B.S.C. Holding, Inc. et al v. Lexington Insurance Company

Filing 134

ORDER re 118 Plaintiffs' Objections to Defendant's Defenses & Affirmative Defenses in the Pretrial Order, and 119 Defendant's Revised Paragraph 7.b. to the Pretrial Order. Plaintiffs' objections to Defendant's inclusion o f defenses (26), (23), and (25) in the pretrial order -- on the basis that they were not properly raised and preserved by the pleadings -- are sustained. In conjunction with this Order, the Court will enter the parties' proposed pretrial order w ith these defenses removed. Defendant's request to amend the pleadings to add the affirmative defense failure to mitigate damages is denied as untimely. Plaintiffs' remaining objections to Defendant's defenses and affirmative defenses, including section 7.b. of the proposed pretrial order, are overruled. Signed by Magistrate Judge David J. Waxse on 8/7/2012. (byk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
B.S.C. HOLDING, INC.,
et al.,
Plaintiffs,
v.

Case No. 11-2252-EFM/DJW

LEXINGTON INSURANCE COMPANY,
Defendant.

ORDER REGARDING PLAINTIFFS’ OBJECTIONS
TO DEFENDANT’S DEFENSES AND AFFIRMATIVE DEFENSES
INCLUDED IN PROPOSED PRETRIAL ORDER
The Court held the pretrial conference in this case on July 17, 2012. During the conference,
Plaintiffs objected to the inclusion of several defenses and affirmative defenses by Defendant in the
parties’ proposed pretrial order. The Court ordered the parties to further confer regarding Plaintiffs’
objections to Defendant’s defenses and affirmative defenses, as well as Defendant’s essential
elements of its affirmative defenses. It further ordered Plaintiffs to file a pleading setting out their
specific objections to the defenses and affirmative defenses Defendant included in the proposed
pretrial order. Defendant was ordered to file its proposed “Essential Elements of Defendant’s
Affirmative Defenses” section. Each side was then given an opportunity to file a response. The
parties were ordered to submit a revised pretrial order by July 30, 2012, with the changes discussed
at the pretrial conference, as well as any revisions as a result of the parties’ conferring efforts. All
objections and disputes remaining unresolved were to be left as footnotes in the revised proposed
pretrial order submitted to the Court.
In accordance with the Court’s instructions from the pretrial conference, Plaintiffs filed their
Objections to Defendant’s Defenses & Affirmative Defenses in the Pretrial Order (ECF No. 118),

and Defendant filed its Revised Paragraph 7.b. to the Pretrial Order (ECF No. 119). The parties
then filed their respective responses (ECF Nos. 120 and 121). Finally, on July 30, 2012, the parties
submitted their revised proposed pretrial order with footnotes and other notations indicating the
sections where they had not resolved their disputes. From the Court’s review of the parties’ briefing
and the revised pretrial order, it appears that following objections/issues remaining outstanding:
•

Plaintiffs’ objections to Defendant’s inclusion of defenses (26), (23), and (25) as not
previously pled and therefore waived;

•

Plaintiffs’ objection to defense (1) as lacking specificity;

•

Plaintiffs’ objection to defense (7) as contrary to facts Defendant previously
admitted;

•

Plaintiffs’ objection to Defendant’s inclusion of its First, Third, Seventh, and Ninth
affirmative defenses where Defendant does not bear the burden; and

•

Plaintiffs’ objections to Defendant’s essential elements for its Fifth, Sixth, and
Eighth Affirmative Defenses.

I.

Plaintiffs’ Objections to Defendant’s Affirmative Defenses Not Previously Pled
A.

Affirmative Defense of Failure to Mitigate Damages (26)

Plaintiffs object to Defendant’s inclusion of affirmative defense (26) in the proposed pretrial
order. That affirmative defense asserts that “Plaintiffs failed to mitigate their damages and as such
recovery is barred or limited due to such failure.” Plaintiffs argue that Defendant should not be
permitted to include this affirmative defense in the pretrial order because Defendant failed to
previously pled it in its answer.
Defendant admits that its “failure to mitigate” defense was not specifically pleaded as an

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affirmative defense in its Answer and Affirmative Defenses to Plaintiffs’ Amended Complaint.
Rather than removing this defense from the pretrial order, it requests leave to amend the pleadings
to add “failure to mitigate” as an affirmative defense. It claims that the factual bases for its “failure
to mitigate” defense arose on July 18, 2012, during the fact deposition of Nathan Steele, the General
Manager of the Lyons Salt Mine.
Plaintiffs oppose Defendant’s request for leave to amend to add this affirmative defense.
They dispute Defendant’s allegation that it only became aware of the basis for asserting the
affirmative defense on July 18, 2012. They point out that Defendant’s counsel provided the Court
with a copy of the parties’ proposed pretrial order – which contained the failure to mitigate
affirmative defense – on July 10, 2012, eight days before Mr. Steel was deposed. Plaintiffs also state
that Defendant’s desire to add the defense was discussed by the parties during the lengthy
negotiation process before the parties submitted the pretrial order to the Court on July 10. In
addition to disputing that Defendant only recently became aware of the basis for the affirmative
defense, Plaintiffs argue that it would be futile to grant Defendant leave to amend, the facts
underlying the affirmative defense have been available to Defendant for months, and the addition
of the affirmative defense at this late date will prejudice them.
Defendant’s request for leave to amend its pleadings to assert the affirmative defense of
failure to mitigate damages is denied. The Scheduling Order deadline for filing motions to amend
expired over 10 months ago on September 26, 2011, and Defendant has failed to convince the Court
that it first discovered the factual bases for the affirmative defense during Mr. Steel’s deposition on
July 18, 2012. As Plaintiffs point out, Defendant appears to have been aware of this affirmative
defense before it submitted the proposed pretrial order since it listed it therein as an affirmative

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defense. The Court will therefore deny Defendant’s request for leave to amend on the grounds that
it is untimely and Defendant has not shown any excusable neglect for the delay. Nor has Defendant
shown that it only recently learned of the factual basis for the affirmative defense. The Court also
finds that Plaintiffs would be unduly prejudiced by the late addition of the affirmative defense.
Discovery is closed and the parties have filed their motions for summary judgment. Because
Defendant failed to previously plead its failure to mitigate affirmative defense, it may not now
include it as affirmative defense in the Pretrial Order. Plaintiffs’ objection to Defendant’s inclusion
of defense (26) in the pretrial order is sustained. The Court will delete this defense from the Pretrial
Order prior to entering the order.
B.

Defense That Plaintiffs Limited to Reasonable Remediation Costs (23)

Plaintiffs also object to Defendant’s inclusion of defense (23) in the pretrial order.
Defendant describes this defense in the proposed pretrial order as:
(23) If it is determined that a “loss” occurred, and if it is also determined that either
the “Sue and Labor” and/or “Preservation and Protection of Property” clauses are
applicable, the steps taken by Plaintiffs to remediate the water inflow problem were
unreasonable - Plaintiffs are limited to recover only reasonable remediation costs.
Plaintiffs object that Defendant failed to specifically plead this affirmative defense of
reduction (sometimes called recoupment) in its answer, and therefore cannot include it in the pretrial
order. According to Plaintiffs, this is an affirmative defense closely related to the affirmative
defense of mitigation of damages.
Defendant argues that it is merely asserting that some of Plaintiffs’ claimed damages were
unreasonable and thus their damages should only include “reasonable remediation costs.” It
disagrees with Plaintiffs’ attempt to characterize this defense as one of “recoupment,” and that
recoupment is closely related to the affirmative defense of mitigation of damages. There is nothing
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in Defense No. 23 to suggest that Defendant is asserting a defense that it is owed money arising out
of the same transaction and that said money should be set off against Plaintiffs’ claimed damages.
Regardless of how the parties characterize this defense, Defendant still must plead enough
in its answer to put Plaintiffs on notice that it intends to assert this defense. Defendant has not
provided a citation to the record where it has pled this defense. Nor does the Court find any
reference to this defense in Defendant’s answer (ECF No. 12). As Defendant has failed to plead this
defense, it cannot include it in the pretrial order. Plaintiffs’ objection to Defendant’s inclusion of
defense (23) in the pretrial order is sustained. The Court will delete this defense from the Pretrial
Order prior to entering the order.
C.

Waiver and/or Estoppel Defense (25)

Plaintiffs object to Defendant’s inclusion of the defense of waiver and/or estoppel, which
Defendant describes in the prosed Pretrial Order as follows:
(25) Plaintiffs cannot rely on any language contained in Lexington's Reservation of
Rights letter since Plaintiffs voluntarily incurred expenditures to resolve the water
inflow issue prior to receiving said letter.
Plaintiffs object that Defendant has failed to raise this affirmative defenses in its answer and
has therefore waived its right to now rely on it. They request that Defendant not be permitted to
include this defense in the pretrial order.
Defendant claims that Plaintiffs are mistaken in their argument. They erroneously believe
that Defendant is making an affirmative estoppel and/or waiver claim, alleging that Plaintiffs are
estopped from doing something based on certain actions or statements. To the contrary, defense (25)
is based on Plaintiffs’ own failure to affirmatively plead estoppel in its amended complaint and/or
Plaintiffs’ inability to affirmatively prove estoppel (if it is shown that it was pleaded properly).

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The Court has reviewed Defendant’s answer and finds no allegations or references to a
waiver or estoppel theory defense based upon Plaintiffs voluntarily incurring expenditures to resolve
the water inflow issue prior to receiving Defendant’s reservation of rights letter. Defendant must
plead enough in its answer to put Plaintiffs on notice that it intends to assert this defense so that
Plaintiffs can conduct discovery and prepare its case. Defendant has not provided a citation to the
record where it has pled this defense. As Defendant has failed to plead this defense, it cannot
include it in the pretrial order. Plaintiffs’ objection to Defendant’s inclusion of defense (25) in the
pretrial order is sustained. The Court will delete this defense from the Pretrial Order prior to
entering the order.
II.

Plaintiffs’ Objections to Defense (1) as Lacking Sufficient Specificity
Plaintiffs next object to Defendant’s inclusion of defenses in the pretrial order that are so

lacking in specificity that they fail to provide fair notice of the actual defense or issue that is being
asserted. Remaining at issue is defense (1), which Defendant sets out in the pretrial order as:
“Plaintiffs cannot establish that the ‘Sue and Labor’ provision(s) contained in the policies applies
to their claim and thus their claim is barred.” Plaintiffs argue that Defendant should not be allowed
to include this “Plaintiffs cannot establish” defense because it fails to suggest what particular
provision or element is disputed or why.
Defendant responds that it has complied with the instructions to the form pretrial order,
which only require a defendant to “provide a concise list . . . of all of the defendant’s defenses,
regardless of whether the defense is a mere denial of a certain claim or whether the defense is
affirmative in nature.” It argues that these instructions do not require the specificity that Plaintiffs
demand in their objections. According to Defendant, defense (1) is a mere denial of a claim.

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The Court agrees with Defendant that its defense (1) is a mere denial of a claim, and that it
has sufficiently complied with the instructions of the form pretrial order by providing a “concise list”
of its denial defenses. Plaintiffs’ objection to proposed pretrial order defense (1) is overruled. This
defense will remain in the pretrial order.
III.

Plaintiffs’ Objections to Defense (7) as Contrary to Facts Previously Admitted
Plaintiffs next object to Defendant’s inclusion of defense (7) in the pretrial order because it

is contrary to facts previously admitted by Defendant. This defense alleges that “Plaintiffs did not
determine that the claimed ‘loss’ was ‘imminent’ until after April 1, 2010, after the last [Defendant]
policy had expired, and thus recovery is barred.” Plaintiffs argue that defense (7) is contrary to the
statement in Defendant’s answer admitting that “the structural integrity of the Lyons Salt Mine was
compromised prior to April 2010.”
Defendant disputes that its statement is contradictory to its defense. It argues that Plaintiffs
fail to identify any pleading in which it admits that the compromised structural integrity of the mine
was a “loss.” To the contrary, Defendant claims that it actually denied that a covered loss had
occurred under one of the policies in its answer to Paragraph 58 of Plaintiffs’ Amended Complaint.
Defendant argues that some of the central issues that will ultimately have to be resolved by the Court
or a jury in this matter are (a) whether a “loss” occurred, (b) when the “loss” occurred (if one did
indeed occur), and (c) what caused the “loss” (if one did indeed occur). The only admission
Defendant has made in its Answer is that the mine’s structural integrity was compromised prior to
April 2010. Plaintiffs’ attempt to characterize the latter statement as an admission that a “loss”
occurred and that the compromised structural integrity of the mine is said “loss” is a blatant
misreading of the plain language of the answer.

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Plaintiffs’ objection to Defendant’s inclusion of defense (7) in the pretrial order — on the
basis the defense is contrary to Defendant’s statements in its answer — is overruled. Defendant is
entitled to list in the pretrial order all of its defenses that it has previously pled regardless of whether
the defense is supported or contradicted by statements in the pleadings or evidence. Defendant need
not make a showing as to the merit of a defense in order to simply list the defense in the pretrial
order. This defense will remain in the pretrial order.
IV.

Defendant’s Inclusion of Affirmative Defenses Where It Does Not Bear the Burden
Plaintiffs also object to Defendant’s inclusion of four affirmative defenses that Defendant

claims it does not bear the burden. In support of their objection, they quote the instructions to
section 7.b. of the form pretrial order, which directs Defendant to only include “those affirmative
defenses that are truly affirmative in nature, meaning those on which the party defending a particular
claim bears the burden of proof.” Despite these instructions, Defendant nonetheless continues to
improperly list, as its First, Third, Seventh, and Ninth Affirmative Defenses in its revised pretrial
order section 7.b., defenses where it asserts that Plaintiffs bear the burden of proof. Plaintiffs
therefore object to Defendant including these as affirmative defenses in section 7.b. of the pretrial
order as these are, at best, defenses to Plaintiffs’ claims. They request that these affirmative defenses
be ordered stricken from section 7.b. of the pretrial order.
Defendant admits that it listed several affirmative defenses that it believes place an
affirmative burden on Plaintiffs to establish certain essential elements, and not vice versa. While
noting that the form pretrial order appears to seek only those affirmative defenses that are “truly
affirmative in nature, meaning those on which the party defending a particular claim bears the
burden of proof,” Defendant states that it included these as affirmative defenses to ensure that it does

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not waive them in the event that the Court decides that Defendant, and not Plaintiffs, actually has
the burden of establishing the essential elements.
The instructions to section 7.b. of the form pretrial order direct that “information should only
be provided for those affirmative defenses that are truly affirmative in nature, meaning those on
which the party defending a particular claim bears the burden of proof.” Defendant, however, has
provided a reasonable explanation why it decided to include its First, Third, Seventh, and Ninth
affirmative defenses in this section of pretrial order. The Court will permit Defendant to retain these
as affirmative defenses in section 7.b. of the pretrial order.
V.

Plaintiffs’ Objections to Defendant’s Essential Elements for Certain Affirmative
Defenses
Plaintiffs have also included in the pretrial order their objections to Defendant’s essential

elements for its Fifth, Sixth, and Eighth Affirmative Defenses. They disagree with the essential
elements set forth by Defendant for each of these affirmative defenses. The Court has reviewed the
proposed pretrial order and concludes that these objections are appropriately included in the pretrial
order. The Court will retain the essential elements set out by Defendants, as well as the objections
to those elements set out by Plaintiffs.
IT IS THEREFORE ORDERED THAT Plaintiffs’ objections to Defendant’s inclusion
of defenses (26), (23), and (25) in the pretrial order — on the basis that they were not properly raised
and preserved by the pleadings — are sustained. In conjunction with this Order, the Court will
enter the parties’ proposed pretrial order with these defenses removed.
IT IS FURTHER ORDERED THAT Defendant’s request to amend the pleadings to add
the affirmative defense failure to mitigate damages is denied as untimely.
IT IS FURTHER ORDERED THAT Plaintiffs’ remaining objections to Defendant’s
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defenses and affirmative defenses, including section 7.b. of the proposed pretrial order, are
overruled.
Dated in Kansas City, Kansas, this 7th day of August, 2012.

s/ David J. Waxse
David J. Waxse
U.S. Magistrate Judge

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