Black & Veatch v. Wellington Syndicate

• Citation: 302 S.W.3d 114
• Decision Date: 27 October 2009
• Docket Number: No. WD 69286.,WD 69286.
• Parties: BLACK & VEATCH CORPORATION, Respondent, v. WELLINGTON SYNDICATE and Continental Casualty Company, Appellants.
• Court: Court of Appeal of Missouri (US)

302 S.W.3d 114

BLACK & VEATCH CORPORATION, Respondent, v. WELLINGTON SYNDICATE and Continental Casualty Company, Appellants.

No. WD 69286.

Missouri Court of Appeals, Western District.

October 27, 2009.

Motion for Rehearing and/or Transfer to Supreme Court Denied December 22, 2009.

Application for Transfer Denied March 2, 2010.

Kirk T. May, Kansas City, MO, for Appellant, Wellington.

Susan F. Robertson, Kansas City, MO, for Appellant, Continental.

Roy C. Bash, Kansas City, MO, for Respondent.

Before THOMAS H. NEWTON, C.J., JAMES EDWARD WELSH, and KAREN KING MITCHELL, JJ.

JAMES EDWARD WELSH, Judge.

This appeal involves a contract dispute between Black & Veatch Corporation and Wellington Syndicate and Continental Casualty Company (Builder's Risk Insurers) about a policy of insurance. The primary issue is whether or not the insurance policy provides coverage for losses arising out of ocean transit. The circuit court granted summary judgment for Black & Veatch on the coverage issue and found that the policy covered losses arising out of ocean transit. A bench trial occurred on the Builder's Risk Insurers' request for reformation, and the circuit court found against the Builder's Risk Insurers. A jury trial occurred on Black & Veatch's claim for damages, and the jury awarded Black & Veatch $23,072,979 in damages. The jury also found that no set-off was justified even though Black & Veatch had received $35 million in settlement payments from its ocean marine insurer (Hiscox) and from the manufacturer of the property lost in ocean transit (Toshiba). The Builder's Risk Insurers appeal, asserting eleven separate points. These eleven points, however, concern three basic areas: (1) coverage issues, (2) reformation issues, and (3) damages and set-off issues. We affirm.

Factual and Procedural Background

Black & Veatch entered into a contract with MEP Pleasant Hill, LLC (MEP) to design, procure equipment for, and construct an electric generating facility, known as the Aries Power Plant, located near Pleasant Hill, Missouri. The Black & Veatch and MEP contract provided that MEP would provide builder's risk insurance and ocean marine cargo insurance. The parties agreed that Black & Veatch would purchase the required builder's risk and ocean marine cargo policies and charge the premium cost back to MEP.

Black & Veatch's risk management group engaged the insurance brokerage services of Willis Carroon Corporation of Missouri to act as Black & Veatch's agent and to draft, negotiate, and procure its builder's risk policy. The specific builder's risk policy for the Aries project was issued in June 2000, effective for the period September 27, 1999, to February 1, 2002, at a premium cost of $895,466. Both Continental and Wellington subscribed to the builder's risk policy for the Aries project.

The builder's risk policy for the Aries project contained the following provision pertaining to loss or damage to property "in transit" to the project site:

II. COVERAGE

Except as hereinafter excluded, this Policy insures:

A. PROPERTY COVERED

All risks of physical loss or damage to the interest of the Insureds in all real and personal property owned or used by the Insureds, in the course of construction, erection, installation, repair, renovation and the like, while in transit and while in temporary storage on site or off site, or held in trust or on commission, consignment, or memorandum or on which they have made advances, or sold but not delivered or removed; property of others in the care, custody or control of any Insured or for which any Insured may be liable or agree to be liable under law, any project document, contract, or agreement whether written or oral, or for which instructions to insure are received by any Insured before any known or reported loss; and shipments made by others on instructions from or for the account of any Insured.

The policy also contained these additional provisions:

VI. EXTENSIONS OF COVERAGE

This policy insures:

A. PROPERTY IN TRANSIT:

Loss of or damage to the Property Insured whilst it is situated other than at the Project Site for the purpose of storage, repair, modification, treatment or further work of construction or whilst in transit by road, rail or inland waterway.

. . . .

C. UNDISCLOSED DAMAGE 50/50 CLAUSE

In the event of loss of or damage to the Property Insured under this Policy being discovered after risk under an applicable marine insurance policy has terminated and if after investigation it is not possible to ascertain whether the cause of such loss or damage happened prior to the termination of the marine insurance, it is understood and agreed that the Insurers hereon shall contribute 50% of the properly adjusted claim and the marine insurers will also agree to contribute 50% of the properly adjusted claim both less 50% of the deductible applicable.

The policy also provided that the territory it covered was "worldwide."

Black & Veatch contracted with Toshiba International Corporation (Toshiba) to supply two heat recovery steam generators to the Aries project. On July 21, 2000, while in ocean transit from Japan to the United States, critical components of the generators, called tube bundles, were damaged beyond repair when the vessel transporting them encountered a tropical storm in the Pacific Ocean. The vessel returned to Japan where Toshiba determined that the tube bundles had to be remanufactured. Toshiba replaced the damaged tube bundles at no cost to Black & Veatch. The delivery of the tube bundles to the project, however, was delayed by approximately six months.

Black & Veatch claimed that as a result of the delay it had to change the construction sequencing and employ additional labor and management to meet the project completion date and to avoid the significant penalties the contract imposed on Black & Veatch if the completion date was not met. Black & Veatch engaged two construction experts, Richard Sieracki and Joseph Egan, who prepared a report, based on nineteen invoices, that purported to document $26,140,000 in additional costs and expenses that Black & Veatch incurred because of the delay in receiving the tube bundles (delay damages).

Black & Veatch's ocean marine policy for the Aries Project was issued by a syndicate of Lloyd's of London Underwriters known as Hiscox. Hiscox agreed to settle with Black & Veatch for $25 million.¹ Black & Veatch also brought a separate claim against Toshiba for damages arising out of the delay in shipment of the tube bundles, as well other damages claims. Ultimately, Toshiba paid Black & Veatch $10.2 million in settlement of all claims.

On January 22, 2001, six months after the tube bundles had been damaged, Black & Veatch notified the Builder's Risk Insurers of the storm damage to the tube bundles and submitted a claim under the builder's risk policy for its delay damages. The Builder's Risk Insurers, through their adjuster, issued a reservation of rights letter, asserting that "[i]f our understanding that the loss occurred during ocean transit is correct, then the Builder's Risk policy would not apply." Black & Veatch then filed the instant suit against the Builder's Risk Insurers. Black & Veatch's first amended petition alleged counts for breach of contract (Count I), vexatious refusal to pay (Count II), and declaratory judgment (Count III).

Black & Veatch moved for partial summary judgment against the Builder's Risk Insurers, urging that as a matter of law the builder's risk policy covered the ocean transit loss giving rise to its delay damages claim. The Builder's Risk Insurers opposed Black & Veatch's motion and also moved for summary judgment. The Builder's Risk Insurers urged the court to declare as a matter of law that the builder's risk policy, read as a whole and giving meaning to each of its provisions, did not cover ocean transit loss. Alternatively, the Builder's Risk Insurers urged that the documents and circumstances existing "prior to and contemporaneous with" the issuance of the builder's risk policy, as well as parol evidence subsequent to the issuance of the policy, confirmed that the parties never intended the builder's risk policy to cover property damaged during ocean transit.

On August 30, 2005, the circuit court granted Black & Veatch's motion for partial summary judgment, which mooted that portion of the Builder's Risk Insurers' summary judgment motion asserting no coverage for property damaged during ocean transit. The circuit court found that the policy was unambiguous and that coverage existed and no exclusion applied for the occurrence "described in the pleadings."

In light of the ruling as a matter of law that the builder's risk policy covered Black & Veatch for the ocean transit loss giving rise to its delay damages claim, the Builder's Risk Insurers filed a counterclaim seeking reformation of the builder's risk policy. The Builder's Risk Insurers sought to reform the policy to exclude ocean transit losses on the ground that the circuit court's interpretation of the policy to cover ocean transit losses was contrary to the parties' agreement.

On January 6, 2006, after a bench trial, the circuit court, stating that it had heard all the evidence, had observed the demeanor of the witnesses, and had considered their interest in the outcome of the case, expressly found "that both parties probably did not intend for the policy at issue to cover ocean transit loss." Nevertheless, the circuit court denied the Builder's Risk Insurers' claim for reformation on the ground that the Builder's Risk Insurers did not show by clear and convincing evidence that there was a preexisting agreement between the Builder's Risk Insurers and Black & Veatch that ocean transit losses would not be covered under the builder's risk policy and further failed to show that the policy contained any mutually mistaken or unintended wording.

After the reformation bench trial, the parties filed summary judgment motions on the...