing the switch circuit to ground. This is expected for a relay and should not cause any melting. My thought is by disconnecting the Hi-limit and thermostat and heating element you isolate and remove all potential load from the circuit so you are only looking at and troubleshooting the control part of the circuit.

But if the switch does light up and then heats up I would be looking for that relay.

This is what I put in to replace the burnt switch and I also replaced the somewhat burnt connectors.

Suburban sent me a new manual and it shows the high current flowing through a relay which is what I would have expected, but the switch does not appear in the schematic????

I was going to show a photo of the switch I put in but this stupid website says "You don't have permission to upload photos" despite the fact that's exactly what I did to start the thread.

Anyway, I replaced the switch (it says 20A) and the connectors that were a bit burnt. 

So far it has worked for an hour - we'll see what tomorrow brings.

The Suburban spec sheet says the circuit draws 12A. The bag that the switches are in says they can carry 20A at 125VAC. The switches have molded into the case 15A.