Vought Aircraft Indus. Inc. v. Underwriting

• Decision Date: 25 June 2010
• Docket Number: Civil Action No. 3:08-CV-0727-D
• Parties: VOUGHT AIRCRAFT INDUSTRIES, INC., Plaintiff, v. FALVEY CARGO UNDERWRITING, LTD., et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

729 F.Supp.2d 814

VOUGHT AIRCRAFT INDUSTRIES, INC., Plaintiff,

v.FALVEY CARGO UNDERWRITING, LTD., et al., Defendants.

Civil Action No. 3:08-CV-0727-D.

United States District Court,

N.D. Texas,

Dallas Division.

June 25, 2010.

Lisa Staler Gallerano, Joseph Carl Cecere, Jr., M. Scott Barnard, Akin Gump Strauss Hauer & Feld, Dallas, TX, for Plaintiff.

Kevin P. Walters, Dimitri P. Georgantas, Chaffe McCall LLP, Houston, TX, Arthur K. Smith, Law Offices of Arthur K. Smith, Allen, TX, for Defendants.

MEMORANDUM OPINION AND ORDER

SIDNEY A. FITZWATER, Chief Judge.

The parties' cross-motions for summary judgment present questions concerning the interpretation of a marine cargo insurance policy, the insurer's liability for its handling of the insured's claim, and the validity of related common law claims. The court must also address questions concerning the admissibility of certain summary judgment evidence and the availability of an affirmative defense of ambiguity.

I

A

This is an action by plaintiff Vought Aircraft Industries, Inc. ("Vought") against Falvey Cargo Underwriting, Ltd. ("Falvey"); XL London Market, Limited, acting on its own behalf, and on behalf of the underwriting members of Lloyd's Syndicate 1209, and all other Lloyd's Syndicates participating on the policy ("XL"); and Dornoch Limited, for and on behalf of the underwriting members of Lloyd's Syndicate 1209 and all other Lloyd's Syndicates participating on marine cargo policy No. M-20108, WC-20108 ("Dornoch").¹ Vought sues to recover for breach of a Marine Cargo Policy No. M-20108, WC-20108 (the "Policy") and on other claims arising from its repair of a horizontal stabilizer ² that was damaged while being shipped by rail to Vought's customer, The Boeing Company ("Boeing"). Vought manufactured the horizontal stabilizer for installation on a C-17 Globemaster III aircraft being built by Boeing for the United States Air Force ("Air Force"). It is undisputed that the damage to a horizontal stabilizer in shipment is a covered peril under the Policy.

Vought is the named insured in the Policy. According to Vought,³ Falvey is theinsurer, and it placed the risk with certain Underwriters in the Lloyd's, London insurance market; Dornoch is the lead underwriter; and XL is liable for Vought's claim because it is an insurer on the Policy and serves as managing agent for all underwriters of Syndicate 1209, including Dornoch.

After the horizontal stabilizer was damaged, Vought conferred with Boeing and the Air Force. The three agreed that Vought should repair the stabilizer due to its highly-specialized design, which made it infeasible for another company to repair it. Vought informed Falvey of the repair plan and that it intended to make a claim for reimbursement of the repair costs.⁴

The damaged horizontal stabilizer was returned to Vought's Dallas facility. Because Vought does not maintain a dedicated repair facility, it was placed on the factory floor with other C-17 stabilizers, adjacent to the regular production line. To maintain its normal production schedule, it was necessary for Vought to repair the stabilizer while simultaneously continuing with normal production. Vought was required to deliver horizontal stabilizers to Boeing on a specific schedule. When the damaged stabilizer was returned to Vought, it did not have a completed stabilizer to provide Boeing as a replacement. To fill this gap, Vought expedited production and shipment of the next available stabilizer on the assembly line, which it shipped to Boeing as a replacement for the damaged stabilizer. This, in turn, created another gap in the production schedule, requiring Vought to expedite the production and shipment of successive stabilizers. Six stabilizers were completed on an expedited basis before the damaged stabilizer was repaired and inserted back into the production schedule and the normal delivery schedule was restored.

Vought submitted a claim to Falvey for $1,658,056.00, which consisted of $136,748.00 in direct labor costs, $71,552.00 in fringe benefits, and $15,306.00 in direct materials to repair the damaged stabilizer, totaling $223,606.00. Vought also requested reimbursement for $284,509.00 in overhead expenses incurred in repairing the damaged stabilizer. This sum was composed of $206,920.00 in "Direct Overhead," which included depreciation of facilities, equipment, and tools; some supervisor salaries; and all other costs that did not result from direct labor charges but that could be assessed to a particular manufacturing process. The balance of this request consisted of $77,589.00 in "General and Administrative Costs" composed of overhead that could not be associated with a particular manufacturing task, such as executive salaries or benefits for retired workers. These costs were spread equally across all of Vought's manufacturing operations as a percentage above actual cost.

The final component of Vought's reimbursement request was for costs incurred by diverting resources to the repair of the damaged stabilizer and expediting production and shipment of the stabilizer that was completed and shipped as a replacement for the damaged stabilizer and the next five that were completed and shipped to cover the production gap until the original damaged stabilizer was reinserted intothe production line and normal production and delivery resumed. This claim consisted of $663,854.00 in expedited repair costs, $313,730.00 of direct overhead associated with these expediting costs, and $172,357.00 of general and administrative costs associated with these expediting costs.

After Falvey received Vought's claim, it engaged the accounting firm of Matson, Driscoll & Damico, LLP ("Matson") to evaluate the claim. Falvey instructed Matson not to consider Vought's overhead costs as part of the claim. Matson determined that Falvey was obligated to pay $236,274.00, minus a $100,000.00 deductible, for direct labor repair costs, fringe benefits on such repair costs, and direct material costs that Vought had incurred in repairing the damaged horizontal stabilizer. Falvey later tendered this amount and also reimbursed Vought $11,205.00 for the cost of shipping the repaired stabilizer back to Boeing. Falvey refused Vought's demand for the full amount of its claim.

B

The Policy "cover[s] all shipments of goods and/or merchandise and/or property," Ds. Oct. 10, 2009 App. 5, including by rail, id. at 6. Vought's aircraft parts are insured "[a]gainst all risks of physical loss or damage from any external cause, except those risks as may be excluded by [two specific warranties] or other warranties or exclusions specified in this policy, unless covered elsewhere [in the Policy] [.]" Id. at 10. The Policy provides in § 16.2.5 that "the insurer is to pay for ... any physical loss or damage to ... goods ... during land transportation, from ... collision." Id. at 11. It covers the transportation of goods from the time they leave Vought's facility until they are delivered to Boeing and unloaded. See id. at 11 and 13.

Vought relies primarily on two clauses in the Policy to establish its right to reimbursement for its entire claim: § 24, the Policy's "Machinery" clause ("Machinery Clause"), and § 38, captioned "Expediting Cost" ("Expediting Cost Clause"). Where the covered item is a machine or an article consisting of multiple parts, the Machinery Clause limits Vought's liability under § 16.2 to the damaged parts:

When the goods and/or merchandise and/or property insured under this policy include a machine or other article consisting, when complete for sale or use, of several parts, then in case of loss or damage covered by this insurance to any part of such machine or other article, This Insurer shall be liable only for the proportion of the insured value applicable to the part or parts lost or damaged, or at The Insured's option, for the cost and expense of replacing or repairing, assembling or duplicating the lost or damaged part or parts (including any and all expediting, labor and installation charges) and all other necessary charges so that the machine or article is restored to its condition at the time of shipment.

Id. at 15.⁵ The Expediting Cost Clause states:

Where there is loss [or] damage ... which [is], or will be, the subject of a claim under this policy, and The Insured considers it necessary to forward replacements and/or replacement partsby means other than the means by which the original shipment was dispatched, The Insurer will pay the expediting costs so involved and any overtime repair costs and/or other additional expenses including duties, taxes and destination charges, in addition to the underlying claim.

Id. at 20. Additionally, § 54, captioned "Constructive Total Loss," provides:

No recovery for a constructive total loss shall be had under this policy unless (i) the insured goods ... are reasonably abandoned on account of their actual total loss appearing to be unavoidable, or (ii) because they cannot be preserved from actual total loss without incurring an expenditure which, if incurred, The Insured reasonably believes would exceed the expected value of the goods[.]

Id. at 26. And § 45 states that the Policy "shall not cover loss [ ] of market or loss, damage, or expense arising from delay, ... unless such risks are expressly assumed elsewhere in this policy." Id. at 22.

C

Vought filed this lawsuit in state court, and defendants removed it based on diversity of citizenship. Vought alleges claims for breach of contract (breach of the Policy), breach of the duty of good faith and fair dealing, unfair insurance practices under Chapter 541 of the Texas Insurance Code, breach of contract (breach of the repair agreement), promissory estoppel, quantum meruit, and unjust enrichment. Besides its noncontractual claims, Vought seeks to recover the sum of $1,410,577.00 for the balance of its claim under the Policy that defendants have not already covered.

Vought moves for partial summary judgment on its breach of contract...