Me. Woods Pellet Co. v. W. World Ins. Co.

• Citation: 401 F.Supp.3d 194
• Decision Date: 27 June 2019
• Docket Number: 1:17-cv-00446-JCN
• Parties: MAINE WOODS PELLET CO., LLC, Plaintiff v. WESTERN WORLD INSURANCE COMPANY, Defendant
• Court: U.S. District Court — District of Maine

401 F.Supp.3d 194

MAINE WOODS PELLET CO., LLC, Plaintiff

v.WESTERN WORLD INSURANCE COMPANY, Defendant

1:17-cv-00446-JCN

United States District Court, D. Maine.

Signed June 27, 2019

James D. Poliquin, Norman, Hanson & Detroy, Portland, ME, for Plaintiff.

Jonathan M. Dunitz, Marie J. Mueller, Verrill Dana LLP, Portland, ME, for Defendant.

DECISION AND ORDER ON MOTIONS FOR SUMMARY JUDGMENT

John C. Nivison, U.S. Magistrate Judge

In this action, Plaintiff alleges Defendant breached an insurance contract by applying three separate deductibles, rather than a single deductible, to an insurance claim submitted as the result of mechanical difficulties with Plaintiff's heat and power plant.

The matter is before the Court on the parties' motions for summary judgment. (ECF Nos. 23, 25.) Following a review of the summary judgment record, and after consideration of the parties' arguments, the Court denies Plaintiff's motion and grants in part Defendant's motion.

PROCEDURAL BACKGROUND

Plaintiff filed its complaint in state court (State Court Docket Record, ECF No. 3-1; Complaint, ECF No. 3-4), and Defendant subsequently removed the case to federal court based on diversity of citizenship jurisdiction. (Notice of Removal, ECF No. 1.)

In connection with the anticipated motions for summary judgment, the parties filed a stipulated statement of material facts. (Stipulations of Fact, ECF No. 21, hereinafter SSMF). Plaintiff subsequently filed a motion for summary judgment, (ECF No. 23), and an accompanying statement of material facts. (ECF No. 21, hereinafter PSMF.) Defendant filed a motion for summary judgment on the same day.¹ (ECF No. 25.)

FACTUAL BACKGROUND

A. The Pellet Facility, the Cogeneration Plant, and the Condenser

Plaintiff owns and operates a wood pellet production facility in Athens, Maine. (SSMF ¶ 28.) For raw materials, Plaintiff purchases wood products from local woodlands and wood chips and sawdust from a network of sawmills. (Id. ¶ 30.) The facility processes the raw materials into wood pellets for both bulk and bagged fuel markets. Id.

The pellet production facility includes a heat and power plant. (Id. ¶ 28.) This cogeneration plant began operating in October 2016. (Id. ¶ 29.) During the wood pellet production process, certain raw materials, including tree bark and wood chips with excessive moisture content, known as biomass, are gathered and staged in a warehouse for subsequent use as indirect fuel for the cogeneration plant. (Id. ¶ 31.)

The cogeneration plant includes traditional power plant components such as a boiler, heat exchanger, turbine and condenser. (Id. ¶ 32.) The system uses cyclopentane as the "working fluid" rather than water. Id. During operation, liquid cyclopentane is heated and converted to a vapor. Id. The vapor flows to a turbine producing mechanical energy in the form of turbine shaft rotation. Id. The turbine is connected to a generator which produces electricity that is sold to a third party. Id. After passing through the turbine, the vaporized cyclopentane eventually enters a condenser. Id. The condenser is a shell and tube heat exchanger with cooling water flowing through the tubes and vaporized cyclopentane flowing through the shell and around the tubes. Id. This process condenses the vaporized cyclopentane into a liquid, which is then returned to the beginning of the cycle. Id.

The water side of the condenser is divided into two sections. (Id. ¶ 34.) One section contains the entry points for the cooling water to enter the tubes, and the other section contains the exit points where the now heated cooling water exits the tubes. Id. The condenser contains 2,410 U-shaped tubes. (Id. ¶ 35.) Each condenser tube extends from the support plate into the cyclopentane-filled shell, makes a U-bend, and passes back through the support plate. (Id. ¶ 34.)

B. Mechanical Difficulties

Beginning on December 20, 2016, the cogeneration plant experienced reduced energy efficiency, and required more biomass to achieve its expected energy output. (Id. ¶ 36.) On January 8, 2017, Plaintiff identified water entry and damage to the purge pump motor and instituted periodic shutdowns to remove water. (Id. ¶ 37.)

During the shutdowns, which occurred every 2-3 days, an average of 5-12 gallons of water were removed from the cyclopentane side of the condenser. (ECF No. 21-5 ¶ 23). The process for removing water involved shutting down the plant and allowing the water to settle to the lowest part of the circuit, as water is heavier than the cyclopentane. (PSAMF ¶ 4.) The water is drained off the bottom, and when the presence of cyclopentane is detected floating on water and by smell, the process is stopped and repeated as necessary until little to no water is detected. Id. The plant would then resume operation. Id.

On January 17, 2017, excessive water, on this occasion hundreds of gallons, entered the system and Plaintiff shut down the cogeneration plant. (SSMF ¶¶ 38, 43; ECF No. 21-5 at 56 – 58.) On January 22, 2017, Plaintiff performed a bubble test to identify leaks. (SSMF ¶¶ 39, 40.) During a bubble test, soapy solution is applied to the tubes in the water side, and the cyclopentane side is pressurized so that gas will come through fractures or breaks in the tubes. (Id. ¶ 40.) A fracture or leak can be identified by the presence of bubbles where the soapy water is applied. Id. The bubble test revealed leaks from two fractured condenser tubes. (Id. ¶ 39.) Between January 22 and 25, 2017, the tubes were plugged and sealed. (Id. ¶ 41.) Plaintiff again ran a bubble test, which did not reveal any further leaks. (Id. ¶ 42.)

The cogeneration plant restarted on January 30, 2017, and between January 30 and March 9, 2017, Plaintiff's system was operational, with the exception of brief shutdowns to remove water. (Id. ¶ 43.) At first, the shutdowns occurred daily, typically lasting two to five hours, and Plaintiff removed approximately 5-12 gallons of water. (ECF No. 21-5 ¶ 32). The frequency of the water removals diminished in the weeks that followed, and on February 20, 2017, Plaintiff reduced the frequency of the periodic shutdowns from daily to weekly. (Id. ¶ 33.)

On March 9, 2017, Plaintiff again shut down the cogeneration plant after discovering excessive water in the cyclopentane side of the condenser and in the feed loop. (SSMF ¶¶ 45, 49.) On March 10, 2017, a bubble test identified one broken tube. (Id. ¶ 46.) Plaintiff put a boroscope down the tube, which revealed that the tube was sheared off. (PSMF ¶ 3.) Between March 10 and March 12, 2017, the broken tube was plugged and sealed. (SSMF ¶ 47.) Plaintiff again ran a bubble test, which did not reveal any further leaks. (Id. ¶ 48.) During the January 17 and March 9 shutdowns, no one entered the cyclopentane side of the condenser because doing so required the removal of a 48-inch diameter custom elbow, a physical and logistical challenge. (Id. ¶ 50.) Before the second shutdown, the cause of the damaged tubes was unknown, but after this second shutdown, Plaintiff suspected the cause might have been vibration of the tubes in the cyclopentane side of the condenser. (PSMF ¶¶ 1 – 2, 4 – 5.)

The cogeneration plant began operating on March 12, 2017, and between March 12 and March 20, 2017, Plaintiff's system was operational, with the exception of brief shutdowns to remove water on a daily basis. (SSMF ¶ 51; ECF No. 21-5 ¶ 36.)

On March 20, 2017, Plaintiff again shut down the cogeneration plant for scheduled cleaning and passivation procedures and for inspection of the cyclopentane side of the condenser to further assess the cause of the January 17 and March 9 shutdowns. (SSMF ¶ 52.) The plugging of the damaged tubes during the previous two shutdowns prevented the tubes from leaking further, but did not fix the underlying cause of the problems. (PSMF ¶ 6.) Unlike during bubble tests, Plaintiff drained and purged the cyclopentane side and left the water side pressurized. (SSMF ¶ 53.) Plaintiff identified a tube with discoloration, which leaked when it was moved. Id. The damaged tube was plugged and sealed, and MWP installed modifications to the condenser, designed by the manufacturer, to reduce vibration of the tubes in the future, including banding groups of condenser tubes together and installing a baffle to deflect the high velocity cyclopentane vapor from making direct contact with the condenser tubes. (Id. ¶ 54; PSMF ¶ 13.) The water and cyclopentane sides were both pressure tested before reassembly. (SSMF ¶ 55.)

The cogeneration plant restarted on March 25, 2017. (Id. ¶ 56.) After the installation of the modifications, the short, periodic shutdowns to remove water have become unnecessary and a very small amount of water typically is removed once a year. (PSMF ¶ 16.)

C. Insurance Claims Handling

Defendant issued Plaintiff an insurance policy for the May 3, 2016 to May 3, 2017 policy year. (Id. ¶ 1; ECF No. 21-1.) Defendant and Travelers entered into a reinsurance agreement effective February 1, 2015. (Id. ¶ 2.) Travelers first received notice of Plaintiff's claim from Defendant on February 8, 2017. (Id. ¶ 59.)

Initially, corrosion was assumed to be the cause of the shutdowns. (Id. ¶ 60.) The claim was complex and the cause in question. Id. On March 23, 2017, Travelers retained John Imperatore, M.S.E., P.E. of Engineering Design & Testing Corp. to determine the cause and extent of Plaintiff's loss. (Id. ¶ 65.) Mr. Imperatore determined that the manufacturer's initial conclusion that corrosion had caused the condenser problems was incorrect. (Id. ¶ 69.) Mr. Imperatore determined that all of the damaged condenser tubes were damaged by turbulence caused by the cyclopentane vapor entering the condenser, resulting in vibration of the tubes and fatigue leading to failure. (Id. ¶¶ 70, 72.) The excess vibration was caused by a design defect in the condenser, attributable to the manufacturer. (Id. ¶¶ 71 – 72.)

Travelers' claims adjuster determined that three $100,000 deductibles applied to Plaintiff's...