United States District Court, D. Minnesota
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA and AMERICAN HOME ASSURANCE COMPANY, Plaintiffs,
DONALDSON COMPANY, INC. and FEDERAL INSURANCE COMPANY, Defendants.
Cody S. Moon, NICOLAIDES FINK THORPE MICHAELIDES SULLIVAN LLP, 71 South Wacker Drive, Suite 4400, Chicago, IL 60606; and Nicholas H. Jakobe and Patrick D. Reilly, ERSTAD & RIEMER, P.A., 8009 34th Avenue South, Suite 200, Minneapolis, MN 55425, for plaintiffs.
Matthew B. Kilby and Rikke A. Dierssen-Morice, FAEGRE BAKER DANIELS LLP, 90 South Seventh Street, Suite 2200, Minneapolis, MN 55402; and Margaret S. Brownell, MASLON LLP, 90 South Seventh Street, Suite 3300, Minneapolis, MN 55402, for defendant Donaldson Company, Inc.
Beth A. Jenson Prouty and Lindsay G. Arthur, Jr., ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA, PA, 81 South Ninth Street, Suite 500, Minneapolis, MN 55402, for defendant Federal Insurance Company.
MEMORANDUM OPINION AND ORDER
JOHN R. TUNHEIM, District Judge.
Plaintiffs National Union Fire Insurance Company of Pittsburgh, PA ("National Union") and American Home Assurance Company ("American Home") bring this action against their insured, Defendant Donaldson Company, Inc. ("Donaldson"), and Donaldson's excess insurer, Defendant Federal Insurance Company ("Federal"). National Union and American Home contributed to a settlement on behalf of Donaldson and are now seeking to recover those contributions. This matter is now before the Court on Plaintiffs' motion for judgment on the pleadings, summary judgment motions by all parties, and separate Daubert motions filed by Donaldson and Federal. Because the Court finds that Donaldson has adequately pled recoverable damages in its counterclaim, the Court will deny Plaintiffs' motion for judgment on the pleadings. The Court will grant in part Plaintiffs' and Donaldson's motions for summary judgment, and deny Federal's motion for summary judgment, because the Court finds that there were two "lots" in the Burroughs cross-claim litigation. Finally, the Court will grant Donaldson's and Federal's Daubert motions, because the Court finds that the experts' testimony is unnecessary at this stage in the litigation.
A. ENGINE DUSTING
During the 1990s, Donaldson designed and manufactured plastic air-intake ducts for the air-intake system on trucks manufactured by Western Star Trucks ("Western Star"). (Decl. of Margo S. Brownell ("First Brownell Decl."), Ex. 2 at Vol. II: 38-39, May 2, 2011, Docket No. 17; Donaldson's Ans. to Am. Compl. & Countercl. ("Donaldson Countercl.") ¶ 100, Aug. 30, 2011, Docket No. 84.) The air-intake ducts delivered clean air into the internal part of diesel truck engines. (First Brownell Decl., Ex. 2, at Vol. I: 131.)
In 2001, purchasers of Western Star trucks began filing claims against Donaldson, alleging that the walls of the air-intake ducts were too thin, causing the ducts to soften and melt. (First Brownell Decl., Ex. 3 (Dep. of Robert Burroughs) at 323; Donaldson Countercl. ¶ 102.) The melting of the ducts allegedly caused the collapse of the airintake duct walls and the failure of engines in some trucks. (Donaldson Countercl. ¶ 102.) On November 8, 2001, several purchasers of Western Star trucks filed Otho Arender v. Burroughs Diesel, Inc. in Mississippi state court against Burroughs Diesel, Inc. ("Burroughs"), Donaldson, and Western Star, alleging that they could no longer operate their Western Star trucks due to engine dusting. (Decl. of Matthew J. Fink ("First Fink Decl."), Exs. J, K, June 1, 2011, Docket No. 32; Donaldson Countercl. ¶¶ 105-106.) Burroughs, a commercial dealer of Western Star trucks, filed a cross-claim against Donaldson alleging that the defective ducts had led to premature failure of engines in several hundred trucks sold between 1989 and 1999 ("the Burroughs cross-claim"). (Donaldson Countercl. ¶¶ 101, 107; First Brownell Decl., Ex. 3 at 160; Second Decl. of Margo S. Brownell ("Second Brownell Decl."), Ex. 2 at 2.)
The parties agree that Donaldson first received notice of the Burroughs engine damage from product numbers 317 and 319 on January 5, 2000, when Western Star representative Dennis Trittin called Donaldson. ( See Decl. of Rikke Dierssen-Morice ("Eighth Dierssen-Morice Decl."), Ex. 4, July 1, 2014, Docket No. 282.) Trittin's Dealer Contact Report evinces that Trittin spoke with Arnie Carlson, manager of field technical support at Donaldson, about three trucks with dusted engines from Donaldson air-intake ducts. ( Id. at 9.) At that time, Trittin informed Carlson of the problems the trucks were experiencing, which included engine dusting from both product numbers 317 and 319. ( See id. )
B. INSURANCE POLICIES
1. Commercial General Liability Policies
Plaintiffs insured Donaldson from 1996 to 2002, with largely identical insurance policies. National Union issued four commercial general liability ("CGL") policies to Donaldson, effective for consecutive annual periods from July 31, 1996 to July 31, 2000. American Home issued two, consecutive CGL policies to Donaldson for annual periods between July 31, 2000 and July 31, 2002. Each policy contained a $1 million peroccurrence limit and a $500, 000 per-occurrence deductible for bodily injury or property damage. ( See, e.g., Compl., Ex. B (National Union CGL Policy No. RMGL XXX-XX-XX) at 2, 24.)
The policies cover property damage caused by "occurrences." Under the policies, property damage means:
a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.
(Am. Compl. for Declaratory J. ("Compl."), Ex. A at 18, June 28, 2011, Docket No. 45.)
The policies also contain a Batch Clause Endorsement, which combines certain property damage that might otherwise be subject to separate deductibles into one "occurrence." The Clause states:
Section V - Definitions [12/13] - Occurrence, is amended to add new paragraph:
As respects "Products Completed Operations Hazard",  all... "property damage" arising out of and attributable directly or indirectly to the continuous, repeated or related exposure to substantially the same general conditions affecting one lot of goods or products manufactured, sold, handled or distributed by you or others trading under your name, shall be deemed to result from a single "occurrence." Such "occurrence" will be deemed to occur with the first injury notified to you during the policy period.
(Compl., Ex. A, at 58.) Thus, under the Batch Clause Endorsement, all property damage relating to a single occurrence is deemed to occur during the policy period in which the insured - here, Donaldson - is first notified of the injury.
2. Federal and National Union's Umbrella Policies
Donaldson obtained six annual umbrella insurance liability policies from Federal between July 31, 1996 and July 31, 2002. (Eighth Dierssen-Morice Decl., Exs. 7, 9.) National Union issued two commercial umbrella liability policies to Donaldson, one of which ran from July 31, 2001 to July 31, 2002. ( See Second Decl. of Matthew J. Fink ("Second Fink Decl."), Ex. E at 5, July 20, 2011, Docket No. 53.)
C. THE BURROUGHS SETTLEMENT
Shortly after the Arender claim was filed against Donaldson regarding the allegedly-defective air-intake ducts,  Donaldson notified American Home of the complaint. On March 11, 2002, American Home's claims administrator sent a letter to Donaldson's third-party claims administrator, stating,
[Due to the] Batch Clause Endorsement... all claims related to alleged faulty air intake systems on Western Star trucks would fall under one occurrence. All the claims are subject to one deductible, and the limits of insurance for this occurrence are $1, 000, 000.... Per the Batch Clause Endorsement, we have created a date of loss of November 14, 2001, the date on the first summons received by the insured. We have also combined the Arender and Bonner lawsuits under one claim number, [011811-003280-PB]. We suggest that you take similar steps regarding the date of loss and combination of all claims into one.... This matter has the potential to exceed the policy limit of $1, 000, 000, therefore, the umbrella and excess carriers have been placed on notice.
(First Brownell Decl., Ex. 5.) Donaldson was copied on the letter. ( Id. )
On May 28, 2002, American Home's claims administrator sent Donaldson a letter stating that it would "defend Donaldson subject to a full reservation of all of its rights" and that providing the defense "shall not act as an estoppel or waiver of any of the rights arising out of the policy or law." (First Fink Decl., Ex. O (Corrected) at 5, June 2, 2011, Docket No. 35.) The letter further stated that it only addressed coverage under the American Home 2001-2002 Primary Policy, and that Donaldson should submit claims for coverage under different policies separately. ( Id. at 2.) On June 9, 2003, National Union's claims administrator also sent a letter to Donaldson purporting to reserve its rights. (Second Fink Decl., Ex. E at 8.)
From 2002 through the Burroughs settlement, a third-party claims administrator advanced payments to Donaldson for defense costs and settlements under the claim number 011811-003280-PB, all of which Plaintiffs approved. (Decl. of Martin R. Kohne ¶ 13, May 2, 2011, Docket No. 18.) In early 2009, the state court scheduled a mediation regarding the Burroughs cross-claim for October 15, 2009. (Id. ¶¶ 14-15.) On July 22, 2009, Donaldson advised Plaintiffs' attorney of the mediation. (First Fink Decl., Ex. P.) From July to September 2009, at the request of Plaintiffs, Donaldson provided copies of depositions, discovery, and pleadings related to the cross-claim. Plaintiffs argue that this was the first time they learned of certain issues relevant to Donaldson's claim, such as when Donaldson first received notice of the property damage.
The October 15 mediation failed. According to Donaldson, this was "in large part due to [Plaintiffs'] refusal to offer realistic sums to the Burroughs plaintiff to settle the case." (Kohne Decl. ¶ 16.) According to Donaldson, Plaintiffs "offered paltry sums" at the settlement conference and put their own interests ahead of Donaldson. (Donaldson Countercl. ¶ 140.)
In early 2010, the Burroughs cross-claim settled. (Aff. of Lindsay G. Arthur ("Second Arthur Aff."), Ex. 1 ( Burroughs settlement agreement), Sept. 26, 2011, Docket No. 100; Compl. ¶ 38.) National Union contributed a total of $3, 548, 387.10 and Federal contributed $2, 451, 612.90. (Second Arthur Aff. at 4.) Donaldson and Burroughs signed the settlement agreement, which provided, "Donaldson and its insurers shall have no further obligation." ( Id. ) Although the insurance companies' payment obligations were outlined in the settlement, no insurance company was a signatory to the settlement and the settlement only stated that it "contain[ed] the entire agreement between Burroughs and Donaldson...." ( Id. at 7-8.) On June 30, 2010, Plaintiffs sent Donaldson an invoice seeking repayment from the settlement in the amount of almost $2.5 million. (Donaldson Countercl. ¶¶ 145-46.)
Prior to the Burroughs settlement, Federal and Plaintiffs had disputed the amount they should each contribute. On February 9, 2010, Matthew Fink, coverage counsel for Plaintiffs, sent an e-mail to Michael Simmons, coverage counsel for Federal, about the Burroughs cross-claim. (Decl. of Cody S. Moon ("Moon Decl."), Ex. E, Oct. 24, 2011, Docket No. 110.) The e-mail stated that Plaintiffs were:
[W]illing to pay additional sums allocable to [Federal] to attempt to settle the case under a reservation of rights. I requested [to your associate] that if [Federal has] an objection with the mediation continuing in this matter or an objection as to the reasonableness of the settlement offers that [Federal] make its objection known. I was informed that [Federal has] no position as it was still evaluating coverage and the liability/damage exposure presented by the case. Therefore, [your associate] expressed to me that ...