Dakota Gasification Co. v. Sure Steel, Inc.

• Decision Date: 09 March 2020
• Docket Number: Case No. 1:18-cv-226
• Citation: 458 F.Supp.3d 1121
• Parties: DAKOTA GASIFICATION COMPANY, Plaintiff, v. SURE STEEL, INC., Defendant, Sure Steel, Inc., Third-Party Plaintiff, v. Robertson-Ceco Corporation, d/b/a Garco Building Systems, Steel Concepts, LLC, and Rice Lake Contracting Corporation, d/b/a Ric Lake Construction Group, Third-Party Defendants.
• Court: U.S. District Court — District of North Dakota

458 F.Supp.3d 1121

DAKOTA GASIFICATION COMPANY, Plaintiff,

v.SURE STEEL, INC., Defendant,Sure Steel, Inc., Third-Party Plaintiff,

v.Robertson-Ceco Corporation, d/b/a Garco Building Systems, Steel Concepts, LLC, and Rice Lake Contracting Corporation, d/b/a Ric Lake Construction Group, Third-Party Defendants.

Case No. 1:18-cv-226

United States District Court, D. North Dakota.

Signed March 9, 2020

Scott G. Johnson, Robins Kaplan LLP, Minneapolis, MN, Timothy Q. Purdon, Robins Kaplan LLP, Bismarck, ND, Erica Ramsey, Robins Kaplan LLP, Sioux Falls, SD, for Plaintiff.

Clinton A. Quisenberry, Kevin A. Koudelka, Michael D. Richardson, Richardson Koudelka LLP, Dallas, TX, Joel M. Fremstad, Fremstad Law, Fargo, ND, for Third-Party Defendant Robertson-Ceco II Corporation.

Ronald H. McLean, Ian Ronald McLean, Serkland Law Firm, Fargo, ND, for Third-Party Defendant Steel Concepts LLC.

Corey J. Quinton, Tyler S. Carlson, Troy A. Wolf, Fisher Bren & Sheridan, LLP, Fargo, ND, for Defendant/Third-Party Plaintiff.

ORDER GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

Peter D. Welte, Chief Judge

Before the Court are cross motions for partial summary judgment filed by Plaintiff Dakota Gasification Company¹ ("DGC") and Defendant Sure Steel, Inc. ("Sure Steel"). Doc. Nos. 42 and 47. DGC filed its partial summary judgment motion on June 21, 2019. Doc. No. 42. Sure Steel cross moved for partial summary judgment on June 28, 2019 (Doc. No. 47) and also filed a response to DGC's motion on July 11, 2019. Doc. No. 51. DGC correspondingly filed its reply to its own motion on July 23, 2019 (Doc. No. 57) and filed a response to Sure Steel's motion on July 17, 2019. Doc. No. 55. Sure Steel filed its final reply in support of its motion on July 30, 2019. Doc. No. 58.

The dispute at issue in these motions concerns insurance coverage and the applicability of the anti-subrogation rule. DGC asks for a declaration that Sure Steel is not an insured, additional insured, coinsured, or intended beneficiary under a Factory Mutual Insurance Company² ("FMIC") builder's risk policy, and as such, DGC's partial subrogation claim against Sure Steel is not barred by the anti-subrogation rule. Sure Steel asks for the reverse – a declaration that it is an implied coinsured or intended beneficiary under the FMIC Policy, and as such, DGC's partial subrogation claim against Sure Steel is barred by the anti-subrogation rule. For the reasons below, DGC's motion for partial summary judgment is granted, and Sure Steel's motion is denied.

I. BACKGROUND

The essential facts at issue in these cross motions for summary judgment are largely undisputed. In 2014, DGC began construction of a production facility for urea, a granular fertilizer commonly used in agricultural operations, at its Great Plains Synfuels Plant located near Beulah, North Dakota (the "Project"). Doc. No. 1, ¶ 7. The Project included construction of a large urea storage building. Id. ¶ 8.

In April 2015, DGC contracted with Sure Steel to design, furnish, and construct the urea storage building (the "Building") pursuant to a Construction Contract (Doc. No. 45-1) with an effective date of April 22, 2015 (the "Construction Contract"). Id. ¶ 9. The terms of the Construction Contract required Sure Steel to perform all work in connection with "designing, furnishing, and installation of the Building" at a cost of $6,803,843.00. Doc. No. 45-1. Notably, the Construction Contract did not require Sure Steel to obtain builder's risk insurance coverage for the Building during construction, and Sure Steel did not obtain builder's risk coverage for the Building. Also absent from the Construction Contract is any provision requiring DGC to obtain any insurance or to name Sure Steel as an additional insured under any of its insurance policies. Id.

DGC did, however, have a builder's risk insurance policy in place to cover the Project and the Building. On August 31, 2015, FMIC issued a Mutual Corporation Non-Assessable Policy (the builder's risk insurance policy, and hereinafter, the "Policy") to Basin Electric for the Project. Doc. No. 44-1. The term of the Policy was September 1, 2015 to March 27, 2017. Id. The first page of the Policy clearly identifies the "Insured" – in all caps and bold formatting – as Basin Electric Power Cooperative, AECOM. Id. Moreover, Declaration 1 of the Policy identifies the "Named Insured" as follows:

Basin Electric Power Cooperative, AECOM and any subsidiary, and Basin Electric Power Cooperative's interest in any partnership or joint venture in which Basin Electric Power Cooperative has management control or ownership as now constituted or hereafter is acquired, as the respective interest of each may appeal; all hereafter referred to as the "Insured," including legal representatives.

Id. The parties agree that Sure Steel is not a Named Insured under the Policy.

The Policy also contains a loss adjustment provision that allows additional insureds to be added and named as loss payees, generally by obtaining a certificate of insurance. Id. The parties agree that DGC did not add Sure Steel as an additional insured to the Policy, and the parties also agree that Sure Steel was never issued a certificate of insurance or other evidence of insurance under the Policy.

Importantly, the Policy contains, in relevant part, the following language concerning "Property Insured":

1. PROPERTY INSURED

This Policy insures the following property, unless otherwise excluded elsewhere in this Policy, located at an insured location or within 1,000 feet/300 meters (sic) thereof, to the extent of the interest of the Insured in such property.

A. Real Property, including new buildings and additions under construction, in which the Insured has an insurable interest.

B. Personal Property:

...

4) of others in the Insured's custody to the extent the Insured is under obligation to keep insured for physical loss or damage insured by this Policy.

5) of others in the Insured's custody to the extent of the Insured's legal liability for insured physical loss or damage to Personal Property. The Company will defend that portion of any suit against the Insured that alleges such liability and seeks damages for such insured physical loss or damage. The Company may, without prejudice, investigate, negotiate and settle any claim or suit as the Company deems expedient.

This Policy also insures the interest of contractors and subcontractors in insured property during construction at an insured location or within 1,000 feet/300 meters thereof, to the extent of the Insured's legal liability for insured physical loss or damage to such property. Such interest of contractors and subcontractors is limited to the property for which they have been hired to perform work and such interest will not extend to any TIME ELEMENT coverage provided under this Policy.

Doc. No. 44-1, p. 15. The Policy also contains several exclusions, including an exclusion for design defects or faulty workmanship.

On July 3, 2016, the Building collapsed during a high wind storm. Doc. No. 1. The collapse resulted in, among other things, damage to the Building and its foundation, a delay in completion of the Building, and a reconstruction of the Building and its foundation. Id. DGC and Basin Electric submitted a claim to FMIC for damage to the Building, and FMIC determined what was recoverable under the Policy. Id.

As a part of the claims review process, FMIC determined that Sure Steel did not have an insurable interest in the Building. Doc. No. 49-2, Cook Deposition, pp.54-55. According to the record, FMIC determined that Sure Steel was not a named insured or an additional insured, and that DGC had no legal liability to Sure Steel for the loss of the Building. Id., pp. 23-24.

Ultimately, after investigation, FMIC paid DGC approximately $11 million for damages incurred in connection with the Building's collapse. In addition to the $11 million in damages paid by FMIC, DGC claims it incurred additional losses of $4 million as a result of the Building collapse.

On November 5, 2018, DGC commenced this action against Sure Steel to recover its damages. Doc. No. 1. As noted above, a portion of the damages claimed by DGC are amounts paid by FMIC under the Policy. Id. DGC alleges, among other things, that Sure Steel was negligent in constructing and bracing the Building and that Sure Steel breached the Construction Contract with DGC.³ Id. Sure Steel filed an amended answer and counterclaim against DGC on March 19, 2019 (Doc. No. 35), asserting an affirmative defense and seeking declaratory relief that DGC (and FMIC) is barred from pursuing subrogation against Sure Steel, as Sure Steel is an implied co-insured under the Policy. Thus, the Court must resolve two issues – first, whether Sure Steel is an implied co-insured or has an insurable interest under the terms of the Policy, and second, if Sure Steel has an insurable interest, whether the anti-subrogation rule bars any claim by DGC (and FMIC) against Sure Steel.

II. DISCUSSION

"In a case of actual controversy within its jurisdiction," a federal court "may declare the rights and other legal relations of any interested party seeking such declaration." 28 U.S.C. § 2201(a). Summary judgment is required "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) ; see also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). "An issue is ‘genuine’ if the evidence is sufficient to persuade a reasonable jury to return a verdict for the nonmoving party." Schilf v. Eli Lilly & Co., 687 F.3d 947, 948 (8th Cir. 2012) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). "A fact is material if it ‘might affect the outcome of the suit.’ " Dick v. Dickinson State Univ., 826 F.3d 1054, 1061 (8th Cir. 2016) (quoting Anderson, 477...