Dominion Res., Inc. v. Alstom Power, Inc.

• Decision Date: 11 April 2019
• Docket Number: Record No. 181061
• Citation: 297 Va. 262,825 S.E.2d 752
• Parties: DOMINION RESOURCES, INC., et al. v. ALSTOM POWER, INC.
• Court: Virginia Supreme Court

297 Va. 262

825 S.E.2d 752

DOMINION RESOURCES, INC., et al.

v.ALSTOM POWER, INC.

Record No. 181061

Supreme Court of Virginia.

April 11, 2019

John R. Walk (Andrew P. Sherrod, Richmond; Elizabeth C. Burneson ; Hirschler Fleischer, on briefs), for plaintiffs.

Michael D. Fisse (Katy B. Kennedy ; James W. Walker, Richmond; Daigle, Fisse & Kessenich; Vandeventer Black, on brief), for defendant.

PRESENT: Lemons, C.J., Mims, McClanahan, Powell, Kelsey, and McCullough, JJ., and Millette, S.J.

OPINION BY JUSTICE WILLIAM C. MIMS

The United States District Court for the District of Connecticut entered a certification order asking this Court to answer a determinative question of law in a proceeding pending before it. Pursuant to our jurisdiction under Article VI, Section 1 of the Constitution of Virginia and Rule 5:40, we accepted the following question:

Does Virginia law apply the collateral source rule to a breach of contract action where the plaintiff has been reimbursed by an insurer for the full amount it seeks in damages from the defendant?

I. BACKGROUND AND MATERIAL PROCEEDINGS BELOW

The certified question of law arises from a contract dispute between the plaintiffs, Dominion Resources Services, Inc., Dominion Resources, Inc., Dominion Energy, Inc., Dominion Generation Corp., and Dominion Technical Solutions, Inc. (collectively, "Dominion Resources"), and the defendant, Alstom Power, Inc. ("Alstom"). The contract at issue (the "Alliance Agreement") is governed by Virginia law and concerned services performed by Alstom at Dominion Resources’ power-generation facilities. It contained mutual indemnities as well as requirements that Alstom obtain certain insurance policies. Pursuant to those requirements, Alstom obtained an insurance policy with an aggregate limit of $ 5 million (the "Zurich policy") and an excess policy with an $ 18 million limit (the "Allianz policy"), both naming Dominion Resources as an additional insured. Both are "eroding" policies, in which the costs of defending a lawsuit are considered part of the loss. Additionally, Dominion Resources independently obtained an excess insurance policy from Associated Electric & Gas Insurance Services ("AEGIS"). Alstom was not involved in securing the AEGIS policy, nor did it pay any portion of the AEGIS policy premium.

A boiler accident at a Dominion Resources power-generation facility operated under the Alliance Agreement injured five workers, three fatally. The workers and estates filed a lawsuit against Dominion Resources, Alstom, and others, which ultimately resulted in a settlement agreement. Dominion Resources paid more than $ 5 million to settle the claims and incurred more than $ 9.9 million in defense expenses. As a result of the litigation and settlement, Dominion Resources received a total of more than $ 5 million from the Zurich and Allianz policies. It additionally received payment from the AEGIS policy for the remaining expenses it incurred in defending and settling the litigation.¹ The parties agree that the combination of insurance payments from the Zurich, Allianz, and AEGIS policies have fully reimbursed Dominion Resources for the costs it incurred in defending and settling the litigation.

Pursuant to language in the Alliance Agreement requiring each of Dominion Resources’ and Alstom’s "respective insurers to waive all rights of recovery against each other, whether in contract, tort (including negligence and strict liability) or otherwise," AEGIS has not brought any claims against Alstom’s insurers for reimbursement of the amounts it paid to Dominion Resources. Dominion Resources has the option to reimburse AEGIS if it recovers any damages from Alstom in the underlying action. If Dominion Resources recovers and chooses to reimburse AEGIS, doing so would improve its loss history with AEGIS and reduce its premiums for future insurance policies.

In the underlying case, Dominion Resources alleged that Alstom breached the Alliance Agreement in two ways: (1) by failing to defend Dominion Resources in the boiler accident litigation, and (2) by obtaining eroding rather than noneroding insurance policies. Dominion Resources sought as damages the sum it expended in defending and settling the boiler accident litigation not covered by the Zurich and Allianz Policies. In other words, Dominion Resources sought to recover from Alstom the same amount it received from the AEGIS policy.

Alstom moved to dismiss Dominion Resources’ action on several grounds, including that Dominion Resources has suffered no recoverable damages because AEGIS has already paid the full amount sought. Alstom argued that Dominion Resources should be barred from obtaining a double recovery and that the collateral source rule does not apply in contract actions. Dominion Resources agreed that AEGIS reimbursed it but contended that the collateral source rule applies in this case to prevent the district court from considering the AEGIS reimbursement.

Recognizing that no controlling Virginia precedent has addressed whether the collateral source rule applies to breach-of-contract actions and that "whether the collateral source rule applies has the capacity to dispose of all of Dominion Resources’ claims in the case," the district court issued a certification order requesting that this Court consider this dispositive question of law.² We now consider the question.

II. ANALYSIS

The collateral source rule as previously applied in Virginia provides that "compensation or indemnity received by a tort victim from a source collateral to the tortfeasor may not be applied as a credit against the quantum of damages the tortfeasor owes." Schickling v. Aspinall , 235 Va. 472, 474, 369 S.E.2d 172 (1988). This Court first applied the rule in an 1877 wrongful death case, holding that evidence of a life insurance payment for the benefit of the decedent’s family could not be admitted into evidence. Baltimore & Ohio R.R. Co. v. Wightman , 70 Va. (29 Gratt.) 431, 446 (1877), rev’d on other grounds sub nom Baltimore & Ohio R.R. Co. v. Koontz , 104 U.S. 5, 26 L.Ed. 643 (1881). The Court observed that the "mere fact that the family of the deceased received money from some other source would not justly influence the measure of compensation" the defendant company owed for injuries attributable to it. Id. The fact of insurance was an inappropriate consideration in determining damages because "[t]he party effecting the insurance paid the full value for it, and there is no equity in the claim of the defendant to the benefit of a contract for which it gave no consideration." Id.

Since then, and for similar reasons, Virginia has consistently recognized the collateral source rule in tort cases. See Bullard v. Alfonso , 267 Va. 743, 749, 595 S.E.2d 284 (2004) ; Acuar v. Letourneau , 260 Va. 180, 192, 531 S.E.2d 316 (2000) ; Schickling , 235 Va. at 475, 369 S.E.2d 172 ; Walthew v. Davis , 201 Va. 557, 563, 111 S.E.2d 784 (1960) ; Johnson v. Kellam , 162 Va. 757, 764, 175 S.E. 634 (1934) ; see also Code § 8.01-35 (providing that provable damages for lost income in personal injury and death cases shall not be reduced because of reimbursement to the plaintiff or decedent from any collateral source, nor the fact of reimbursement admitted into evidence). Although early cases limited the rule’s application to insurance payments in tort claims, "[l]ater cases have applied the rule to social security benefits, public and private pension payments, unemployment and workers’ compensation benefits, vacation and sick leave allowances, and other payments made by employers to injured employees, both contractual and gratuitous." Bullard , 267 Va. at 748, 595 S.E.2d 284 (quoting Schickling , 235 Va. at 474, 369 S.E.2d 172 ); see also 22 Am. Jur. 2d Damages § 405 (2019) ; 4 Fowler V. Harper et al., Harper, James and Gray on Torts § 25.22, at 801–04 (3d ed. 2007). This Court has nevertheless recognized limitations on the rule’s scope. For instance, it does not apply to settlement proceeds from one of multiple joint tortfeasors because the settlement implicitly attributes part of the fault to that individual; as such, the settlement amount is deducted from the amount the remaining tortfeasors owe. Acordia of Virginia Ins. Agency, Inc. v. Genito Glenn, L.P. , 263 Va. 377, 387–88, 560 S.E.2d 246 (2002) (citing Sweep v. Lear Jet Corp. , 412 F.2d 457, 461 (5th Cir. 1969) ); see also Restatement (Second) of Torts § 920A (1979).

Until now, the question of whether the collateral source rule applies to breach-of-contract actions in Virginia has not been squarely before this Court. In Schickling , this Court observed that it has never "had occasion to consider whether the collateral source rule applies to contract cases." 235 Va. at 475, 369 S.E.2d 172. It declined to do so in that case because the defendant, not the plaintiff, received the collateral compensation, which rendered the rule "inapposite." Id. Later, in Acuar , this Court acknowledged that "neither the tort policy of this Commonwealth nor the collateral source rule was implicated" in a case involving only construction of an insurance contract, but applied the rule in the case then before it because it was "reviewing a tort claim, not a contractual one, by an injured party against a wrongdoer." 260 Va. at 191, 531 S.E.2d 316. Most recently, this Court stated that it has "never applied the rule outside the tort context" in a footnote explaining why consideration of the rule was unnecessary in that breach-of-contract case. CPM Virginia, LLC v. MJM Golf, LLC , 291 Va. 73, 80 n.1, 780 S.E.2d 282 (2015). Specifically, the Court declined to address one party’s argument that the collateral source rule should remain limited to "its presently recognized boundaries" because it resolved the case on the narrower ground that no breach of contract warranties occurred. Id. Relying on these statements declining to reach the issue, Alstom contends that Virginia law does not recognize the collateral source rule...