Dairy Energy, Inc. v. Hartford Steam Boiler Inspection
| Decision Date | 07 October 2021 |
| Docket Number | Civil Action No. 4:20cv00068 |
| Parties | DAIRY ENERGY, INC., Plaintiff, v. The HARTFORD STEAM BOILER INSPECTION AND INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Western District of Virginia |
David Denman Hopper, Timothy Sean Feehan, Cook, Heyward, Lee, Hopper & Feehan, P.C., Glen Allen, VA, for Plaintiff.
Elizabeth E. S. Skilling, Harman, Claytor, Corrigan & Wellman, Richmond, VA, Justin Garrett Guthrie, Hunter Maclean, Savannah, GA, for Defendant.
Plaintiff Dairy Energy ("Dairy Energy") previously operated a facility that converted animal waste into energy. To accomplish this, Dairy Energy installed an anaerobic digester that processed animal waste into methane gas, which was used to power a generator and produce electricity ("the Digester"). To protect this investment, Dairy Energy took out an insurance policy to cover equipment breakdown ("the Policy") from Defendant Hartford Steam Boiler Inspection and Insurance Company ("HSB"). In November 2017, Dairy Energy discovered that the roof of the Digester had broken away from the rest of the vessel, causing it to collapse into the waste. Dairy Energy timely filed an insurance claim with HSB, which HSB denied.
As a result, Dairy Energy filed a complaint against HSB in Virginia Circuit Court alleging a breach of the insurance agreement, which HSB later removed to this court based on diversity jurisdiction. This matter is now before the court on the parties' cross motions for summary judgment. Because the court finds that the Digester falls under an exclusion to "Covered Equipment" and therefore does not qualify for insurance coverage, HSB's denial of Dairy Energy's claim was proper, and the court will enter summary judgment in favor of HSB.
In 2011, Dairy Energy began operating the Digester as part of a system for generating electrical power at the Van Der Hyde Dairy Farm in Chatham, Virginia. 1 Van Der Hyde Dairy and Dairy Energy are both owned and operated by the Van Der Hyde family. Roy Van Der Hyde is the Vice President of Dairy Energy, and he oversaw the Digetser's daily operation.
The Digester is a 16-foot-tall rectangular vessel, 14 feet of which sit underground and 2 feet of which are above ground. (Id. at 13:9–22.) The Digester is made of concrete, reinforced by rebar, and the underground portion is encased in sheet foam. (Id. at 18:18–19:4; Decl. of Travis D. Wells ¶ 6, Aug. 20, 2021 [ECF No. 19-3].) The portion that sits above ground is encased in spray foam that cannot be removed. (Dep. of Deleon Lutz 71:18–19, July 16, 2021 [ECF No. 37]2 ; VDH Dep. at 19:1–4.) The Digester does not feature access hatches or ports that allow for inspection. (Wells Decl. ¶ 6.) A design image of the Digester system is included for reference:3
(Id. at 15–16.)
While in operation, the Digester holds cow manure. (Lutz Dep. at 96:15–19.) The concrete, foam, and surrounding earth ensure the Digester maintains a consistent temperature that allows the manure, and bacteria within it, to interact and produce methane gas. (Id. at 89:18–22.) This methane gas creates a small amount of pressure inside the Digester. (Id. at 96:15–19.) The Digester is designed to function under pressure between one and four inches of "water column," a unit of measurement for very low amounts of pressure. (Id. at 41:3–42:18.) The pressure in the tank arises from the methane gas produced during this biological process. If the pressure in the tank exceeds four inches of water column, a pressure-relief valve opens to expel some of the gas. (Id. at 39:7–16.) A second valve opens whenever the pressure exceeds 6 inches of water column. (Id. ) When the tank is operating normally, the methane produced is channeled into a generator, which burns the gas to produce energy. (Id. at 49:14–50:16.)
On November 20, 2017, Van Der Hyde noticed that the generator was no longer receiving gas or producing energy. (VDH Dep. at 14:18–15:11.) After investigating further, he discovered that one section of the Digester's roof had "collapsed." (Id. ) Dairy Energy enlisted the help of a company that routinely installs and repairs similar Digesters; the company, in turn, dispatched Deleon Lutz to investigate the cause of the collapse and estimate the cost of repair. (Lutz Dep. at 21:1–22.) Lutz concluded that a buildup of sulfuric acid created a "caustic environment" that "ate away at the roof planks until their structural integrity was compromised to the point of the [D]igester cover breaking apart." (ECF No. 16-2, at 2.) During his investigation, Lutz took several pictures of the damage to the roof depicting cracks in the concrete, splitting of the roof from the walls, and the collapse of the roof. (Id. at 4–5.)
Lutz estimated that repairs would cost $735,000. (Id. at 2.)
At the time Van Der Hyde discovered the collapse, Dairy Energy owned an equipment insurance policy through HSB. (ECF No. 1-2, at 8–9.) Following the collapse of the Digester roof, Dairy Energy timely filed a claim with HSB, which HSB ultimately denied. (Id. at 67–70.) Dairy Energy filed a complaint against HSB on November 1, 2019, in the Circuit Court of Pittsylvania County, asserting what the court construes as a single count of breach of contract. On November 12, 2020, HSB filed a notice of removal in this court. This matter now comes before the court on the parties' cross motions for summary judgment.4
For the reasons that follow, the court finds that the Digester falls under a coverage exclusion in the Policy. Accordingly, the court will enter summary judgment in favor of HSB.
Under Rule 56(a), the court must "grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ; Glynn v. EDO Corp. , 710 F.3d 209, 213 (4th Cir. 2013). When making this determination, the court should consider "the pleadings, depositions, answers to interrogatories, and admissions on file, together with ... [any] affidavits" filed by the parties. Celotex , 477 U.S. at 322, 106 S.Ct. 2548. Whether a fact is material depends on the relevant substantive law. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Id. (citation omitted). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex , 477 U.S. at 323, 106 S.Ct. 2548. If the moving party meets that burden, the nonmoving party must then come forward and establish the specific material facts in dispute to survive summary judgment. Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 586–87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
In determining whether a genuine issue of material fact exists, the court views the facts and draws all reasonable inferences in the light most favorable to the nonmoving party. Glynn , 710 F.3d at 213 (citing Bonds v. Leavitt , 629 F.3d 369, 380 (4th Cir. 2011) ). Indeed, "[i]t is an ‘axiom that in ruling on a motion for summary judgment, the evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor.’ " McAirlaids, Inc. v. Kimberly-Clark Corp. , 756 F.3d 307, 310 (4th Cir. 2014) (internal alteration omitted) (quoting Tolan v. Cotton , 572 U.S. 650, 651, 134 S.Ct. 1861, 188 L.Ed.2d 895 (2014) (per curiam)). Moreover, "[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge." Anderson , 477 U.S. at 255, 106 S.Ct. 2505. The nonmoving party must, however, "set forth specific facts that go beyond the ‘mere existence of a scintilla of evidence.’ " Glynn , 710 F.3d at 213 (quoting Anderson , 477 U.S. at 252, 106 S.Ct. 2505 ). The nonmoving party must show that "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Anderson , 477 U.S. at 249, 106 S.Ct. 2505. "In other words, to grant summary judgment the [c]ourt must determine that no reasonable jury could find for the nonmoving party on the evidence before it." Perini Corp. v. Perini Constr., Inc. , 915 F.2d 121, 124 (4th Cir. 1990) (citing Anderson , 477 U.S. at 248, 106 S.Ct. 2505 ). Even when facts are not in dispute, the court cannot grant summary judgment unless there is "no genuine issue as to the inferences to be drawn from" those facts. World-Wide Rights Ltd. P'ship v. Combe, Inc. , 955 F.2d 242, 244 (4th Cir. 1992).
When considering summary judgment regarding the interpretation of a contract, the court "faces a conceptually difficult task ...." Id. at 245. To satisfy summary judgment without extrinsic evidence a writing must be unambiguous. Id. A writing is not unambiguous if "susceptible to two reasonable interpretations." Am. Fid. & Cas. Co. v. London & Edinburgh Ins. Co. , 354 F.2d 214, 216 (4th Cir. 1965). A court must first "determine whether, as a matter of law, the contract is ambiguous or unambiguous on its face." World-Wide Rights Ltd. P'ship , 955 F.2d at 245. If the contract is unambiguous on the dispositive issues, a court can interpret the contract as a matter of law and grant summary judgment. See id. On the other hand, if a court determines that the contract is ambiguous, it may still "examine evidence extrinsic to the contract that is included in the summary judgment materials" and grant summary judgment if that evidence proves dispositive. Id. If, however, extrinsic evidence still...
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