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Black & Veatch Corporation v. Aspen Insurance Ltd.

United States District Court, D. Kansas

February 28, 2014

BLACK & VEATCH CORPORATION, Plaintiff,
v.
ASPEN INSURANCE (UK) LTD., et al., Defendants.

MEMORANDUM AND ORDER

K. GARY SEBELIUS, Magistrate Judge.

This matter comes before the Court upon Defendants Aspen Insurance (UK) Ltd., Catlin Lloyd's Syndicate 2003, Liberty Mutual Insurance Europe (UK) Ltd.'s (collectively, the "Liability Insurers") Motion for Discovery Order (ECF No. 118). The Liability Insurers' motion seeks to: (1) preclude Plaintiff Black & Veatch Corporation ("B&V") from using documents not disclosed as required by the Scheduling Order; (2) compel B&V to amend its answers to certain requests to admit or, in the alternative, deem those requests admitted; (3) require B&V to amend its answers to certain interrogatories; and/or (4) amend the Scheduling Order. For the following reasons, the Court hereby grants in part and denies in part the Liability Insurers' motion.

I. Background

As set forth in B&V's amended complaint, this lawsuit stems from a series of agreements between B&V and American Electric Power Service Corporation ("AEP") in its own capacity and/or as an agent for other power companies (collectively, the "Owners"), to engineer, procure material and equipment for, and construct several wet flue gas desulfurization systems for various power plants. These wet flue gas desulfurization systems are also known as jet bubble reactors ("JBRs"). Although the design and construction of each JBR varies, they share common characteristics. Generally, a JBR is a large steel tank structure (approximately ten stories tall) that removes sulfur dioxide and other contaminants from exhaust gases of coal-fired power plants.

After the construction of the JBRs were completed, the Owners alleged significant defects in at least seven of the JBRs located at the following four power plants: (1) Cardinal power plant, located in Brilliant, Ohio; (2) Conesville power plant, located in Conesville, Ohio; (3) Kyger Creek power plant, located in Cheshire, Ohio; and (4) Clifty Creek power plant, located in Madison, Indiana. These major deficiencies include latent defects in the JBRs' internal components and gas risers, which are a critical component for the JBRs and their structural integrity. B&V alleges that these serious problems were the result of deficient installation work and procurement of components by subcontractors, principally Midwest Towers, Incorporated ("MTI").

Because of these serious deficiencies and resulting damages, the Owners demanded the complete replacement of both the internal components and the installed gas risers. After B&V notified insurers of the Owners' claims, it entered into a settlement agreement with the Owners. As a part of the agreement, B&V agreed to pay a lump-sum to the Owners for repair costs and also to replace defective components. Replacement of the internal components also required the removal of and physical damage to non-defective components. The amounts paid to reimburse the Owners and to repair and replace the various defective components cost B&V several millions of dollars.

B&V submitted a claim to its professional liability carriers for the incidences arising from the JBR projects. B&V also subsequently sued MTI to recover some of the incurred costs. Moreover, B&V brought this breach of contract and declaratory judgment action against various insurance providers, seeking damages and an adjudication of rights, duties, and obligations under certain insurance policies.

Prior to the construction of the JBRs, B&V procured commercial general liability coverage from several insurers. Zurich Insurance Company ("Zurich") provided the primary layer of general liability coverage. The coverage issued by the Liability Insurers is in excess to the general liability coverage provided by Zurich. Defendants Aspen Insurance (UK) Ltd. and Catlin Lloyd's Syndicate 2003 provided the first layer of excess liability coverage. Defendant Liberty Mutual Insurance Europe (UK) Ltd. provided a second layer of excess liability coverage. In addition to B&V's liability coverage, AEP and the various Owners of the power plants procured property insurance from Defendants Factory Mutual Insurance Company and Associated Electric & Gas Insurance Services, Ltd. (collectively, the "Property Insurers") and Energy Insurance Services, Inc., which has been dismissed from this matter.

After this litigation was initiated, the Court issued a Scheduling Order that required various documents described in the respective parties' Rule 26(a)(1) initial disclosures to be produced at the time the parties exchanged initial disclosures. The Liability Insurers argue that, despite their own compliance, B&V has not produced the documents identified in their initial disclosures or any evidence supporting its claims. In addition to B&V's purported failure to produce documents, the Liability Insurers assert that B&V has inadequately responded to the Liability Insurers' requests for admissions, first set of interrogatories, and second set of interrogatories. The Liability Insurers argue that these deficiencies still exist despite repeated discussions between the parties and extensions of time granted by the Court.

II. Procedural Conference Requirement

Fed. R. Civ. P. 37(a)(1) and D. Kan. Rule 37.2 require a moving party, in good faith, to confer with opposing counsel before filing a motion to resolve any discovery disputes. When a motion is filed, it "must include a certification that the movant has in good faith conferred or attempted to confer with the person or party failing to make disclosure or discovery in an effort to obtain it without court action."[1] The duty to confer generally requires counsel to "converse, confer, compare views, consult, and deliberate, or in good faith attempt to do so."[2] In this case, the Liability Insurers have sent letters, e-mails, and conducted telephonic conference calls with B&V to try and resolve these discovery disputes.[3] These discussions appear to address and compare the parties' respective views on the current disputes. Based upon these meaningful discussions, the Court finds that the Liability Insurers have satisfied their meet-and-confer obligation.

III. Discussion

As previously stated, the Liability Insurers' motion seeks to preclude B&V from using allegedly undisclosed documents, compel B&V to amend its answers to certain requests to admit or deem them admitted, require B&V to amend its answers to certain interrogatories, and amend the current Scheduling Order. The Court addresses each in turn.

A. Allegedly Undisclosed Documents

The Liability Insurers assert that B&V has not produced documents along with its initial disclosures as required by the Scheduling Order. As such, the Liability Insurers seek to preclude B&V from using these documents in this litigation.

The Scheduling Order states:

The parties shall exchange by March 29, 2013, the information required by Fed.R.Civ.P. 26(a)(1). In order to facilitate settlement negotiations and to avoid unnecessary expense, the parties have agreed that, without any need for formal requests for production, copies of the various documents described in the parties' respective Rule 26(a)(1) disclosures shall be exchanged by March 29, 2013.[4]

Rule 26(a)(1)(A)(ii) requires disclosure of all documents, electronically stored information, and tangible things that the disclosing party has in its possession, custody, or control which may be used to support its claim or defenses, unless the use would be solely for impeachment. Rule 26(a)(1)(A)(iii) also requires the parties to provide:

a computation of each category of damages claimed by the disclosing party-who must also make available for inspection and copying as under Rule 34 the documents or other evidentiary material, unless privileged or protected from disclosure, on which each computation is based, including materials bearing on the nature and extent of injuries suffered[.]

The main purpose of Rule 26(a)(1) disclosures "is to accelerate the exchange of basic information about the case and to eliminate the paper work involved in requesting such information."[5] Initial disclosures should provide the parties with information essential to the proper litigation of all relevant facts and to eliminate surprise and promote settlement.[6] In short, the Rule 26(a)(1) disclosure requirements should "be applied with common sense in light of the principles of Rule 1, keeping in mind the salutary purposes that the rule is intended to accomplish. The litigants should not indulge in gamesmanship with respect to the disclosure obligations."[7] A party's obligation to make available the supporting documents pertaining to the calculation of damages "applies only with respect to documents then reasonably available to it and not privileged or protected as work product."[8] In addition to providing initial disclosures, Rule 26(e) states:

A party who has made a disclosure under Rule 26(a)-or who has responded to an interrogatory, request for production, or request for admission-must supplement or correct its disclosure or response:
(A) in a timely manner if the party learns that in some material respect the disclosure or response is incomplete or incorrect, and if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing; or
(B) as ordered by the court.

As set forth in the Scheduling Order and in Fed.R.Civ.P. 37(c)(1), if a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless. Before imposing these sanctions, courts must first find that a party failed to disclose the information required by Rule 26(a) or Rule 26(e)(1).[9]

Here, the Liability Insurers acknowledge that B&V made its initial disclosures by the March 29, 2013 deadline.[10] Their dispute, however, rests on the alleged non-production of documents that detail B&V's claims against the Liability Insurers. The Liability Insurers concede that B&V has produced some documents. Nonetheless, the Liability Insurers assert that these documents fail to address each element of B&V's claims, incurred costs, and damages (e.g. incurred expenses, rebuild costs, or third-party damage information).

B&V disagrees and asserts that it has produced documents relating to its asserted claims and that the real dispute is about the reasonableness of production. B&V proclaims that it provided the Liability Insurers, their counsel, adjusters, and consulting experts access to the JBRs before the damaged property was torn out and during remediation. B&V also claims to have provided documents pertaining to estimates of costs for the claimed covered loss as well as details of the initial engineering, procuring, and constructing efforts.

Moreover, B&V avers that it produced over 9 gigabytes of data (almost 50, 000 files) before this action commenced. After filing of this action, B&V claims it made available 98.7 gigabytes of data (approximately 531, 000 files) it received from AEP and 350 gigabytes (more than one million files) from its electronically stored information.[11] In addition, B&V asserts it has provided detailed coverage analysis under the general liability excess policy with supporting documentation to the Liability Insurers. Also, the coverage analysis purports to address, among other issues, the physical damage to internal components leading to the remediation work and to the AEP backcharges, estimates of remediation costs, determination of percentage completed for those projects still under construction at the time of the first occurrence, and a summary of claimed damages. B&V also claims to have provided an allocation of recoveries made from other sources (i.e. B&V's litigation with subcontractor MTI, as well as the payments received from other coverage sources and payments made by AEP) and credits to the losses sustained. Finally, B&V submits that it met with the Liability Insurers and its consultants and answered questions in connection with the loss incurred.

The Liability Insurers argue that the information B&V turned over still does not address the elements of its claims. They assert that the pre-litigation documents merely provide an estimate of costs incurred without showing what amount was spent, how it was spent, and whether B&V is legally liable for it. In addition, they purport that the documents provided after this litigation commenced (i.e. AEP documents, MTI documents, and accounting documents) do not include all the documents necessary to determine B&V's claim of damages. Moreover, the Liability Insurers assert that B&V refuses to run new search terms through the electronically stored information from the MTI litigation and will not produce data from its accounting files until it produces a damage report by B&V's consultant.

After examining the parties' briefs on this matter, the Court is unable to find that B&V failed to produce the documents required by Rule 26(a)(1) and the Scheduling Order. At this juncture, the Court simply is not in the position to determine whether the approximately 457.7 gigabytes of data B&V has made available to the Liability Insurers fails to contain such information. The Court declines to enter an order that might preclude the use of such documents under Rule 37(c)(1). The Court does, however, order B&V to supplement its initial disclosures within fourteen (14) days from the date of this order if such disclosures are incomplete or contain incorrect information as described in Rule 26(e)(1)(A). B&V's supplemental disclosures shall particularly include a specific ...


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