Babcock & Wilcox Ebensburg Power v. Zurich Americ.

• Decision Date: 12 October 2004
• Docket Number: No. CIV.A. 02-299J.,CIV.A. 02-299J.
• Parties: BABCOCK & WILCOX EBENSBURG POWER, INC., and Ebensburg Investors Limited Partnership Trading as Ebensburg Power Company, Plaintiffs, v. ZURICH AMERICAN INSURANCE COMPANY, Liberty International Underwriters and Liberty Insurance Under Writers, Inc., Defendants.
• Court: U.S. District Court — Western District of Pennsylvania

Page 387

368 F.Supp.2d 387

BABCOCK & WILCOX EBENSBURG POWER, INC., and Ebensburg Investors Limited Partnership Trading as Ebensburg Power Company, Plaintiffs, v. ZURICH AMERICAN INSURANCE COMPANY, Liberty International Underwriters and Liberty Insurance Under Writers, Inc., Defendants.

No. CIV.A. 02-299J.

United States District Court, W.D. Pennsylvania.

October 12, 2004.

John M. Sylvester, Esq., Heath B. Monesmith, Esq., Kirkpatrick & Lockhart, Pittsburgh, PA, for Plaintiffs.

Richard F. Andracki, Esq., Andracki Law Offices, Pittsburgh, PA, Steven D. Johnson, Hecker, Brown, Sherry & Johnson, Philadelphia, PA, for Defendants.

MEMORANDUM OPINION AND ORDER

GIBSON, District Judge.

This case comes before the Court on Zurich American Insurance Company's (hereinafter "Defendant") Motion for Summary Judgment on Damages Resulting from Turbo Care's Negligent Repair Work (Document No. 92) and Motion for Summary Judgment Regarding Gradual Cracking (Document No. 96). In consideration of the Defendant's above-listed motions, Babcock & Wilcox Ebensburg Power, Incorporated and Ebensburg Investors Limited Partnership (hereinafter "Plaintiffs") responses thereto, oral argument, and the record in the case sub judice, the Court denies the Defendant's motions for the following reasons.

JURISDICTION

Jurisdiction is proper in the United States District Court for the Western District of Pennsylvania pursuant to 28 U.S.C. § 1332, in that all Plaintiffs to the above-captioned civil action are citizens of different states than all Defendants, and the subject matter in controversy exceeds the sum or value of $75,000.00, exclusive of interest and costs. Specifically, Plaintiff, Babcock & Wilcox Ebensburg Power, Incorporated is a Delaware corporation with its principal place of business in Barberton, Ohio. Plaintiff, Ebensburg Investors Limited Partnership, the sole limited partner of Ebensburg Power Company, is a Pennsylvania partnership with its principal place of business in Cambria County, Pennsylvania. Both Plaintiffs trade and do business as Ebensburg Power Company (hereinafter "Ebensburg"). Ebensburg seeks an amount exceeding $75,000.00 exclusive of interest and costs.

Defendant, Zurich American Insurance Company, is a New York Corporation with its principal place of business in New York, New York. Defendant, Liberty Insurance Underwriters, Incorporated, is a New York Corporation with its principal place of business in New York, New York. Therefore, none of the Plaintiffs in the case sub judice is a citizen of the same state as any of the Defendants.

FACTUAL BACKGROUND

The civil action arises from an insurance coverage dispute between Ebensburg and the Defendant, Zurich American Insurance Company.¹ (Document Nos. 112, 116, & 119). In this coverage action, there were three first-party property policies issued to Ebensburg: (i) Zurich issued to Ebensburg insurance policy no. MCP 2946252 00 (Document No. 93, Exhibit A) for the period February 14, 1999 through February 14, 2002; (ii) Zurich issued to Ebensburg insurance policy no. MCP 3709390 00 (Document No. 93, Exhibit B) which provides 62% of the coverage to Ebensburg for the period February 14, 2002 through February 14, 2003; and (iii) Liberty issued insurance policy no. DA 073408001012, which provides the remaining 38% of the coverage to Ebensburg for the period February 14, 2002 through February 14, 2003. (Document No. 112, Exhibit M). Pursuant to the terms of the property policies issued by the Defendant, Ebensburg has filed a claim for damages and loss of business income with regard to damage to a steam turbine used to convert steam into electricity. Id.

Ebensburg owns and operates a 50-megawatt cogeneration power plant, located in Ebensburg, Pennsylvania. (Document Nos. 112, 116 & 119). Pursuant to the terms of a contract between Ebensburg and GPU/Pennsylvania Electric Company (hereinafter "Penelec"), Ebensburg supplied Penelec with electricity.² Id. In order to generate electricity for Penelec, Ebensburg utilizes a "circulating fluidized bed boiler to burn waste coal to produce steam to make electricity." (Document Nos. 116 & 119). The original stem rotor and turbine are at issue in this litigation, as well as the "cost and need for the replacement rotor."³ Id.

"Ebensburg produces electricity by generating steam from the combustion of the waste coal. The heat from the combustion process is used to heat water in order to produce superheated steam. The steam is injected into the steam turbine through a steam inlet valve where the thermal energy in the steam is converted into mechanical energy by rotating the rotor in the turbine which, in turn, drives the generator, which produces electricity. Once the wet steam has left the turbine, it flows to the condenser where all the steam is condensed to water and returned to the heating cycle as water." (Document No. 112; see also Document No. 119).

"The turbine is a multi-stage, condensing turbine manufactured by Siemens Demag Delaval ("Siemens"). The turbine rotor consists of sixteen ... [sets of blades, with each set being called a `stage'.] There is one `row' of turbine blades on each stage of the rotor, except for the first which has two rows. There are sixteen stages and, therefore, there are seventeen rows of blades on the rotor. The blades are affixed to the rotor stages in rows 12, 13, 14 and 15 [by what is] sometimes referred to as a ball and shank attachment. Within the steam turbine, the production of energy occurs as the steam expands through the stages. As the steam passes through each stage, it expands against the rotor blades applying a torque to the shaft of the rotor. The rotor shaft drives a generator that produces the electricity." (Document No. 112; see also Document No. 119). There is also an area in the turbine referred to as the "saturation line"; however, the parties dispute the location of the saturation line in the turbine.⁴ (Document Nos. 112 & 119).

On or about May 22, 2001, during a planned outage in order to perform scheduled maintenance of the turbine, Ebensburg discovered cracking in the rotor of the steam turbine at rows 12 and 13. (Document Nos. 112, 116 & 119). Specifically, the cracking was discovered in the rims of the rotor at rows 12 and 13 (hereinafter "first turbine loss"). Id. Upon discovery of the cracking at rows 12 and 13, Ebensburg decided that in order to repair the damaged rotor at rows 12 and 13, it would be necessary to machine off⁵ the damaged rims and perform a weld build up repair of the rims, including cutting new slots for the rotor blades⁶ and installing new blades. Id. However, it was determined that the repair could not be performed until April of 2002; therefore, the rotor was returned to service with rows 12 and 13 missing from the rotor. Id.

In April of 2002, the steam turbine was shutdown for a scheduled outage, during which rows 12 and 13 were to be repaired. The rotor was removed from the steam turbine, and it was shipped to a repair facility TurboCare, Incorporated (hereinafter "TurboCare") in Houston, Texas. (Document Nos. 112, 116 & 119). On or about April 29, 2002, during an inspection of the rotor at TurboCare, additional cracking was discovered on the rims of rows 14 and 15, similar to the cracking discovered on rows 12 and 13. Id. It was determined by Ebensburg that the same repair that was to be performed on rows 12 and 13 would also be performed on rows 14 and 15. Id.

The repair of rows 12 and 13 was successful. (Document Nos. 112, 116 & 119). However, the repair of rows 14 and 15 was not successful in that the turbine rotor was returned to service from July 2002 through May 2003 without rows 14 and 15. Id.

The origin of the cracking in rows 12 and 13 is disputed between Ebensburg and the Defendant. Specifically, Ebensburg claims that "instantaneous cracking" or "brittle fracture cracking" was the cause of the cracking at rows 12 and 13; therefore, this mechanical breakdown is covered in its property policies issued by the Defendant.⁷ (Oral Argument, August 25, 2004). Ebensburg also contends that the cracking at rows 14 and 15 was caused by "instantaneous cracking." Id. With regard to the repair by TurboCare of rows 14 and 15, Ebensburg argues that a genuine issue of material fact exists as to whether the subsequent unsuccessful repair by TurboCare of rows 14 and 15 was caused by the negligence of TurboCare, or whether the instantaneous cracking at rows 14 and 15 was the proximate result of a mechanical breakdown in the turbine rotor itself. Id. Accordingly, Ebensburg asserts that any decision by Ebensburg to replace rows 14 and 15, rather than repair the rows was an appropriate business decision based upon many variables, such as its contract with Penelec.⁸ Id.

The Defendant, however, disputes the cause of the cracking at rows 12, 13, 14, and 15. Specifically, the Defendant asserts that the cracking is the result of "gradual cracking"⁹ or "stress corrosion cracking" which is specifically excluded from coverage under the terms of the policies issued by the Defendant to Ebensburg.¹⁰ (Oral Argument, August 25, 2004). Furthermore, the Defendant argues that the "faulty repair" by TurboCare of rows 14 and 15 was the proximate cause of the cracking in rows 14 and 15 discovered after the unsuccessful repair. Thus, the Defendant argues that the faulty workmanship provision also excludes coverage under the terms of the policies issued by the Defendant.¹¹ Id. The Defendant further asserts that Ebensburg should have permitted TurboCare to properly repair rows 14 and 15 at no additional cost, rather than Ebensburg replacing rows 14 and 15 at a substantially higher cost. Id.

Ebensburg seeks a loss of business income and property damage resulting from the first turbine loss discovered on May 22, 2001. (Document No. 112). Specifically, Ebensburg asserts that in order to avoid a complete shutdown of the power plant, the "outer rims of both rows 12 and 13"...