Koch Engineering Co. v. Gibraltar Cas. Co.
| Decision Date | 10 March 1995 |
| Docket Number | No. 89-0624 C 5.,89-0624 C 5. |
| Citation | 878 F. Supp. 1286 |
| Parties | KOCH ENGINEERING COMPANY, INC. Plaintiff, v. GIBRALTAR CASUALTY COMPANY, INC. and International Insurance Company, Defendants. |
| Court | U.S. District Court — Eastern District of Missouri |
Rex G. Beasley, William E. Shull, N. Sue Allen, Thomas J. Meek, Benjamin L. Burgess, James M. Armstrong, Foulston & Siefkin, Wichita, KS, Thomas H. Lake, St. Louis, MO, for plaintiff.
Thomas R. Jayne, Partner, Thompson and Mitchell, St. Louis, MO, Peter M. Sfikas, Clay H. Phillips, Peterson and Ross, Chicago, IL, for Gibraltar Cas. Co., Inc.
Donald L. James, President, William Rutherford, Partner, Brown and James, St. Louis, MO, for Intern. Ins. Co.
John G. Doyen, Brinker and Doyen, St. Louis, MO, for Aetna Cas. and Sur. Co.
This case was brought to determine insurance coverage for a chemical plant failure in Texas. The underlying incident has already been adjudicated against the Plaintiff. In the earlier case arising out of this incident, the Plaintiff in this case was found liable to Monsanto Corporation on a theory of breach of contract. After that verdict was rendered, the Plaintiff filed this suit against his insurance carriers to enforce coverage and allege vexatious refusal to pay. The Plaintiff would have the Court believe that his policy operated as a performance bond that covered breach of contract; however, the Court finds that the policy carried by Koch does not provide for payment of this claim.
The Monsanto Chemical Company has a large petroleum distillation tower at its petroleum refinery in Texas City, Texas. The tower was used to separate styrene from ethyl benzene in order to produce marketable styrene. In order to make the tower more efficient, the Monsanto Company wanted to install a new filtration system. Monsanto officials traveled to Zurich, Switzerland where Sulzer Brothers Ltd., presented new technology. The technology involved a packing material called mellpack which is trademarked flexipac in the United States. The design of this packing material allows liquid and gas streams inside of the tower to be radially distributed. The packing provides a system of small holes on a solid surface which allows the liquid to flow over a maximum contact area. The Koch engineers chose to design the system to run as a "clean service" which touted greater efficiency but required the absence of contaminants in the solution.
Koch Engineering has the exclusive right to sell the Swiss packing material in the United States. Monsanto was aware that competitors were using similar systems in other parts of the world. Although Sulzer could not release the names and actual outputs of particular competitors, it did release data from plants in operation. The Monsanto officials were interested in the project and speculated about the identity of the competitors who were already employing the technology.
Monsanto officials were aware of the fact that this was a new technique. With that in mind, they sought and received guarantees about performance and output. They went to visit the Sulzer plant and examined theoretical models operate in the laboratory.
None of the existing, operating plants were the tremendous size of the plant in Texas; none of the plants were successfully running the clean system with holes as small as the proposed design for Texas; and finally, none of the plants that had started as clean systems were still running that way.
Koch made assurances and Monsanto signed a purchase order with Koch on June 23, 1982. The order called for packing material and the components that would be required to install it. Koch agreed to design the system of internals for the Texas City plant and Brooks Erection Company installed the system with the supervision and technical advice of Koch engineers. The installation was completed and the tower was placed in operation on August 2, 1983.
On August 7, 1983, the tower was shut down because it was not performing as expected. When the tower was dismantled, the problem was identified as mill scale, a rust like powder that formed during the manufacturing and superheating of the steel components. The mill scale had clogged the holes of the flexipac. The result was that the styrene solution was not able to penetrate the filter and the separation process became impossible. The distributors were removed, cleaned, and put back in the tower. The tower was placed back in operation but performance continued to fall short of specifications.
In November of 1983, the tower was reopened and found to be clogged with mill scale. All attempts to run the system in the manner designed by Koch were discarded. The pipe distributor system was replaced with a trough system and the tower was run as a dirty service.
Monsanto Company sued Koch Engineering for damages that resulted from the improper working of the tower and the associated cleanup costs. At trial, Monsanto claimed damages of $14,306,083.65. The jury assessed damages at $7,059,457.60 and the court entered judgment against Koch for that amount. Koch settled all of Monsanto's claims by paying the sum of $7,382,549.19, which represented the amount of the judgment as well as the interest through December 31, 1988.
The Aetna Insurance Company carried the base policy which provided coverage up to one million dollars. International Insurance Company and Gibraltar Casualty Company, Inc. provided surplus coverage of twenty million dollars to be shared by the two companies.
Aetna is not involved in this suit because Aetna met its full contracted coverage when it paid a claim in another case that had been filed against Koch.
Gibraltar and International refuse to pay the judgment on the grounds that it was not covered by the insurance contract or alternatively, if it was covered, payment is barred by an exclusion in the policy.
Koch argues that the policy which was in effect should provide coverage and that the Defendant's refusal to pay constitutes vexatious refusal.
The Court finds that Koch's policy does not cover this situation. The mill scale clogged the holes and fouled the system so much so that after the second attempt to clean it, the system was discarded and replaced with a different type of system. It was a failure from the very beginning because it was an improperly designed, untested process on this scale that Koch wanted to sell so it made unrealistic contractual promises.
The Court finds...
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