Latex Constr. Co. v. Everest Nat'l Ins. Co., CIVIL ACTION NO. 1:12-CV-892-RWS
| Decision Date | 31 March 2014 |
| Docket Number | CIVIL ACTION NO. 1:12-CV-892-RWS |
| Court | U.S. District Court — Northern District of Georgia |
| Parties | LATEX CONSTRUCTION COMPANY, Plaintiff, v. EVEREST NATIONAL INSURANCE COMPANY, Defendant. |
LATEX CONSTRUCTION COMPANY, Plaintiff,
v.
EVEREST NATIONAL INSURANCE COMPANY, Defendant.
CIVIL ACTION NO. 1:12-CV-892-RWS
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION
SO ORDERED: March 31, 2014
This case is before the Court on Everest's Motions for Summary Judgment ([54], [70])1 and Latex's Motion for Partial Summary Judgment [74]. After reviewing the record, the Court enters the following Order.
Latex Construction Company has been in the business of welding and laying pipes for over sixty years. According to its 2009 insurance renewal application, in 2007, Latex had revenues of $272,464,000. Latex procures
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various lines of insurance for its business, including: general liability, excess general liability, workers compensation, automobile, pollution, and others. Willis Insurance Services of Georgia, Inc. ("Willis") is the insurance broker of record for Latex. Everest issued Policy No. 71G7000031-071, an excess general liability policy, to Latex for the period of January 1, 2007, to January 1, 2008 ("Everest Policy" or "Policy").2 Zurich American Insurance Company ("Zurich") provided Latex's underlying general liability insurance for the same policy period ("Zurich Policy"). The Zurich Policy has a one million dollar per-occurrence limit of liability.
The Everest Policy applies to "injury or damage covered by the 'first underlying insurance'" and obligates Everest to "pay on behalf of any insured those sums in excess of 'underlying insurance' or 'other insurance' that any insured becomes legally obligated to pay as damages to which this insurance applies." (Everest Policy, [70-2] I.A.1., I.A.2.) The Policy further obligates Everest to "defend any 'suit' against any insured seeking damages to which this insurance applies when 'underlying insurance' or 'other insurance' . . . [c]ease
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to apply because of exhaustion of their limits of insurance solely by the payment of claims, settlements, judgments or 'defense expenses' for an 'occurrence' to which this insurance also applies." (Everest Policy, [70-2] VI.A.3.b.)
The Everest Policy's notice provisions read:
Duties in the Event of 'Occurrence', Claim or 'Suit'
a. In the event of an 'occurrence', claim, or 'suit' or 'loss', we or our representative must receive prompt notice of the 'occurrence' or 'loss'. . . .
b. If a claim is made or a 'suit' is brought against any insured you must:
. . .
(2) Notify us as soon as practicable.
(Everest Policy [70-2] IV.3.a. (as amended and replaced by Georgia Changes, p. 32 of 38), IV.3.b.2.) The Zurich Policy contains similar notice provisions. The Everest Policy also provides: "No person or organization has a right under this Coverage Part . . . to sue us on this Coverage Part unless all of its terms have been fully complied with." (Everest Policy [70-2] IV.4.b.)
Along with the Policy, Everest provided Latex with Claim Reporting
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Guidelines ("Guidelines"). The Guidelines specify that they are "merely for illustrative purposes" and are not "intended to replace, modify or waive any terms, conditions or warranties contained in the policy." (Guidelines [70-2] at 4 of 38.) The first page of the Guidelines provides contact information for sending excess liability loss notices to Everest. The Guidelines also address when the insured should report a claim to Everest. (Guidelines [70-2] at 5-6 of 38.)
Latex was hired to work on Panhandle Eastern Pipe Line Company's ("Panhandle") Tuscolusa East End Enhancement Project ("Project"). Latex's responsibilities on the Project included welding the pipeline, hydrostatic testing the pipeline and getting it ready to be placed into service, and burying pipe. On October 23, 2007, a pipe section failed hydrostatic testing. During the test, the pipe ruptured near a weld. Three days later, after the pipe section was put back together, it failed another hydrostatic test, this time within an inch or so of a different weld. Dave Stotz, then-Vice President at Latex, testified that he believed he heard about the test failures immediately and recalled telling
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Latex's President Bill Honey about the failures "on or about the time that the hydrostatic failures occurred."
By November 2007, Panhandle communicated to Latex that it was "concerned" that the Project's x-ray company (Acuren) had, for a variety of reasons, missed flaws in the welds and that some of the welds that had been accepted were no longer acceptable. Panhandle hired a third party to review the welds and audit the x-ray film. Ultimately, Panhandle had concerns about 200 to 300 welds. According to Stotz, as a result of the two pipe failures in October 2007, Panhandle shut the whole job down and spent millions of dollars investigating the remainder of the welds. (Stotz Depo. [70-1] at 20 of 47:4-12.)
On December 1, 2007, after reviewing lab reports and weld cross-sections related to the October 2007 test failures, National Welding sent a one-page letter to Latex. The letter indicated that the electrode specified by the welding procedures (established by Panhandle) for the Project was "asking for a cracking problem." By the end of 2007, Latex acknowledged that there was a high repair rate on the welds, but the rate was not inconsistent with repair rates on other jobs. In a November 2007 meeting, a Panhandle project manager mentioned to Stotz that Panhandle may hold Latex accountable for some of the
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costs associated with the test failures. However, Stotz testified, "everybody else indicated that it wasn't anything that Latex had done wrong," and other than the project manager's comment, "[Latex] didn't think it was any issue."
During a conference call on January 4, 2008, between Stotz and Panhandle representatives Dave Owen and Dan Pribble, Latex attempted to find ways to "appease" Everest so that they could continue their business relationship. (Stotz Depo. [70-1] at 32 of 47: 16-23.) On January 21, 2008, Pribble sent Bill Honey a proposed Agreement Letter "regarding [the] conversation on 1/4/08 . . . concerning the settlement meeting for the repairs for our East End Pipeline." (Proposed Agreement Letter [70-6] at 2 of 9.) According to the letter, it "captured the essence" of the January 4 conference. The letter reads, in pertinent part:
[T]he Parties acknowledged that the Project pipeline requires significant remedial evaluation and repair work before it can be placed into service. A comprehensive, independent review of the x-ray film has indicated many welds need to be cut out or repaired. . . . Latex will provide, at its sole cost and without any remuneration under the Construction Agreement, construction labor and equipment in support of repair and replacement of the defective welds above and below ground. . . . Latex will be responsible for the cost of repairs resulting from
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substandard installation practices and failure to comply with engineering and construction standards and specifications incorporated into the Construction Agreement. . . .
In addition, the Parties agree to continue discussion with Acuren focusing on the financial impact as a result of Acuren's failure to timely detect the original weld anomalies. . . . .
So long as Latex faithfully performs its obligations as set forth above and is not in breach of any such obligations, Panhandle agrees that it will refrain from pursuing any legal action against Latex with respect to any matters that are subject to this Agreement.
(Proposed Agreement Letter [70-6] at 3-4 of 9.)
Latex refused to sign the proposed agreement and responded to Everest in writing on January 23, 2008. The response letter, authored by Stotz, stated:
The alleged misrepresentation of the x-rays by Panhandle's subcontractor was the cause of this current issue. . . .
I did not agree that Latex performed substandard practices and failed to comply with engineering and construction standards and specifications. However, we agreed that the repair rate was excessive, due to lack of qualified welders available at the time of construction. . . .
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Our offer was a good faith offer in the spirit of our Alliance Agreement and meant to help off-set some of the direct costs to repair these welds. . . .
In conclusion, we can't in good faith accept the liability inferred in your proposal. . . . We do agree with your analysis of your [x-ray] subcontractor's responsibility, but do not feel comfortable with their desire or ability to contribute to the financial resolution of this situation. I am still committed to offer Latex's financial resources to off-set some of the costs incurred by Panhandle from this unfortunate issue, but have an obligation to protect Latex from undefined liability.
(Latex Response Letter [70-7] at 3-4 of 4.) As of January 2008, Latex had not informed any of its insurers of a potential claim relating to the Project.
By April 2008, Stotz heard a rumor that Panhandle was considering a lawsuit on the Project. (Stotz Depo. [70-1] at 38 of 47: 3-19.) In a letter dated May 30, 2008, Everest informed Latex and five other parties that a lawsuit had been filed against them on April 3, 2008 "to recover the damages it suffered as a result of the problems arising on the East End Project" ("Panhandle Suit"). (Panhandle Litigation Letter [70-9] at 3 of 3.) According to the letter, the estimated cost overruns on the Project were over $50 million. However, the letter continued, Everest had not attempted to serve any of the named parties
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because "it would prefer to resolve this matter informally before proceeding with litigation." (Panhandle Litigation Letter [70-9] at 3 of 3.) Everest invited the parties to a meeting to try to settle the dispute. The letter stated: "In light of the magnitude of the costs involved, it is recommended you place your insurers on notice if you have not already done so." (Panhandle Litigation Letter [70-9] at 3 of 3.)
According to Timothy...
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