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Traveler's Property Casualty Co. of America v. Rapid Power Corporation

United States District Court, W.D. Kentucky, Paducah Division

February 25, 2014

TRAVELER'S PROPERTY CASUALTY COMPANY OF AMERICA, as subrogee of SUPERIOR GRAPHITE COMPANY Plaintiff,
v.
RAPID POWER CORPORATION and DYNAPOWER COMPANY Defendants.

MEMORANDUM OPINION AND ORDER

THOMAS B. RUSSELL, District Judge.

This matter is before the Court upon Plaintiff Travelers Property Casualty Company of America's, as subrogree of Superior Graphite Company, Supplemental Brief on the Motion to Reconsider the Order at Docket No. 51 granting summary judgment to Defendants Rapid Power Corporation and Dynapower Company. (Docket No. 61.) Defendants have responded with their own Supplemental Brief. (Docket No. 64.) This matter is fully briefed and ripe for adjudication. For the following reasons, the Court will DENY Plaintiff's Motion for Reconsideration. (Docket No. 53.)

BACKGROUND

I. Factual Background

A limited recitation of facts is helpful for understanding the issues involved in this Motion for Reconsideration. These facts will be supplemented as appropriate in the analysis below. The Defendants, Rapid Power Corporation and Dynapower Company (referred to collectively as "Dynapower"), [1] design and manufacture power generation equipment for industrial clients. Subrogor Superior Graphite Company ("Superior") manufactures a variety of graphite-derived products. During the period relevant to this action, Subrogee Travelers Property Casualty Company of America ("Travelers") insured property located at Superior's Hopkinsville, Kentucky production facility.

This action arises from the manufacture and sale of a rectifier transformer by Dynapower to Superior and a subsequent, separate contract[2] for services.[3] These services were primarily to assist with the "start up" of the rectifier transformer.[4] The transformer functioned without issue until February 1, 2011, when it was destroyed in a catastrophic failure.

According to Travelers, the transformer catastrophically failed because Dynapower did not incorporate or recommend that Superior incorporate a device known as a "snubber" onto Superior's vacuum breaker, or did not, at a minimum, recommend that Superior install a snubber onto Superior's vacuum breaker. The only remaining claims by Travelers for purposes of this Memorandum Opinion and Order is that this alleged omission was a breach of the "start up" contract for services and a negligent action because Dynapower had a duty to either incorporate or recommend the installation of components that could have prevented the transformer's failure.[5]

II. Procedural Background

After the transformer failure, Travelers paid Superior the proceeds of the policy that covered the transformer. Travelers, acting as subrogee to Superior, sought to recover those proceeds from Dynapower. Travelers pursued recovery on a number of theories, including breach of contract, breach of express warranty, negligence, and strict products liability. Dynapower moved for summary judgment on all counts. (Docket No. 45.)

The Court previously granted summary judgment to Defendant Dynapower on all claims. (Docket No. 51.) Plaintiff Travelers moved for reconsideration of the Court's grant of summary judgment. (Docket No. 53.) Upon further review, the Court found that it had misconstrued the factual background concerning Dynapower's service visits. Specifically, the Court found it had incorrectly held that Dynapower's performance of services was "merely part of the design manufacture, or sale of the transformer, " when those services were in fact performed pursuant to separate, asneeded contracts for services.

Nevertheless, upon considering the impact of the Court's misconstruction of the factual background of Dynapower's service visits, the Court found no basis to reconsider its grant of summary judgment with respect to the strict products liability and express warranty claims. (Docket No. 58.) However, with respect to the breach of contract and negligence claims based on Dynapower's service visits, the Court ordered further briefing on this issue. ( See Docket No. 58, at 10-11.) This opinion only considers Travelers' claims of breach of contract and negligence with respect to the service visits of Dynapower, and whether they can survive a motion for summary judgment.

DISCUSSION

I. Negligence Claim Based on "Start Up" Contract

Upon further review of the parties' briefing and the applicable case law, the Court finds the only viable claim Travelers has based on the separate, as-needed service contract is one in contract.[6] The Court recognizes that its previous Memorandum Opinion and Order implied a negligence claim was the only potentially viable claim based on these service contracts. (Docket No. 58, at 10-11.) However, as Dynapower recognizes in their reply, (Docket No. 64, at 4 n.4), in implying this the Court focused exclusively on the economic loss rule and the case law holding it does not apply to service contracts. It was not argued to the Court that the tort/negligence claim was precluded based on the independent duty rule, which holds that a tort action arising from a contractual relationship is precluded unless based on a tort duty that arises independent ...


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