Gies v. City of Gering

Decision Date22 March 2005
Docket NumberNo. A-03-1112.,A-03-1112.
PartiesMark GIES and Sue Gies, doing business as Twin City Packing, also known as Twin City Pack, appellees and cross-appellants v. CITY OF GERING, a municipal corporation, appellee, Union Insurance Co., a division of Continental Western Group, a Nebraska authorized insurance company doing business in Nebraska, appellant and cross-appellee, and Scott Kerbel, doing business as Arctic Air Refrigeration, appellee.
CourtNebraska Court of Appeals

John F. Simmons and Steven W. Olsen, of Simmons Olsen Law Firm, P.C., Scottsbluff, for appellant.

Robert M. Brenner, of Robert M. Brenner Law Office, Gering, for appellees Mark Gies and Sue Gies.

CARLSON, MOORE, and CASSEL, Judges.

CASSEL, Judge.

INTRODUCTION

This appeal arises out of the claim submitted by Mark Gies and Sue Gies, doing business as Twin City Packing, also known as Twin City Pack, (collectively TCP) against its insurer, Union Insurance Co. (Union), for a loss under a policy it entered into with Union. Union appeals the judgment and the award of attorney fees and costs entered against it in favor of TCP, alleging that an exclusion under the insurance policy applied. TCP cross-appeals, alleging that the judgment was insufficient, that the court erred in allowing evidence concerning an affirmative defense not asserted in the pleadings, and that the court abused its discretion in allowing Union, following trial, to amend its answer to assert the defense of an exclusionary clause. For the reasons discussed herein, we reverse, and remand with directions.

BACKGROUND

Twin City Packing is a meatpacking business located in Gering, Nebraska. The business has two large coolers connected to the same 10-horsepower compressor, a blast freezer linked to a different 10-horsepower compressor, and a holding freezer refrigerated by a 3-horsepower compressor. The compressors operate on electricity provided by the City of Gering.

On the evening of January 23, 1999, an electrical power outage occurred in a section of Gering that included the business' location. A broken aluminum jumper cable caused the outage, which cable was connected to an air break switch located atop two utility poles at a transformer substation situated several blocks away from the meatpacking business property.

The business' compressors used three-phase electrical motors, and the aforementioned substation provided three-phase power. The broken jumper cable "knocked out" one phase of that three-phase power, which occurrence is referred to as a "single-phase disturbance." Although the compressors lost one phase of power, they continued to run until their motors eventually overheated and were damaged.

Mark Gies arrived at the meatpacking business on the morning of January 24, 1999, and discovered that neither of the 10-horsepower compressors was running and that they had been off for "quite a while" because they were both cold to the touch. When Mark Gies could not get these compressors to operate, he called Scott Kerbel, who owned and operated Arctic Air Refrigeration. Kerbel determined that the 10-horsepower compressor refrigerating the freezer was ruined and that the other 10-horsepower compressor had sustained damage. Kerbel temporarily replaced the ruined compressor with a 7 1/2-horsepower compressor. The meat did not sustain any spoilage, and the business did not have to discard any meat.

TCP submitted a written "Loss Notice" form to the City of Gering alleging damages of $18,500 "or a little higher" due to the loss of a 10-horsepower compressor caused by an "electrical power outage." The City of Gering denied the claim because the jumper cable "broke due to conditions beyond the control of the City of Gering." At the time of the power outage, TCP was insured by Union pursuant to a "Commercial Lines Policy." That policy states in pertinent part:

B. Exclusions
1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
....
e. Power Failure
The failure of power or other utility service supplied to the described premises, however caused, if the failure occurs away from the described premises.
But if failure of power or other utility service results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.

TCP submitted a claim to Union, and Union denied the claim on April 18, 2000, stating that the policy "does not provide coverage for a power surge or lack of power, such as the repairman is saying happened to your compressors, as he is saying that you lost one phase of the three phase system." Union enclosed a copy of some pages from the policy and stated that it had highlighted the exclusion that pertained to the situation. Union highlighted section B.1.e., a portion of that which we quoted above.

TCP filed its operative petition on February 13, 2002. It alleged that "an electrical outage at the transformer substation, located near [the meatpacking business], occurred ... which outage proximately caused damage to [the business'] equipment, including compressors, a cooler and a freezer." The petition set forth seven causes of action: five against the City of Gering and one each against Union and Kerbel. Because neither the City of Gering nor Kerbel has filed an appeal in this matter, we will largely omit discussion of allegations and evidence relating solely to those parties.

Union filed an answer to that petition on April 8, 2002, admitting that the outage proximately caused the damage to the meatpacking business. Union denied that paragraph of the petition which stated that the meatpacking business incurred damages "when the compressors lost one phase of the three phase system, which did not give the compressors enough power to start; with the units trying to start, they eventually burned out and required complete repair." The answer further stated, "As to [the petition's] paragraphs [addressing electrical apparatus and insurance coverage therefor, Union] denies the allegations of that paragraph as it claims that coverage is not afforded under that policy." Union then alleged (1) that TCP did not have legal capacity for its claims and suit against Union; (2) that TCP failed to state a cause of action; (3) that the power outage was caused by an act of God; (4) that by TCP's failure to have appropriate safety devices to prevent the damage alleged, TCP was contributorily negligent to a degree sufficient to bar recovery; and (5) that "the policy of insurance issued to [TCP] specifically precludes recovery based upon the facts of this case." Union filed an amended answer on January 21, 2003, admitting that the electrical outage took place at the transformer substation of the City of Gering and alleging that Union had insufficient information to either admit or deny allegations pertinent to the City of Gering.

The court held a bench trial on January 21 to 23 and March 27, 2003. The court overruled Union's motions for directed verdict, one made at the end of TCP's evidence and another made at the end of all evidence. Following the evidentiary portion of the trial, Union moved for leave to file an amended answer and orally represented that the only change would be to

allege with the specific terminology from the policy the exclusionary language which would deal with power failure, and which also would deal with electrical apparatus and the — all I'm proposing is that a paragraph be added indicating that ... Union ... alleges that the claim of [TCP] is excluded from coverage under the relevant insurance policy by virtue of certain exclusions, including the following, and then it would go on to specifically include those two exclusions.

The court filed its order on July 11, 2003. The section entitled "Pleadings" stated in part: "[Union's] motion at the conclusion of evidence for leave to file a Third Amended Answer to [TCP's] Second Amended Petition is sustained, EXCEPT that paragraph [addressing electrical apparatus] of the Third Amended Answer shall not be allowed. The proffered amended answer attached to Union's motion shall be deemed filed."

The order stated that an "electrical power outage" was the precipitating incident. With respect to the action against Union, the court found that the damaged compressors constituted "Covered Property" under the policy. It stated that if section B.1.e. included only the first sentence, there would clearly be no coverage for TCP's claim under the policy. However, the court took issue with the second sentence of section B.1.e., which sentence the court paraphrased and interpreted to read: "If the power failure result[ed] in a risk of direct physical damage to covered property, then Union ... would pay for that damage." The court continued, "Stated differently, there would be coverage under the second sentence of paragraph B.1.e. if the power failure caused a risk of direct physical damage to covered property." The court observed that the second sentence referred only to a "`failure of power'" and not a "`failure of power ... occurring away from the premises.'" But the court then stated, "Reading both sentences together there would be coverage unless it is excluded, but it would not be excluded if there was coverage." The court concluded that section B.1.e. of the Union policy was ambiguous and should be read as to provide coverage. The trial court determined that coverage existed and entered judgment against Union for $8,250, but noted the existence of a $250 deductible. The court therefore entered a final judgment in favor of TCP for $8,000.

Following a hearing, the court awarded attorney fees and costs in favor of TCP and against Union. The court concluded that the fair and reasonable amount of legal services rendered to TCP solely for its cause of action against Union was $4,500 for ...

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