Sioux Steel Co. v. Ins. Co. of the State of Pa.

• Docket Number: 4:19-CV-04156-KES
• Decision Date: 21 December 2023
• Parties: SIOUX STEEL COMPANY, a South Dakota corporation, Plaintiff, v. INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, Defendant.
• Court: U.S. District Court — District of South Dakota

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SIOUX STEEL COMPANY, a South Dakota corporation, Plaintiff,
v.
INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, Defendant.

No. 4:19-CV-04156-KES

United States District Court, D. South Dakota, Southern Division

December 21, 2023

ORDER DENYING SIOUX STEEL COMPANY'S PARTIAL MOTION FOR SUMMARY JUDGMENT, GRANTING INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA'S MOTION FOR SUMMARY JUDGMENT, AND DENYING INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA'S MOTION TO EXCLUDE EXPERT TESTIMONY AS MOOT

Karen E. Schreier UNITED STATES DISTRICT JUDGE

Plaintiff, Sioux Steel Company, designed and sold hopper bins to its distributor, who then sold the bins to Agropecuaria el Avion (Avion), a Mexican company. See Docket 88 ¶¶ 7-9, 20, 22-24. Tragically, on February 2, 2015, one of these bins failed and collapsed, killing two individuals and causing significant product-loss and other related damages. Id. ¶¶ 25-26. Based on the underlying events and related insurance coverage disputes, Sioux Steel filed suit against defendant, Insurance Company of the State of Pennsylvania (ISOP), alleging breach of contract (Count I), common law bad faith (Count II), and requesting punitive damages and attorney's fees.^[1]Docket 1. Sioux Steel moves for partial summary judgment on Counts I and II. Docket 68. ISOP moves for summary judgment on Counts I and II, as well as on Sioux Steel's

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request for punitive damages and attorney's fees. Docket 66. ISOP also moves to exclude Elliot Flood's expert testimony. Docket 63. For the following reasons, the court denies Sioux Steel's partial motion for summary judgment, grants ISOP's motion for summary judgment, and denies ISOP's motion to exclude expert testimony as moot.

I. Factual Background

The court recites the following undisputed facts:

On February 2, 2015, a thirty-foot hopper bin storing soymeal collapsed, killing two individuals and causing significant product-loss and other related damages. Docket 88 ¶¶ 25-26. Sioux Steel designed, manufactured, and sold this bin to its distributor, who then sold it to Avion. Id. at 7-9, 20, 22-24.

Sioux Steel's engineer, Chad Kramer, designed the bin that collapsed on February 2, 2015. Id. ¶ 8-9, 25. Kramer was a licensed engineer in the state of South Dakota at the time he designed the bin. Id. ¶ 9. In designing the bin, Kramer used his skills and expertise as a licensed professional engineer, including performing engineering activities and preparing drawings, specifications, and shop drawings. Id. ¶ 12. Kramer also consulted technical engineering reference materials to design the bin's specifications and made engineering calculations to ensure the bin met such specifications. Id. ¶ 13. Sioux Steel retained an engineering firm, KC Engineering, to review Kramer's design for the hopper. Id. ¶ 15-16. Specifically, KC Engineering conducted a structural engineering analysis and design review of the bin and approved the

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drawings and specifications of the bin. Id. ¶¶ 16-18. Both Kramer's and KC Engineering's services constituted engineering activities. Id. ¶¶ 14, 19.

ISOP issued Sioux Steel a Foreign Commercial General Liability Coverage Policy. Id. ¶ 1. The policy's coverage territory included Mexico and was effective from December 31, 2014 to December 31, 2015. Id. ¶¶ 1-2. Sioux Steel notified ISOP of the February 2, 2015 incident within a week. Id. ¶ 31. ISOP then retained Park Perales, an independent adjusting firm in Mexico, to investigate the loss. Id. ¶ 32. Perales recommended that ISOP retain expert engineers at Engineering Systems, Inc. (ESI) to investigate why the bin collapsed. Id. ¶ 33. ISOP agreed and retained ESI to investigate. Id. ¶ 34.

ESI issued a report on May 11, 2015, concluding that the “principal cause” of the bin failure was “the lack of consideration or oversight of the hoop stresses effect on the bolted connections of the silo hopper vertical seams.” Id. ¶ 36 (quoting Docket 67-14 at 20). This oversight, according to ESI, was a “serious engineering oversight” and ESI concluded that the design of the bins' vertical seam bolted connections was “deficient and inappropriate.” Id. ¶ 38. This engineering error ultimately compromised the structure of the bin. Id. ¶ 41. The bin's failure did not result from a construction defect because the “silo was erected on site according to the drawings and specification.” Id. ¶ 39.

At some point after the May 11, 2015 ESI report, Sioux Steel requested that ISOP not issue a position letter denying coverage until Sioux Steel had a chance to review the report and issue written objections to it. Id. ¶ 47. Sioux Steel then submitted written objections, which prompted ISOP to retain a

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second engineering firm, EFI, to review the ESI report and Sioux Steel's objections and to provide a second opinion regarding the cause of the bin's failure. Id. ¶ 48-49. On July 30, 2015, ISOP issued a reservation of rights letter to Sioux Steel, stating that ISOP will “undertake an investigation and defense of this matter under a reservation of rights ....” Docket 67-19 at 1. On September 15, 2015, based on ESI's report, as well as EFI's review of ESI's report, ISOP issued its denial to Sioux Steel stating that the professional liability exclusion applied. See Docket 67-20 at 2-3.

On October 22, 2015, Jarrod Muller, a broker for Howalt-McDowell and in turn a broker for Sioux Steel, emailed Sharon Snyder, a Senior Claims examiner who handled the hopper bin failure claims on behalf of ISOP. See Docket 85 ¶ 19, 21, 37; see also Docket 84 at 19 (replacing “Snyder” with “ISOP” for purposes of quoting Sioux Steel's brief). In this email, Muller objected to ISOP's conclusion that the professional liability exclusion applied and asked ISOP to reconsider its position. Docket 72-24 at 2. Muller also indicated that Sioux Steel was engaged in settlement negotiations with Avion and stated that “Sioux Steel has been going it alone and has put a 6 figure offer on the table to compensate the claimant for lost revenue, cost to replace the hopper and for the loss of the material within the hopper.” Id. (emphasis added). Muller further stated that Sioux Steel and Avion had a meeting scheduled on November 6, 2015 to “meet and make the final settlement offer.” Id. On November 6, 2015, Muller emailed Snyder again requesting a formal

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revaluation of ISOP's position as well as stating that the settlement negotiations had been extended to November 18, 2015. Docket 72-27 at 2.

As a result of the bins' failures, Avion engaged in months of settlement negotiations with Sioux Steel, and the two entities entered into a settlement agreement in March 2016. Docket 88 ¶ 29. Avion never filed a lawsuit against Sioux Steel. Id. ¶ 28.

II. Applicable Law

“In insurance coverage actions involving diversity of citizenship, state law controls [the court's] analysis of the insurance policy.” Geerdes v. West Bend Mut. Ins. Co., 70 F.4th 1125, 1127 (8th Cir. 2023) (quoting Nat'l Am. Ins. Co. v. W & G, Inc., 439 F.3d 943, 945 (8th Cir. 2006)). The state's highest court's decisions on interpreting insurance provisions bind the court. See GEICO Cas. Co. v. Isaacson, 932 F.3d 721, 725 (8th Cir. 2019). If the state's highest court has yet to address an issue, the court must predict how the state court would rule. See id. at 725-26.

Here, the court is sitting in diversity. Docket 1 at 1-2. The court applies South Dakota substantive law when deciding the South Dakota state-law claims. The parties also agree that the court should apply South Dakota law when interpreting the insurance policy in this case. See Docket 1; Docket 70 at 8-9; Docket 77 at 18. Thus, the court applies South Dakota law when determining whether Sioux Steel is covered under the ISOP's insurance policy. III. The Policy

The pertinent parts of the policy are as follow:

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SECTION I - COVERAGES COVERAGE A - BODILY INJURY AND PROPERTY DAMAGE LIABILITY

Subject to any deductibles, limitations, terms, conditions, sublimits and exclusions contained in the Declarations, together with any Schedules applicable to this Foreign Commercial General Liability Coverage Part, we agree to provide coverage to you to the extent herein provided.

1. Insuring Agreement

a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any suit seeking those damages. However, we will have no duty to defend the insured against any suit seeking damages for bodily injury or property damage to which this insurance does not apply. We may, at our discretion, investigate any occurrence and settle any claim or suit that may result . . .

2. Exclusions

This insurance does not apply to:

Engineers, Architects or Surveyors Professional Liability^[2]

This insurance does not apply to bodily injury, property damage or personal and advertising injury arising out of the rendering of or failure to render any professional services by you or any engineer, architect or surveyor who is either employed by you or performing work on your behalf in such capacity.

Professional services include:

1. The preparing, approving, or failing to prepare or approve, maps, shop drawings, opinions, reports, surveys, field orders, change orders or drawings and specifications; and

2. Supervisory, inspection, architectural or engineering activities.

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Docket 67-1 at 8-9, 33 (emphasis in original). Any reference to “you” or “your” refers to the named insured, in this case, Sioux Steel. Id. at 3. “We” or “our” refers to ISOP. Id. at 1, 3.

IV. Discussion

A. Count I, Breach of Contract

To establish a breach of contract claim, the plaintiff must prove “(1) an enforceable promise; (2) a breach of the promise; and, (3) resulting damages.” Bowes Construction, Inc. v. S.D....