STIPULATION AND ORDER REGARDING THE REVISED REPORT AND RECOMMENDATIONS OF SPECIAL MASTER
JAMES C. FRANCIS, Magistrate Judge.
WHEREAS, by Stipulation and Order [Doc. 63] Raymond J. Burke, Esq. was approved and authorized to (i) act as Special Master to hear the parties' unresolved disputes regarding the apportionment or costs and quantum of claimed costs and expenses that are potentially reimbursable under Coverage C of the WON Policy and (ii) issue a Report and Recommendation for consideration by the Court regarding the quantum of costs and expenses reimbursable under Coverage C of the WQIS Policy, and
WHEREAS, the Special Master issued a "Revised Report and Recommendations of Special Master" dated August 19, 2015, a copy or which is appended hereto as Exhibit I ("Report and Recommendations").
NOW THEREFORE, IT IS STIPULATED AND AGREED that,
(i) No party objects to the Report and Recommendations,
(ii) The parties jointly request that the Court adopt the Report and Recommendations in its entirety, and
(iii) No party, by virtue or having entered into this Stipulation, shall he deemed to have waived or forfeited any of its rights to appeal any other Order or Judgment in this matter.
SO ORDERED.
EXHIBIT 1
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
AMERICAN COMMERCIAL LINES LLC, 09 CIV 7957 (LAK)(JCF)
NATIONAL LIABILITY & FIRE INSURANCE
COMPANY, INDEMNITY INSURANCE COMPANY
OF NORTH AMERICA, LIBERTY MUTUAL
INSURANCE COMPANY, FEDERAL INSURANCE REVISED
COMPANY and THE NORTHERN ASSURANCE REPORT AND RECOMMENDATIONS
COMPANY OF AMERICA, OF SPECIAL MASTER
Plaintiffs,
v.
WATER QUALITY INSURANCE SYNDICATE,
Defendant.
By Stipulation and Order dated November 13, 2013, 1 was appointed Special Master with respect to the apportionment of costs and quantum of costs and expenses that may be reimbursable under Coverage C of the WQIS Policy, subject to certain defenses which are ultimately to be decided by the Court.
The Plaintiffs and Defendant Water Quality Insurance Syndicate ("WQIS") are sophisticated insurance entities with marine insurance experience. Likewise, the three law firms involved are experienced, sophisticated law firms, all well regarded in the maritime law field.
The law firms leading the SDNY litigation are Nicoletti Hornig & Sweeney ("NHS") for Plaintiffs and Clyde & Co. US LLP ("Clyde") for WQIS. The second firm for Plaintiffs, Jones Walker LLP ("Jones Walker") of New Orleans, long-time outside counsel to American Commercial lines LLC: ("AU"), played a significant role in this matter and was lead counsel. After all, the collision and oil spill at the center of this matter occurred in the Mississippi River within the port limits of New Orleans.
Following the exchange of pre-hearing briefs and the exchange of documents (ending up with 10 linear feet of declarations, exhibits, invoices and other documents), four hearings were held. The following testified for Plaintiffs:
John Lane (President, Maritime Alliance Group, Inc. ["MAGI"])
Charles Bilbe (Director of Environmental Division of Worley Catastrophe Response, LLC ("Worley"))
Glen Goodier (Jones Walker)
Paul Ferguson (V.P., Starr Adjustment Services, Inc. ("Starr")
John Nicoletti (NHS)
Dawn Landry (Sr. V.P. and G.C. of ACL)
The following testified on behalf of WQIS:
Harry Diamond (WQIS) (at two hearings)
Robert Simmons (President, Environmental Science Services, Inc.)
Following the close of hearings, the parties fully briefed the matter with post-hearing briefs and reply briefs. Attached hereto is the "Index of the Record Before Special Master Raymond J. Burke, Jr., Esq." dated April 29, 2015.
This case involves a primary pollution liability insurance policy issued by WQIS and WQIS' obligation under the policy to reimburse investigation and defense costs and expenses incurred by the assured, ACL, in relation to a collision and oil spill on the Mississippi River in July 2008, (I will not repeat the procedural history of this case. Suffice it to say that the non-ACL plaintiffs joined the action after filing of the Complaint.) WQIS acknowledges that it has an obligation to reimburse ACL for investigation and defense costs and expenses, but it contends that its obligation terminated upon its payment of the policy's limit of indemnity under Coverage A for cleanup costs, ACL contends that WQIS obligation to reimburse defense costs is unlimited. The parties agree the date when WQIS reached the Coverage A limits was August 27, 2008.
Coverage A provides in the relevant section;
COVERAGE A
The Discharge or Substantial Threat of a Discharge of Oil
1) Liability to the United States or to any Claimant imposed under Section 1002 of the Oil Pollution Act of 1990 (Public Law 101-380, as amended), hereafter the "Act", and costs and expenses incurred by the Assured for Removal of Oil for which liability would have been imposed under Section 1002 of the Act, had the Assured not undertaken such Removal voluntarily;
Coverage C provides as follows;
COVERAGE C
Investigation and Defense
Costs and expenses incurred by the Assured with the prior consent of WQIS for investigation of, or defense against, any liabilities covered under COVERAGE A or B of PART I of the policy,
The WQIS policy does not define the term investigation cost or expense or the term defense cost or expense.
Some principles considered in the process:
1. WQIS has taken the position that its own claim review process is the only probative evidence of what constitutes a defense cost under Coverage C. I do not agree with the position that WQIS alone can interpret its policy, although I tended to agree with many of its results.
2. In interpreting the WQIS policy, I followed the plain language approach, bearing in mind that this policy reflects OPA 90 liabilities.
The following constitute my recommendations for the payment of Coverage C investigation and defense costs payable to Plaintiffs, bearing in mind that there are defenses I was asked not to consider, as they are before the Court. Many of the charges are clear-cut but the "mixed" charges are not. In addition, many of the invoices lack the specificity one would expect in an event like this, and that impacts Plaintiffs' burden of proof. The parties recognize that to be the case and they have made suggestions as to allocation of the "mixed" use invoices, Notwithstanding voluminous documentation and attempts at clarification by counsel, my recommendations in regard to the "mixed" invoices are, in many cases, more art than science.
Finally, Plaintiffs have requested that I address "post-August 2013" costs and expenses. Defendants have objected and i decline to do so.
CLAIMS BY VENDOR
CLAIMS WQIS POSITION ACL POSITION COMMENTS RECOMMENDATION
American Requests denial of any Requests payment of 100%, This is a claim for $0
Arbitration payment. administrative fees awarded
Association in a contractual dispute
($8,050.00) commenced by HEPACO, Inc.,
an oil spill response
organization ("OSRO"),
against Summit, also an
OSRO, for non-payment of
invoices. This is a response
cost, by a party not named in
the policy. Recommend
denial.
Bergin Maritime "Mixed." Requests payment of The parties stipulate that ACL $32,571.16
Consulting $41,691.09 incurred this amount as a
($43,478.22) trial expense (expert
testimony regarding vessel
maneuverability) but dispute
how this mixed expense
should be apportioned
between pollution and non-pollution
liabilities. I
recommend that Plaintiffs be
reimbursed for 75% or
$32,571.16.
BMT Argosy Ltd. "Mixed." Requests payment of 96% I recommend that this be $123.958.31
($165,277.75) ($158,666.64) reimbursed on a 75% basis in
the amount of $123,958.31.
Budwine & No dispute. No dispute. The parties have agreed to a $100.945.67
Associates, Inc. compromise of Budwine's
($100,945.67) charges of $100,945.67
under Coverage C
Center for Requests denial. Requests payments of 50% of This claim is for $0
Toxicology & Phase 1 and 2 charges in the reimbursement for work
Environmental amount of $445,489.08 and done in connection with
Health, LLC $57,831.33 monitoring air samples for
($503,320.41) the purpose of protecting
against bodily injury claims.
This is a protection and
indemnity club matter, net
covered by WQIS.
Docusource "Mixed." Requests payment of 96% I recommend payment of $11,180.91
($14,907.88) ($14,311.56) 75% or $11,180.91.
Cardno Entrix No dispute. No dispute $711.00.55
($711,001.55)
Fox Rothschild Denial of any payment Requests payment of 100% Fox Rothschild was retained $0
($68,000.43) as criminal counsel.
Parenthetically, the fact that
some earlier fees of counsel
were paid by WQIS is noted.
From experience, I am also
aware that the Fund would
use any excuse to deny or
delay payments so it was a
benefit to the parties that no
criminal actions were
commenced; while it was
money well spent, the
purpose of the work was not
claim defense related.
GAEA Consultants, "Mixed." Requests payment of 96% Recommend payment of 75% $36.125.34
LLC ($48,167.12) ($46,240.43) ($36,125.34).
George Rondall "Mixed." Recommend payment of 96% Requests payment of 96% $242,255,64
($252,349.63) $242,255.64 ($242,255.64)
Hogan and "Mixed." Requests payment of 96% This is a "whistleblower" suit. $0
Hartson/Hogan ($99,491.71) While it was money well
Lovells US LLP spent, it is not covered by
($103,637.20) WQIS.
Holbrook and Law firm engaged in a $0
Murphy contract dispute between
($3,574.89) two OSRO's (ACT-related
company Summit and Clean
Harbors Environmental
Services, Inc.). These are
response costs not covered
by Coverage C. Recommend
denial.
Intertek USA Inc. No dispute. No dispute. Compromised figure. $8.928.02
($8,928.02)
Jodi Simcox court "Mixed." Requests payment of 96% Recommend a 50/50 split. $700.20
reporter ($1,344.38)
($1,400.40)
Karen Anderson "Mixed." Requests payment of 96% Recommend a 50/50 spit $1,277.40
lbos court ($2,452.60)
reporter
($2,554.80)
Susan A. Zielie "Mixed." Requests payment of 96% Recommend a 50/50 split. $636.30
court, reporter ($1,221.69)
($1,272.60)
Toni Doyle Tusa "Mixed." Requests payment of 96% Recommend a 50/50 split. $1,411.20
court reporter ($2,709.50)
($2,822.40)
Jones Walker LLP $588,343.40 is an agreed $588,343.40 is an agreed Recommend payment of $588,343.40 and
($588,343.40 and amount. amount. $588,343.40 and 75% of $1,479,416.84 for a
$1,972,555.79) $1,972,555.79 total of
Requests payment of 96% ($1,479,416.84). $2,067,160.24.
($1,893.653.56)
The parties agree that tones
Walker performed "mixed"
services covered by billings of
$1,972,555.79 but disagree
on the apportionment. WQIS
suggests a 50/50 split and
ACL suggests payment of
96%, As with all of the
"mixed," there is no precise
mathematical formula to be
used. I recommend that a
75/25 split is a fair one
($1,479,416.84/$493,138.95).
The total costs
Jones Walker incurred in
connection with (a) the
defense of claims for the
potential assessment of
federal and state civil fines
and penalties and (b) the
defense against potential
criminal prosecution or
exposure), represent the
costs for "mixed" services
performed by Jones Walker
during Phase II
($1,840,502.01).
Kim & Wright Agreed. Agreed. Defense costs. $197,784.62
($197,784.62)
Magnan Graizzaro Requests that I recommend Requests payment of 100%. Recommend denial. $0
& Associates CPA, denial of any payment to
LLC ($256,521.29) Magnan. Magnan's work was
done in connection with
defense of oil pollution liability,
a Coverage A issue. In addition,
all of the work done by Magnan
was done for the benefit of
excess underwriters who had
retained them.
Marine Chemist of Requests denial. Requests payment of 50% This claim is for $0
Louisiana, L.L.C. (50% of $850.00) reimbursement for work
($850.00) done in connection with
monitoring air samples for
the purpose of protecting
against bodily injury claims.
This is a protector and
indemnity club matter, not
covered by WQIS.
Recommend denial.
Maritime Affiance Requests that I recommend $540.00 is agreed. I agree with WQIS' position. $540.00
Group, Inc. denial of any payment to Other than the agreed upon
($540.00 and MAGI. Plaintiffs in a brief Requests payment of amount, the remainder is
$1,048,640.09) before the Fifth Circuit have remaining $1,048,640.09 in denied as being oil spilt
characterized MAGI's work as full. response expenses. For the
follows: "MAGI was hired to most part, the expenses
audit the invoices of the cover review of OSRO
OSROs, . . . according to the invoices and verification of
`universal practice' in oil spill worker Hazwoper
responses." Those are certifications and i-9 forms.
Coverage A expenses.
Martin, Ottaway, Agreed. Agreed. Investigation and defense $71,434.69
van Hemmen & expenses (Compromise).
Dolan, Inc.
($71,434.69)
Nicoletti Hornig & "Mixed." Of all of the "mixed" $1,864,553.54 and
Sweeney WQIS request that NHS be paid categories, none is more $64,418.25 (Items 1-7
($719,174.75 and 50% of $2,796,380.30 in the difficult to decipher than that below) for a total of
$2,796,380.30) amount of $1,398,190.15. of the NHS work That NHS $1,928,971.79.
did excellent work (and a lot
WQIS requests that I of it) is undisputed. What is
recommend denial of payment disputed is what WQIS
of $719,174.75 to NHS. should pay fort.
The NHS position requesting
96% of "mixed" expenses is
based on the theory that the
pollution liability so
overwhelmed the non-pollution
liability that all
work (or 96% of it) should be
treated as pollution-related.
disagree.
NHS entered the case
representing underwriters as
"monitoring counsel" and, at
some later time, represented
ACL at the urging of
underwriters. While ACL
claims that NHS was retained
shortly after the collision,
nobody has been able to date
to pinpoint when that was.
Clearly, it was riot shortly
after the collision, however.
Like the parties, I am unable
to establish the date.
Jones Walker is a first class,
experienced maritime firm
and I do not know why or if it
needed the assistance of
NHS. Clearly, there was
inevitable overlap and
duplication of work. This is
net a criticism of either law
firm but it was an
arrangement put in place by
underwriters for their own
reasons and, at the least, it
was not cost-efficient.
Billing to underwriters did
not need to be broken down
along the lines which would
permit WQIS to determine
what was covered, and what
was not, so items not
covered by WQIS (personal
injury, for example) were not
broken out in the billings. In
spite of tremendous effort
later in time, a precise
breakdown remains elusive.
I recommend a 2/3 split of
the $2,796,380.30 total in the
amount of $1,864,553.54
The areas to which WQIS
objects to any payment
concern seven issues:
1. "OSRO/OSRO related"
($334,614.00 disputed).
In my opinion, work done in
connection with OSRO billing
is a response cost, not
reimbursable under
Coverage C.
2. Summit category
($195,605.50 in dispute).
Summit is an OSRO which
incurred charges in
connection with a dispute
with its sub-contractor Clean
harbors. Summit is not an
additional assured under the
WQIS policy and this claim
should be denied.
3. USCG category ($3,299.50
disputed).
This was work done on behalf
of excess underwriters and
should be denied.
4. Personal/Bodily injury
category ($62,055.75 in
dispute).
This work concerned defense
of personal injury claims, and
not covered by WQIS.
Recommend denial.
5. "Excess Underwriters"
category ($45,938.00 in
dispute).
This represents work done on
behalf of both WQIS and
excess underwriters. I
recommend a 50/50 split
($22,969.00/$22,969.00).
6. "ACL v WQIS" category
($12,866.50 in dispute).
There are no outstanding
disputes under this category.
7. "Vague/Admin" category
($82,898.50 in dispute).
Admittedly vague and
administrative but 1
recommend a 50/50 split
($41,449.25/$41,449.25).
William George Toxicologist who Requests payment of 96% Recommend payment of 75% $3,750.00
($5,000.00) testified/"Mixed." ($4,800.00) ($3,750.00)
Worley "Mixed." Phase I:$51,623.71 (total) $73,932.50 and
Catastrophe Phase I:$32,813.71 (mixed) $393,651.37 for a
Response, LLC WQIS requests that I Phase I:$18,810.00 (agreed) total of $467,583.87.
($73,93250 and recommend payment of
$73,932.50 constituting Phase $547,177.28 (total)
$547,177.28) investigation and defense casts Phase I: $492,054.78 (mixed)
reimbursable under Phase $55,122.50 (agreed)
Coverage C
WQIS requests that Worley be recommend payment of
paid 50% of the mixed costs in 75% of $524,868.49
the amount of $262,434.25. ($393,651.37)
TOTAL = $6,008,816.91
I reserve the right to correct mathematical errors or omissions.
I recommend that the Plaintiffs and the Defendant split my fee 50/50.
Dated: New York NY
August 19, 2015
_________________________
RAYMOND J. BURKE, JR.
Special Master
