James River Ins. Co. v. Power Mgmt., Inc.
| Decision Date | 28 October 2014 |
| Docket Number | No. 12–CV–02706 ADSGRB.,12–CV–02706 ADSGRB. |
| Citation | 55 F.Supp.3d 446 |
| Parties | JAMES RIVER INSURANCE COMPANY, Plaintiff, v. POWER MANAGEMENT, INC., Defendant. |
| Court | U.S. District Court — Eastern District of New York |
Silverson, Pareres & Lombardi, LLP, by: James F. Scaffidi, Esq., of Counsel, New York, NY, for Plaintiff.
Goldberg Segalla, LLP, by: Joanna M. Roberto, Esq., of Counsel, Garden City, NY, for Defendant.
By Order dated April 22, 2014, United States District Judge Leonard D. Wexler directed that the Clerk of the Court reassign this declaratory judgment action to the undersigned as related to Pacific Indemnity Company v. Power Management Inc., Case No. 09–CV–5163 (the “Pacific Indemnity Company Action” or the “Related Action”), jury selection for which is currently scheduled for November 10, 2014.
The Pacific Indemnity Company Action involves negligence and breach of contract claims brought by Pacific Indemnity Company (“Pacific Indemnity”) against Power Management Inc. (“PMI”) arising out of alleged damage caused by the failure of an engine that PMI contracted to rebuild.
The above-captioned action is brought by PMI's insurance provider, the Plaintiff James River Insurance Company (the “JRI”), against PMI seeking a declaration that it has no duty provide a defense or indemnity to PMI under the subject insurance policy for the claims asserted in the Pacific Indemnity Company Action.
Presently before the Court is a motion for summary judgment pursuant to Federal Rule of Civil Procedure (“Fed. R. Civ.P.”) 56 by JRI and a cross-motion for partial summary judgment pursuant to Fed.R.Civ.P. 56 by PMI for an order declaring that (1) the “Damage to Your Product” exclusion in the subject insurance policy is inapplicable; (2) JRI cannot disclaim coverage on the basis of late notice; and (3) JRI is estopped from denying coverage.
For the following reasons, JRI's motion for summary judgment is granted in part and denied in part, and PMI's cross-motion for partial summary judgment is denied.
Unless stated otherwise, the following facts are drawn from the parties' Rule 56.1 statements. Triable issues of fact are noted.
JRI is a corporation duly organized and existing under the laws of the State of Ohio, with its principal place of business located in Virginia. JRI is engaged in the insurance business and is licensed to do such business in the State of New York.
PMI is a corporation duly organized and existing under the laws of the State of California with its principal place of business located in California. PMI is engaged in the business of, among other things, the operation and management of power generation facilities and landfill gas control systems.
JRI issued to PMI a Commercial General Liability Policy, bearing Policy Number 00009740–2, effective May 9, 2007 through May 9, 2008 (the “Policy”).
In late May or early June 2012, JRI commenced this declaratory judgment action seeking a declaration that it does not have a duty under the Policy to provide a defense to or indemnify PMI in the Pacific Indemnity Company Action. This action was originally assigned to District Court Judge Leonard D. Wexler.
On July 5, 2012, PMI answered and asserted a number of affirmative defenses. PMI also sought a declaration that JRI owes a duty under the Policy to defend and indemnify it in connection with the Pacific Indemnity Action.
Following the completion of discovery, on November 8, 2013, JRI filed a motion pursuant to Fed.R.Civ.P. 56 for summary judgment requesting a declaration that it has no duty under the Policy to provide a defense or indemnify PMI for the claims asserted in the Pacific Indemnity Company Action.
On April 22, 2014, Judge Wexler denied that motion without prejudice to renew it before this Court, newly-assigned to the case.
Thereafter, the parties filed letters concerning whether this action should be stayed pending the resolution of the Pacific Indemnity Company Action. In particular, PMI sought a stay on the ground that the resolution of the Pacific Indemnity Company Action would be dispositive of this case. JRI opposed a stay and asserted, among other arguments, that this action only affected coverage issues rather than liability issues; that the outcome of the Pacific Indemnity Company Action would have no impact on the outcome of this action; and that the Pacific Indemnity Company Action awaited resolution of this action before proceeding forward to trial.
On May 2, 2014, this Court issued an order declining to stay this action, concluding that “before [JRI] expends considerable resources in connection with the Pacific Indemnity Company Action, the Court finds that a determination is needed as to whether [JRI] is responsible under the subject insurance policy to provide [PMI] with coverage in the event the [PMI] is found liable in the Pacific Indemnity Company Action.” (Doc No. 39, at 2.) The Court directed that this action be tried before the Pacific Indemnity Company Action.
JRI subsequently re-filed its motion for summary judgment in accordance with the Individual Rules of this Court, and PMI cross-moved for partial summary judgment.
On or about February 18, 2008, Wehran Energy Corp. (“Wehran”) purchased a power generation facility and landfill gas control system located in Brookhaven, New York from U.S. Energy Biogas (“USEB”). The product consisted of U.S. Energy's entire operations at Brookhaven and the two inoperable Deutz 620 engines located there. As there was no operational Deutz 620 engine, Brookhaven was not producing any energy. Wehran desired to produce energy, but instead of purchasing a new engine, Wehran chose to hire PMI to rebuild the Deutz 620 engine.
Later that month, Wehran orally contracted with PMI to rebuild and install one of the Deutz 620 engines at the Brookhaven facility. PMI alleges that this task was to be performed alongside USEB. (See Thomas Reynolds (“Reynolds”) Dep. at 14, 33; JRI Exh. D.) According to JRI, neither PMI nor Wehran subcontracted any portion of the work associated with the contract or the rebuild. (Fredrick Wehran (“Wehran”) Dep. in the Related Action, at 108; JRI Exh. F; Pl. Exh. H.)
Under the oral agreement between PMI and Wehran, PMI agreed to rebuild one Deutz 620 engine located at the Brookhaven facility using a refurbished engine block and crankshaft provided by a third-party known as NRG. (Chapman Dep., at 28.)
On or about February 20, 2008, PMI sent Thomas Reynolds, a mechanic, to the Brookhaven facility to rebuild the engine. (Reynolds Dep., at 30, 55.) He was assisted by, among others, two USEB employees, Chris Palmer and Carl Christopherson.
According to JRI, the USEB employees were never compensated for their services during the engine rebuild process and their services were provided as a matter of goodwill to Wehran. (Steven Laliberty (“Laliberty”) Dep., at 35–36; JRI Exh. E.) In addition, PMI did not bill for the services performed by the USEB employees that assisted in the engine rebuild process; rather, it only billed for the services that its employees performed at the Brookhaven facility. (See Chapman at 59–60.) PMI contends that, during the rebuild process, there was no one individual “in charge” and, instead, the project proceeded under a team-like atmosphere.
PMI states that USEB provided integral services in connection with the engine rebuilding process, including installation and torqueing of the front cover and vibration damper; installation of connecting rods; installation of piston and rose and torqueing of all rod bolts to specifications; installation and torqueing of head nuts; torqueing of all head bolds to specifications; and retorquing of cylinder heads to specifications. (See Reynolds Dep., at 80, 82, 85, 91, 92, 96.) PMI asserts that multiple people participated due to the extremely heavy nature of the equipment and strength required to perform some of the responsibilities. (See id. at 80, 81, 87, 87; Wehran Dep., at 77.)
At the time the team began work on the rebuild, an engine block was already present at the Brookhaven Landfill Facility. Wehran was advised that the engine had been reconditioned and it was recommended that the engine be replaced, not rebuilt. Nevertheless, PMI was instructed to use this engine block so that Wehran could save on costs. As a consequence, no warranty was provided for the engine rebuild process. The engine rebuild process lasted approximately three weeks and consisted of removing and replacing all the internal parts. According to PMI, it was required to utilize some newly purchased parts, as well as parts previously used and owned by Wehran. (See Laliberty Dep., at 20; Reynolds Dep., at 29, 53.) The new parts were ordered only after Frederick Wehran reviewed and approved them by way of a purchase order. (See Wehran Dep., at 85, 89.) JRI asserts that PMI removed the counterweights, and inspected, and re-installed them to verify compliance with Deutz specifications. (JRI Exh. G (“Failure Report”) at 1.)
On March 5, 2008, PMI finished the major mechanical work and began the pre-startup process. (See Failure Report, at 2–3.) Once PMI completed the pre-startup phase, the engine was turned on, with zero pressure and allowed to rest idle for about fifteen minutes. (See Failure Report, at 2–3.) After fifteen minutes, PMI shut the engine, inspected it with an infrared gun, and then placed the engine back on idle for ten minutes, after which PMI shut it again. (Id. ) The engine was then changed over to the new gas compressor and restarted. The engine was then placed online at 34% load for about fifteen minutes before it suffered “catastrophic failure.” (Id. ) PMI states that the term “catastrophic failure” was used to describe the engine because the damage was extensive and the origin of the failure was unknown.
JRI asserts that, as a result of the “catastrophic failure,” a rod blew out of the engine, the crankcase...
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