TAMKO Building Products, Inc. v. Factory Mutual Insurance Company
Filing
151
MEMORANDUM AND ORDER. (see order for details) IT IS HEREBY ORDERED that TAMKO's motion for partial summary judgment on the issue of coverage [# 118 ] and its motion for partial summary judgment that the appraisal award is void and unenforceabl e [# 125 ] are GRANTED. IT IS FURTHER ORDERED that Factory Mutual's motion for summary judgment [# 127 ] is GRANTED only as to the claims for vexatious refusal to pay and fraud and suppression and is DENIED in all other respects. IT IS FURTHER ORDERED that Factory Mutual's renewed motion to enforce the appraisal award [# 129 ] is DENIED. IT IS FURTHER ORDERED that Factory Mutual's motion to exclude the expert testimony of John Kopfer [# 117 ] and TAMKO's motion to exclude the expert testimony of Anirban Basu and David Elmore [# 119 ] are DENIED. IT IS FURTHER ORDERED that Factory Mutual's motion to exclude the expert testimony of David Collard [# 106 ] and Donald Dinsmore [# 116 ] are GRANTED, and TAMKO's m otion to exclude the expert testimony of Alfred Cipriani and Captain Christopher Karentz [# 123 ] is GRANTED. IT IS FURTHER ORDERED that Factory Mutual's motion to compel and motion for sanctions [# 97 ] is DENIED. Signed by District Judge Catherine D. Perry on 08/21/2012. (CBL)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
TAMKO BUILDING
PRODUCTS, INC.,
Plaintiff,
vs.
FACTUAL MUTUAL
INSURANCE COMPANY,
Defendant.
)
)
)
)
)
)
)
)
)
)
)
Case No. 4:10CV891 CDP
MEMORANDUM AND ORDER
Plaintiff TAMKO Building Products, Inc. is a manufacturer of roofing
products. In late 2008, TAMKO’s supplier of asphalt flux was unable to supply it
with an adequate amount of this product, and TAMKO was forced to shut down its
Frederick, Maryland facility for approximately one month. TAMKO held an
insurance policy with defendant Factory Mutual Insurance Company, and it
submitted a claim for the damages it allegedly suffered during the shutdown.
Factory Mutual refused to pay the claim, and invoked an appraisal provision
seeking an appraisal of any damages. TAMKO filed this suit seeking to recover
under the policy and alleging vexatious refusal to pay. Factory Mutual filed a
counterclaim seeking a declaration of no coverage.
Based on the undisputed evidence before me, I conclude that the loss here is
covered by the policy, and so TAMKO is entitled to summary judgment on the
coverage issue. I also agree with TAMKO that the appraisal award is void and
unenforceable. I will grant Factory Mutual summary judgment on TAMKO’s
other claims, and so the only issue remaining for trial is the amount TAMKO is
owed under the policy.
Background
TAMKO is a manufacturer of roofing materials, including various types of
asphalt shingles. In order to produce those shingles, TAMKO purchases coating
grade asphalt from its supplier Bitumar USA, Inc. Bitumar produces the coating
grade asphalt using a product called asphalt flux, which it purchases from Irving
Oil, Ltd. Irving operates an oil refinery in New Brunswick, Canada. Its operations
consist of a three-room monobuoy located in the Bay of Fundy, to which ships
dock while unloading oil, and a pipeline system connecting the monobuoy to the
onshore storage tanks. Collectively, the monobuoy and subsea pipeline is referred
to as a “single point mooring” (SPM) system.
In August 2008, Irving Oil shut down its pipeline because of damage to the
pipeline and a subsequent oil leak. Because of the shutdown, Bitumar was unable
to obtain asphalt flux from Irving Oil, so TAMKO was unable to receive coating
grade asphalt from Bitumar. TAMKO therefore slowed and eventually stopped
production completely on September 15, 2008, and it resumed operation on
-2-
October 12, 2008. TAMKO alleges that the shut down caused a loss of
approximately $12 million.
Factory Mutual issued Commercial Property Insurance Policy FM469 to
TAMKO for the policy period from June 1, 2008 to June 1, 2009. TAMKO
submitted a claim for its loss to Factory Mutual in September 2008. The parties
exchanged information for approximately nine months before Factory Mutual
decided that it would not cover TAMKO’s claim. They continued to negotiate and
exchange documents, however, until May 2010, when TAMKO filed this suit. In
response, Factory Mutual demanded appraisal pursuant to the terms of the policy.
Factory Mutual chose Peter Hagen to serve as its appraiser, and TAMKO
chose Ken Sorenson. Those appraisers then selected Steve Rosenthal as the neutral
umpire. During the appraisal, TAMKO became suspicious that Hagen was not
disinterested because of previous business interactions between Hagen and Factory
Mutual. The appraisal concluded with an award of $3,569,261. Thereafter,
TAMKO amended its complaint to add a fraud and suppression count related to the
appraisal. Factory Mutual filed a motion to dismiss the newly added counts, which
I previously denied. I also ordered Factory Mutual to produce discovery regarding
any bias of its chosen appraiser.
TAMKO now moves for summary judgment, seeking a declaration that the
policy provides coverage for its loss and that the appraisal was void and
-3-
unenforceable because Hagen and Rosenthal were not disinterested. Factory
Mutual seeks summary judgment on TAMKO’s second amended complaint and
seeks to enforce the appraisal award. The parties also filed several motions to
exclude or limit expert testimony.
Discussion
In determining whether summary judgment should issue, I must view the
facts and inferences from the facts in the light most favorable to the nonmoving
party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587
(1986). The moving party has the burden to establish both the absence of a
genuine issue of material fact, and that it is entitled to judgment as a matter of law.
Fed. R. Civ. P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986);
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the moving party has
met this burden, the nonmoving party may not rest on the allegations in its
pleadings but by affidavit or other evidence must set forth specific facts showing
that a genuine issue of material fact exists. Fed. R. Civ. P. 56(e).
Under Missouri law, which applies to this diversity case, the rules governing
the interpretation of insurance polices are well settled. Columbia Mut. Ins. Co. v.
Schauf, 967 S.W.2d 74, 77 (Mo. 1998) (en banc). A court must apply the general
rules of contract construction when interpreting an insurance policy, because
insurance policies are contracts. Todd v. Missouri United Sch. Ins. Council, 223
-4-
S.W.3d 156, 160 (Mo. 2007) (en banc). A court must give the contract’s terms
their plain and ordinary meaning, unless a term is ambiguous. Farmland Indus.,
Inc. v. Republic Ins. Co., 941 S.W.2d 505, 508 (Mo. 1997) (en banc). A term’s
plain and ordinary meaning is the meaning that an average layperson would give
the term. Farmland Indus., Inc., 941 S.W.2d at 508. In addition, a court “should
not interpret policy provisions in isolation but rather evaluate policies as a whole.”
Ritchie v. Allied Prop. & Cas. Ins. Co., 307 S.W.3d 132, 135 (Mo. 2009). Finally,
in interpreting an insurance contract, the court must “endeavor to give each
provision a reasonable meaning and to avoid an interpretation that renders some
provisions useless or redundant.” Dibben v. Shelter Ins. Co., 261 S.W.3d 553, 556
(Mo. Ct. App. 2008).
A term is ambiguous only if the terms are “reasonably and fairly open to
different constructions, and there is duplicity, indistinctness, or uncertainty of
meaning.” Miller’s Classified Ins. Co. v. French, 295 S.W.3d 524, 526 (Mo. Ct.
App. 2009) (citations and internal quotation marks omitted). When an ambiguity
exists in an insurance policy, the court must interpret the policy in favor of the
insured. Todd, 223 S.W.3d at 160. If, however, the policy is unambiguous, the
court must enforce the contract’s terms as written. Id.
-5-
Coverage Under the Policy
Generally, to establish a prima facie case of coverage under an insurance
policy under Missouri law, the insured must demonstrate: (1) “issuance and
delivery of the insurance policy,” (2) “payment of the premium,” (3) “a loss caused
by a peril insured against,” and (4) “notice of loss and proof of the loss given to the
insurer as the policy requires.” Nixon v. Life Investors Ins. Co. of America, 675
S.W.2d 676, 679 (Mo. Ct. App. 1984). The element at issue in this case is whether
the loss was caused by a peril against which TAMKO was insured – specifically
whether it occurred at a location insured under the policy.
The insurance policy in this case provides “dependent time element”
coverage, which it describes as follows: “This Policy covers the Actual Loss
Sustained and EXTRA EXPENSE incurred by the Insured during the PERIOD OF
LIABILITY directly resulting from physical loss or damage of the type insured to
property of the type insured at Dependent Time Element Locations located within
the TERRITORY of this Policy.” The policy then defines a “dependent time
element location” as:
(i)
Any Location:
(a)
of a direct customer, supplier, contract manufacturer or
contract service provider to the Insured.
(b)
of any company under a royalty, licensing fee or
commission agreement with the Insured.
-6-
(ii)
Any Location of a company that is a direct or indirect
customer, supplier, contract manufacturer or contract service
provider to a Location described in a)(i) above.
In the policy’s Declarations, it more broadly defines an “Insured Location” under
the policy as follows:
A.
The coverages under this Policy apply to an Insured Location
unless otherwise provided.
Insured Location is a location:
1)
listed on a Schedule of Locations, Appendix A attached
to this Policy.
2)
covered as a Miscellaneous Unnamed Location.
3)
covered under the terms and conditions of the Automatic
Coverage or Errors and Omissions provisions.
B.
References and Application. The following term(s) wherever
used in this Policy means:
1)
Miscellaneous Unnamed Location: A Location owned,
leased or rented by the Insured but not specified in the
Schedule of Locations.
2)
Location:
a)
as specified in the Schedule of Locations, or
b)
if not specified in the Schedule of Locations, a
Location is a building, yard, dock, wharf, pier or
bulkhead (or any group of the foregoing) bounded
on all sides by public streets, clear land space or
open waterways, each not less than fifty feet wide.
Any bridge or tunnel crossing such street, space or
waterway will render such separation inoperative
for the purpose of this Reference and Application.
-7-
The only location specified in the Schedule of Locations in the policy relevant to
this analysis is TAMKO’s facility in Frederick, Maryland.
The parties’ arguments regarding coverage under the policy for TAMKO’s
loss center around the policy’s “dependent time element” (DTE) coverage, and
whether the damage to Irving Oil’s pipeline occurred at a covered DTE location.
TAMKO argues that the single point mooring system is part of one integrated oil
system – all other parts of which Factory Mutual admits constitute covered DTE
locations – and that even if it is not considered to be part of the system, it is an
independently covered DTE location under the terms of the policy. Factory
Mutual argues that the SPM system is not covered under the explicit terms of the
policy, regardless of whether it is connected to other DTE locations. I agree with
TAMKO that the SPM system is a covered DTE location under the policy, and so
this is a loss covered by the insurance policy.
The parties agree that under the terms of the policy, Irving Oil is a supplier
to TAMKO, such that any of its “locations” suffering physical loss or damage are
covered under the policy. The policy defines a “location” as a “building, yard,
dock, wharf, pier or bulkhead (or any group of the foregoing).” These terms are
not separately defined in the policy, however. “[W]hen words or phrases are not
defined in the policy, [courts] look to the plain meaning of words or phrases as it
would have been understood by an ordinary person of average intelligence when
-8-
buying the policy.” Long v. Shelter Ins. Cos., 351 S.W.3d 692, 701 (Mo. Ct. App.
2011) (citing Jones v. Mid-Century Ins. Co., 287 S.W.3d 687, 690 (Mo. 2009) (en
banc)). “To determine the ordinary meaning of a term, courts will consult standard
English language dictionaries.” Mansion Hills Condo. Ass’n v. Am. Family Mut.
Ins. Co., 62 S.W.3d 633, 638 (Mo. Ct. App. 2001).
TAMKO argues that the SPM system fits within the ordinary meaning of the
terms dock, wharf, and building. Merriam-Webster’s Collegiate Dictionary defines
a “dock” as “a place (as a wharf or platform) for the loading or unloading of
materials.” Merriam-Webster’s Collegiate Dictionary 341 (10th ed. 2002); see
City of Jefferson City, Mo. v. Cingular Wireless, LLC, 531 F.3d 595 (8th Cir. 2008)
(approving the use of Merriam-Webster’s Collegiate Dictionary to define Missouri
statutory terms). It defines a “wharf” as “a structure built along or at an angle from
the shore of navigable waters so that ships may lie alongside to receive and
discharge cargo and passengers.” Merriam-Webster’s Collegiate Dictionary 1340
(10th ed. 2002). It also defines a “building” as “a [usually] roofed and walled
structure built for permanent use (as for a dwelling).” Merriam-Webster’s
Collegiate Dictionary 150 (10th ed. 2002).
Using the plain meaning of these terms, I conclude that the monobuoy and
pipeline system does fit within the policy’s list of covered locations. The
monobuoy constitutes a building in that it consists of walls and a roof, and workers
-9-
occupy this space for several hours at a time. It also meets the definition of a
wharf, as it was built to allow ships to dock alongside the buoy to unload oil.1
Finally, it constitutes a dock because it is a place to discharge cargo. In fact, that is
its sole purpose and function. Factory Mutual’s argument that the “monobuoy” is
not covered solely because that precise term is not contained in the list of locations
is not a reasonable construction of the policy.2 Rather, the policy, when read as a
whole, is broad and inclusive, providing coverage for all “locations” of the
insured’s suppliers and the suppliers’ suppliers, even without listing those
suppliers in the policy itself. Such a broad and inclusive policy is not subject to
such a narrow construction of a particular phrase, analyzed in isolation. I conclude
that the monobuoy itself is a covered location under the policy, such that
TAMKO’s loss from the damage to the pipeline is covered.
Furthermore, even if the SPM system was not an independently covered
location under the policy, it is an inseparable part of the entire Irving Oil facility.
1
Factory Mutual argues that the monobuoy differs from a wharf or pier because ships can
be restrictively docked to those structures, which are built along a shore. In contrast, the
monobuoy is located away from the shore, allowing ships to swing around its circumference with
the tide and the weather when they are docked to it. I conclude that the monobuoy’s essential
characteristics and function qualify it as a covered location under the policy, regardless of this
distinction, and so Factory Mutual’s argument is without merit.
2
Factory Mutual also argues that because the policy contains a closed list of covered
locations, the canon of expressio unius est exclusio alterius applies so as to exclude all other
locations. See Barnhart v. Peabody Coal Co., 537 U.S. 149, 168 (2003). However, this
argument is not persuasive because I have concluded that the monobuoy does, in fact, fit within
the definition of several locations in the closed list.
- 10 -
Factory Mutual concedes that the on-shore portion of Irving Oil’s facility is a
covered location under the policy, but argues that there is no coverage for the
connected pipeline and monobuoy. As TAMKO argues, however, there would be
no purpose for the on-shore facility without the monobuoy and pipeline, as the
only way ships can transport oil to the facility is by docking at the monobuoy and
unloading from that point. The damage at the supplier’s facility caused TAMKO’s
entire facility to shut down. Interpreting the policy to provide coverage for only
one portion of an interconnected facility is not reasonable. Therefore, I conclude
that TAMKO is entitled to coverage under the policy for its loss.
TAMKO also addresses exclusions under the policy, including the
exclusions for deterioration and contamination. Under Missouri law, exclusionary
clauses are strictly construed against the dafter, “who also bears the burden of
showing that the exclusion applies.” Wasson v. Shelter Mut. Ins. Co., 358 S.W.3d
113, 124 (Mo. Ct. App. 2011) (internal quotation marks and citation omitted).
TAMKO has pointed out that there is no evidence in the record to support any of
those exclusions, and so Factory Mutual has not met its burden of creating a
genuine issue of material fact. In its response, Factory Mutual does not present any
evidence supporting the applicability of these exclusions. Rather, it merely states
that the jury “could determine” that the damage was caused by deterioration or
contamination. These conclusory assertions do not present a genuine issue of
- 11 -
material fact. I will therefore grant TAMKO’s motion for partial summary
judgment on the issue of coverage.
Appraisal Award
TAMKO filed a motion for partial summary judgment, requesting a
declaration that the appraisal award is void and unenforceable on the basis that
Factory Mutual’s appraiser, as well as the umpire, were not disinterested as a
matter of law. Factory Mutual has filed a separate motion to enforce the appraisal
award that the umpire and their appointed appraiser approved pursuant to the terms
of the policy. Because I conclude that the appraiser chosen by Factory Mutual was
not disinterested as required by the policy and the law, I will grant TAMKO’s
motion.
The insurance policy includes provisions requiring an appraisal in the event
of a dispute regarding the total amount of loss covered by the policy. It provides
the following:
If the Insured and the Company fail to agree on the amount of loss,
each will, on the written demand of either, select a competent and
disinterested appraiser after:
1)
the Insured has fully complied with all provisions of this
Policy, including REQUIREMENTS IN CASE OF LOSS; and
2)
the Company has received a signed and sworn proof of loss
from the Insured.
Each will notify the other of the appraiser selected within 20 days of
each demand.
- 12 -
The appraisers will first select a competent and disinterested umpire.
The appraisers have 15 days to agree on an umpire. After that time,
either the Insured or the Company may request that an umpire will be
selected by a judge. The judge must be a judge of a court of record in
the jurisdiction in which the appraisal is pending. The appraisers will
then appraise the amount of loss. Each appraiser will state separately
the Actual Cash Value and replacement cost value. Those values will
be as of the date of loss and the amount of loss, for each item of
physical loss or damage.
If the appraisers fail to agree, they will submit their differences to the
umpire. An award agreed to in writing by any two will determine the
amount of loss.
The Insured and the Company will each:
1)
pay its chosen appraiser; and
2)
bear equally the other expenses of the appraisal and umpire.
A demand for APPRAISAL shall not relieve the Insured of its
continuing obligation to comply with the terms and conditions of this
Policy, including as provided under REQUIREMENTS IN CASE OF
LOSS.
The Company will not be held to have waived any of its rights by any
act relating to appraisal.
Factory Mutual first contends that TAMKO waived its right to object to its
selected appraiser, Peter Hagen, by its failure to file a formal objection letter at the
time that Hagen was appointed. Factory Mutual also argues that TAMKO should
be estopped from challenging Hagen now because it permitted the appraisal to
continue despite its alleged concerns about Hagen’s bias. Under Missouri law,
waiver is “the intentional relinquishment of a known right.” Shahan v. Shahan,
- 13 -
988 S.W.2d 529, 534 (Mo. 1999). “If waiver is implied from conduct, the conduct
must clearly and unequivocally show a purpose to relinquish the right.” Smith v.
Progressive Cas. Ins. Co., 61 S.W.3d 280, 284 (Mo. Ct. App. 2001) (internal
quotation marks and citation omitted). Estoppel, which is a highly disfavored
equitable remedy by Missouri courts, arises “from the unfairness of permitting a
party to belatedly assert rights if he knew of those rights but took no steps to
enforce them until the other party has, in good faith, become disadvantaged by
changed conditions.” Stenger v. Great S. Sav. & Loan Ass’n, 677 S.W.2d 376, 383
(Mo. Ct. App. 1984).
Though TAMKO did not file a formal objection letter to Hagen’s
appointment until eight months after his appointment, TAMKO’s behavior does
not rise to the level of waiver or demonstrate that it is estopped from asserting this
argument. TAMKO’s general counsel expressed concerns to Factory Mutual about
Hagen before his appointment in June 2010, which was a reiteration of a previous
formal objection letter that TAMKO sent to Factory Mutual regarding a separate
appraisal between these parties. Factory Mutual never responded or took any
action until that case was resolved by settlement. TAMKO sought discovery
concerning Hagen’s relationship with Factory Mutual numerous times before its
formal objection letter. TAMKO also brought the issue of Hagen’s
disinterestedness to this court, demonstrating that it was actively pursuing its
- 14 -
concerns and seeking discovery. Though Factory Mutual convinced me at that
time to enter a stay of discovery on this issue until after the appraisal was
completed, my ruling was not intended to prevent TAMKO from ever pursuing its
claim of bias. Furthermore, after TAMKO filed its formal objection letter in
February 2011 and after the appraisal was completed in April 2011, Factory
Mutual did not comply with TAMKO’s discovery requests until after my order of
October 12, 2011, compelling it to produce such information.
These actions by TAMKO do not demonstrate that it “clearly and
unequivocally” relinquished its “known right” to object to Hagen’s appointment as
an appraiser. Failure to file a formal objection letter does not forever preclude
TAMKO from challenging Hagen’s appointment, given TAMKO’s continued
efforts to gather information about Hagen’s suspected bias. Furthermore, it would
not be equitable to hold that TAMKO is estopped from raising this claim, given
Factory Mutual’s own attempts to conceal this information in the discovery
process. Therefore, I will consider TAMKO’s motion for summary judgment
regarding the appraisal award on its merits.
Under Missouri law, when an insurance policy provides that the parties will
determine the amount of loss by conducting an appraisal, the individuals selected
to act as appraisers – including the individual selected to serve as the umpire –
must not be interested, biased, or prejudiced. See Orr v. Farmers Mut. Hail Ins.
- 15 -
Co. of Mo., 201 S.W.2d 952, 957 (Mo. 1947). An appraiser may be considered
interested in a number of ways, such as being “frequently or habitually employed
by insurers as an appraiser and . . . by his conduct [making] it clear that he
understands that he is acting in their interests.” Id. An appraiser may also become
biased by having a financial interest in the outcome of the appraisal, even if
indirectly. See Schwartzman v. London & Lancashire Fire Ins. Co., Ltd., of
Liverpool, Eng., 2 S.W.2d 593, 594-95 (Mo. 1927). This is a strict standard, as the
Missouri Supreme Court has stated: “The fairness and impartiality of an appraiser
should be, like that of a juror, not only above reproach, but above suspicion.” Orr,
201 S.W.2d at 957. Courts applying this law have vacated appraisal awards
involving an interested appraiser, declaring them void and unenforceable. See
Harris v. Am. Modern Home Ins. Co., 571 F. Supp. 2d 1066, 1079 (E.D. Mo.
2008); Orr, 201 S.W.2d at 957; Schwartzman, 2 S.W.2d at 594-95. Moreover, in
this case, the insurance contract itself specifies that the appraisers be disinterested.
I conclude that the appraiser appointed by Factory Mutual, Hagen, was
interested as a matter of law. Though Hagen has provided an affidavit disputing
this, the undisputed facts of Hagen’s conduct – as opposed to his self-serving
statements in the affidavit – demonstrate that he was biased. It is undisputed that
Hagen sought advice from Factory Mutual on whom he should select as an
- 16 -
umpire;3 submitted his draft presentation for the appraisal hearing to Factory
Mutual, after which Factory Mutual performed edits on that document; and sought
approval on whether he should agree to the amount calculated by Rosenthal. The
combined effect of these communications demonstrate that Hagen was not acting
as a fair and disinterested appraiser.
Furthermore, even without considering Hagen’s actual conduct during the
appraisal, his prior business dealings with Factory Mutual render him interested
because of an indirect financial interest in the outcome of the appraisal. In
Schwartzman, the Missouri Supreme Court vacated an appraisal award involving
an umpire who was an officer and stockholder of a company that had other
employees working for the insurance company involved in the appraisal. The
court provided the following explanation:
As a stockholder of the Bell Investment Company he was entitled to
receive dividends which necessarily included earnings of the business
brought to it by the Firemen’s Insurance Company. He thus became
interested, indirectly though it may be, as agent of the insurance
company involved in the appraisal, and consequently disqualified and
incompetent to act as umpire.
3
This fact alone may not be enough to determine that Hagen was interested. In Phoenix
Assur. Co. of N.Y. v. Singer, 221 F. Supp. 890, 894 (E.D. Mo. 1963), the court held that an
appraiser was not interested by virtue of his consultation with the insured concerning the
selection of an umpire. But the communication in this case appears to be much more extensive
than that present in Singer. In one particular instance, Hagen emailed a Factory Mutual
employee regarding potential umpires, and when Factory Mutual suggested another individual,
Hagen replied: “I think [Sorenson] might bite, I’ll present it as my idea, not yours!” (Doc. #12818, at 1).
- 17 -
Even though the evidence tends to establish that no actual bias,
prejudice, influence, or fraud was disclosed on the part of the umpire,
yet public policy and an unconscious predilection to favor one’s
interest renders an arbitrator, directly or indirectly interested in the
result of the arbitration, partial, incompetent, and disqualified.
Schwartzman, 2 S.W.2d at 594.
Here, it is undisputed that Hagen had personally worked on at least twentysix matters for Factory Mutual. He has a nine-percent ownership interest in his
accounting firm, and work conducted for Factory Mutual constitutes between four
and seven percent of his firm’s total annual business. He also had outstanding
accounts with Factory Mutual at the time of this appraisal totaling over $940,000,
and Hagen personally cultivated his firm’s business relationship with Factory
Mutual by hosting lunches, dinners, sporting events, and office visits, among other
things. These figures demonstrate that Hagen had a financial interest in the
outcome of the appraisal because even though he did not collect a contingency fee,
his ongoing and future business prospects with this long-term client rendered him
interested in the outcome of this appraisal.
Because Hagen is interested as a matter of law, I need not reach TAMKO’s
allegations concerning Rosenthal’s relationship with Factory Mutual. I will grant
TAMKO’s motion for partial summary judgment that the appraisal award is void
and unenforceable. Accordingly, I will also deny Factory Mutual’s renewed
motion to enforce the appraisal award.
- 18 -
Vexatious Refusal to Pay
Factory Mutual also seeks summary judgment on TAMKO’s claim for
vexatious refusal to pay under § 375.420 of the Missouri Revised Statutes. To
establish a claim for vexatious refusal to pay, TAMKO must prove: (1) it had an
insurance policy with Factory Mutual; (2) Factory Mutual refused to pay; and (3)
Factory Mutual’s refusal was without reasonable cause or excuse. Dhyne v. State
Farm Fire & Cas. Co., 188 S.W.3d 454, 457 (Mo. 2006). It is undisputed that
TAMKO had an insurance policy with Factory Mutual, and that Factory Mutual
refused to pay TAMKO’s claim for its loss in this case. The only issue is whether
Factory Mutual’s refusal to pay was without reasonable cause or excuse.
Factory Mutual argues that because the question of coverage in this case
constituted a genuine litigable issue, it cannot be deemed to have vexatiously
refused to pay the questionable claim. See Macheca Transp. v. Phila. Indem. Ins.
Co., 649 F.3d 661, 674 (8th Cir. 2011) (“There is no vexatious refusal when the
insurer has reasonable cause to believe and does believe there is no liability under
its policy and that it has a meritorious defense.”). A litigable issue may exist
“[w]hen no Missouri case directly addresses a coverage issue,” and “an insurer
may insist upon a judicial determination of open questions of law or fact without
being penalized.” Id. (citations omitted). Under Missouri law, however, “[t]he
existence of a litigable issue, either factual or legal, does not preclude a vexatious
- 19 -
penalty where there is evidence the insurer’s attitude was vexatious and
recalcitrant.” DeWitt, 667 S.W.2d at 710.
In this case, there was an open question of law as to whether the monobuoy
could be considered a covered location under the terms of the policy. There is no
case law addresing this precise coverage issue. Under these circumstances, Factory
Mutual’s failure to pay the claim outright and instead seek judicial determination
of its liability was not vexatious as a matter of law. I will therefore grant Factory
Mutual’s motion for summary judgment on TAMKO’s vexatious refusal to pay
claim.
Fraud and Suppression
Factory Mutual seeks summary judgment on the fraud and suppression claim
raised by TAMKO in its second amended complaint. That count arises out of
Factory Mutual’s alleged fraud and suppression in relation to the appraisal
proceeding and its relationship with Hagen and Rosenthal.
The elements of a fraudulent misrepresentation claim under Missouri law
are:
(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker’s
knowledge of its falsity or ignorance of its truth; (5) the speaker’s
intent that it should be acted on by the person in the manner
reasonably contemplated; (6) the hearer’s ignorance of the falsity of
the representation; (7) the hearer’s reliance on the representation being
true; (8) the hearer’s right to rely thereon; and (9) the hearer’s
consequent and proximately caused injury.
- 20 -
Renaissance Leasing, LLC v. Vermeer Mfg. Co., 322 S.W.3d 112, 132-32 (Mo.
2010) (en banc). “A plaintiff’s failure to establish any one of the essential
elements of fraud is fatal to recovery.” Id. at 132.
In this case, TAMKO did not rely on any misrepresentation by Factory
Mutual. “The test of whether a plaintiff relied upon a misrepresentation is simply
whether the representation was a material factor influencing final action.” Stein v.
Novus Equities Co., 284 S.W.3d 597, 603 (Mo. Ct. App. 2009) (internal quotation
marks and citation omitted). According to TAMKO, the “final action” that Factory
Mutual induced was TAMKO’s participation in the appraisal process. It is
undisputed that Factory Mutual invoked the appraisal provision of the insurance
policy in this case, and that TAMKO initially complied with that proceeding
pursuant to its contractual obligation to do so. Additionally, TAMKO continued
with the appraisal while trying to obtain discovery into Hagen’s relationship with
Hagen, which included its participation in the appraisal even after I issued a stay of
discovery into Hagen’s alleged bias. Based on these facts, TAMKO did not rely on
any misrepresentation of Hagen’s disinterestedness as the basis for its participation
in the appraisal, but rather acted on its contractual and court-imposed obligations to
do so.
Furthermore, it is also undisputed that TAMKO voiced concerns about
Hagen’s disinterestedness throughout the appraisal process, even before filing an
- 21 -
official objection letter. TAMKO cannot claim that it had no knowledge of
Hagen’s bias when it continued to voice concerns and seek more information about
Hagen’s relationship with Factory Mutual. It could not have reasonably relied on
any misrepresentation given its continued concerns. Therefore, TAMKO’s claim
of fraud is unsupported by the facts in this case.
In a claim of suppression, “[c]oncealment of a material fact can serve as a
substitute for the elements of a false representation if there exists a duty to
disclose.” White v. Bowman, 304 S.W.3d 141, 149 (Mo. Ct. App. 2009).
However, even though a “party’s failure to disclose the information serves as a
substitute for the false representation element required” in a general fraud claim,
“the plaintiff still has the burden of proving every other element of fraud.” Brown
v. Mickelson, 220 S.W.3d 442, 451 (Mo. Ct. App. 2007) (internal quotation marks
and citations omitted). Because TAMKO has not produced facts demonstrating
that it was ignorant of or that it relied on any facts concealed by Factory Mutual, its
suppression claim fails for the same reason as its fraud claim. Therefore, I will
grant Factory Mutual’s motion for summary judgment as to the fraud and
suppression claims in TAMKO’s second amended complaint.
Expert Witnesses
TAMKO and Factory Mutual have each filed a motion to exclude testimony
from expert witnesses analyzing the damages in this case. Factory Mutual seeks to
- 22 -
exclude John Kopfer, on the grounds that he failed to conduct an investigation or
set forth a proper basis for selecting his loss calculation methodology and that he
ignored critical facts in reaching his final opinion. TAMKO seeks to exclude
Anirban Basu and David Elmore because their opinions lack foundation and are
merely speculative, and because their testimony would constitute an impermissible
credibility attack on TAMKO’s own expert witness. I believe that the testimony of
each of these experts will help the jury determine the primary issue in the case. I
also find that each expert has formed his opinion using sufficient facts applied
reliably to solid principles and methods. I will therefore deny both motions to
exclude.4
An expert who is qualified by “knowledge, skill, experience, training, or
education” may provide testimony that bears on “scientific, technical, or other
specialized knowledge” if that testimony will help the trier of fact understand the
evidence or determine a disputed fact and if “(1) the testimony is based upon
sufficient facts or data; (2) the testimony is the product of reliable principles and
methods; and (3) the witness has applied the principles and methods reliably to the
4
The parties filed several other motions to exclude expert witnesses, which I will grant
because the testimony of those witnesses is no longer relevant in light of my summary judgment
rulings. Specifically, I will grant the motions to exclude the testimony of TAMKO’s monobuoy
expert, David Collard, and the testimony of Factory Mutual’s two coverage experts, Alfred
Cipriani and Captain Christopher Karentz. I will also exclude the testimony of Donald
Dinsmore, TAMKO’s expert designated to testify about the appraisal and about insurance
company practices.
- 23 -
facts of the case.” Fed. R. Evid. 702. This rule imposes a gatekeeping
responsibility on the district court to consider the reliability of the evidence before
determining that it is admissible. Daubert v. Merrell Dow Pharm., Inc., 509 U.S.
579, 589 (1993).
When assessing the reliability of expert testimony, a trial court should
consider several factors, including: “(1) whether the concept has been tested, (2)
whether the concept has been subject to peer review, (3) what the known rate of
error is, and (4) whether the concept is generally accepted by the community.”
Miller v. Baker Implement Co., 439 F.3d 407, 412 (8th Cir. 2006) (citing Daubert,
509 U.S. at 593-95). For non-scientific expert testimony, such as the accounting
and damages principles used in this case, its reliability may more precisely be
evaluated “by reference to other standard principles attendant to the particular area
of expertise.” Fed. R. Evid. 702 advisory committee’s note.
As a general rule, the factual basis of an expert opinion goes to the
credibility of the testimony, not the admissibility, and it is up to the
opposing party to examine the factual basis for the opinion in crossexamination. Only if the expert’s opinion is so fundamentally
unsupported that it can offer no assistance to the jury must such
testimony be excluded.
Bonner v. ISP Techs., Inc. 259 F.3d 924, 929-30 (8th Cir. 2001) (internal citation
omitted).
Factory Mutual explains that it is not objecting to the methodology used by
Kopfer or the documents on which he based his calculations, but rather his basis
- 24 -
for selecting that methodology and his failure to consider certain facts when
conducting his analysis. Specifically, Factory Mutual contends that Kopfer did not
conduct a proper investigation into whether TAMKO was actually operating in
IMS when it suffered this loss. Factory Mutual also argues that he failed to
consider relevant information about TAMKO’s production capacity, sales history,
and inventory, and because of his failure to consider these factors, he did not have
a proper basis for choosing this loss calculation methodology. TAMKO disputes
all of these allegations, either by offering facts in contrast to Factory Mutual’s
assertions or by explaining exactly how Kopfer reached his decision and what he
did, in fact, consider in doing so.
Because Factory Mutual does not oppose the actual methodology chosen by
Kopfer or the documents he used to calculate his loss using that methodology, I
find that Factory Mutual has not produced a sufficient basis for excluding Kopfer’s
expert testimony. He is qualified to testify about these accounting principles, and
Factory Mutual may raise its challenges to the underlying factual basis for his
damages calculation at trial. This is a case where “[v]igorous cross-examination,
presentation of contrary evidence, and careful instruction on the burden of proof”
will be the best way to attack this evidence. Daubert, 509 U.S. at 596. I will
therefore deny Factory Mutual’s motion to exclude the expert report and testimony
of John Kopfer.
- 25 -
TAMKO filed its own motion to exclude the expert testimony of Anirban
Basu and David Elmore. It argues that the testimony of these experts is
inadmissible because neither came up with his own damages calculation, but rather
each expert’s testimony would merely critique the methodology used and
assumptions made by Kopfer. Impeachment of an expert witness through
contradictory testimony by another qualified expert is permitted under the federal
rules of evidence, and it actually supports admissibility of the original expert’s
opinion because it presents a proper question of credibility for the jury. See, e.g.,
EFCO Corp. v. Symons Corp., 219 F.3d 734,739 (8th Cir. 2000) (holding that the
district court did not abuse its discretion in allowing plaintiff’s expert witness to
testify when it also allowed defendant’s expert witness, who “disputed the
methodology used by [plaintiff’s expert],” to testify). The testimony of Basu and
Elmore may be helpful to the jury in evaluating the credibility of TAMKO’s
damages expert, and each has a reliable basis for his testimony. I will therefore
deny TAMKO’s motion to exclude the expert testimony of Anirban Basu and
David Elmore.
Motion to Compel
Factory Mutual seeks to compel TAMKO to produce “all items that support
TAMKO’s decision to enter IMS” (Inventory Management System), which refers
to a period of time in which the company’s demand exceeds its production, so it
- 26 -
sells everything that it produces. Specifically, Factory Mutual lists four categories
of documents: (1) sales forecasts, (2) sales reports, (3) records of discussions
between various TAMKO employees regarding the decision to enter IMS, and (4)
spreadsheets, notes, reports, and other documents created when TAMKO decided
to enter IMS. Factory Mutual also refers to an “IMS Manual,” of which it claims
to have only received part because TAMKO has not certified that it is a complete
and accurate copy. Additionally, Factory Mutual seeks discovery of an
organizational chart of TAMKO’s entities.
Federal Rule of Civil Procedure 26(b)(1) sets forth the scope of discovery
for actions filed in federal court:
Parties may obtain discovery regarding any nonprivileged matter that
is relevant to any party’s claim or defense – including the existence,
description, nature, custody, condition, and location of any documents
or other tangible things and the identity and location of persons who
know of any discoverable matter. For good cause, the court may
order discovery of any matter relevant to the subject matter involved
in the action. Relevant information need not be admissible at the trial
if the discovery appears reasonably calculated to lead to the discovery
of admissible evidence.
Fed. R. Civ. P. 26(b)(1). Rule 26(b)(2)(C), however, requires the court to curtail
the discovery of admittedly relevant evidence if:
(i) the discovery sought is unreasonably cumulative or duplicative, or
can be obtained from some other source that is more convenient, less
burdensome, or less expensive;
(ii) the party seeking discovery has had ample opportunity to obtain
the information by discovery in the action; or
- 27 -
(iii) the burden or expense of the proposed discovery outweighs its
likely benefit, considering the needs of the case, the amount in
controversy, the parties’ resources, the importance of the issues at
stake in the action, and the importance of the discovery in resolving
the issues.
Fed. R. Civ. P. 26(b)(2)(C).
As to the IMS Manual, numerous witnesses for TAMKO testified in
deposition that the company does not maintain an official manual for IMS.
Instead, the company has produced printouts from an internal website that is used
to manage and track data when the company operates in IMS. Factory Mutual
mentions types of reports that are generated in the internal system during IMS and
requests copies of those documents. However, TAMKO’s counsel explains that
those reports are dynamic tools used in the system that can only be created while
operating in IMS, and so it appears that TAMKO cannot reproduce these
documents. Because the IMS documents that Factory Mutual requests do not exist
in discoverable form, I will deny any further discovery into this issue.
Regarding the sales reports and sales forecasts, Factory Mutual concedes
that TAMKO has already presented an enormous amount of sales data.
Furthermore, TAMKO presented sworn testimony from TAMKO’s designated
representative, Titia Miller, explaining that the factors used to determine whether
to enter IMS are the current backlog of orders and the amount of time it would take
to fulfill that backlog based upon the production capacity. Therefore, sales reports
- 28 -
and sales forecasts are not used in the decision to enter IMS, and so I will not order
TAMKO to produce any additional sales data because it is not relevant.
Additionally, Factory Mutual requested records of discussions – including
spreadsheets, notes, and other reports – from meetings between TAMKO
representatives in determining whether to enter, and on a continuing basis whether
to stay operating in, IMS. Though one TAMKO witness testified that spreadsheets
were created from these meetings, its corporate representative and TAMKO’s
counsel assert that no formal documents were created. At most, there may have
been emails from these communications. However, I do not find that the relevance
of these documents outweighs the burden of trying to locate these emails, given the
other IMS documents available to Factory Mutual.
Finally, Factory Mutual seeks an organizational chart of TAMKO’s entities
that was referenced in a deposition of TAMKO’s corporate controller, Jeff Hauck.
TAMKO’s counsel asserts in his motion that no such chart exists, though it has
provided a list to Factory Mutual of all of the companies TAMKO owns in part or
in whole. Because it does not appear that Factory Mutual needs a formal chart for
purposes of this litigation – if it even exists – in light of the list of entities that
TAMKO provided to it, I will deny the request. Therefore, I will deny in whole
Factory Mutual’s motion to compel and motion for sanctions.
- 29 -
Conclusion
To summarize, TAMKO is entitled to summary judgment on its claim of
coverage and on Factory Mutual’s counterclaim seeking a declaration of no
coverage. Factory Mutual is entitled to summary judgment on TAMKO’s claims
of vexatious refusal to pay, fraud and suppression. I will not enforce the appraisal
award because the interest of the appraiser renders the award void and
unenforceable. I will deny both parties’ motions to exclude one another’s damages
experts, but I will grant the motions to exclude the other experts because those
experts no longer have any relevant or helpful testimony. Finally, I will deny
Factory Mutual’s motion to compel and for sanctions.
The jury trial of this matter remains set on the two-week docket beginning
on September 24, 2012.
Accordingly,
IT IS HEREBY ORDERED that TAMKO’s motion for partial summary
judgment on the issue of coverage [#118] and its motion for partial summary
judgment that the appraisal award is void and unenforceable [#125] are
GRANTED.
IT IS FURTHER ORDERED that Factory Mutual’s motion for summary
judgment [#127] is GRANTED only as to the claims for vexatious refusal to pay
and fraud and suppression and is DENIED in all other respects.
- 30 -
IT IS FURTHER ORDERED that Factory Mutual’s renewed motion to
enforce the appraisal award [#129] is DENIED.
IT IS FURTHER ORDERED that Factory Mutual’s motion to exclude the
expert testimony of John Kopfer [#117] and TAMKO’s motion to exclude the
expert testimony of Anirban Basu and David Elmore [#119] are DENIED.
IT IS FURTHER ORDERED that Factory Mutual’s motion to exclude the
expert testimony of David Collard [#106] and Donald Dinsmore [#116] are
GRANTED, and TAMKO’s motion to exclude the expert testimony of Alfred
Cipriani and Captain Christopher Karentz [#123] is GRANTED.
IT IS FURTHER ORDERED that Factory Mutual’s motion to compel and
motion for sanctions [#97] is DENIED.
___________________________________
CATHERINE D. PERRY
UNITED STATES DISTRICT JUDGE
Dated this 21st day of August, 2012.
- 31 -
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?