Mears Group, Inc. v. Kiawah Island Utility Inc
Filing
115
ORDER denying 84 Motion to Stay; denying 98 Motion to Consolidate Cases Signed by Honorable David C Norton on October 22, 2019.(kwhe, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
MEARS GROUP, INC.,
)
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Plaintiff,
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)
vs.
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KIAWAH ISLAND UTILITY, INC.,
)
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Defendant.
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_______________________________________)
KIAWAH ISLAND UTILITY, INC.,
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Plaintiff,
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vs.
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WESTPORT INSURANCE CORPORATION, )
SWISS RE INTERNATIONAL SE, LLOYD’S )
SYNDICATE 1882 CHB, and MEARS GROUP)
INC.,
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)
Defendants.
)
_______________________________________)
No. 2:17-cv-2418-DCN
ORDER
No. 2:19-cv-1359-DCN
ORDER
The following matter is before the court on Kiawah Island Utility’s (“KIU)
motion to stay, ECF No. 84, in Mears Group, Inc. v. Kiawah Island Utility, 17-2418
(“Mears action”), and KIU’s motions to consolidate in both the Mears action, ECF No.
98, and Kiawah Island Utility v. Westport Insurance Corporation, 19-1359 (“KIU
action”), ECF No. 42. For the reasons set forth below, the court denies the motion to stay
and denies the motions to consolidate.
I. BACKGROUND
This case arises out of the construction of a pipeline running from Kiawah Island
to Johns Island (“the Project”). KIU, the owner of the Project, entered into a contract
1
(“the Contract”) with Mears Group, Inc. (“Mears”) to construct the pipeline. The Project
consisted of using horizontal directional drilling to bore an underground hole and then
pulling pipe through the hole. During this process, the pipe got stuck in the borehole, and
Mears’s work was lost. As a result, Mears had to drill a second borehole and install a
new section of pipeline.
Mears presented a claim for the lost work to KIU to be submitted to KIU's
builder’s risk insurance carrier. Mears contends that the Contract required KIU to obtain
primary builder’s risk insurance and name Mears as a loss payee. KIU disputes whether
the Contract required KIU to provide builder’s risk insurance for the Project, but
regardless, KIU submitted Mears’s claim under a property insurance policy held by
KIU’s parent, SouthWest Water Company. Westport Insurance Corporation
(“Westport”) supplied that policy (“Westport Policy”). Westport denied coverage for the
claim. KIU also demanded that Mears submit a claim to its own builder’s risk insurance
carrier, which KIU contends that Mears still has not done. Swiss Re International SE and
Lloyd’s Syndicate 1882 CB 1 (collectively, “the Insurers”) issued that policy to Mears
(“the Swiss Re Policy”), which Mears allegedly presented to KIU prior to beginning
work on the Project. Both Mears and the Insurers clarify that Mears has provided the
Insurers with notice of a potential claim but has not formally submitted a claim for
reimbursement under the Policy.
Mears filed the Mears action on September 8, 2017 seeking a declaration that KIU
was required by the Contract to procure primary builder’s risk insurance and alleging that
1
Lloyd’s Syndicate 1882 CB clarifies that it is misidentified as “Lloyd’s
Syndicate 1882 CB” and that its proper name is “Syndicate 1882.”
2
KIU breached the Contract by failing to do so. After a round of summary judgment
briefing, the court denied KIU’s cross-motion for summary judgment and granted in part
and denied in part Mears’s motion for summary judgment. Specifically, the court denied
Mears’s motion as to the breach of contract claim but granted the motion as to the
declaratory judgment claim, holding that the Contract unambiguously required KIU to
obtain primary builder’s risk insurance.
KIU filed a motion to reconsider and a motion for certificate of appealability, both
of which the court denied on May 30, 2019. Then on June 6, 2019, KIU filed a motion to
stay, ECF No. 84, to which Mears responded, ECF No. 92, and KIU replied, ECF No. 97.
Mears then sought leave to file a sur-reply, which the court granted, so Mears filed a surreply. ECF No. 111. Additionally, on July 23, 2019, KIU filed a motion to consolidate
the Mears action and KIU action. ECF No. 98. Mears responded, ECF No. 99, and KIU
replied, ECF No. 105.
In the meantime, on May 9, 2019, KIU filed the KIU action against Westport, the
Insurers, and Mears. In that action, KIU action seeks declarations that: (1) the Westport
Policy provides coverage to KIU for damage to the Project; (2) KIU is an Additional
Insured under the Swiss Re Policy; (3) the Swiss Re Policy provides coverage to KIU for
damage to the Project; (4) the Wrap Around coverage of the Swiss Re Policy provides
coverage to KIU; (5) the Westport Policy must provide coverage to KIU up to the amount
of available coverage; (6) the Swiss Re Policy must provide coverage to Kiawah for any
amount not covered by the Westport Policy; (7) any provision in the Swiss Re Policy that
requires KIU to bring a legal proceeding outside of South Carolina is void and
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unenforceable; and (8) KIU did not agree to arbitrate any disputes under the Swiss Re
Policy and none of the disputes in this action are subject to arbitration.
KIU filed the same motion to consolidate in the KIU action as it did in the Mears
action on July 24, 2019. ECF No. 42. All defendants responded, ECF Nos. 53, 54, and
59, and KIU replied, ECF Nos. 62–64. The court held a hearing on the motions in both
the Mears action and KIU action on September 12, 2019. These motions are now all ripe
for review.
II. STANDARD
A. Motion to Stay
“A court has the power to stay proceedings, which is ‘incidental to the power
inherent in every court to control the disposition of the causes on its docket with
economy of time and effort for itself, for counsel, and for litigants.’” Doe v. Bayer Corp.,
367 F. Supp. 2d 904, 914 (M.D.N.C. 2005) (quoting Landis v. N. Am. Co., 299 U.S. 248,
254 (1936)). In exercising its authority to grant a discretionary stay, the court “must
weigh competing interests and maintain an even balance.” Landis, 299 U.S. at 254,
255 (internal quotation omitted). Furthermore, “[t]he party seeking a stay must justify it
by clear and convincing circumstances outweighing potential harm to the party against
whom it is operative.” Williford v. Armstrong World Indus., Inc., 715 F.2d 124, 127 (4th
Cir. 1983). “When considering a motion to stay, the district court should consider three
factors: ‘(1) the interests of judicial economy; (2) hardship and equity to the moving party
if the action is not stayed; and (3) potential prejudice to the non-moving party.’” Impulse
Monitoring, Inc. v. Aetna Health, Inc., 2014 WL 4748598, at *1 (D.S.C. Sept. 23, 2014)
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(quoting Johnson v. DePuy Orthopaedics, Inc., 2012 WL 4538642, at *2 (D.S.C. Oct.1,
2012)).
B. Motion to Consolidate
Pursuant to Rule 42 of the Federal Rules of Civil Procedure, “[i]f actions before
the court involve a common question of law or fact, the court may: (1) join for hearing or
trial any or all matters at issue in the actions; (2) consolidate the actions; or (3) issue any
other orders to avoid unnecessary cost or delay.” Fed. R. Civ. P. 42(a). “As the rule
states, a motion to consolidate must meet the threshold requirement of involving ‘a
common question of law or fact.’ If that threshold requirement is met, then whether to
grant the motion becomes an issue of judicial discretion.” Pariseau v. Anodyne
Healthcare Mgmt., Inc., 2006 WL 325379, at *1 (W.D.N.C. Feb. 9, 2006) “District
courts have broad discretion under F[ed]. R. Civ. P. 42(a) to consolidate causes pending
in the same district.” A/S J. Ludwig Mowinckles Rederi v. Tidewater Const. Co., 559
F.2d 928, 933 (4th Cir. 1977). In determining whether consolidation is appropriate,
courts consider “whether the specific risks of prejudice and possible confusion were
overborne” by (1) “the risk of inconsistent adjudications of common factual and legal
issues”; (2) “the burden on parties, witnesses and available judicial resources posed by
multiple lawsuits”; (3) “the length of time required to conclude multiple suits as against a
single one”; and (4) “the relative expense to all concerned of the single-trial, multipletrial alternatives.” Arnold v. Eastern Airlines, Inc., 681 F.2d 186, 193 (4th Cir.1982))
(“the Arnold factors”).
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III. DISCUSSION
This dispute arises from the parties’ differing interpretations of the court’s
summary judgment order in the Mears action. As such, the court takes this opportunity to
review the summary judgment arguments that were before it and to explain and to clarify
what exactly it held in its order based on those arguments. The court then turns to its
consideration of the motion to stay and motions to consolidate.
A. Summary Judgment Briefing and Rulings in the Mears Action
a. The Parties’ Arguments
The court begins with the parties’ summary judgment arguments about the root of
the issue here—Mears’s breach of contract claim. Mears filed a motion for summary
judgment seeking “summary judgment on its claim for a declaratory judgment that KIU
had the obligation to provide primary ‘all-risk’ Builder’s Risk coverage and to name
Mears as a loss payee, and summary judgment on its breach of contract claim on the
grounds that KIU breached that obligation.” ECF No. 18 at 2. With regard to its breach
of contract claim, in a section titled “KIU Breached Its Obligation by Failing to Provide
Primary Builder’s Risk Coverage and by Failing to Name Mears as a Loss Payee,” Mears
argued:
KIU’s insurer, Westport, has determined that KIU’s Builder’s Risk policy
is excess to Mears’ policy. See Exhibit 2 to the Affidavit of Stephen L.
Gude, attached as Exhibit A, Letter from Engle Martin. The Westport
policy does not list Mears as a loss payee, only Southwest Water Company.
See Westport Policy, Exhibit B, at pg. 10. Because KIU did not provide
primary Builder’s Risk insurance, and did not name Mears as a loss payee,
partial summary judgment is proper as to KIU’s breach of these contractual
requirements.
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ECF No. 18 at 12–13. Mears did not mention any argument related to faulty
workmanship in its motion.
KIU did not respond by arguing that it did not breach the Contract, nor did it
argue that, in the event the court found the Contract to require KIU to obtain primary
builder’s risk insurance, the Westport Policy fulfilled KIU’s contractual obligation.
Instead, KIU argued that Mears’s breach of contract claim must fail because even if KIU
breached the Contract, Mears was not damaged by the breach because Mears engaged in
faulty workmanship, which is excluded from coverage. KIU contended that “Mears
cannot prevail in this action – much less on its Motion – because builder’s risk insurance
does not cover the loss at issue in this case; therefore, even if KIU was obligated to
provide builder’s risk coverage, Mears has suffered no damages resulting from a failure
to do so.” ECF No. 21 at 10. KIU explained that “[b]uilder’s risk insurance policies
typically contain exclusions for faulty workmanship” and “[s]imilarly, SWWC’s
Westport policy specifically excludes loss or damage resulting from ‘faulty
workmanship, material, construction, or design.’” Id. KIU then explained that
Westport’s claims adjuster determined Mears engaged in faulty workmanship that was
excluded from coverage, provided technical background on why Mears’s work was
faulty, and concluded that “[b]ecause Mears’ own negligence caused the damage it
suffered, and because faulty workmanship is excluded from insurance coverage, it is
inconsequential whether KIU obtained primary builder’s risk coverage on the Project.”
Id. at 10–11.
In reply, Mears contended that KIU’s faulty workmanship argument was not
relevant to Mears’s motion because Mears sought “summary judgment only as to the
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questions of whether KIU was required by contract to purchase primary builders risk
insurance which named Mears as loss payee, and whether KIU breached the contract by
failing to do so.” ECF No. 26 at 12. Mears explained that it disagreed with KIU’s
reasoning as to why Mears engaged in faulty workmanship but emphasized that these
were factual issues that were unrelated to Mears’s motion. Id. The parties did not bring
up faulty workmanship or substantive arguments on whether KIU breached the Contract
in the briefing on KIU’s cross motion for summary judgment.
Notably, both parties consistently argued in the briefings and at the hearing on the
motions that Westport denied coverage because (1) Westport’s adjustor concluded that
Mears, not KIU, had the obligation to provide builder’s risk insurance, and therefore, the
Westport Policy was excess; and (2) Westport determined that Mears engaged in faulty
workmanship. In KIU’s response to Mears’s motion for summary judgment, KIU stated
that “KIU’s insurer [Westport] denied the claim, because, 1) per the contract between
KIU and Mears, Mears was the party responsible for obtaining builder’s risk insurance
for the Project, and 2) the cause of the broken pipeline was Mears’ faulty workmanship,
which is excluded from coverage.” ECF No. 21 at 2. KIU incorporated the factual
background from its response, which includes this statement, into its own cross-motion
for summary judgment. ECF No. 25 at 1 n.1.
In addition, the hearing on the summary judgment motions, counsel for KIU
argued that Westport “did issue a denial letter in part based on [Westport’s] finding that
this insurance was excess” and that Westport “concluded that Mears was the party that
had the obligation to provide the insurance, and [Westport] denied the claim on that
basis.” ECF No. 42, Tr. 30:9–14. Counsel then said that Westport “also denied the claim
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on the basis that [Mears’s work] was faulty workmanship, . . . [s]o there were multiples
grounds on which that claim was denied.” Id., Tr. 30:15–19. Moreover, Mears argued in
its motion for summary judgment that Westport determined that the Westport Policy was
excess to any policy maintained by Mears, and KIU never disputed that argument in its
response. In other words, the consistent arguments before the court during summary
judgment briefing led the court to believe that Westport denied covered both because it
determined the Westport Policy to be excess and because Mears engaged in faulty
workmanship.
b. The Court’s Order
In considering whether summary judgment was warranted for Mears’s breach of
contract claim, the court began by listing the elements of a breach of contract cause of
action and noting that KIU’s argument related to the third element—whether Mears’s
damage was caused by KIU’s breach. The court then stated that Mears was damaged
because Westport refused primary coverage for the $7 million loss. The court explained
that, based on what both parties told the court, Westport denied coverage because
Westport determined that KIU was not obligated to provide builder’s risk insurance under
the Contract and because Mears engaged in faulty workmanship, which is excluded from
coverage. In other words, Mears was damaged by the fact that the Westport Policy did
not comply with the Contract requirements.
The court then stated that “[b]ased on the parties’ arguments about contract
interpretation, the court finds that KIU did breach the Contract by failing to procure
primary builder’s risk insurance.” ECF No. 49 at 19–20. KIU seems to interpret this
portion of the court’s order to mean that the court found that KIU breached the Contract
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solely based on Westport’s determination that KIU was not obligated to provide builder’s
risk insurance. See ECF No. 84 at 4 (“In response to KIU’s Motion for Reconsideration,
the Court affirmed its ruling and declared that KIU had breached the Contract
requirement by not providing primary builder’s risk insurance. The Court’s ruling was
based on [Westport’s adjustor]’s first letter suggesting that other insurance, i.e., the Swiss
Re Policy, ‘would be the primary coverage.’”); ECF No. 97 at 1 (“While this Court has
ruled that KIU breached the contract by not purchasing a ‘primary’ builder’s risk
insurance policy, that ruling was founded on an adjustor’s letter, on behalf of Westport,
stating that the policy was not primary.”). The court notes that even if this were the only
reason why the court found that KIU breached the Contract, the court’s reliance on the
argument that Westport denied coverage in part because its policy was not primary was
argued to the court by both Mears and KIU, giving the court no reason to doubt this
argument.
However, this is only part of the reason why the court found that KIU breached
the Contract. As the court explained, the court based its determination that KIU breached
the Contract “on the parties’ arguments about contract interpretation,” which led the court
to interpret the Contract to require KIU to obtain primary builder’s risk insurance. As
discussed above, Mears argued that KIU breached the Contract by failing to ensure that
the Westport Policy conformed with the Contract requirements, which was based on
Westport’s adjustor’s letter. Mears contended that because the Westport Policy did not
comply with the contractual requirements, KIU did not provide the builder’s risk
insurance that was required by the Contract. Notably, KIU did not respond to that
argument or otherwise argue that KIU did not breach the Contract. KIU did not argue
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that, if the court found the Contract to require KIU to procure primary builder’s risk
insurance, the Westport Policy fulfilled that contractual requirement. Instead, KIU only
argued that Mears was not damaged. Therefore, the court found that KIU breached the
Contract based on Mears’s argument and KIU’s lack of response to it.
The court went on to explain that “Mears’s breach of contract claim is only
premised on KIU’s failure to procure insurance, not on Westport’s decision to deny
coverage.” ECF No. 49 at 20. The court stated that Mears was damaged by Westport’s
denial of coverage and stated that “there is still an issue of material fact as to whether
Westport properly denied coverage due to Mears’s faulty workmanship.” Id. The court
then explained that “[t]here is a possibility that even if KIU procured primary builder’s
risk insurance, the insurance would not have covered the $7 million damage because it
was caused by Mears’s faulty workmanship.” Id. The court concluded by holding that
“there is a genuine issue of material fact as to whether Mears engaged in faulty
workmanship that would not have been covered by insurance and caused the $7 million
of damage.” Id. at 21.
c. KIU’s Motion to Reconsider
KIU filed a motion to reconsider the court’s order based on four grounds, and two
are tangentially related to the breach of contract claim. KIU argued that the court’s order
resulted in manifest injustice because KIU would have to personally bear the $7 million
of damage, and because the court’s order found that Mears was required to obtain
secondary builder’s risk insurance, Mears should be required to submit a claim to its
insurer. ECF No. 50-1 at 9–10. The court was unconvinced by this argument, finding
that the case is a dispute over who must pay the $7 million, meaning that it is possible
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that KIU will be responsible for the $7 million, which is not manifest injustice. The court
also rejected KIU’s request for the court to order Mears to submit a claim to its insurer
because the request amounted to injunctive relief, and KIU provided no legal basis for the
court to grant such relief.
KIU also argued that the court’s order misstated Westport’s reasons for denying
coverage. KIU explained that the court stated that Westport denied KIU’s claim in part
because the Contract required Mears, not KIU, to obtain builder’s risk insurance and that
Westport determined that the Westport Policy was excess to any of Mears’s policies.
KIU then explained that the court cited a September 30, 2016 letter issued by Westport’s
claim adjustor to support its statement, and that the letter was not the final coverage
determination. Instead, KIU explained, Westport’s adjustor’s May 18, 2018 letter denied
coverage solely based on a finding of faulty workmanship and errors or omissions. In
response, Mears argued that the May 18, 2018 letter incorporated the adjustor’s previous
letters, including the September 30, 2016 letter, meaning that the court’s statement was
correct.
The court declined to amend its order for several reasons. First, the court
explained that it was KIU who stated in its response to Mears’s motion that Westport
denied the claim in part because Mears was responsible for obtaining builder’s risk
insurance, and that KIU could not now fault the court for relying on KIU’s statement.
The court notes now that KIU’s counsel also argued this point at the hearing on the
motions. In other words, KIU argued for the first time that Westport denied coverage
only for faulty workmanship in its motion to reconsider, and it is axiomatic that a party
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may not raise an issue for the first time in a motion to reconsider. 2 The court also agreed
with Mears that the May 18, 2018 letter incorporated the September 30, 2016 letter.
Now, the parties disagree on the remaining issue in the Mears action. KIU
believes the issue to be one of insurance coverage, focusing on the court’s statement that
there is a genuine issue of material fact as to whether Westport properly denied coverage.
Mears contends that the remaining issue is whether Mears was damaged by KIU’s failure
to procure builder’s risk insurance, which could include the question of whether Mears
engaged in faulty workmanship that would have been excluded from coverage had KIU
obtained a primary builder’s risk insurance policy. Mears contends that this issue does
not involve any of the insurance companies or existing policies at play here.
The section of the court’s order on Mears’s breach of contract claim, read in its
entirety and in context, establishes that the remaining issue for trial in the Mears action is
whether Mears was damaged by KIU’s failure to procure builder’s risk insurance, not
whether Westport’s coverage determination was correct. The court explained that
Mears’s breach of contract claim is premised on KIU’s failure to procure the
contractually required insurance, not on Westport’s decision to deny coverage, and there
There has been continued debate over whether Westport denied coverage solely
based on faulty workmanship or also based on a finding that the Westport Policy is
excess to Mears’s policy. The court acknowledges that Westport, the party who denied
coverage and is in the best position to explain its reasoning for denial, has now stated its
position on this issue and asks the court to clarify the record to reflect that Westport
denied coverage solely based on faulty workmanship. However, the court declines to
amend the record in the Mears action, a case in which Westport is not a party, because
the court’s finding on this issue was based on the information that presented by the
parties that only became disputed in a motion to reconsider. As for the record in the KIU
action, consideration of this issue is not necessary to resolve the motion to consolidate, so
the court declines to do so now. Westport may raise its argument again when the issue
becomes relevant to the matter before the court.
2
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is a possibility that even if KIU had procured builder’s risk insurance, the insurance
would not have covered the pipeline damage if it was caused by Mears’s faulty
workmanship. The court concluded its discussion by stating “[t]herefore, there is a
genuine issue of material fact as to whether Mears engaged in faulty workmanship that
would not have been covered by insurance and caused the $7 million of damage.” ECF
No. 49 at 21.
The court acknowledges KIU’s reliance on the sentence in the court’s order that
states “[h]ere, there is still an issue of material fact as to whether Westport properly
denied coverage due to Mears’s faulty workmanship.” Id. at 20. To be sure, the
argument before the court was that Westport’s denial of coverage, based in part on the
finding that the Westport Policy was excess, meant that Westport Policy did not comply
with the Contract and as a result, KIU breached the Contract. In other words, the
purported reason behind Westport’s coverage denial was linked the KIU’s breach.
However, as the court continued to explain in its order, and as Mears’s complaint reveals,
“Mears’s breach of contract claim is only premised on KIU’s failure to procure insurance,
not on Westport’s decision to deny coverage.” Id. at 20. Indeed, a review of Mears’s
complaint indicates that it is not contesting Westport’s coverage determination. As such,
whether Westport properly denied coverage is irrelevant.
The court also notes that KIU now argues that the Westport Policy fulfilled KIU’s
contractual insurance obligation, meaning KIU did not breach the Contract. This
argument is too late because the court has already held that KIU breached the Contract by
failing to procure builder’s risk insurance. Again, in its motion for summary judgment,
Mears argued that KIU breached the Contract by failing to provide primary builder’s risk
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insurance and failing to name Mears as a loss payee. As discussed above, KIU did not
respond to this argument nor did KIU argue that the Westport Policy fulfilled its
contractual obligations. Instead, KIU only argued that even if KIU breached the
Contract, Mears was not damaged by the breach. Therefore, the court found “that KIU
did breach the Contract by failing to procure primary builder’s risk insurance.” ECF No.
49 at 19–20. KIU cannot take a second bite of the apple and now argue that it did not
breach the Contract based on the Westport Policy.
With this clarification in mind, the court now turns to the motions before it and
finds that a stay is not warranted in the Mears action and that consolidation of the Mears
action and the KIU action is not appropriate.
B. Motion to Stay
KIU argues that a stay is warranted in the Mears action while the KIU action is
resolved for several reasons. “When considering a motion to stay, the district court
should consider three factors: ‘(1) the interests of judicial economy; (2) hardship and
equity to the moving party if the action is not stayed; and (3) potential prejudice to the
non-moving party.’” Impulse Monitoring, Inc., 2014 WL 4748598, at *1 (quoting
Johnson, 2012 WL 4538642, at *2). While KIU does not reference these three factors,
KIU’s arguments fit within them. Specifically, KIU’s argument that a stay would
streamline the issues in the Mears action suggests that a stay is in the interest of judicial
economy. KIU argues that it would face hardship and prejudice if the Mears action was
not stayed due to a risk of inconsistent verdicts in the Mears action and the KIU action,
and KIU argues that there little potential prejudice to Mears if the Mears action were
stayed. The court addresses each in turn.
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a. Judicial Economy
KIU first argues that a stay in the Mears action is warranted because the KIU
action can streamline the issues involved in the Mears action. KIU points to the
following alleged effects on the Mears action if KIU is granted the relief it seeks in the
KIU action:
•
Declaration that Westport has to provide coverage for damage: the Mears
action will be moot because if Westport has to provide coverage, it will pay
for the damage, and if Westport properly denied coverage because Mears
engaged in faulty workmanship, Mears will have not suffered damage from
KIU’s failure to procure primary builder’s risk insurance.
•
Declaration that KIU is an Additional Insured under Swiss Re Policy: the
damages in the Mears action could be greatly reduced or become zero because
if KIU is an Additional Insured, then the Insurers will have to make a
coverage determination and could provide coverage. If the Swiss Re Policy
does not provide coverage based on faulty workmanship, then the Mears
action would be moot.
•
Declaration that the Insurers must provide coverage up to available
limits: the Mears action will be moot because the damage will be paid for,
and if the Westport Policy is primary and properly denied coverage, then
coverage could still be available under the Swiss Re Policy.
•
Declaration that the Westport Policy must provide coverage up to the
amount of available coverage and that the Swiss Re Policy must provide
coverage for any amount not covered by the Westport Policy: the pipeline
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loss or damage would be covered, and Mears’s damages would be reduced or
eliminated.
In response, Mears makes several arguments. First, Mears argues that the
question of whether KIU may be indemnified by one of the insurance companies does not
moot the question of the liability that KIU owes to Mears for breach of contract. Mears
then discusses the specific insurance companies. First, Mears explains that the Westport
Policy is a property policy, not a builder’s risk policy, 3 so KIU cannot be absolved of
liability for not obtaining primary builder’s risk insurance by the Westport Policy.
Second, Mears argues that the Insurers do not consider KIU to be an Additional Insured,
so the Swiss Re Policy does not moot KIU’s liability for failing to obtain builder’s risk
insurance. Moreover, Mears argues that even if KIU is determined to be an Additional
Insured, KIU will simply be allowed to seek indemnification from Insurers.
Based on the court’s explanation of the remaining issue in the Mears action, the
court finds that staying the Mears action while the KIU action is litigated would not
streamline the issues or moot any issues in the Mears action. KIU’s arguments are based
on the false premise that available insurance coverage from Westport and the Insurers is
at issue in the Mears action. As the court explained above, the remaining issue in the
Mears action is whether Mears was damaged by KIU’s failure to procure a primary
builder’s risk insurance policy in accordance with the Contract. The court has already
determined that KIU breached the Contract by failing to procure the required insurance.
Therefore, even if coverage were available under the Westport Policy or the Swiss Re
3
Westport agrees with this argument, and KIU contends that the Westport Policy
does include builder’s risk coverage. As discussed below, the court declines to address
the substance of this argument as it is not necessary to resolve the instant motions.
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Policy, that does not change the fact that the court already ruled that KIU breached the
Contract. As Mears explains, any coverage that may be obtained from Westport or the
Insurers would simply serve to indemnify KIU and would not moot the remaining issue
in the Mears action.
KIU also argues that staying the Mears action will ultimately reduce the
complexity of the Mears action. KIU contends that by allowing the KIU action to be
decided first, the jurors in the Mears action would not be required to speculate about
whether insurance companies acted properly in denying coverage. Mears disagrees.
Mears contends that the remaining issues in this case are “(1) whether Mears engaged in
faulty workmanship; (2) if Mears engaged in faulty workmanship, would the losses have
been covered by insurance (i.e., would a faulty workmanship exclusion and ensuing loss
exception provision apply); and (3) the damages KIU should pay to Mears because it did
not obtain the required builder’s risk all-risk policy.” ECF No. 92 at 14. Mears argues
that these questions relate to the builder’s risk policy KIU should have obtained and not
the Westport Policy or the Swiss Re Policy. Therefore, the jury would not have to
speculate about what Westport or Insurers would have done. In other words, the jury
would be considering a policy that does not exist but should have existed, not the
Westport Policy or the Swiss Re Policy. Mears also argues that the jury would not be
speculating but instead would be making a decision based on the evidence and law before
it.
The court agrees that the jury in the Mears action will not have to speculate about
what Westport and the Insurers did or should have done because those policies are not at
issue in the Mears action. Instead, a jury will have to determine whether Mears was
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damaged by KIU’s failure to procure primary builder’s risk insurance in accordance with
the Contract. While KIU may find it impractical to ask a jury to determine whether
Mears engaged in faulty workmanship and would thus be excluded from coverage under
a policy that does not exist, the court notes that it was KIU who put faulty workmanship
at issue in the first place.
The court also acknowledges that the parties make several substantive arguments
that are related to the propriety of a stay, such as whether the collateral source rule would
apply here, whether the parties in the KIU action would be bound by a finding on faulty
workmanship in the Mears action, and whether the Westport Policy is in fact a builder’s
risk insurance policy. While the court understands why the parties raise these issues, the
court declines to make any rulings on the issues because it is unnecessary for the
resolution of the motion to stay. The parties can raise these arguments again at the
appropriate time.
In sum, the court is unconvinced that it would be in the interest of judicial
economy to stay the Mears action pending resolution of the KIU action.
b. Prejudice to KIU
Next, KIU contends that it may be prejudiced by inconsistent jury verdicts if the
Mears action is not stayed. KIU explains that a jury in the Mears action could find KIU
liable for damages for failure to procure the contractually required builder’s risk
insurance, but that in the KIU action, KIU argues that it did procure the required
coverage through the Westport Policy. As such, the KIU action could establish that KIU
procured the required insurance, when a jury in the Mears action could find that KIU
failed to do so. KIU contends that any determination of whether KIU satisfied its
19
contractual obligations should be based on an adjudicated decision in the KIU action
about Westport’s coverage obligations. Moreover, KIU argues that the KIU action will
determine what coverage is available to cover the damage, and that any determination of
coverage would contradict an award of damages in the Mears action.
KIU’s argument is unconvincing. As explained above, the issue in the Mears
action is whether Mears was damaged by KIU’s failure to procure builder’s risk
insurance. The court has already determined that KIU breached the Contract by failing to
do so, and KIU cannot now argue that it did not breach the Contract based on the
Westport Policy. KIU had the opportunity to make that argument in response to Mears’s
summary judgment motion and failed to do so. Therefore, a jury verdict in the Mears
action would determine what, if any, amount of damages Mears is entitled to for KIU’s
breach. A verdict in the KIU action would determine if any insurance coverage does in
fact cover the pipeline loss or damage, but whether that coverage would have satisfied
KIU’s obligation under the Contract is immaterial because the court has already ruled
that KIU breached the Contract. That ship has sailed.
c. Prejudice to Mears
Finally, KIU argues that Mears faces little prejudice if the Mears action is stayed
because Mears is not currently suffering any harm. KIU also contends that Mears will
not suffer significant prejudice in a delay in being paid because Mears’s claim for $7
million is not what Mears has actually spent but instead is based on calculations, and that
Mears has not quantified the actual cost of the re-work. Finally, KIU points to the fact
that Mears could have, and should have, presented the claim to its own insurance carrier,
the Insurers, but has still failed to do so.
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Again, Mears disagrees. Mears first notes that KIU is seeking an indefinite stay
that would likely extend for years until the KIU action is resolved. Mears then explains
that it has been prejudiced because it completed the work it was required to do under the
Contract, meaning that KIU has benefitted from Mears’s completed work, but still hasn’t
been paid. Mears also points to other prejudice in delaying this case, such as lost
opportunities and the disclosure of this litigation to Mears’s future contract partners that
may negatively affect Mears’s reputation. In reply, KIU clarifies that it did pay Mears
for its successful work and that KIU is seeking to avoid paying Mears for the repair work
for damage that KIU did not cause. KIU also argues that Mears has provided no
evidence of lost opportunities or explained how involvement in litigation creates a
negative perception in the marketplace.
The court finds that Mears would be prejudiced by a stay in the Mears action.
The case has been pending for over two years and is now ready for trial, meaning that
Mears would suffer prejudice by a stay during the final stages of litigation. See
Commonwealth of Virginia ex rel. Integra Rec LLC v. Countrywide Sec. Corp., 2015
WL 222312, at *5 (E.D. Va. Jan. 14, 2015) (finding limited prejudice in granting a stay
when “[n]o answers have been filed, no discovery has begun, and no trial date has been
set”). Moreover, staying the Mears action pending resolution of the KIU action would
result in an indefinite stay that would likely last several years. Courts have found that a
delay of a few months is significant and contribute to prejudice suffered by the nonmoving party. See, e.g., Sehler v. Prospect Mortg., LLC, 2013 WL 5184216, at *3 (E.D.
Va. Sept. 16, 2013) (finding a delay of four to six months to be prejudicial). Here, it will
clearly take longer than a few months to resolve the KIU action.
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Furthermore, regardless of whether the $7 million cost of Mears’s repair work is
the actual cost of Mears’s rework, Mears still had to pay whatever the cost of the rework
was. In addition, the court is not convinced by KIU’s argument that Mears has failed to
provide any evidence regarding its harm. Mears does not have the burden of proving
prejudice here; rather, KIU has the burden of showing that Mears will not be prejudiced.
Given the prospect of an indeterminant stay of a case that is ready for trial along with the
fact that Mears has paid the cost of work, the court finds that Mears would suffer
prejudice by a stay.
After weighing the competing interests here, the court determines that a stay is not
warranted. There is little, if any, benefit to resolving the KIU action prior to the
resolution of the Mears action, and Mears would be prejudiced by a delay in the
adjudication of the Mears action, which is ready for trial. In sum, KIU has not
demonstrated that clear and convincing circumstances exist that outweigh potential harm
to Mears. As such, the court denies the motion to stay.
C. Motion to Consolidate
Next, KIU asks the court to consolidate the Mears action and the KIU action.
KIU filed the same motion to consolidate in both the Mears action and the KIU action.
For ease of discussion, the court will reference the docket numbers in the KIU action. 4
In determining whether the cases should be consolidated, the court first considers
whether the cases have common questions of law and fact. KIU provides several reasons
as to why it believes that the cases have common questions of law and fact. First, KIU
4
In their arguments against consolidation, Westport and the Insurers also
maintain that the claims against them should be dismissed pursuant to their motions to
dismiss.
22
contends that the question of whether the Westport Policy is primary will almost certainly
be resolved by the KIU action. In making this argument, KIU claims that “[w]hile this
Court has ruled in the Mears [action] that [KIU] breached the [Contract] by not
purchasing a ‘primary’ builder’s risk insurance policy, that ruling was founded on an
adjustor’s letter, on behalf of Westport, stating that the police was not primary.” ECF
No. 42 at 4–5. As discussed above, the court’s ruling was based on Mears’s argument
that KIU breached the Contract by failing to procure primary builder’s risk insurance,
which did incorporate the adjustor’s letter, and KIU’s lack of response to that argument.
Therefore, it is too late for KIU to now assert that the Westport Policy complies with the
Contract’s requirement about primary builder’s risk insurance. As such, the question of
whether the Westport Policy fulfills KIU’s contractual obligations is not relevant in the
Mears action.
Next, KIU explains that it is KIU’s position in the Mears action that the Westport
Policy complies with the Contract’s insurance requirements, and that the KIU action will
confirm this. Again, the problem with this argument is that the court has already found
that KIU breached the Contract by failing to provide primary builder’s risk insurance.
Therefore, whether KIU breached the Contract has already been determined by the court,
and KIU cannot relitigate the issue now.
KIU also argues that the KIU action will determine whether the faulty
workmanship exclusion is a bar to coverage, and then that determination will be applied
in the Mears action to resolve the question of whether Mears engaged in faulty
workmanship. However, as discussed above, Westport’s denial of coverage is not at
23
issue in the Mears action. Therefore, any findings about Westport’s denial of coverage
based on faulty workmanship will not be admissible nor impact the Mears action.
Finally, KIU contends that the KIU action will resolve the issue of whether the
Westport Policy includes ensuing loss coverage. Again, this is not relevant to the
question of whether Mears was damaged by KIU’s failure to procure builder’s risk
insurance, because up until now, KIU had never argued that the Westport Policy satisfied
KIU’s contractual obligation. Therefore, whether the Westport Policy had ensuing loss
coverage is irrelevant.
In response, Mears argues that the issues in the cases are different, namely that the
Mears action will focus on whether Mears was damaged by KIU’s failure to procure
primary builder’s risk insurance and the KIU action will focus on whether insurance
should cover any of the pipeline loss or damage. Mears stresses that Westport’s denial of
coverage is not at issue in the Mears action.
Similarly, Westport argues that the Mears action does not involve the
interpretation of the Westport Policy or Westport’s denial of coverage, meaning that
cases involve different questions of fact and law. Westport cites to a similar case that,
while not within the Fourth Circuit, contains analogous facts and in which the court
denied consolidation based on a lack of commonality of questions facts and law. In Star
Constr. & Restoration, LLC v. Gratiot Ctr. LLC, a heavy snowfall caused the roof of a
shopping center to partially collapse. 2017 WL 1021060, at *1 (E.D. Mich. Mar. 16,
2017). The owner, Gratiot Center, contracted with Star Construction and Restoration
(“Star”) to repair the roof. Star subsequently sued Gratiot Center because Gratiot Center
did not pay Star for its work. Then, Gratiot Center filed another suit against a group of
24
insurance companies who denied coverage for the repairs. The court found that there
were not common questions of fact and law between the two suits that warranted
consolidation. The court explained that Star’s legal theories for recovery, which were
based on unjust enrichment, promissory estoppel, and fraud/misrepresentation, did not
rely upon a finding that insurance covered the repairs. Id. at *2–*3. Indeed, the court
found that if Star prevailed in its suit, Gratiot would have to pay Star regardless of
whether Gratiot succeeded in recovering from the insurance companies. The only
potential connection that the court found between the two actions was Gratiot Center’s
defense. Gratiot Center claimed that Star was only to perform work covered by
insurance, and absent a finding that insurance covered Star’s work, Star performed work
outside of the scope of the contract and therefore wasn’t entitled to relief. However, the
court found this connection to be too tenuous to justify consolidation. Id. at *2.
The facts of Star Constr. & Restoration, LLC and the instant cases are similar. In
the Mears action, KIU’s liability is based on whether Mears was damaged by KIU’s
failure to procure primary builder’s risk insurance, and that determination will be made
by a jury regardless of what coverage the Westport Policy or Swiss Re Policy might
provide. As such, KIU’s liability in the Mears action, like Gratiot Center’s liability to
Star, is not based on insurance coverage, meaning that there are not common questions of
fact and law that warrant consolidation.
Moreover, the Insurers argue that there are no common question of fact and law
as applied to them because the Mears action solely focuses on KIU’s failure to procure
insurance, and the Insurers provided insurance to Mears. KIU claims that it has made
allegations about the Swiss Re Policy in defending against Mears’s motion for summary
25
judgment, making the Swiss Re Policy at issue in the Mears action. KIU cites to
statements in KIU’s response to Mears’s motion for summary judgment that say “KIU, in
turn, demanded that Mears submit the claim to its own builder’s risk insurance carrier, as
Mears had provided evidence of having builder’s risk coverage at the start of the Project,
as required under the contract,” ECF No. 21 at 2, and that “[o]n April 21, 2016, Scott
Kehrer, on behalf of Mears, provided evidence of Mears’ insurance coverage to Thomas
& Hutton and KIU. That insurance summary included, as the first item, the same
builder’s risk insurance that Mears claims KIU was obligated to provide[,]” id. at 10.
KIU also cites to Exhibit 2 to KIU’s response, in which counsel for KIU memorialized
his demands that Mears submit a claim to the Insurers. However, these instances are all
recitations of past events and not legal arguments by KIU that Mears must submit a claim
to the Insurers. KIU did ask the court to require Mears to submit a claim to the Insurers
in KIU’s motion to reconsider, but it did so briefly and without providing any legal basis
for the court to do so, so the court denied KIU’s request. Therefore, the court is
unconvinced that the Mears action and any claims against the Insurers involve common
questions of fact and law.
The court acknowledges that may be a common issue between the two cases—
whether Mears engaged in faulty workmanship. In the Mears action, that issue could be
considered in determining whether Mears was damaged by KIU’s failure to procure
primary builder’s risk insurance. In the KIU action, whether Mears engaged in faulty
workmanship will influence the determination of whether Westport properly denied
coverage based on faulty workmanship and potentially whether coverage is available
under the Swiss Re Policy, if KIU is found to be an Additional Insured. However, this
26
commonality alone is not sufficient to warrant consolidate because the other Arnold
factors weigh against consolidation.
With regard to the first Arnold factor, the court finds that there is significant risk
of prejudice and possible confusion if the cases were to be consolidated. As explained at
length, the Westport Policy and Swiss Re Policy are not at issue in the Mears action. If
the cases were consolidated, the jurors would likely be confused by the discussion of the
Westport Policy and the Swiss Re Policy and mistakenly think that those policies were
relevant to the Mears action. As to the length of time to conclude multiple suits
compared to one, the difference in procedural posture in these cases weighs against
consolidation. Because the court denies KIU’s motion to stay the Mears action, the
Mears action is ready for trial. In contrast, the KIU action has yet to begin discovery.
Therefore, consolidating the cases will significantly prolong the Mears action when the
case’s resolution is currently within sight. Moreover, consolidating the Mears action and
KIU action will not reduce the burden on the parties, witnesses, and available judicial
resources posed by multiple suits. The Mears action will focus on what, if any, damage
Mears suffered from KIU’s breach of the Contract and will not involve parties or
witnesses related to Westport and the Insurers. And because the issues in the cases are
different, judicial resources will not be conserved by consolidating the cases.
The court notes that there is a disagreement among the parties about whether there
is a risk of inconsistent adjudication if the cases are not consolidated. Mears argues that
the law requires that any factual finding on Mears’s faulty workmanship in the Mears
action would apply to the coverage disputes in the KIU action. Westport and KIU
disagree. However, the court declines to decide this issue now because it does not affect
27
the court’s analysis. The potential inconsistency would occur if a jury in the Mears
action determined that Mears did not engage in faulty workmanship, while a jury or the
court found in the KIU action that there is no coverage available under the Westport
Policy or Swiss Re Policy because Mears did engage in faulty workmanship. However,
that inconsistency is a product of KIU’s failure to argue in the Mears action that the
Westport Policy fulfilled its contractual requirements. If KIU had argued that, if the
court were to find that KIU was required to provide primary builder’s risk insurance, the
Westport Policy satisfied that requirement, then whether Mears engaged in faulty
workmanship based on a builder’s risk insurance policy that KIU did not actually obtain
would not be a potential issue. Therefore, to the extent that there is a possibility of
inconsistent adjudication, it is by KIU’s creation, and because all other factors weigh
strongly against consolidation, the court denies KIU’s motions to consolidate.
III. CONCLUSION
For the reasons set forth above, the court DENIES the motion to stay and
DENIES the motions to consolidate.
AND IT IS SO ORDERED.
DAVID C. NORTON
UNITED STATES DISTRICT JUDGE
October 22, 2019
Charleston, South Carolina
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