Midamerican Energy Co. v. Great American Ins. Co.

Decision Date16 October 2001
Docket NumberNo. C00-4015-MWB.,C00-4015-MWB.
PartiesMIDAMERICAN ENERGY COMPANY, Plaintiff, v. GREAT AMERICAN INSURANCE COMPANY, Defendant.
CourtU.S. District Court — Northern District of Iowa

A.J. Stoik, Klass, Stoik, Mugan, Villone, Phillips, Orzechowski, Clausen & Lapierre, L.L.P., Sioux City, IA, for Plaintiff.

T. Scott Leo, Leo & Weber, P.C., Chicago, IL, James W. Redmond, Heidman, Redmond, Fredregill, Patterson, Plaza, Dykstra & Prahl, L.L.P., Sioux City, IA, for Defendant.

MEMORANDUM OPINION AND ORDER REGARDING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT ON COUNT I OF THE COMPLAINT, DEFENDANT'S MOTION TO ADMIT EVIDENCE OF CERTAIN TEST RESULTS, AND DEFENDANT'S MOTION TO STRIKE AFFIDAVIT

BENNETT, Chief Judge.

                                         TABLE OF CONTENTS
                  I. INTRODUCTION AND BACKGROUND .................................. 838
                     A. Procedural Background ..................................... 838
                     B. Factual Background ........................................ 839
                        1. Undisputed facts related to motion for summary judgment  839
                        2. Additional facts related to motion to admit evidence ... 843
                 II. LEGAL ANALYSIS ............................................... 844
                     A. Motion To Strike .......................................... 844
                     B. Motion For Summary Judgment ............................... 847
                        1. Standards for summary judgment ......................... 847
                        2. Analysis of arguments .................................. 848
                           a. Liquidated damages provision ........................ 848
                               i. Test for liquidated damages ..................... 849
                              ii. Actual loss or damage caused by the breach ...... 850
                             iii. Difficulty of proof of loss ..................... 850
                           b. Time barred ......................................... 851
                     C. Motion To Admit Evidence .................................. 853
                        1. Lack of consideration .................................. 853
                        2. Inequity of enforcement ................................ 854
                        3. Design defect .......................................... 855
                III. CONCLUSION ................................................... 855
                
I. INTRODUCTION AND BACKGROUND
A. Procedural Background

Plaintiff MidAmerican Energy Company ("MidAmerican") filed its complaint in this lawsuit against defendant Great American Insurance Company ("Great American") on February 7, 2000. In its complaint, plaintiff MidAmerican claims that defendant Great American is obligated to pay it for certain breaches of contract under the terms of a performance bond issued by Great American, insuring certain express warranties made by Phoenix Combustion, Inc. ("Phoenix") regarding modifications made by Phoenix to the combustion and boiler system at a MidAmerican power plant. In Count I, MidAmerican alleges that it is entitled to a refund of Phoenix's base bid for the modifications and that Great American is obligated under its performance bond to make this refund. In Count II, MidAmerican asserts that it has incurred costs in correcting defects in Phoenix's work and that Great American is obligated under its performance bond to pay these costs. Defendant Great American answered the complaint on April 3, 2000, generally denying MidAmerican's allegations.

On June 15, 2001, Great American filed its Motion To Admit Evidence Of Certain Test Results (# 30). In its motion, Great American seeks relief from a written stipulation between MidAmerican and Great American under which MidAmerican agreed to permit Great American to perform certain tests on the burners installed by Phoenix but the results of the testing could not be used as a basis for an expert opinion on the issues of liability and damages under the performance bond. Great American contends that the stipulation is unenforceable because there was no consideration for the stipulation and enforcement of the stipulation would be inequitable in light of changes made to the burners by MidAmerican which prevented Great American from conducting further testing of the burner units. Great American further contends that the test results should be admitted to rebut a design defect claim advanced by MidAmerican. MidAmerican filed a timely response to Great American's motion in which it argues that the court should enforce the stipulation and deny MidAmerican's motion.

Great American also filed its Motion For Summary Judgment on Count I Of The Complaint (# 31). In its motion for summary judgment, Great American contends that the liquidated damages segment of the contract under which MidAmerican seeks recovery is an unenforceable penalty. Great American also argues that MidAmerican's action is time barred under the terms of the contract. On August 2, 2001, MidAmerican filed a timely response to Great American's motion in which it argues that the liquidated damages clause is enforceable and that its action for recovery under the performance is timely. After MidAmerican filed its resistance to Great American's motion for summary judgment, on August 15, 2001, Great American filed a Motion To Strike The Affidavit Of Leon Gertsch. Leon Gertsch's affidavit was filed in support of MidAmerican's resistance to Great American's motion for summary judgment. Great American asserts that certain statements made in Gertsch's affidavit must be stricken because they are not based on the affiant's personal knowledge.

The court heard oral arguments on defendant Great American's motions on October 11, 2001. At the oral arguments, plaintiff MidAmerican was represented by counsel A.J. Stoik of Klass, Stoik, Mugan, Villone, Phillips, Orzechowski, Clausen & Lapierre, L.L.P., Sioux City, Iowa. Defendant Great American was represented by counsel T. Scott Leo of Leo & Weber, P.C., Chicago, Illinois and James W. Redmond, Heidman, Redmond, Fredregill, Patterson, Plaza, Dykstra & Prahl, L.L.P., Sioux City, Iowa.

The court turns to a discussion of the undisputed facts as shown by the record and the parties' submissions, and then to a review of those additional facts related to defendant Great American's motion to admit evidence and motion to strike. Following that discussion, the court will turn to the legal analysis of defendant Great American's three motions.

B. Factual Background
1. Undisputed facts related to motion for summary judgment

The record reveals that the following facts are undisputed. Plaintiff MidAmerican Energy Company is a corporation organized under the laws of the State of Iowa with its principal place of business in Iowa. Defendant Great American Insurance Company is a corporation organized under the laws of the State of Ohio with its principal place of business in Ohio. On September 15, 1994, MidAmerican entered into a contract with Phoenix for the modification and improvement of the combustion and boiler system at MidAmerican's George Neal Station Unit 2 power plant. The boiler at the Unit 2 power plant is a coal-fired boiler with 16 burners on the front of the boiler in an array of four four-burner rows. These burners consume pulverized coal which is injected into them by four pulverizers. The pulverizers grind coal, mix the ground coal with air and blow the coal-air mixture into the burners. The mixture leaves the burner tubes through the burner tips where it is ignited and swirled in order to burn more cleanly.

The base sum of the contract with Phoenix for the Unit 2 power plant was $3,111,235.00. The contract required Phoenix to provide a performance bond. On December 27, 1993, Great American issued a performance bond in the amount of $3,111,235.00. The performance bond contained the following limitations period on litigation:

9 Any proceeding, legal or equitable, under this Bond may be instituted in any court of competent jurisdiction in which the work or part of the work is located and shall be instituted within two years after the Contractor Default or within two years after the Contractor ceased working or within two years after the Surety refuses or fails to perform its obligation under this Bond, whichever occurs first. If the provisions of this Paragraph are void or prohibited by law, the minimum period of limitation available to sureties as a defense in the jurisdiction of the suit shall be applicable.

Performance Bond at ¶ 9, attached as Exhibit "A" to Great American's Answer. The performance bond defines a contractual default as:

12.3 Contractor Default: Failure of the Contractor. which has neither been remedied nor waived, to perform or otherwise to comply with the terms of the Construction Contract.

Performance Bond at ¶ 12.3, attached as Exhibit "A" to Great American's Answer.

Donald Mohning has worked for MidAmerican for twenty-eight years and in the environmental services department of MidAmerican since 1993. He is responsible for air quality issues within MidAmerican's power plants. Mohning has the most knowledge about the compliance of the Phoenix burners at MidAmerican's George Neal Station Unit 2 power plant.

Todd Van Diepen is the performance engineer for MidAmerican and has occupied that position since 1990. His duties also include monitoring of and writing operational procedures for MidAmerican's power plants, including MidAmerican's George Neal Station Unit 2 power plant. Van Diepen had input into whether the burner system installed by Phoenix met the performance guarantees of the contract. Van Diepen was a member of the committee that prepared the specifications contained in the contract.

The contract contained specific performance requirements and guarantees that were subject to liquidated damages. The guarantees with respect to oxygen included the following:

Oxygen

a. The ATLAS Integrated Low-NOx Burner System is designed to achieve all performance guarantees at 4.0% excess O2. To achieve optimum system performance while maintaining all guarantees, Contractor...

To continue reading

Request your trial
4 cases
  • Engineered Products Co. v. Donaldson Co., Inc.
    • United States
    • U.S. District Court — Northern District of Iowa
    • 30 Septiembre 2002
    ...for essentially the reasons set forth in Donaldson's brief on that motion and this court's ruling in MidAmerican Energy Co. v. Great Am. Ins. Co., 171 F.Supp.2d 835 (N.D.Iowa 2001). Somewhat more specifically, reassertion of the '728 patent would not require rescinding any judgment, but und......
  • Davidson v. Wal-Mart Associates Health and Welfare Plan
    • United States
    • U.S. District Court — Southern District of Iowa
    • 20 Febrero 2004
    ...Co., 426 N.W.2d 396, 397 (Iowa 1988) (finding the law does not prohibit such agreements); see also MidAmerican Energy Co. v. Great American Ins. Co., 171 F.Supp.2d 835, 851 (N.D.Iowa 2001) (recognizing parties may contractually agree to a shorter limitations period). An insurer may clearly ......
  • Midwest Oilseeds, Inc. v. Limagrain Genetics Corp.
    • United States
    • U.S. Court of Appeals — Eighth Circuit
    • 14 Octubre 2004
    ...a valid liquidated damages provision or an unenforceable penalty is a question of law for the court." MidAmerican Energy Co. v. Great Am. Ins. Co., 171 F.Supp.2d 835, 848 (N.D.Iowa 2001) (quotation and citation omitted). Consequently, review is for correction of errors of law. Aurora v. Mic......
  • U.S. v. Johnson
    • United States
    • U.S. District Court — Northern District of Iowa
    • 19 Diciembre 2002
    ...court agrees that the parties' Stipulation must be construed according to contract principles. Cf. MidAmerican Energy Co. v. Great Am. Ins. Co., 171 F.Supp.2d 835, 853-55 (N.D.Iowa 2001) (applying contract principles to the parties' stipulation concerning use of test results as evidence at ......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT