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analyzing the conflicting decisions, adopting the majority view and applying Kentucky common law limitation period, not the Kentucky UCC version of Section 47-2-725.
Summary of this case from Nissan N. Am., Inc. v. Schrader Elecs., Ltd.Opinion
CIVIL ACTION NO. 06-374-C.
March 12, 2007.
Opinion Denying Reconsideration May 29, 2007.
David A. Barry, John G. O'Neill, Sugarman, Rogers, Barshak Cohen, P.C., Boston, MA, Scott T. Dickens, Victor B. Maddox, Tachau, Maddox, Hovious Dickens PLC, Louisville, KY, for Plaintiff.
David R. Monohan, David T. Schaefer, Jill F. Endicott, Woodward, Hobson Fulton, LLP, Louisville, KY, for Defendant.
MEMORANDUM OPINION AND ORDER
This matter is before the court on the defendant's motion to dismiss (DE 9). The court, having reviewed the record and being otherwise sufficiently advised, will grant the defendant's motion in part and deny it in part.
I. Factual Background
This action arises out of the sale and delivery of numerous allegedly defective products by the defendant, Freudenberg-NOK, General Partnership ("FNGP"), to General Electric Company ("GE"). The plaintiff, Electric Insurance Company ("EIC"), provides product liability insurance to GE and is pursuing this action as subrogee to GE's interests.
At all relevant times, FNGP supplied GE with a dishwasher component known as a "pump seal assembly." FNGP began delivering these products to GE in 1994; at the time, the pump seal assemblies were manufactured with a unitized seal component containing a carbon steel insert. GE placed dishwashers incorporating the unitized seal into production beginning in May of 1994. In late 1996, GE claimed that the pump seal assemblies were failing due to corrosion of the carbon steel inserts. To alleviate this problem, FNGP began using a stainless steel insert in place of the carbon steel insert.
Following these events, GE received numerous claims from homeowners who had suffered property damage from dishwasher leaks allegedly caused by the failure of the pump seal assemblies that FNGP had manufactured with carbon steel inserts. In July of 2005, EIC demanded payment from FNGP in reimbursement for the amounts EIC paid to settle these property damage claims on behalf of GE. On November 22, 2005, the parties entered into a series of tolling agreements, which tolled the applicable statute of limitations until August 1, 2006, the date this action was commenced.
EIC seeks indemnification from FNGP for the amounts it paid on behalf of GE in settlement of the property damage claims asserted by homeowners who purchased dishwashers manufactured with the allegedly faulty pump seal assembly. Specifically, EIC claims it is entitled to indemnification for over $8,000,000 it paid to these homeowners as a result of 2,104 individual claims; 479 of these claims, totaling $1,598,889.19, were paid before November 22, 2000. EIC asserts its right to indemnity under both Kentucky common law and provisions of the contract between GE and FNGP that required FNGP to defend, indemnify, and hold GE harmless from any liability resulting from certain failures of the allegedly faulty pump seal assembly.
II. Standard of Review
Dismissal for failure to state a claim can be granted only when the defendants establish beyond a reasonable doubt that the plaintiff can prove no set of facts in support of its claims that would entitle it to relief. Hiser v. City of Bowling Green, 42 F.3d 382, 383 (6th Cir. 1994). The court must consider the pleadings in the light most favorable to the plaintiff and take the factual allegations in the complaint as true. Jones v. Carlisle, 3 F.3d 945, 947 (6th Cir. 1993).
III. Legal Analysis
Although the plaintiff seeks indemnity from the defendant in this action, both parties agree that the subject matter underlying the plaintiff's claims is a contract for the sale of goods. The defendant has therefore moved to dismiss the plaintiff's claims solely on the ground that they are barred by K.R.S. § 355.2-725, Kentucky's statute of limitations applicable to sale-of-goods contracts. § 355.2-725 provides that "[a]n action for breach of any contract for sale must be commenced within four (4) years after the cause of action has accrued. . . . A cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach." Id. at (1), (2). Thus, the defendant argues that the plaintiff's claims accrued between 1994 and 1996, when it delivered the allegedly defective pump seal assemblies to GE and that the four-year statute of limitations on these claims expired between 1998 and 2000, years before the plaintiff filed this complaint. The defendant argues in the alternative that, even if the court finds that § 355.2-725 is inapplicable to the plaintiff's claims, all of its claims arising before November 22, 2000, are barred by Kentucky's residual five-year statute of limitations. See K.R.S. § 413.020(7).
The plaintiff contends that a suit for indemnity that arises from a contract for the sale of goods is not governed by the Uniform Commercial Code ("UCC") and that K.R.S. § 355.2-725 is therefore inapplicable to its claims in this action. Instead, it asserts that its contractual indemnity claim is governed by K.R.S. § 413.090, Kentucky's fifteen-year statute of limitations for actions based on contracts, and that its common-law indemnity claim is subject to K.R.S. § 413.020(7). The plaintiff further argues that its indemnity claims did not accrue until it actually paid the homeowners for the property damage that resulted from the dishwasher leaks. Under this reasoning, both its contractual and common-law indemnity claims would be timely.
The issue of the statute of limitations that governs an indemnity suit where the plaintiff's rights arise from the breach of a contract for the sale of goods is a matter of some dispute. See generally David J. Marchitelli, Causes of Action Governed by Limitations Period in UCC § 2-725, 49 A.L.R. 5th 1 (1997) (collecting cases). Currently, the majority of jurisdictions to answer this question have held that UCC § 2-725 does not apply to such actions. See, e.g., Central Washington Refrigeration, Inc. v. Barbee, 946 P.2d 760 (Wash. 1997); City of Willmar v. Short-Elliott-Hendrickson, Inc., 512 N.W.2d 872 (Minn. 1994); Carrier Corp. v. Detrex Corp., 6 Cal. Rptr. 2d 565 (Cal.Ct.App. 1992); cf. Barbara Oil Co. v. Kansas Gas Supply Corp., 827 P.2d 24 (Kan. 1992) (holding that claim for indemnity was based on agency principles, not a contract subject to UCC). The theory behind the rule espoused in these cases is that indemnity is a separate equitable cause of action; while contract or tort liability may be "secondarily . . . involved" in such suits, indemnity is not dependent on those theories. City of Willmar, 512 N.W.2d at 874.
A minority of courts, however, subscribe to the view that indemnity actions based on contracts subject to the UCC are also subject to § 2-725. See, e.g., Perry v. Pioneer Wholesale Supply Co., 681 P.2d 214 (Utah 1984); Farmers Nat'l Bank v. Wickham Pipeline Const., 114 Idaho 565, 759 P.2d 71 (Idaho 1988). These courts focus primarily on the UCC's policy of ensuring certainty and finality in commercial transactions. See U.C.C. § 2-725 cmt. 2 ("The four year period under this Article is shorter than many other statutes of limitation for breach of contract and it provides a period which is appropriate given the nature of contracts under this Article and modern business practices."); see also Barnes v. Community Trust Bank, 121 S.W.3d 520, 524 (Ky.Ct.App. 2003) (noting the "sound policy of the [UCC] to provide finality within a reasonable time period so that buyers and sellers may proceed with their affairs"). If a party were permitted to bring an indemnity claim based on a breach of a sale-of-goods contract after the UCC statute of limitations had expired, this policy would be undermined considerably. See Paul J. Wilkinson, Comment, An Ind. Run Around the U.C.C.: The Use (or Abuse?) of Indemnity, 20 Pepp. L. Rev. 1407, 1454 (1993) ("If breach of warranty can be based on indemnity, with the cause of action accruing at the time of discovery, or, still later, at the time of payment to a third party, merchants remain subject to liability ad infinitum.").
Since the parties agree, however, that the Kentucky Supreme Court has yet to consider the issue, as a federal court sitting in diversity, this court must predict how the Kentucky Supreme Court would decide this question. See Grego v. Meijer, Inc., 187 F. Supp. 2d 689, 691 (W.D. Ky. 2001). Recently, the Kentucky Supreme Court held that common-law indemnity claims are governed by the five-year limitations period set forth in K.R.S. § 413.020(7). See Degener v. Hall Contracting Corp., 27 S.W.3d 775, 782 (Ky. 2000). In doing so, the court rejected the argument that, because the claim for indemnity arose out of injuries sustained by three police officers while trying to defuse a bomb, the one-year limitations period for tort claims should apply to the indemnity claim. Id. at 781-82. This result suggests that the Kentucky Supreme Court would not look to the underlying contractual basis of the plaintiff's claims here, but would instead consider its claims for indemnity as independent actions with distinct statutes of limitations. Indeed, nothing in the language of Degener suggests that the Kentucky Supreme Court intended to limit its holding to the facts of that case.
This conclusion is also consistent with the Kentucky Supreme Court's broad and continued recognition of indemnity as a separate cause of action. The Kentucky Supreme Court has found that indemnity is a "jural right" and "may not be emasculated by any language or act of the Legislature, no matter how worded." Burrell v. Elec. Plant Bd. of City of Franklin, Ky., 676 S.W.2d 231, 233 (Ky. 1984), overruled on other grounds by Dix Assoc. Pipeline Contractors, Inc. v. Key, 799 S.W.2d 24 (Ky. 1990). It has also held that "a claim for indemnity is not a claim in which the claimant seeks damages for his/her own personal injuries, but is one in which the claimant seeks restitution for damages he/she was required to pay for injuries sustained by another and which were entirely or primarily caused by the party against whom indemnity is sought," Degener, 27 S.W.3d at 781-82, a description that fits the plaintiff's claims in this action. The Kentucky Supreme Court's interpretation of the indemnity right indicates an adherence to the logic of the majority rule and provides satisfactory evidence that, were the Court to decide the question, it would not apply K.R.S. § 355.2-725 to EIC's indemnity claims.
The court's ultimate conclusion, however, is based not only on its reading of Kentucky Supreme Court opinions, but also on its belief that the majority rule is the better-reasoned approach. To be sure, the defendant has skillfully argued that a court's failure to consider the underlying contractual basis for an indemnity claim permits open-ended liability and also creates improper incentives for buyers of commercial products. As noted above, numerous courts and scholars have expressed concern that the majority rule leaves sellers of goods exposed to indemnity claims indefinitely, a result that is particularly troubling in light of the UCC's goal of promoting certainty in commercial sales. A product manufacturer, however, not only owes a buyer the duty to perform under the contract but also may be liable to foreseeable users of its product in tort if that product causes damage or injury. Because the statute of limitations on a tort claim accrues at the time of injury, a manufacturer may be sued for personal injury or other tort damage long after the UCC statute of limitations has already run. See Wilkinson, supra, at 1446 ("With other causes of action involving the sale of goods, such as negligence and strict products liability, surviving well into the future, it is a foolish manufacturer who takes comfort from the possible repose of the breach of warranty action after four years."). It makes little sense to decry the potential open-ended liability to which the majority rule subjects sellers but allow such liability when an injured party is the plaintiff. Indeed, the minority rule leads to the incongruous result that a seller of a product could be held liable if sued directly by an individual harmed by its product while an intermediary buyer of its product could not recover if it was forced to pay the injured party and sought indemnity.
According to the minority rule, however, this is precisely the point. Under this view, there is no inconsistency in allowing an innocent injured party to sue a product manufacturer when his injury arises and barring an intermediary buyer, who had a fair opportunity to inspect the products it purchased, from obtaining indemnification from the manufacturer following such injury. See, e.g., Central Washington Refrigeration, Inc., 946 P.2d at 765 ("I believe at some point the law must recognize commercial practices and concepts, including the concept of bargained — for risk.") (dissenting opinion). This point leads into the defendant's latter argument that, while the law favors rules that provide manufacturers with incentives to make quality products, purchasers of commercial goods must also exercise commercial reasonableness in dealing with the products they buy.
At least one court has suggested that the majority rule encourages parties to willfully evade the UCC's statute of limitations. Under the majority rule, "anyone buying defective goods could resell them before or after the statute had run, and upon being sued for the original defects, file a third-party complaint for indemnity and thus defeat the policy of repose underlying the statute of limitation." Perry, 681 P.2d at 217 n. 1.
On the other hand, courts have also recognized the impracticability of holding intermediary buyers to a high duty of inspection. Intermediaries, like GE in this case, often have little ability to inspect the products they purchase from manufacturers before these products are re-sold. "A party who buys and then resells a product is not in a position to discover the latent defect within the warranty's limitation period because the product is in the hands of the consumer during that time." City of Wood River v. Geer-Melkus Const. Co., Inc., 444 N.W.2d 305, 311 (Neb. 1989) (quoting City of Clayton v. Grumman Emergency Prods., Inc., 576 F. Supp. 1122, 1127 (E.D. Mo. 1983)).
The remedy for the defendant's concerns lies not in the inflexible application of K.R.S. § 355.2-725, but in the law of indemnity itself. The right of indemnity is available to one exposed to liability because of the wrongful act of another with whom it is not in pari delicto. Degener, 27 S.W.3d at 780. Recovery under an indemnity theory is permissible only when "both parties have been at fault, but not in the same fault, towards the party injured, and the fault of the party from whom indemnity is claimed was the primary and efficient cause of the injury." Id. (quoting Louisville Ry. Co. v. Louisville Taxicab Transfer Co., 77 S.W.2d 36, 39 (Ky. 1934)). Thus, if the conduct of GE and/or EIC was commercially unreasonable, the factfinder may consider this behavior in deciding whether EIC is entitled to indemnification. Indemnity is based on equitable principles, and the court must assess parties' conduct in deciding whether a plaintiff is or is not in pari delicto with a defendant; any fault by the buyer of a product should run not to the nature of its cause of action but to the merits of its claim for indemnity. This approach promotes the rationale behind the minority rule by giving buyers the proper incentive to reasonably inspect the products they purchase and lowering the risk that parties to commercial contracts will attempt to maneuver around the UCC limitations period. It also protects suits for indemnification as separate causes of action and eliminates the harsh results that rigid imposition of the minority rule might inflict on commercial distributors and other intermediaries.
"In pari delicto" means "in equal fault; equally culpable or criminal." Black's Law Dictionary 791 (6th ed. 1990).
In sum, the court finds that the majority rule is more theoretically sound than the minority rule and also more consistent with Kentucky jurisprudence. It therefore holds that K.R.S. § 355.2-725 is inapplicable to the plaintiff's claims for indemnity. The court must now consider what statute of limitations does apply to the plaintiff's claims. In light of Degener and its preceding analysis of Kentucky indemnity law, the court holds that the plaintiff's claim for common-law indemnity is subject to K.R.S. § 413.020(7). This is also the result advocated by the plaintiff, and the defendant concedes that this statute should apply if the UCC statute of limitations does not. Under § 413.020(7), an indemnity action must be commenced within five years of its accrual. Further, a cause of action for indemnity accrues when payment is made to an injured party, not at the time of the underlying accident. Poole Truck Line, Inc. v. Commonwealth, Transp. Cabinet/Dept. of Highways, 892 S.W.2d 611, 612 (Ky.Ct.App. 1995) (citing Commonwealth, Dept. of Transp., Bureau of Highways v. All Points Constr. Co., 566 S.W.2d 171, 173 (Ky.Ct.App. 1977)).
Pursuant to the tolling agreements entered into by the parties, the plaintiff's complaint is deemed filed on November 22, 2005. The plaintiff's cause of action for indemnity also accrued when it made payments on behalf of GE. Thus, any payments made before November 22, 2000, are time-barred. The parties agree that the plaintiff settled 479 of the claims against GE, totaling $1,598,889.19, before November 22, 2000. The court therefore holds that the plaintiff is prohibited by § 413.020(7) from recovering any payments it made on these 479 claims under a common-law indemnity theory. The plaintiff's common-law indemnity claims for amounts it paid after November 22, 2000, are timely and will not be dismissed.
The plaintiff argues that the appropriate statute of limitations for its contractual indemnity claim is K.R.S. § 413.090, Kentucky's fifteen-year statute of limitations for actions based on contracts, not § 413.020(7). It asserts that, because this claim is one for indemnity, it is not subject to the limitations of § 355.2-725. The plaintiff also contends, however, that because this claim is contractually based, it is governed by Kentucky's contract statute of limitations. This is, in essence, an argument that the plaintiff's claim is sometimes for indemnity and other times for contract damages, depending on what statute of limitations is most favorable. The plaintiff cannot have it both ways. To the extent that the plaintiff in fact seeks contractual relief, its claim arises under a contract for the sale of goods, is subject to § 355.2-725, and is time-barred in its entirety. See Farm Credit Bank of Louisville v. United States Mineral Prods. Co., 864 F. Supp. 643, 647 (W.D. Ky. 1994) ("The enactment of the U.C.C. . . . was a clear expression of legislative intent to occupy the field of commercial transactions. . . . Thus, KRS § 355.2-725 provides the proper statute of limitations for a breach of warranty claim. The cause of action accrues upon delivery."). To the extent that this claim is for indemnity, it is merged into the plaintiff's common-law indemnity claim and is dismissed only insofar as the plaintiff seeks recovery for payments made before November 22, 2000. For the purposes of clarity, the court will construe it as the former and will order the plaintiff's contractual indemnity claim, Count I of its complaint, dismissed from this action. Accordingly,
IT IS ORDERED that the defendant's motion (DE 9) is GRANTED IN PART AND DENIED IN PART.
The defendant's motion is GRANTED to the extent that the following are DISMISSED WITH PREJUDICE: (1) the plaintiff's contractual indemnity claims; and (2) the plaintiff's common-law indemnity claims based only on payments made before November 22, 2000.
The remainder of the defendant's motion is DENIED.
MEMORANDUM OPINION AND ORDER
This matter is before the court on the plaintiff's motion for partial reconsideration (DE 28). The court, having reviewed the record and being otherwise sufficiently advised, will deny the motion.I. Factual Background
This action arises out of the sale and delivery of allegedly defective products by the defendant, Freudenberg-NOK, General Partnership ("FNGP"), to General Electric Company ("GE"). The plaintiff, Electric Insurance Company ("EIC"), provides product liability insurance to GE and is pursuing this action as subrogee to GE's interests. EIC seeks indemnification from FNGP for amounts it paid on behalf of GE in settlement of property damage claims asserted by homeowners who purchased dishwashers equipped with an allegedly faulty pump seal assembly manufactured by the defendant.
The plaintiff originally asserted two causes of action against the defendant: a claim for contractual indemnity based on provisions of the contract between GE and the defendant that required the defendant to defend, indemnify, and hold GE harmless from any liability resulting from certain failures of the allegedly faulty pump seal assembly and a claim for indemnity under Kentucky common law. The defendant moved to dismiss these claims on the ground that they were barred by K.R.S. § 355.2-725, Kentucky's statute of limitations for breach of contracts for the sale of goods.
In a Memorandum Opinion and Order entered on March 12, 2007, the court partially granted and partially denied the defendant's motion. It found that the plaintiff's common-law indemnity claims were not subject to K.R.S. § 355.2-725, but were instead governed by the five-year limitations period set forth in K.R.S. § 413.020(7). DE 25, at 10-11. The court therefore dismissed the plaintiff's common-law indemnity claims only to the extent that they accrued before November 22, 2000. Id. With regard to the plaintiff's contractual indemnity claims, the court reasoned as follows:
The plaintiff argues that the appropriate statute of limitations for its contractual indemnity claim is K.R.S. § 413.090, Kentucky's fifteen-year statute of limitations for actions based on contracts, not § 413.020(7). It asserts that, because this claim is one for indemnity, it is not subject to the limitations of § 355.2-725. The plaintiff also contends, however, that because this claim is contractually based, it is governed by Kentucky's contract statute of limitations. This is, in essence, an argument that the plaintiff's claim is sometimes for indemnity and other times for contract damages, depending on what statute of limitations is most favorable. The plaintiff cannot have it both ways. To the extent that the plaintiff in fact seeks contractual relief, its claim arises under a contract for the sale of goods, is subject to § 355.2-725, and is time-barred in its entirety. See Farm Credit Bank of Louisville v. United States Mineral Prods. Co., 864 F. Supp. 643, 647 (W.D. Ky. 1994) ("The enactment of the U.C.C. . . . was a clear expression of legislative intent to occupy the field of commercial transactions. . . . Thus, KRS § 355.2-725 provides the proper statute of limitations for a breach of warranty claim. The cause of action accrues upon delivery."). To the extent that this claim is for indemnity, it is merged into the plaintiff's common-law indemnity claim and is dismissed only insofar as the plaintiff seeks recovery for payments made before November 22, 2000. For the purposes of clarity, the court will construe it as the former and will order the plaintiff's contractual indemnity claim, Count I of its complaint, dismissed from this action.Id. at 11-12. The plaintiff now seeks reconsideration of the court's dismissal of its contractual indemnity claim.
II. Standard of Review
In order to succeed on a motion for reconsideration, the movant must establish a clear error of law; present newly discovered evidence; show that there has been an intervening change in controlling law; or show that absent relief, a manifest injustice will result. Gencorp, Inc. v. American Int'l Underwriters, 178 F.3d 804, 834 (6th Cir. 1999); Sault Ste. Marie Tribe of Chippew a Indians v. Engler, 146 F.3d 367, 374 (6th Cir. 1998). Such motions are not an opportunity for the losing party to offer additional arguments in support of its position. Engler, 146 F.3d at 374.
III. Legal Analysis
A. The Proper Statute of Limitations
In its motion for reconsideration, the plaintiff argues that the court erred in dismissing its contractual indemnity claim because it incorrectly identified that claim as a breach-of-warranty claim, rather than the indemnity claim that it actually is. Contrary to the plaintiff's arguments, the court's application of K.R.S. § 355.2-725 to Count I of the plaintiff's complaint is mandated by the clear language of that statute: "An action for breach of any contract for sale must be commenced within (4) years after the cause of action has accrued" (emphasis added). It is undisputed that the contract signed by the parties was a "contract for sale" within the meaning of Section 355.2-725, and that the contractual indemnification provisions under which the plaintiff seeks relief were a part of that contract. Therefore, the court properly rejected the plaintiff's argument that the general contract statute of limitations, K.R.S. § 413.090, governs its contractual indemnity claim.
For similar reasons, the court finds no error in its failure to apply the residual statute of limitations, K.R.S. § 413.020(7), to the plaintiff's contractual indemnity claim. Again, the plaintiff's contractual indemnity claim clearly arises out of a contract for the sale of goods. The fact that the particular provision under which EIC seeks relief requires FNGP to indemnify GE against any loss does not convert EIC's contract claim into a claim for indemnity under Kentucky law.
The incongruity of EIC's position is actually highlighted by its argument that "FNGP promised to provide GE (and EIC as its subrogee) with even broader indemnity for property damage allegedly caused by FNGP's defective components than would be available to GE under common law." DE 28, at 3. As the court noted in its previous opinion, common-law indemnity is an equitable cause of action that is subject to particular limitations and requires a party invoking it to meet certain standards. See DE 25, at 9-10. A party should therefore not be permitted to contractually craft a broader right to indemnity than that provided by Kentucky common law and still take advantage of the common-law statute of limitations. The plaintiff's attempt to do so only accentuates the appropriateness of applying Section 355.2-725 to the plaintiff's contractual indemnity claim.
Ironically, while the plaintiff successfully argued, in responding to the defendant's motion to dismiss, that the court should not look to the underlying contractual basis of its common-law indemnity claim, it now asserts that the court should look to the underlying indemnity basis of its contract claims.
In sum, the court finds that it properly applied K.R.S. § 355.2-725 to the plaintiff's contractual indemnity claim, Count I of its complaint.
B. Warranties for Future Performance
The plaintiff also contends that, even though K.R.S. § 355.2-725 governs Count I of its complaint, the court should not dismiss that count in its entirety because its contractual indemnity claim did not accrue until the defendant allegedly failed to perform its duty to indemnify the plaintiff for amounts the plaintiff paid to homeowners who suffered property damage. This argument, however, was not presented in the plaintiff's motion for reconsideration or at the oral argument on the motion to dismiss held on March 1, 2007, and was discussed only tangentially in a footnote in the plaintiff's response to the defendant's motion to dismiss. See DE 13, at 8 n. 4. It was clearly asserted in the record for the first time in the plaintiff's reply to the defendant's response to the motion for reconsideration. See DE 35, at 3-6. Since the defendant has had little opportunity to respond to this argument, the court questions whether it has been properly raised by the plaintiff.
The court uses the term "in the record" because the plaintiff did present this contention in a proposed sur-reply. See Exhibit A to DE 20. However, the court denied the plaintiff's motion for leave to file this sur-reply, see DE 22, and it was therefore never entered into the record in this action.
The court need not address this issue, however, because it finds that the plaintiff's contractual indemnity claim accrued at the time that the defendant's allegedly defective products were tendered to GE.
A cause of action accrues when the breach occurs, regardless of the aggrieved party's lack of knowledge of the breach. A breach of warranty occurs when tender of delivery is made, except that where a warranty explicitly extends to future performance of the goods and discovery of the breach must await the time of such performance the cause of action accrues when the breach is or should have been discovered.
K.R.S. § 355.2-725(2) (emphasis added). The plaintiff argues, in essence, that the defendant's contractual obligations to protect, defend, hold harmless, and indemnify GE from any death, injury, or property damage that may result from deficiencies in the defendant's products is a "warranty of future performance" that does not accrue until its "breach is or should have been discovered."
Although the defendant's promise in this case is not a "repair or replacement" warranty (in which a seller agrees to repair or replace defective parts), the court finds instructive the Maryland Court of Appeals' analysis of such warranties in Joswick v. Chesapeake Mobile Homes, Inc., 765 A.2d 90 (Md. 2001). In describing the difference between a warranty of future performance and a "repair or replacement" warranty, the Court reasoned as follows:
A warranty of future performance of a product must expressly provide some form of guarantee that the product will perform in the future as promised. The U.C.C. provides the exception in § 2-275(2) because without it, a situation could arise where a buyer, after tender of delivery, could be awaiting such future performance only to have the four year limitation period expire and the future performance promised subsequently fail to occur, thereby leaving the buyer without legal recourse upon such an expressed warranty.
On the other hand, a repair or replacement warranty does not warrant how the goods will perform in the future. Rather, such a warranty simply provides that if a product fails or becomes defective, the seller will replace or repair within a stated period.
Thus, the key distinction between these two kinds of warranties is that a repair or replacement warranty merely provides a remedy if the product becomes defective, while a warranty for future performance guarantees the performance of the product itself for a stated period of time.Id. at 94-95 (quoting Ontario Hydro v. Zallea Sys., Inc., 569 F. Supp. 1261, 1266 (D. Del. 1983)) (emphasis in original).
Like a "repair or replacement" warranty, the defendant's promise to protect, defend, hold harmless, and indemnify GE against any losses caused by its allegedly defective products provides only a remedy; it is not a guarantee of the performance of the products for any specific time period. Thus, the plaintiff has suffered no prejudice by being held to the general rule that an action for breach of a sales contract accrues when tender of delivery is made.
If, however, the court were to accept the plaintiff's argument that its contractual indemnity claim accrued when the defendant's promise to indemnify was allegedly breached, the defendant would be severely prejudiced. Since a product can theoretically fail and cause damage at any time, under the plaintiff's reasoning, the defendant could potentially be subject to indefinite liability on its promise to indemnify GE for such damage. Such a result essentially makes the defendant an insurer of its products and runs counter to the U.C.C's goals of ensuring finality in commercial contracts. See Barnes v. Community Trust Bank, 121 S.W.3d 520, 524 (Ky.Ct.App. 2003); K.R.S. § 355.2-725(1) (noting that parties to a commercial contract may not extend the four-year statute of limitations). For the foregoing reasons, the court is unpersuaded by the plaintiff's arguments that its contractual indemnity claim accrued after the tender of delivery. Accordingly,
IT IS ORDERED that the plaintiff's motion for partial reconsideration (DE 28) is DENIED.