State Farm Mutual Automobile Insurance Company et al v. Norcold, Inc. et al

Filing 35

MEMORANDUM OPINION & ORDER: 1) State Farm and Swerdloff's motion for summary judgment 28 is GRANTED IN PART AND DENIED IN PART, consistent with the above discussion; 2) Norcold's motion for leave to file a surreply 33 is GRAN TED; 3) The parties shall confer and file a proposed judgment that conforms to their stipulations and this Memorandum Opinion and Order on or before 11/20/2015. The Court notes that by so conferring, Norcold does not waive any rights on the issues it wishes to appeal. Signed by Judge William O. Bertelsman on 11/6/2015.(ECO)cc: COR

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

CIVIL ACTION NO. 2014-132 (WOB-JGW)
STATE FARM MUTUAL
AUTOMOBILE INS. CO.,
ET AL.
VS.

PLAINTIFFS

MEMORANDUM OPINION AND ORDER

NORCOLD, INC., ET AL

This

matter

is

DEFENDANTS

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).
reviewed

this

matter

and

concludes

that

The Court has

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

Company.
allegedly

plaintiff

State

Farm

Mutual

Automobile

Insurance

The RV was destroyed on September 20, 2013, by a fire
caused

by

a

refrigerator

manufactured by defendant Norcold, Inc.

in

the

RV

which

was

The RV and its contents

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
Court

Norcold’s

of

Kentucky

transactions.

argument
would

and

not

predicting
apply

the

that
ELR

the
to

Supreme
consumer

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
2

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.”
27).

(Doc.

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.

3

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

refrigerator recall and repair program.

of

the

Norcold

(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

against the risk of economic loss.

the

purchaser

to

insure

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
4

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-CA000762-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).

5

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 presale 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
6

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.”
(citing 22 Am.Jur.2d DAMAGES § 469 (2004)).

Id.

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

applicable statutory rate of 8%.

personal

property

at

the

See KRS 360.010.

However, Norcold argues that plaintiffs are not entitled to
prejudgment

interest

on

the

other

elements

of

their

because Norcold disputed its liability for those claims.
is some case law to support this argument.

damages
There

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).
7

However,
somewhat

the

Wittmer

off-the-cuff

explanation.

Court

cited

statement,

for

no

authority

which

it

for

its

gave

no

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

plaintiff’s

a

right

contract
to

did

prejudgment

not

negate

the

interest.

See

successful
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
8

over

liability,

as

a

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
9

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

10

for

time

needed

to

repair

a

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

period of time in question.

rent

another

RV

during

the

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

Swerdloff’s position.

pre-enactment

authority

that

supports

See Pope’s Adm’r v. Terrill, 214 S.W.2d

276, 278 (Ky. 1948) (noting that it is generally held that the
vehicle
repair

owner’s
period

failure

does

not

to

rent

preclude

replacement
recovery

for

vehicle
loss

of

during
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
11

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

repair, thereby necessitating replacement.
159 S.W.3d at 348.

damaged

beyond

Am. Premier Ins.,

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
12

and Order on or before November 20, 2015.
by

so

conferring,

Norcold

does

not

issues it wishes to appeal.
This 6th day of November, 2015.

13

waive

The Court notes that
any

rights

on

the