XL Specialty Ins. Co. v. Bollinger Shipyards, Inc., Civil Action No. 12–2071.
| Decision Date | 31 October 2014 |
| Docket Number | Civil Action No. 12–2071. |
| Court | U.S. District Court — Eastern District of Louisiana |
| Parties | XL SPECIALTY INSURANCE COMPANY v. BOLLINGER SHIPYARDS, INC., et al. |
Phillip A. Wittmann, Abigayle Clary McDowell Farris, Carmelite M. Bertaut, Stone, Pigman, Walther, Wittmann, LLC, Robert Jeffrey Bridger, Brown Sims, PC, New Orleans, LA, David S. Toy, Francis I. Spagnoletti, Spagnoletti & Co., Kenneth D. Engerrand, Michael A. Varner, Brown Sims, PC, Houston, TX, for XL Specialty Insurance Company.
Robert Seth Reich, Michael T. Wawrzycki, Reich, Album & Plunkett, LLC, Metairie, LA, for Bollinger Shipyards, Inc., et al.
ORDER AND REASON
Before the Court are three motions for summary judgment and a motion to dismiss. The first motion, filed by Bollinger,1 seeks a ruling that its liability insurer, XL Specialty Insurance Company, is obligated to pay Bollinger the defense costs it has incurred in defending against an underlying lawsuit.2 Bollinger also requests that the Court award it statutory penalties, attorneys' fees, costs, and legal interest. The second motion, filed by XL, seeks a ruling that XL is not required to reimburse Bollinger for those defense costs.3 In the third motion, filed by Continental Insurance Company, Bollinger's excess liability insurer, Continental, contends that its insurance policies do not afford Bollinger defense or indemnity in the underlying lawsuit.4 The fourth motion, filed by XL,5 seeks to dismiss Bollinger's First Amended and Supplemental Complaint,6 which was filed after briefing was nearly complete on the three motions for summary judgment. The Court heard oral argument on the motions for summary judgment on July 1, 2014.
The Court finds that XL is entitled to summary judgment because the policy unambiguously does not cover the allegations in the underlying lawsuit. Accordingly, the Court GRANTS XL's motion for summary judgment and DENIES Bollinger's cross-motion for summary judgment. In light of the Court's grant of summary judgment in XL's favor, XL's motion to dismiss Bollinger's amended complaint is DENIED as moot.
The Court GRANTS Continental's motion for summary judgment because the only claims remaining in the underlying lawsuit are not covered by Continental's excess policies.
This is an insurance coverage dispute regarding whether XL and Continental are obligated to pay defense costs that Bollinger incurred in defending against a False Claims Act suit brought by the United States. Both the False Claims Act suit and the present action are substantively and procedurally complex, and so it is necessary to set out the background of this case in some detail. The Court will, first, describe the underlying lawsuit giving rise to Bollinger's claim for insurance coverage and outline the events leading to the present litigation; second, set forth the procedural history of this case; third, analyze the provisions of the various insurance policies that Bollinger claims provide coverage for the underlying lawsuit; and finally, identify the various grounds upon which the parties move for summary judgment.
The underlying lawsuit arose out of Bollinger's involvement in the United States Coast Guard's Deepwater program to modernize its fleet of water vessels, aircraft, and electronics systems.7 The United States alleged that Bollinger violated the False Claims Act, 31 U.S.C. §§ 3729 et seq., and committed fraud and negligent misrepresentation in connection with its work on that program. The facts giving rise to that suit, as alleged in the United States' complaint, are as follows.
In 1999, the United States selected Integrated Coast Guard Systems (ICGS), an entity comprised of Lockheed Martin Corporation (LMC) and Northrop Grumman Ship Systems, Inc. (NGSS), to serve as lead contractor of the Deepwater program, and ICGS in turn subcontracted a portion of that work to Bollinger.8 Bollinger was responsible for incorporating a thirteen-foot extension into eight 110–foot Coast Guard patrol boats.9 Bollinger's responsibilities included the “design, engineering, performance requirements, and construction” of the modified cutters.10
During the initial stages of the program, the Coast Guard grew concerned about the feasibility of extending the cutters.11 Specifically, the Coast Guard worried “that lengthening the vessel[s] w[ould] increase primary stress in the hull girder” and consequently make the vessels more susceptible to damage.12 In October 2000, in response to these concerns, Bollinger prepared a longitudinal strength analysis that compared the section modulus (a measure of the vessel's longitudinal strength) of its design with the section modulus required by the American Bureau of Shipping (ABS).13 Bollinger submitted this analysis to the Coast Guard stating that “the required section modulus is 3113 [inches cubed] and the actual section modulus of the patrol boat is 7152 [inches cubed].” This statement indicated that Bollinger's proposed design of the modified cutters yielded a section modulus that was greater than the ABS standard by a factor of 2.3.14 Bollinger allegedly obtained this value by using a thicker hull plating in its design calculations than would actually be used in the modified cutters.15 The United States alleged that, because “there was no provision in the proposal for replacing the hull plating on the 100–Ft [boats] with thicker hull plating during the conversion, using this thicker hull plating in the calculations was not reasonable.”16
According to the complaint, the Coast Guard, relying in part on Bollinger's representations that the modified cutters would possess sufficient hull strength, selected IGCS to perform the work on the Deepwater program.17 The Coast Guard and ICGS entered into a contract in June 2002.18 The contract “contained a Contract Data Requirements List (CDRL), which identified information that ICGS and its subcontractors were required to provide the Coast Guard concerning the assets and other contract deliverables,” and the contract required that “[f]inal deliverables ... accurately represent the delivered condition of each asset.”19 Specifically, the contract “required ICGS and its subcontractors to provide the Coast Guard with CDRL S012–11, a Hull Load and Strength Analysis (HLSA) to verify that the 123–Ft WPB modification design met program and contract requirements.”20
In August 2002 the Coast Guard awarded the first Delivery Task Order for modification of the 110–foot patrol boats.21 Later in August 2002, ABS offered to provide Bollinger with a “confidential assessment” of the proposed hull design for the converted boats.22 Bollinger executives discussed the offer internally, but ultimately decided to decline the offer, allegedly because they were concerned that an ABS assessment “would find that the 123–Ft WPB design would require additional structure or structural support.”23
Around the same time, Bollinger performed three different calculations of the section modulus of the proposed 123–foot cutter design using three different sets of input values.24 Two of the calculations yielded a section modulus below the ABS standard; the third yielded a value of 5232 cubic inches, which was above the standard but still significantly below the value contained in Bollinger's initial longitudinal strength analysis.25 On September 4, 2002, Bollinger submitted an initial version of CDRL S012–11 “that reported an actual section modulus of 5,232 cubic inches, the highest of the calculated values.”26 It then submitted a final version of CDRL S012–11 on December 16, 2002, again “reporting that the actual section modulus was 5,232 cubic inches.”27
The complaint alleges that the input values used to obtain this highest result “did not reflect the actual structural characteristics of the converted vessels.”28 Bollinger did not report the two lower section modulus values to the Coast Guard.29 The complaint further alleges that Bollinger told the Coast Guard that ABS would review the section modulus calculation of the proposed design and would “review compliance with ABS rules,” but Bollinger never in fact requested such a review.30
Bollinger delivered the first of the 123–foot vessels, the USCGC MATAGORDA, to the Coast Guard in March 2004.31 In September 2004, the “MATAGORDA suffered a structural casualty that included buckling of the hull.”32 According to the United States, a subsequent Coast Guard and IGCS investigation revealed that Bollinger had misrepresented the longitudinal strength of the hulls of the cutters it delivered to the United States.33 The United States further alleged that the eight vessels, all delivered after March 2004,34 had insufficient longitudinal strength and consequently were unusable.35 The Coast Guard and ICGS made efforts to increase the longitudinal strength of the modified cutters, but they were unsuccessful.36
On December 14, 2006, the U.S. Department of Justice issued a litigation hold letter to Bollinger, advising Bollinger that it had opened an investigation into Bollinger's role in the Deepwater project and requesting that Bollinger retain documents related to the conversion of the 110–foot patrol boats.37
On May 17, 2007, the United States officially revoked acceptance of the eight cutters, explaining that “hull and shaft alignment problems” with the cutters had compromised their “physical integrity ... to such a degree the performance specifications under the contract cannot be achieved and sustained.”38 On June 14, 2007, Bollinger entered into a “Sponsorship Agreement” with NGSS providing that the two parties would cooperate in attempting to resolve the Coast Guard's claims.39
On November 29, 2007, the government issued a subpoena duces tecum to Bollinger that covered several categories of documents related to Bollinger's work on the Deepwater project.40
On December 23,...
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