ELLEN LIPTON HOLLANDER, District Judge.
Millennium Inorganic Chemicals Ltd. ("Millennium Inorganic") and Cristal Inorganic Chemicals Ltd. ("Cristal Inorganic") (collectively, "Millennium"), plaintiffs, sued
The loss of natural gas supply was caused by a massive explosion that occurred on June 3, 2008, at a natural gas production facility on Varanus Island, off the coast of Western Australia, operated by a joint venture led by Apache Corporation ("Apache"). The explosion completely shut down Apache's gas production on Varanus Island, which accounted for approximately 30% of the natural gas supply to all of Western Australia. Immediately after the explosion, the supply of natural gas to plaintiffs' facilities was terminated and, without natural gas, plaintiffs were forced to suspend production of titanium dioxide. Shortly after the explosion, Millennium submitted a claim to the Insurers for coverage under the applicable policies. The claim was denied in February 2009.
Plaintiffs' suit, filed in July 2009, contains three counts against the Insurers.
The principal question on which insurance coverage turns is whether Apache's Varanus Island natural gas production facility was a "direct contributing property" to plaintiffs' titanium dioxide production facilities, despite the fact that plaintiffs purchased the natural gas from an intermediary, Alinta Sales Pty Ltd. ("Alinta"), which, in turn, purchased natural gas from Apache and other natural gas producers for resale to end users such as Millennium. If Apache's facility was a direct contributing property to plaintiffs, or to "others for the account of" plaintiffs, the loss comes within the contingent business interruption ("CBI") coverage provided by the insurance policies. Otherwise, the loss is not covered.
Discovery has concluded, and plaintiffs and the Insurers have filed cross-motions for summary judgment on the issues of whether coverage exists and whether the Insurers are liable for bad faith denial of coverage under C.J. § 3-1701.
Cristal Inorganic is the parent company of Millennium Inorganic. See Millennium Motion at 3; Insurers' Motion at 1. Both companies are subsidiaries of The National Titanium Dioxide Co., Ltd. See ECF 2. Millennium, together with other affiliates, is a leading global producer of titanium dioxide, a white pigment used in manufacturing a range of products such as paint, plastics, and paper. See Millennium Motion at 3; Insurers' Motion at 1. Millennium operates two interdependent plants near Bunbury, Western Australia (the "Bunbury Operations") for the production and finishing of titanium dioxide. See id.; Millennium Motion at 3.
Millennium was insured under a "Master Controlled Insurance" ("MCI") program, which is a method of global business insurance coverage. Millennium Motion at 6. Such a program provides coverage on a global basis through the issuance of "master policies," issued by insurers in the United States, and "local policies," issued in the countries where the insured operates, in order to comply with regulatory requirements in those countries. See id. For the 2008-2009 policy year, Millennium's MCI program was procured through its broker, Marsh. See id.; Insurers' Motion at 8.
The provisions of the Master Policies at issue are the provisions for contingent business interruption, or "CBI" coverage. "CBI coverage is a relatively recent development and its scope has not yet been fully delineated by the courts." Zurich Am. Ins. Co. v. ABM Indus., Inc., 397 F.3d 158, 168 (2d Cir.2005); see also Pentair, Inc. v. Am. Guar. & Liab. Ins. Co., 400 F.3d 613, 615 (8th Cir.2005) ("few reported cases have construed this type of extended business interruption coverage"). Broadly speaking, contingent business interruption insurance "gives the insured coverage for loss of sales or revenue sustained when its business is interrupted as a result of damage to property that disrupts the flow of goods and services with a supplier or customer." Arthur Andersen LLP v. Fed. Ins. Co., 416 N.J.Super. 334, 3 A.3d 1279, 1282 (N.J.Super.Ct.App.Div.2010). "The word `contingent' is something of a misnomer; it simply means that the insured's business interruption loss resulted from damage to a third party's property." Pentair, 400 F.3d at 615 n. 3.
Whereas ordinary "[b]usiness interruption insurance protects against the loss of prospective earnings because of the interruption of the insured's business caused by an insured peril to the insured's own property," contingent business interruption insurance "protects against the loss of prospective earnings because of the interruption of the insured's business caused by an insured peril to property that the insured does not own, operate, or control." CII Carbon, L.L.C. v. Nat'l Union Fire Ins. Co. of La., Inc., 918 So.2d 1060, 1061 n. 1 (La.Ct.App.2005) (emphasis added); accord Penton Media, Inc. v. Affiliated FM Ins. Co., 245 Fed.Appx. 495, 499 (6th Cir.2007) (quoting CII Carbon). In other words, "[r]egular business-interruption insurance replaces profits lost as a result of physical damages to the insured's plant or other equipment; contingent business interruption coverage goes further, protecting the insured against the consequences of suppliers' [or customers'] problems." Archer Daniels Midland Co. v. Hartford Fire Ins. Co., 243 F.3d 369, 371 (7th Cir. 2001); accord Zurich, 397 F.3d at 168; see also Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co., 411 F.3d 384, 394 (2d Cir.2005) (stating that CBI coverage "reimburses [the insured] for BI losses that are caused by damages to property that is not owned by [the insured] but upon which its business depends").
The "Declarations" of both Master Policies designate the sublimits for the policies'
In the National Union Policy, as shown above, there is no text in the area of Section "B" of the endorsement designated for listing the "LOCATION(S)" of the particular
An uninterrupted supply of natural gas is essential to the workings of Millennium's Bunbury Operations. See Millennium Motion at 3. Natural gas provides the main source of power for both plants and is also used in process heating, steam generation, drying, and other aspects of the titanium dioxide production process. Id.
In June 2008, there were two major producers of natural gas for consumption in Western Australia, as well as several minor producers.
The gas produced by Apache, NWS, and other producers was injected into the Dampierto-Bunbury Natural Gas Pipeline ("DBNGP"), a high-pressure gas pipeline that runs approximately 1,500 kilometers between northwest and southwest Western Australia. See Insurers' Motion at 5. The DBNGP is jointly owned by the DUET Group and ALCOA, and is operated as a regulated, common-carrier pipeline, charging users for transport of gas from inlet points to outlet points. See Chatfield Report at 2. The owners of the DBNGP do not sell gas to end users, nor do they purchase gas themselves (aside from a
Neither Apache nor NWS owns any gas transmission or distribution facilities downstream of the points where their gas is injected into the DBNGP. See id. at 3. Once the gas is injected into the DBNGP, it is commingled; there is no way to differentiate the gas from one producer as opposed to another. See Deposition of Mark Chatfield at 23, 34-35, Ex. 4 to Insurers' Motion (ECF 151-8). Moreover, it is impossible to direct a particular producer's gas to a particular end user. See id. at 38. Rather, as plaintiffs' expert, Mark Chatfield, testified, the gas "obey[s] the fundamental law of physics. It will flow from a high pressure area to a low pressure area. It will go searching for flow into the direction of low pressure ...." Id.
Although some end users of gas in Western Australia have gas purchase contracts with Apache or NWS, the majority of end users do not. Instead, most end users contract with third parties that purchase gas in large quantities from the gas producers and sell the gas, in turn, to end users. Alinta is this type of third party. Indeed, it is by far the largest such entity, in terms of number of customers, in Western Australia. Like many other end users, Millennium purchased its gas from Alinta, which in turn purchased it from Apache, NWS, and other producers.
The parties vigorously dispute how to characterize Alinta's role. The Insurers consider Alinta a "supplier" of natural gas. In contrast, Millennium and its expert, Mr. Chatfield, describe Alinta as a "gas trader" or "aggregator." Regardless of the proper label for Alinta, the material facts as to what Alinta does are not disputed. In particular, Alinta enters into contracts with the gas producers to purchase natural gas, and it sells the gas, under contracts, to end users such as Millennium. Under Alinta's contract with Apache, Alinta takes title to the gas at the moment when the gas passes through a meter at the injection point into the DBNGP. While the gas is in the DBNGP, it is owned by Alinta. But, Alinta does not own the DBNGP or any other gas transportation equipment, nor does it take physical possession of the gas.
Under Alinta's contract with Millennium, which was denominated as a "Gas Supply Agreement," Alinta agreed to provide gas to Millennium at two "delivery points" at Millennium's Bunbury Operations. See Alinta-Millennium Contract at 4, Ex. 5 to Insurers' Motion (ECF 153-1). Mr. Riches of Alinta testified that most of Alinta's "medium-large industrial customers... including Millennium ... take delivery of gas purchased from Alinta Sales at or immediately downstream of certain nominated outlet points on the [DBNGP]," without connecting to the low pressure gas distribution networks used by other end users. Riches Tr. at 29. I will discuss, infra, additional facts regarding Alinta's operations and the differing implications that the parties draw from the underlying facts.
As noted, an explosion at Varanus Island occurred on June 3, 2008, forcing the complete cessation of natural gas production on the island. The same day, Apache sent a notice of force majeure to Alinta, stating that it could no longer supply Alinta with natural gas until further notice. See Ex. 43 to Insurers' Motion (ECF 153-22) (notice of force majeure from Apache to Alinta).
Apache did not fully resume natural gas production on Varanus Island for a number of months and, during the period that supply was curtailed, the government of Western Australia imposed controls prioritizing delivery of natural gas to domestic customers and essential services. The parties appear to dispute the length of time that Millennium was deprived of natural gas as a result of the Varanus Island explosion, but that dispute is not at issue in the pending motions. Rather, the instant dispute turns on whether the CBI provisions of the Master Policies provide any coverage for Millennium's losses.
Additional facts are presented in the Discussion.
Under Rule 56(a) of the Federal Rules of Civil Procedure, summary judgment is appropriate only "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." A fact is "material" if it "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
In resolving a summary judgment motion, the court must view all of the facts, including reasonable inferences to be drawn from them, in the light most favorable to the non-moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); News and Observer Publishing Co. v. Raleigh-Durham Airport Auth., 597 F.3d 570, 576 (4th Cir. 2010); Dennis v. Columbia Colleton Med. Ctr., Inc., 290 F.3d 639, 645 (4th Cir.2002). "A party opposing a properly supported motion for summary judgment `may not rest upon the mere allegations or denials of [its] pleadings,' but rather must `set forth specific facts'" showing that there is a triable issue. Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir.2003) (quoting former Fed. R.Civ.P. 56(e)), cert. denied, 541 U.S. 1042, 124 S.Ct. 2171, 158 L.Ed.2d 732 (2004). See Celotex Corp. v. Catrett, 477 U.S. 317, 322-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The "judge's function" in reviewing a motion for summary judgment is not "to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Liberty Lobby, 477 U.S. at 249, 106 S.Ct. 2505. If "the evidence is such that a reasonable jury could return a verdict for the nonmoving party," there is a dispute of material fact that precludes summary judgment. Id. at 248, 106 S.Ct. 2505.
When, as here, the parties have filed cross-motions for summary judgment, the court must consider "each motion separately on its own merits `to determine whether either of the parties deserves judgment as a matter of law.'" Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir.) (citation omitted), cert. denied, 540 U.S. 822, 124 S.Ct. 135, 157 L.Ed.2d 41 (2003). "Both motions must be denied if the court finds that there is a genuine issue of material fact. But if there is no genuine issue and one or the other party is entitled to prevail as a matter of law, the court will render judgment." 10A WRIGHT, MILLER & KANE, FEDERAL PRACTICE & PROCEDURE § 2720, at 336-37 (3d ed.1998, 2012 Supp.).
"[I]nterpretation of private contracts is ordinarily a question of state law."
The Master Policies do not contain choice of law provisions. When an insurance policy does not contain a choice of law provision, Maryland applies the doctrine of lex loci contractus, under which "the law of the jurisdiction where the contract was made controls its validity and construction." U.S. Life Ins. Co. v. Wilson, 198 Md.App. 452, 463, 18 A.3d 110, 116 (2011); see also Allstate Ins. Co. v. Hart, 327 Md. 526, 529, 611 A.2d 100, 101 (1992) ("Maryland courts ordinarily should apply the law of the jurisdiction where the contract was made."). "For choice-of-law purposes, a contract is made where the last act necessary to make the contract binding occurs." Konover Property Trust, Inc. v. WHE Assocs., Inc., 142 Md.App. 476, 490, 790 A.2d 720, 728 (2002) (citing Commercial Union Ins. Co. v. Porter Hayden Co., 116 Md.App. 605, 672, 698 A.2d 1167, 1200 (1997), cert. denied, 348 Md. 205, 703 A.2d 147 (1997)).
"Typically, `[t]he locus contractus of an insurance policy is the state in which the policy is delivered and the premiums are paid,'" Commercial Union, 116 Md.App. at 673, 698 A.2d at 1200 (citation, emphasis, and some internal quotation marks omitted), because delivery of the policy and payment of the premium are ordinarily the last acts necessary to make an insurance policy binding. See Aetna Cas. & Sur. Co. v. Souras, 78 Md.App. 71, 77, 552 A.2d 908, 911 (1989). However, this basic rule is subject to some complications. For instance, if an insurance broker acts as the agent of the insured, the insurer's delivery of the policy to the broker constitutes delivery to the insured. Commercial Union, 116 Md.App. at 675-76, 698 A.2d at 1201. In that circumstance, the state where the broker receives the policy is the locus contractus. Id.; accord Insights Trading Grp., LLC v. Fed. Ins. Co., Civ. No. RDB-10-340, 2010 WL 2696750, at *4 (D.Md. July 6, 2010); Wimberly v. Empire Fire & Marine Ins. Co., 192 F.Supp.2d 406, 409 n. 4 (D.Md.2002); Travelers Indem. Co. v. Allied-Signal, Inc., 718 F.Supp. 1252, 1253 (D.Md.1989).
Moreover, if the insurance policy provides that "`it shall not be valid until it is countersigned by an officer or agent of the company, the place of countersigning is held to be the place of the making of the contract,'" because the countersignature is
Millennium argues that New Jersey law should apply because the Insurers delivered the Master Policies to Millennium's insurance broker, Marsh, in Morristown, New Jersey. See Millennium Motion at 16. The Insurers respond that New York law should govern because the Master Policies were both countersigned in New York. See Insurers' Motion at 29-30.
The National Union Policy includes an express countersignature provision. The policy contains the signatures of officers of National Union and, above their signatures, states: "In Witness Whereof, this policy has been executed by the President and Secretary of the Company, but this policy shall not be valid unless signed at the time of issuance by an authorized representative of the Insurer on the Declarations page of the policy." National Union Policy at 8. On the last page of the Declarations section, the National Union Policy states that it was "issued at" an address in New York, and contains a signature line labeled "for the company." Id. at 16. The signature on the line is that of David S. Oliver, who was then the Vice President, Property, of AIG Global Marine and Energy, and in that capacity was "in charge of the negotiation and issuance" of the National Union Policy. ECF 151-1 at 1. In an affidavit, Mr. Oliver avers that he signed the National Union Policy in New York on June 23, 2008. Id. at 2.
The ACE Policy does not contain a provision expressly stating that it shall not be valid unless countersigned. However, the Insurers point out that it, too, contains a signature on its Declarations page, dated July 17, 2008. ACE Policy at 6. The signature line is labeled "Signature of Authorized Agent" and states: "Located at New York City, New York." Id.
Millennium endeavors to trace the history of the rule, within the lex loci contractus doctrine, that the place of countersigning is the locus contractus if a countersignature is required, in an attempt to demonstrate that the signatures that appear on the Master Policies are not true counter signatures, but are merely signatures. See Millennium Reply at 4-6 (citing, inter alia, Cromwell v. Royal Canadian Ins. Co., 49 Md. 366 (1878)). According to Millennium, the countersignature rule only applies to the countersignature of a local agent of the insurer that authenticates and executes a completed policy that has already been signed, in blank, by an officer of the insurer at its home office. See Millennium Motion at 4-6. Millennium acknowledges that several cases, such as Rouse, supra, 991 F.Supp. 460, and Eastern Stainless, supra, 829 F.Supp. 797, have applied the countersignature rule in the context of policy language similar to that contained in the National Union Policy, but Millennium insists that these cases have failed to appreciate "the historical rationale for application of the countersignature rule." Millennium Motion at 6 n. 7. Moreover, Millennium suggests that, even if the National Union Policy does require and contain
If the Court were required to conduct a lex loci analysis, I would hold that New York law governs. In my view, the National Union Policy's countersignature requirement is indistinguishable from the insurance policy requirements in the many cases, already cited, where the countersignature rule for lex loci contractus has been applied as a matter of Maryland law. Even if I were inclined to reject the countersignature rule on policy grounds, the policy choice is not mine to make. This Court's task, when sitting in diversity, is to apply state law in accordance with "how [the state's highest] court would rule if presented with the issue," Private Mortg. Inv. Servs., Inc. v. Hotel & Club Assocs., Inc., 296 F.3d 308, 312 (4th Cir.2002), and the Maryland Court of Appeals has given no indication that it intends to abandon the countersignature rule.
Nevertheless, I find it unnecessary to make a definitive choice of law because I am not persuaded that there is any difference between the substantive laws of New York and New Jersey that is meaningful in this case. "`Choice-of-law analysis becomes necessary ... only if the relevant laws of the different states lead to different outcomes.'" Cleaning Auth., Inc. v. Neubert, 739 F.Supp.2d 807, 820 (D.Md.2010) (citation omitted).
Review of the common law of New York and New Jersey regarding the interpretation of insurance policies reveals little, if any, difference between them. Both New York and New Jersey require insurance policies to be interpreted according to their plain language. Compare Mem'l Props., LLC v. Zurich Am. Ins. Co., 210 N.J. 512, 46 A.3d 525, 532 (2012) ("The terms of insurance contracts are given their `plain and ordinary meaning' ....") with Fieldston Prop. Owners Ass'n, Inc. v. Hermitage Ins. Co., 16 N.Y.3d 257, 920 N.Y.S.2d 763, 945 N.E.2d 1013, 1017 (2011) ("If the plain language of the policy is determinative, we cannot rewrite the agreement by disregarding that language.").
If the policy language is ambiguous, both New York and New Jersey require construction of the policy against the insurer and in accordance with the reasonable expectations of the insured. Compare Selective Ins. Co. v. Hudson East Pain Mgmt. Osteopathic Med. & Phys. Therapy, Essex Surg. Ctr., L.L.C., 210 N.J. 597, 46 A.3d 1272, 1277 (2012) ("[C]overage provisions are to be read
To the extent that there is any difference between New York and New Jersey law in this connection, it appears to be one of degree and subtle emphasis rather than a stark distinction of principle. The case law suggests that New Jersey courts might be more inclined, on the margins, to reject an insurer's proffer of extrinsic evidence for the purpose of resolving ambiguity, instead preferring to construe an ambiguous policy against the insurer who drafted it, as a matter of law. New York courts apply this principle of construction against the drafter, also known as "contra proferentem," only if there is no extrinsic evidence that sheds light on the question or "if the tendered extrinsic evidence is itself conclusory and will not resolve the equivocality of the language of the contract." State v. Home Indem. Co., supra, 495 N.Y.S.2d 969, 486 N.E.2d at 829. However, New Jersey courts also recognize an exception to the "contra proferentem" rule in cases where the insured is a "sophisticated commercial entit[y] that do[es] not suffer from the same inadequacies as the ordinary unschooled policyholder and [has] participated in the drafting of the insurance contract." Benjamin Moore & Co. v. Aetna Cas. & Sur. Co., 179 N.J. 87, 843 A.2d 1094, 1103 (2004). In any event, I am convinced that I would reach the same ruling in this case under either New York or New Jersey law.
The coverage question in this case is a difficult one. The complexities of the Western Australian natural gas market defy easy description, there is little case law on point, and Endorsement 8 of the Master Policies is not a model of clarity.
There is much that could be debated about the interpretation of Endorsement 8 of the Master Policies but, to their credit, the parties have narrowed the issues in dispute. For instance, based on the language of Endorsement 8, one could argue that it provides coverage for damage only at particular designated locations that are specially defined as "CONTRIBUTING
Similarly, one could argue that Endorsement 8 requires that only specifically named (as opposed to unnamed) contributing properties are subject to the requirement that they be "direct" contributing properties. The "Coverage" language in Section "C" of Endorsement 8 does not apply the adjective "direct" to the phrase "CONTRIBUTING PROPERTY(IES)." Although the parties talk past each other to a degree in briefing this issue, it appears that both sides agree that CBI coverage under the Master Policies applies only to "direct contributing properties," whether named or unnamed, because the Declarations refer to coverage for both named and unnamed "direct contributing or recipient property(ies)." ACE Policy at 14 (emphasis added; capitalization altered). See Millennium Motion at 21 ("[T]he most obvious and reasonable interpretation of [Endorsement 8], read together with the Declarations Page, is that Millennium purchased a minimum of $10,000,000 in insurance coverage for economic loss resulting from damage to property of any direct unnamed contributing properties ...."); Insurers' Motion at 35 n. 6 ("[I]t is clear from the Declarations that coverage for both named and unnamed contributing properties is limited to `direct' ... contributing properties.").
Notably, the parties disagree about the meaning of "direct contributing property," and whether Apache was a "direct contributing property" to Millennium. Part of their debate concerns whether the limitation stated in Section "B" of Endorsement 8 — i.e., the limitation that the "following locations must be direct suppliers of materials to the Insured's locations or coverage is deemed to be void" — applies to unnamed contributing properties. ACE Policy at 48 (emphasis added). This limitation is not contained in Section "C," which delineates the "Coverage" under the endorsement, and is where one might expect a limitation on coverage to be found. Rather, it appears in Section "B," the part of the endorsement devoted to listing particular locations that are "CONTRIBUTING PROPERTY(IES)." Millennium contends that, because this limitation only applies, by its terms, to the "following locations," the limitation applies only to named contributing properties (for which there would have been a higher sublimit of insurance, if any had been named) and not to unnamed contributing properties. See Millennium Motion at 21. Thus, as Millennium sees it, a "contributing property" need not necessarily be a "supplier." In contrast, the Insurers argue
The Master Policies do not define the phrases "direct supplier" or "contributing property," or any of their component words. The parties agree that these words and phrases have no particular technical meaning in the insurance context, and must be interpreted according to their plain meaning. Although both sides argue that the meaning of these words is unambiguous, they vigorously disagree as to their meaning in the context of the Master Policies.
According to the Insurers, Apache's Varanus Island facility was not a direct contributing property to Millennium's business, because Millennium had no "direct relationship" with Apache. Rather, as the Insurers see it, Alinta was Millennium's "direct supplier" of gas and, hence, the only direct contributing property. In this regard, the Insurers point out that Millennium had a contract for the supply of natural gas with Alinta, and had no such contract with Apache. However, the Insurers disclaim reliance on a contractual relationship with the insured, as such, as the sine qua non of a direct contributing property.
Although Millennium contends that an unnamed direct contributing property does not necessarily need to be a "direct supplier," Millennium also argues that Apache was a direct supplier of natural gas to Millennium, despite the intervention of Alinta. This is so because, as Millennium's expert Mark Chatfield contends, Alinta does not actually "supply" natural gas. In Mr. Chatfield's words, Alinta "is not a gas producer, nor is it a gas transporter. It is simply an aggregator and reseller.... It is not a producer of gas because it has no gas production facilities." Chatfield Report at 3-4. Mr. Chatfield explains, id. at 3:
To illustrate his argument, Mr. Chatfield poses a hypothetical, id. at 4:
Furthermore, Millennium argues that, even if Apache was not a direct supplier to the Bunbury Operations, the Master Policies still provide CBI coverage, because Endorsement 8 states that the policies cover business interruption losses caused by damage to a contributing property that "wholly or partially prevents the delivery of materials to the Insured or to others for the account of the Insured ...." ACE Policy at 48 (emphasis added). Millennium maintains that, even if the Varanus Island explosion did not prevent the delivery of gas directly to Millennium, the explosion prevented the delivery of gas to Alinta for Millennium's account.
The Insurers contend that Millennium has incorrectly construed the "for the account of" clause in the endorsement. It claims that, in order for the "for the account of" clause to apply, there still must be a direct contributing property and, as the Insurers see it, Apache is not a direct contributing property to Millennium, because it is not a direct supplier. Moreover, the Insurers argue that the "for the account of" clause is intended to apply to a different type of factual scenario than that presented by the relationships among Apache, Alinta, and Millennium.
As noted, there is relatively little case law addressing CBI coverage. To my knowledge, there are only three cases that shed significant light on the issues presented here. They include the first reported decision in which contingent business interruption insurance was discussed, Archer-Daniels-Midland Co. v. Phoenix Assurance Co., 936 F.Supp. 534 (S.D.Ill. 1996) ("ADM"); the Eighth Circuit's decision in Pentair, supra, 400 F.3d 613; and a recent unreported district court decision, Park Electrochemical Corp. v. Continental Casualty Co., No. 04-CV-4916 (ENV)(ARL), 2011 WL 703945 (E.D.N.Y. Feb. 18, 2011).
ADM concerned losses from the Mississippi River's "unprecedented flooding" in the Summer of 1993, which affected 20 million acres of farmland in nine Midwestern states, causing $6.5 billion in crop damage. 936 F.Supp. at 536. The global agribusiness company ADM sustained over $50 million in losses due to the flooding, and sought to recover under its CBI coverage. Id. Its CBI policies covered business interruption losses "caused by damage to or destruction of real or personal property... of any supplier of goods or services which results in the inability of such supplier to supply an insured locations [sic]."
ADM contended that the farmers throughout the Midwest who grew the crops that ADM processed were "supplier[s] of goods or services" under the policies. See id. at 543. In contrast, ADM's insurers contended that "the farmers are not suppliers because ADM does not contract for the purchase of grain from individual farmers. Rather, ADM purchases grain from licensed grain dealers," who in turn "either purchased the grain directly from farmers or from other dealers." Id. at 543-44. The court agreed with ADM's application of the policy language.
Neither side contended, and the court did not find, that the language of the policies was ambiguous. Id. at 540. The court reasoned that the "key phrase for present purposes is `any supplier of goods or services,'" and that under the "plain, ordinary, and popular meaning" of that phrase, derived from dictionary definitions of "any," "supply," and "supplier," the phrase "denotes an unrestricted group of those who furnish what is needed or desired." Id. at 541. Applying that construction of the policy language, the ADM Court observed that the policies did "not state that coverage is limited to principal suppliers or suppliers with whom ADM has a written contract, rather, they apply to `any' supplier." Id. at 543. Thus, it reasoned that "the policy language does not limit coverage to those suppliers in direct contractual privity." Id. at 544. Moreover, the court rejected the insurers' argument that ADM's interpretation meant that the policies' coverage was essentially limitless, such that ADM could claim that its "business was interrupted because of damage to a supplier of the farmers." Id. It said, id.:
In Pentair, 400 F.3d at 614, the Eighth Circuit described the facts giving rise to a CBI coverage claim:
Pentair sought to recover its additional shipping costs under its CBI policy, which insured against "losses incurred by Pentair as the result of `damage' to `property of a supplier of goods and/or services to the Insured' that is caused by a covered peril, here, an earthquake." Id. at 614-15 (quoting policy). Relying on ADM, Pentair argued that the Taiwanese power substation was one of Pentair's "suppliers" within the meaning of the policy. See id. at 615.
The Eighth Circuit held that the "power substation was not `a supplier of goods and/or services' to Pentair [v. American Guarantee and Liability Ins. Co., 2003 WL 21804874 (D.Minn. July 31, 2003)] within the plain meaning" of the policy. Id. (emphasis in original). Rejecting the analogy between the power substation and the farmers in ADM as "inapt," id., the court reasoned, id.:
The recent decision in Park Electrochemical concerned two companies, Nelco and Neltec, both of which were wholly-owned subsidiaries of their parent, Park. 2011 WL 703945, at *1. Among "other lines of business," Park developed and manufactured "printed circuit boards and other advanced materials for the telecommunications, computing, and aerospace industries." Id. The court explained the facts that gave rise to the CBI coverage dispute, id.:
Park and Neltec were insured under a CBI policy, which covered business interruption losses "caused by direct physical damage or destruction to ... any real or personal property of direct suppliers which wholly or partially prevents the delivery of materials to the Insured or to others for the account of the Insured." Id. at *2 (emphasis added).
The court noted that the "term `direct suppliers' is not defined anywhere in the policy," and concluded that the "language of the policy on this point is vague and ambiguous." Id. at *4. As the court saw it, both sides provided "reasonable interpretations of the term: it could be read to include any supplier, regardless of whether the supplier is a subsidiary of the insured, or it could be read to exclude subsidiaries or sister companies of the insured." Id. Accordingly, the court looked to extrinsic evidence. It considered insurance industry practices, reflected in policies discussed in other cases as well as treatises and articles concerning CBI coverage, stating that CBI coverage was "limited to loss caused by damage to entities not owned by the insured." Id. at *5. However, the court pointed out that the policies in the other cases had expressly limited CBI coverage in that manner, using "policy language ... far more clear and explicit than the language [the insurer] chose to include in the policy here." Id. Similarly, the treatises spoke in terms of "explicit policy provisions that putative drafters should use." Id. at *5 n. 6. The court observed that, if the insurer had "followed [the treatises'] advice and explicitly listed what `direct suppliers' would be covered under the CBI Provisions, this dispute would have been avoided." Id.
The court also rejected the insurer's reliance on a "Claims Preparation Manual," prepared by Park's insurance broker, which stated that, under a CBI coverage
After reviewing deposition testimony of various persons involved in negotiation of the policy, the Park Electrochemical Court concluded that the "ambiguity survives the proffers of extrinsic evidence," and that the question of whether subsidiaries could be "direct suppliers" under the policy would need to be resolved by a jury. Id. As the court saw it, where the "`extrinsic evidence is available but inconclusive,'" and the "available evidence `presents a choice among reasonable inferences,'" resolution of the ambiguity in favor of the insured as a matter of law was inappropriate. Id. (citations omitted).
Assuming, arguendo, that the "direct supplier" language in Section "B" of Endorsement 8 applies to unnamed contributing properties, it is clear that Apache was a "supplier" of natural gas to Millennium, in much the same way as the farmers were suppliers of grain to ADM. This case is unlike Pentair, where the electrical substation was a supplier of electrical power to the Taiwanese factories, which in turn supplied something else — the factories' manufactured goods — to the insured, Pentair. Here, the product that Apache supplied, natural gas, was the "product or service ultimately used by" Millennium as the insured, Pentair, 400 F.3d at 615, just as in ADM, the "goods at issue [were] the grain grown by the Midwest farmers." ADM, 936 F.Supp. at 544.
The CBI policy in ADM contained no provision limiting coverage to "direct" suppliers, however, which made a significant difference in the ADM Court's analysis and, according to the Insurers, should make a dispositive difference here. Because the farmers did not sell grain directly to ADM, but instead sold the grain to dealers who in turn sold to ADM, the ADM Court reasoned that the farmers were "indirect" suppliers. But, the court observed that there was no basis in the text of ADM's insurance policy to conclude that that an indirect supplier would not be covered. Unlike in ADM, the parties here agree that coverage is contractually limited to "direct" contributing properties. The Insurers argue that, if Apache is like the farmers in ADM, then Alinta is in much the same position as the grain dealers. Because the Master Policies here, unlike the policies at issue in ADM, limit coverage to "direct" contributing properties, the Insurers contend there is no coverage. However, as the court in Park Electrochemical recognized, the word "direct" and the phrase "direct supplier" are not necessarily self-defining.
To be sure, Millennium contracted directly with Alinta for natural gas, and had no contract with Apache. If the Master Policies provided that a direct contractual relationship with the insured were the only connection that could establish an entity as a direct contributing property, I would agree with the Insurers. But, as the Insurers concede, Endorsement 8 does not require an entity to be in contractual privity with the insured in order to be a direct contributing property. And, if the Insurers intended to make contractual privity a requirement, they knew how to draft policy language to that effect. Indeed, in another endorsement of the Master Policies, the Insurers specifically limited coverage to damage to "Off-Premises property ... owned by and with whom the Insured has contracted to furnish power
The Insurers argue that, if there is no contractual relationship, some other "direct relationship" between Apache and Millennium would be necessary for Apache to be a direct contributing property to Millennium. But, the Insurers are unable to explain what they mean by the phrase "direct relationship," aside from a contractual relationship. Moreover, the phrase "direct relationship" does not appear in Endorsement 8.
It is noteworthy that Endorsement 8 does not speak in terms of the relationships among people and entities. Rather, it speaks in terms of the relationships between physical properties. Section "C" of the endorsement provides coverage for loss "caused by damage to or destruction of ... real or personal property ... which is not operated by the Insured, ... which wholly or partially prevents the delivery of materials to the Insured or to others for the account of the Insured and results directly in a necessary interruption of the Insured's business." ACE Policy at 48 (emphasis added). The limitation in Section "B," upon which the Insurers rely, limits coverage to "locations [that are] direct suppliers of materials to the Insured's locations." Id. (emphasis added). And, of course, the entire endorsement is phrased in terms of "CONTRIBUTING PROPERTY(IES)." Id. (emphasis added). This suggests that the physical relationship between the properties is as or more important than the legal relationship between the properties' owners.
Although Apache and Millennium both contract with Alinta, rather than with each other, the contracts with Alinta have no effect on the physical realities of natural gas supply between Varanus Island and the Bunbury Operations. Regardless of whether Millennium contracted with Alinta or contracted directly with Apache, the pressurized natural gas still would flow directly from Apache's facility through the DBNGP to Millennium's Bunbury Operations by operation of, in Mr. Chatfield's words, the "law of physics." Although Alinta has legal title to the gas while it is in the 1,500-kilometer Dampier-to-Bunbury Natural Gas Pipeline, Alinta never takes physical possession of the gas and has no "property" with which to do so.
Arguably, those facts render this case distinguishable from the situation in ADM, where the CBI policy insured against damage caused by "`destruction of real or personal property ... of any supplier of goods or services.'" ADM, 936 F.Supp. at 540 (quoting policy) (emphasis added). A "supplier" under the ADM policy was an owner of property, not a property itself. Moreover, although the opinion in ADM does not discuss the mechanics of grain distribution, it is likely that the grain dealers, who purchased grain from the farmers and then sold it to ADM, took physical possession of the grain from the farmers. In contrast, the gas produced by Apache flows from Apache's facility into the DBNGP, where it is commingled with gas from other producers, and flows out of the DBNGP at outlet points, including the outlet points at the Bun bury Operations. Alinta does not store or transport the gas; it merely buys and sells it. If the grain dealers in ADM had performed a purely economic task of supply-and-demand aggregation, such as Alinta did here, such that ADM received its grain from the farmers via a physical mechanism of grain transportation akin to the Dampier-to-Bunbury pipeline, or (more plausibly) such that, although ADM paid the purchase money for the grain to a middleman, the grain was trucked to ADM directly from the farmers' silos, it is doubtful whether the ADM Court would have described the farmers as "indirect" suppliers to ADM.
The contract expressly called for Alinta to "supply" Millennium with natural gas. David Oliver, National Union's underwriter with AIG, testified in his deposition that the reason National Union typically did not provide "indirect" CBI coverage was that, in that circumstance, National Union viewed the insured as "once removed from being able to control the situation in the case of a potential issue." Ex. 68 to Insurers' Motion at 391 (ECF 151-54). He explained, id. at 391-92:
It is not an unreasonable interpretation of the Master Policies to conclude that, by providing only "direct" CBI coverage, the Insurers sought to limit their exposure to situations in which the insured lacked the kind of influence over a contributing property that comes with contractual privity. But, the Master Policies do not say this expressly.
In particular, the policies do not define the term "direct," and what the Insurers understand by that term is not its only possible or reasonable connotation. Millennium's interpretation, as applied to the factual circumstances surrounding Millennium's natural gas supply, is also a reasonable interpretation of the language that is actually included in the policies. Just as in Park Electrochemical, where the phrase "direct supplier" was ambiguous in the context of a supplier that was a subsidiary or corporate affiliate of the insured, the term "direct" is ambiguous here, in the context of an entity that provides a direct physical supply of material to the insured, but has no direct contractual relationship with the insured. The plain language of the Master Policies cannot resolve this ambiguity.
The Park Electrochemical Court, applying New York law, held that, where "the `extrinsic evidence is available but inconclusive,' and the available evidence `presents a choice among reasonable inferences,' application of the contra proferentem rule is not appropriate on summary judgment." 2011 WL 703945, at *6. Accordingly, the court held that the ambiguity in the policy before it would need to be resolved by the finder of fact. See id.
In this case, however, although the parties have presented a virtual cornucopia of extrinsic evidence, none of it presents a dispute of material fact for a fact finder to resolve, because none of the extrinsic evidence sheds light on what the parties' mutual intent was at the time that the Master Policies were established. To be sure, if the parties did not already agree that a contributing property must be "direct"
Extrinsic evidence is only admissible in matters of contract interpretation if it provides "evidence of the parties' intent" in drafting a contractual provision that is ambiguous by its terms. Van Kipnis v. Van Kipnis, 11 N.Y.3d 573, 872 N.Y.S.2d 426, 900 N.E.2d 977, 980 (2008); see also Conway v. 287 Corporate Ctr. Assocs., 187 N.J. 259, 901 A.2d 341, 347 (2006) ("[W]e permit a broad use of extrinsic evidence to achieve the ultimate goal of discovering the intent of the parties."). A court's "`function in construing ... policies of insurance, as with any other contract, is to search broadly for the probable common intent of the parties....'" French v. N.J. Sch. Bd. Ass'n Ins. Grp., 149 N.J. 478, 694 A.2d 1008, 1016 (1997); see also Welsbach Elec. Corp. v. MasTec N. Am., Inc., 7 N.Y.3d 624, 825 N.Y.S.2d 692, 859 N.E.2d 498, 500 (2006) ("A basic precept of contract interpretation is that agreements should be construed to effectuate the parties' intent."). None of the extrinsic evidence submitted by the parties would assist a fact finder in determining the meaning that the parties intended by use of the term "direct," as applied to the factual scenario in this case.
Where ambiguity in an insurance policy cannot be resolved by consideration of extrinsic evidence, the laws of both New York and New Jersey provide a tiebreaker: they apply the doctrine of contra proferentem, by which the ambiguity must be resolved in favor of the insured and against the insurer who drafted the policy. Applying the doctrine of contra proferentem, I conclude that Apache's natural gas production facility was a "direct contributing property" to Millennium's Bunbury Operations, so as to come within the CBI coverage of the Master Policies, because Apache's facility physically provided a direct supply of natural gas to Millennium's premises, despite the fact that Apache and Millennium had no direct contractual relationship.
As noted, Endorsement 8 insures against business interruption losses "caused by damage to or destruction of... CONTRIBUTING PROPERTY(IES)... which wholly or partially prevents the delivery of materials to the Insured or to others for the account of the Insured...." ACE Policy at 48 (emphasis added). Even if the requirement that a contributing property be "direct" were not ambiguous standing alone, the provision of Endorsement 8 regarding "delivery of materials to the Insured or to others for the account of the Insured," id. (emphasis added), creates a further ambiguity in the Master Policies that cannot be resolved except by application of the doctrine of contra proferentem.
Millennium argues that, even if Apache was not a direct contributing property to Millennium, Apache was a direct contributing property to Alinta for Millennium's
There are two prongs to the Insurer's argument. First, they insist that, in order for the "account of the Insured" condition to apply, a given property must first be a direct contributing property. If a property is not a direct contributing property, the question of whether it delivers materials "to others for the account of the Insured" does not arise. Because Apache was not a direct contributing property, in the Insurers' view, there is no need for further analysis of whether Apache delivered materials "to others for the account of" Millennium.
The second prong of the Insurers' argument is that the "for the account of" clause simply does not apply to the factual situation presented by Apache, Alinta, and Millennium. The Insurers posit a hypothetical scenario to which they believe the "for the account of" clause would apply, Insurers' Reply at 10:
As to the first prong of the Insurers' argument, as already discussed, I reject their claim that Apache unambiguously is not a direct contributing property to Millennium. But, even if I did not, the Insurers' argument is circular. The Insurers insist that, in order to be a direct contributing property, a property must satisfy the condition stated in Section "B" of Endorsement 8: it must be a "direct supplier to the Insured's locations." I ACE Policy at 48 (emphasis added). Unless that condition is satisfied, they claim, the "for the account of" clause is irrelevant. But, if a contributing property is a "direct supplier to the Insured's locations," it clearly does not deliver materials "to others for the account of the Insured" — it delivers them to the insured. Thus, the first prong of the Insurers' argument would render Endorsement 8 incoherent and self-contradicting.
To elaborate, under the Insurers' interpretation, the "for the account of" clause could never apply to any contributing property. This violates the general canon of interpretation, applicable to interpretation of insurance policies as to any other contract, that a court should construe
In the second prong of their argument, the Insurers posit that the "for the account of" phrase could refer to a situation where a supplier and an insured have a contract for the supply of goods, but the insured directs the supplier to deliver the goods to others for its account — i.e., the insured's account with the supplier. The Insurers do not explain, however, how Company A in its hypothetical would qualify as a "direct supplier to the Insured's locations," ACE Policy at 48 (emphasis added), which the Insurers maintain is an essential feature of a direct contributing property. Moreover, the Insurers do not explain why the meaning of the "for the account of" clause is limited to the situation in their hypothetical — in other words, why the "for the account of" clause could not cover both a situation like the Insurers describe and the situation that actually arose in this case. Here, the supplier, Apache, delivered gas to "others" (i.e., Alinta) for the account of the insured — i.e., Millennium's account with Alinta.
The phrase "delivery of materials ... to others for the account of the Insured" is ambiguous. The ambiguity lies in who must hold the "account of the Insured" — the one who delivers, or the "others" to whom delivery is made. Or, whether it can be both, or either one. The text of the policy does not resolve the issue. Moreover, the parties have not presented any extrinsic evidence bearing on the meaning of the phrase. Indeed, Paul Lafferty, the senior adjuster with AIG who authored National Union's initial denial of Millennium's claim, admitted in his deposition that he was "not sure" of the meaning of the "for the account of" clause. Ex. 55 to Insurers' Motion at 107 (ECF 151-43). In the absence of any extrinsic evidence that could resolve the ambiguity, both New York and New Jersey law dictate application of the principle of contra proferentem and construction of the phrase in favor of coverage for the insured.
In sum, I conclude that the text of Endorsement 8 is ambiguous as to whether it provides CBI coverage to Millennium under the circumstances at issue. Because there is no extrinsic evidence that is capable of resolving the issue either way, there is no dispute of material fact for a fact finder to resolve and, as a matter of law, the Master Policies must be construed under the doctrine of contra proferentem, in favor of Millennium, the insured.
The Insurers have moved for summary judgment as to Count III of Millennium's complaint, which asserts a cause of action under a Maryland statute, C.J. § 3-1701, for failure to act in good faith in denying insurance coverage.
Millennium argues that the Maryland statute applies because the Insurers "dealt with Millennium's offices in Hunt Valley, Maryland," and "were keenly aware of the
On the merits, Millennium argues that the Insurers have demonstrated bad faith because they "made an initial determination very early on to deny the claim, ... based solely upon the fact that there was no contract between Millennium and Apache." Millennium Reply at 31-32. Moreover, "despite putting on an outward façade giving the appearance that they would consider Millennium's arguments, the Insurers refused to reconsider their initial position no matter what Millennium did." Id. at 32. As Millennium sees it, the Insurers' witnesses "have shown throughout this litigation that they do not understand how their own policies work," and thus "their decision could not have been informed, based on honesty and diligence, and supported by the evidence." Id.
Because this case is governed by either New York or New Jersey law, but not by Maryland law, Maryland's good faith statute does not apply here. Judge Blake's ruling in Fogarty v. Allstate Ins. Co., Civ. No. CCB-04-414, 2011 WL 1230350, at *7 (D.Md. Mar. 30, 2011), is instructive:
Nevertheless, even if Maryland's statute did apply, or under the bad faith standard of New York or New Jersey, Millennium's claim fails on the merits. In the first reported decision construing Maryland's good faith law (which was enacted relatively recently, in 2007), Cecilia Schwaber Trust Two v. Hartford Accident and Indemnity Co., 636 F.Supp.2d 481 (D.Md.2009), Judge J. Frederick Motz of this court considered the substantive standard that should apply to claims under the Maryland statute. Maryland's statute regarding denial of coverage without good faith "applies only to first-party claims under property and casualty insurance policies." C.J. § 3-1701(b).
Judge Motz declined to apply a more stringent "fairly debatable" standard adopted by some courts that recognize claims for bad faith denial of insurance coverage, notably including the New Jersey Supreme Court in Pickett v. Lloyd's, 131 N.J. 457, 621 A.2d 445 (1993), on which Millennium relies. Under the "fairly debatable" standard, "bad faith claims must be dismissed before trial if summary judgment cannot be granted for plaintiff on the underlying claim," because the existence of a valid legal question as to coverage negates the insurer's bad faith. Cecilia Schwaber Trust Two, 636 F.Supp.2d at 485 (citing Pickett). Judge Motz also cited a leading Wisconsin case on the "fairly debatable" standard, stating that, "[w]hen a claim is fairly debatable, ... `the insurer is entitled to debate it.'" Id. at 485 (quoting Anderson v. Cont'l Ins., Co., 85 Wis.2d 675, 271 N.W.2d 368, 376 (1978)).
Judge Motz rejected application of the "fairly debatable" standard under the Maryland statute.
Although plaintiffs assert that the Insurers simply made up their mind to deny Millennium's claim, they have advanced no evidence from which a fact finder could conclude the Insurers had such a motive. In his deposition, James Koutras, Millennium's Senior Corporate Counsel and Secretary, candidly admitted that "we don't have any evidence that [the Insurers] thoroughly investigated [the claim] or unthoroughly — whatever the opposite of thoroughly is — investigated it. We don't have evidence either way." Ex. 15 to Insurers' Motion at 44 (ECF 151-17).
It is also noteworthy that the coverage dispute in this case presents a close question in an area of law (CBI insurance) that is not yet well developed in the courts. If an insurer were required, as a matter of good faith, to concede to its insured whenever the precise contours of coverage were subject to reasonable debate, an insurer would never be entitled to test through litigation the merits of a reasonably debatable policy interpretation. That would not constitute a requirement of good faith on the part of the insurer, but rather of rote acquiescence to any claim for coverage
In order to prevail on a claim that the Insurers did not consider Millennium's claim in good faith, Millennium would need to produce some evidence from which a jury could find, in the words of C.J. § 3-1701(a)(4), that the Insurers did not make "an informed judgment based on honesty and diligence supported by evidence the insurer knew or should have known at the time." Millennium has failed to present such evidence, and so the Insurers are entitled to summary judgment as to Count III.
The parties filed consent motions to submit numerous exhibits under seal in connection with the cross-motions for summary judgment (ECF 147, ECF 150, and ECF 158) (collectively, "Motions to Seal"). In particular, plaintiffs' motion (ECF 147) sought the sealing of three exhibits, while defendants' motions (ECF 150 and 158) sought to seal 35 exhibits, representing almost half of the exhibits that defendants submitted.
As grounds for sealing, defendants' motions asserted only that the documents were designated as confidential in discovery, pursuant to the Stipulation and Order Governing the Production and Exchange of Confidential Material entered by the Court June 16, 2010 (ECF 55-1, ECF 56, ECF 57). However, the bare fact that documents have been designated as confidential in discovery pursuant to a confidentiality order is not sufficient to justify the sealing of those documents when submitted to the court in conjunction with a dispositive motion. See Rushford v. New Yorker Magazine, Inc., 846 F.2d 249, 252 (4th Cir.1988); Butler v. DirectSAT USA, LLC, 876 F.Supp.2d 560, 576 n. 18 (D.Md. 2012); Waterkeeper Alliance, Inc. v. Alan & Kristin Hudson Farm, 278 F.R.D. 136, 140-42 (D.Md.2011); Minter v. Wells Fargo Bank, N.A., 258 F.R.D. 118, 123 (D.Md. 2009); Sensormatic Sec'y Corp. v. Sensormatic Electronics Corp., 455 F.Supp.2d 399, 437-38 (D.Md.2006).
Plaintiffs' motion similarly placed principal reliance on the confidentiality order, but also asserted some additional arguments as to each of the three documents it sought to seal. However, plaintiffs' arguments were largely unpersuasive, and provided no reason that less drastic alternatives, such as the submission of redacted copies of the exhibits, would not suffice to protect the parties' interests in confidentiality.
On August 22, 2012, I issued an Order (ECF 161) concerning the consent motions to seal, in which I advised the parties that the Motions to Seal were, in my view, insufficient to comply with the requirements of Local Rule 105.11. I explained the following principles:
The common law right of access is buttressed by a "more rigorous" right of access provided by the First Amendment, which applies to a more narrow class of documents, but is more demanding of public disclosure. Rushford, 846 F.2d at 253. The more narrow class of documents to which the First Amendment right of access applies includes documents "made part of a dispositive motion" in a civil case. Va. Dep't of State Police, 386 F.3d at 576 (citing Rushford, 846 F.2d at 253). If a court record is subject to the First Amendment right of public access, the record may be sealed "only on the basis of a compelling governmental interest, and only if the denial is narrowly tailored to serve that interest." Stone v. University of Md. Med. Sys. Corp., 855 F.2d 178, 180 (4th Cir.1988) (citing Press-Enterprise Co. v. Superior Court, 464 U.S. 501, 510, 104 S.Ct. 819, 78 L.Ed.2d 629 (1984)); see also Level 3 Commc'ns, LLC v. Limelight Networks, Inc., 611 F.Supp.2d 572, 581-82 (E.D.Va.2009) (recognizing that, although the Fourth Circuit has not expressly identified any basis to defeat the First Amendment public right of access other than a compelling governmental interest, other courts and the Fourth Circuit in an unreported decision have suggested that a property interest in trade secrets "might, depending on the circumstances of the case, suffice to override the strong First Amendment presumption of public access").
Notably, the district court "must determine the source of the right of access with respect to each document," because "only then can it accurately weigh the competing interests at stake." Stone, 855 F.2d at 181. Here, the documents have been submitted in connection with summary judgment motions. Accordingly, the more stringent First Amendment public right of access applies. See Rushford, 846 F.2d at 252 ("`[D]ocuments used by parties moving for, or opposing, summary judgment should not remain under seal absent the most compelling reasons.'") (quoting Joy v. North, 692 F.2d 880, 893 (2d Cir.1982)); accord Lugosch v. Pyramid Co., 435 F.3d 110, 124 (2d Cir.2006).
Local Rule 105.11 requires a party seeking to seal documents to provide the court with "reasons supported by specific factual representations to justify the sealing" and "an explanation why alternatives to sealing would not provide sufficient protection." In ruling on a motion to seal, the "district court must ... weigh the appropriate competing interests under the following procedure: it must give the public notice of the request to seal and a reasonable opportunity to challenge the request; it must consider less drastic alternatives to sealing; and if it decides to seal it must state the reasons (and specific supporting findings) for its decision and the reasons for rejecting alternatives to sealing." Va. Dep't of State Police, 386 F.3d at 576 (internal citations omitted). The public notice and opportunity to challenge requirements are met when, as here, the court allows sufficient time for objections to be made. See Padco Advisors, Inc. v. Omdahl, 179 F.Supp.2d 600, 614 (D.Md.2002) (stating that the "motions to seal have been docketed and available to the public [for eight
Accordingly, I directed the parties to file supplemental submissions adopting one of the following options with respect to each document or discrete category of documents at issue:
As to any document that was designated as confidential by a person or entity not a party to this case, I directed the parties to provide a copy of my Order to the third party. I also informed the parties that I would hold the Motions to Seal sub curia pending receipt of their supplemental submissions.
In response to my Order, the parties filed supplemental submissions (ECF 162 & 163) in which they withdrew their requests for sealing as to the vast majority of exhibits previously submitted under seal. There are only a handful of remaining exhibits as to which the Court must rule.
The Insurers only reiterate their request for sealing as to the transcript of the testimony of Mr. Riches of Alinta, which was taken in the Supreme Court of Western Australia for use in this case under letters rogatory, as well as three exhibits that were introduced into evidence through Mr. Riches' testimony at that hearing. Some, but not all, of Mr. Riches' testimony was taken in closed court in Australia, apparently due to Alinta's desire to avoid publicly disclosing commercially sensitive proprietary information. The transcript of Mr. Riches' testimony was submitted by the Insurers as Exhibit 8 to their motion (ECF 153-2). Portions of the transcript were also submitted by Millennium as Exhibit 4 to its motion (ECF 146-6), although Millennium has withdrawn its request to seal the document. The three exhibits that were introduced through Mr. Riches' testimony are the "Gas Supply and Purchase Agreement" between Alinta and Apache, Ex. 9 to Insurers' Motion (ECF 153-3); another contract between Alinta and members of the NWS Joint Venture, Ex. 10 to Insurers' Motion (ECF 153-4); and the notice of force majeure that Apache transmitted to Alinta on June 3, 2008, Ex. 43 to Insurers' Motion (ECF 153-22).
In support of the request for sealing, the Insurers have submitted a letter dated August 30, 2012, from Alinta's Australian counsel, Ashurst Australia, to counsel for the Insurers, stating Alinta's position after review of the Court's Order of August 22, 2012. See ECF 162-2. Alinta's counsel states that, in its view, "the oral testimony and exhibits" from the hearing involving Mr. Riches "are commercially sensitive and confidential and should not be subject to potential inspection by the U.S. public." Id. at 1. According to Alinta, the "evidence was obtained in closed-court session in Australia, reflecting an understanding by the parties and the Supreme Court of Western Australia that the subject-matter of the evidence was commercially sensitive and subject to confidentiality obligations binding on Alinta." Id. at 2. However, Alinta's counsel states that it is not prepared
The Insurers, without further comment, have submitted the letter from Ashurst Australia under the rubric of "specific factual representations" to justify sealing under Local Rule 105.11. Millennium has also provided the Court with a copy of Ashurst Australia's letter, but Millennium asserts in its submission that it withdraws its request for sealing of the transcript of Mr. Riches' testimony because, in its view, "although portions of [the transcript] might qualify for sealing under the common law right to access standard, it does not meet the more rigorous standard that must be met when the First Amendment right of access applies." ECF 163 at 4-5.
If Mr. Riches' testimony and the accompanying documentary evidence had been taken in a domestic deposition, I would agree entirely with Millennium's analysis. However, in my view, the fact that the testimony and accompanying evidence were taken in the court of a foreign nation pursuant to letters rogatory counsels a more nuanced approach. Letters rogatory rely upon international comity, "the spirit of cooperation in which a domestic tribunal approaches the resolution of cases touching the laws and interests of other sovereign states." Société Nationale Industrielle Aérospatiale v. U.S. Dist. Ct. for the S. Dist. of Iowa, 482 U.S. 522, 543 n. 27, 107 S.Ct. 2542, 96 L.Ed.2d 461 (1987). In my view, where a foreign court has extended to the Court the courtesy of using its process to preserve evidence for proceedings in a tribunal of this country, there is a significant governmental interest, grounded in international comity and foreign relations, in not upsetting the expectations under which evidence was presented in that foreign court, which may not necessarily be subject to the same rights of public access that obtain in the courts of this country. I weigh this interest in comity against an apparently minimal interest in full public disclosure of the documents at issue.
The only remaining document as to which there is an outstanding request for sealing is Exhibit 27 to Millennium's Motion, which is plaintiffs' claims submission to the Insurers dated December 31, 2008. Millennium has submitted an unsealed, redacted version of this document, and has withdrawn the redacted pages from consideration by the Court in connection with the motions for summary judgment. Millennium advises that it does "not believe that the removed pages are necessary to support" its motion. ECF 163 at 5. The Court agrees. Therefore, Exhibit 27, as originally submitted (ECF 146-29), will be withdrawn in favor of the redacted, unsealed submission (ECF 163-4).
In sum, except as noted above, the Motions to Seal will be denied.
For the foregoing reasons, Millennium's motion for partial summary judgment will be granted, and the Insurers' cross-motion for summary judgment will be granted in part and denied in part. Moreover, the parties' motions to seal will be denied, except as specifically noted. An Order implementing these rulings follows.
For the reasons stated in the accompanying Memorandum Opinion, it is, this 28th day of September, 2012, by the United States District Court for the District of Maryland, ORDERED:
In a footnote, Millennium cites a Supreme Court case interpreting a provision of the Internal Revenue Code regarding tax treatment of "damages received ... on account of personal injuries or sickness," in which the Court stated that "the phrase `on account of' does not unambiguously define itself," but adopted the government's interpretation of the phrase, which was consistent with its "dictionary meaning" of "`for the sake of: by reason of: because of.'" O'Gilvie v. United States, 519 U.S. 79, 82-83, 117 S.Ct. 452, 136 L.Ed.2d 454 (1996) (quoting dictionary). While the O'Gilvie Court's analysis is instructive, the context of O'Gilvie is so different from the context of this case that I cannot conclude that O'Gilvie is dispositive.
