SIDNEY A. FITZWATER, Chief Judge.
The parties' cross-motions for summary judgment present questions concerning the interpretation of a marine cargo insurance policy, the insurer's liability for its handling of the insured's claim, and the validity of related common law claims. The court must also address questions concerning the admissibility of certain summary judgment evidence and the availability of an affirmative defense of ambiguity.
This is an action by plaintiff Vought Aircraft Industries, Inc. ("Vought") against Falvey Cargo Underwriting, Ltd. ("Falvey"); XL London Market, Limited, acting on its own behalf, and on behalf of the underwriting members of Lloyd's Syndicate 1209, and all other Lloyd's Syndicates participating on the policy ("XL"); and Dornoch Limited, for and on behalf of the underwriting members of Lloyd's Syndicate 1209 and all other Lloyd's Syndicates participating on marine cargo policy No. M-20108, WC-20108 ("Dornoch").
Vought is the named insured in the Policy. According to Vought,
After the horizontal stabilizer was damaged, Vought conferred with Boeing and the Air Force. The three agreed that Vought should repair the stabilizer due to its highly-specialized design, which made it infeasible for another company to repair it. Vought informed Falvey of the repair plan and that it intended to make a claim for reimbursement of the repair costs.
The damaged horizontal stabilizer was returned to Vought's Dallas facility. Because Vought does not maintain a dedicated repair facility, it was placed on the factory floor with other C-17 stabilizers, adjacent to the regular production line. To maintain its normal production schedule, it was necessary for Vought to repair the stabilizer while simultaneously continuing with normal production. Vought was required to deliver horizontal stabilizers to Boeing on a specific schedule. When the damaged stabilizer was returned to Vought, it did not have a completed stabilizer to provide Boeing as a replacement. To fill this gap, Vought expedited production and shipment of the next available stabilizer on the assembly line, which it shipped to Boeing as a replacement for the damaged stabilizer. This, in turn, created another gap in the production schedule, requiring Vought to expedite the production and shipment of successive stabilizers. Six stabilizers were completed on an expedited basis before the damaged stabilizer was repaired and inserted back into the production schedule and the normal delivery schedule was restored.
Vought submitted a claim to Falvey for $1,658,056.00, which consisted of $136,748.00 in direct labor costs, $71,552.00 in fringe benefits, and $15,306.00 in direct materials to repair the damaged stabilizer, totaling $223,606.00. Vought also requested reimbursement for $284,509.00 in overhead expenses incurred in repairing the damaged stabilizer. This sum was composed of $206,920.00 in "Direct Overhead," which included depreciation of facilities, equipment, and tools; some supervisor salaries; and all other costs that did not result from direct labor charges but that could be assessed to a particular manufacturing process. The balance of this request consisted of $77,589.00 in "General and Administrative Costs" composed of overhead that could not be associated with a particular manufacturing task, such as executive salaries or benefits for retired workers. These costs were spread equally across all of Vought's manufacturing operations as a percentage above actual cost.
The final component of Vought's reimbursement request was for costs incurred by diverting resources to the repair of the damaged stabilizer and expediting production and shipment of the stabilizer that was completed and shipped as a replacement for the damaged stabilizer and the next five that were completed and shipped to cover the production gap until the original damaged stabilizer was reinserted into
After Falvey received Vought's claim, it engaged the accounting firm of Matson, Driscoll & Damico, LLP ("Matson") to evaluate the claim. Falvey instructed Matson not to consider Vought's overhead costs as part of the claim. Matson determined that Falvey was obligated to pay $236,274.00, minus a $100,000.00 deductible, for direct labor repair costs, fringe benefits on such repair costs, and direct material costs that Vought had incurred in repairing the damaged horizontal stabilizer. Falvey later tendered this amount and also reimbursed Vought $11,205.00 for the cost of shipping the repaired stabilizer back to Boeing. Falvey refused Vought's demand for the full amount of its claim.
The Policy "cover[s] all shipments of goods and/or merchandise and/or property," Ds. Oct. 10, 2009 App. 5, including by rail, id. at 6. Vought's aircraft parts are insured "[a]gainst all risks of physical loss or damage from any external cause, except those risks as may be excluded by [two specific warranties] or other warranties or exclusions specified in this policy, unless covered elsewhere [in the Policy][.]" Id. at 10. The Policy provides in § 16.2.5 that "the insurer is to pay for . . . any physical loss or damage to . . . goods . . . during land transportation, from . . . collision." Id. at 11. It covers the transportation of goods from the time they leave Vought's facility until they are delivered to Boeing and unloaded. See id. at 11 and 13.
Vought relies primarily on two clauses in the Policy to establish its right to reimbursement for its entire claim: § 24, the Policy's "Machinery" clause ("Machinery Clause"), and § 38, captioned "Expediting Cost" ("Expediting Cost Clause"). Where the covered item is a machine or an article consisting of multiple parts, the Machinery Clause limits Vought's liability under § 16.2 to the damaged parts:
Id. at 15.
Id. at 20. Additionally, § 54, captioned "Constructive Total Loss," provides:
Id. at 26. And § 45 states that the Policy "shall not cover loss [] of market or loss, damage, or expense arising from delay,. . . unless such risks are expressly assumed elsewhere in this policy." Id. at 22.
Vought filed this lawsuit in state court, and defendants removed it based on diversity of citizenship. Vought alleges claims for breach of contract (breach of the Policy), breach of the duty of good faith and fair dealing, unfair insurance practices under Chapter 541 of the Texas Insurance Code, breach of contract (breach of the repair agreement), promissory estoppel, quantum meruit, and unjust enrichment. Besides its noncontractual claims, Vought seeks to recover the sum of $1,410,577.00 for the balance of its claim under the Policy that defendants have not already covered.
Vought moves for partial summary judgment on its breach of contract claim, contending that it is entitled to judgment for the unpaid balance of its claim. Falvey, XL, and Dornoch move for summary judgment on all of Vought's claims. XL moves in the alternative for summary judgment on the ground that it cannot be held liable because it was acting as an agent for Dornoch, a disclosed principal.
The parties' summary judgment burdens depend on whether they will have the burden of proof at trial on the particular claim or defense to which the motion is addressed. To be entitled to summary judgment on a claim or defense for which it will have the burden of proof at trial, a party "must establish `beyond peradventure all of the essential elements of the claim or defense.'" Bank One, Tex., N.A. v. Prudential Ins. Co. of Am., 878 F.Supp. 943, 962 (N.D.Tex.1995) (Fitzwater, J.) (quoting Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir.1986)). This means that the party must demonstrate that there are no genuine and material fact disputes and that it is entitled to summary judgment as a matter of law. See Martin v. Alamo Cmty. Coll. Dist., 353 F.3d 409, 412 (5th Cir.2003). "The court has noted that the `beyond peradventure' standard is `heavy.'" Carolina Cas. Ins. Co. v. Sowell, 603 F.Supp.2d 914, 923 (N.D.Tex.2009) (Fitzwater, C.J.) (quoting Cont'l Cas. Co. v. St. Paul Fire & Marine Ins. Co., 2007 WL 2403656, at *10 (N.D.Tex. Aug. 23, 2007) (Fitzwater, J.)).
Concerning a claim or defense for which the party will not have the burden of proof at trial, the party can meet its summary judgment obligation by pointing the court to the absence of evidence to support the claim or defense. See Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once it does so, the nonmovant must go beyond its pleadings and designate specific facts showing that there is a genuine issue for trial. See id. at 324; Little v. Liquid Air Corp., 37 F.3d 1069,
The court begins by addressing together Vought's motion for partial summary judgment and the part of defendants' motion for summary judgment that seeks dismissal of Vought's claim for breach of the Policy.
As a threshold question, the court must address the legal standards that govern its interpretation of the Policy. Texas courts interpret insurance policies according to the rules of contract interpretation. Int'l Ins. Co. v. RSR Corp., 426 F.3d 281, 291 (5th Cir.2005) (citing Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex.1998)); Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex.1994) ("Interpretation of insurance contracts in Texas is governed by the same rules as the interpretation of other contracts."). When a "contract is worded so that it can be given a definite meaning, it is unambiguous and a judge must construe it as a matter of law." Int'l Ins., 426 F.3d at 291; see also Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex.1991). "In applying these rules, a court's primary concern is to ascertain the parties' intent as expressed in the language of the policy." Int'l Ins., 426 F.3d at 291; see also Forbau, 876 S.W.2d at 133 ("[T]he court's primary concern is to give effect to the written expression of the parties' intent."). The court must give effect to all of a policy's provisions so that none is rendered meaningless. Int'l Ins., 426 F.3d at 291.
"Whether an insurance contract is ambiguous is a question of law for the court to decide by looking at the contract as a whole in light of the circumstances present when the contract was entered." Int'l Ins., 426 F.3d at 291 (citing Kelley-Coppedge, 980 S.W.2d at 464). "If an insurance contract uses unambiguous language, [the court] must enforce it as written. If, however, a contract is susceptible to more than one reasonable interpretation, [the court] will resolve any ambiguity in favor of coverage." Don's Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 23 (Tex.2008) (footnotes omitted); see also Nat'l Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex.1991).
An exception to the general rule in favor of coverage is often made when corporate insureds with bargaining power equal to the insurer participate in drafting the insurance coverage.
Port Auth. of N.Y. & N.J. v. Affiliated FM Ins. Co., 311 F.3d 226, 235 (3d Cir.2002).
Neither the court nor the parties are aware of a Texas case that addresses the sophisticated insureds exception. But Texas courts have made clear that the traditional rule of construction is based on an insured's unequal bargaining power, the
Vought also argues that the sophisticated insureds exception has been rejected more often than it has been accepted. But most of the cases Vought cites concern corporate insureds who did not participate in drafting the policy; these cases merely hold that the exception is not based on the insured's corporate status alone. E.g., St. Paul Mercury Ins. Co. v. Grand Chapter of Phi Sigma Kappa, Inc., 651 F.Supp. 1042, 1045 (E.D.Pa.1987) ("Pennsylvania principles of construction require the Court to resolve an ambiguity of this kind in favor of the insured unless the parties possess equal bargaining power, such as when a large corporation, advised by counsel, is the insured.").
Cummins, Inc. v. Atl. Mut. Ins. Co., 56 A.D.3d 288, 290, 867 N.Y.S.2d 81 (N.Y.App.Div.2008); see also In re Sept. 11th Liab. Ins. Coverage Cases, 458 F.Supp.2d 104, 118 (S.D.N.Y.2006) ("[A]pplication of this rule [favoring insureds] is generally inappropriate if both parties are sophisticated.") (citation and internal quotation marks omitted).
Vought also cites Eli Lilly & Co. v. Home Insurance Co., 794 F.2d 710 (D.C.Cir.1986) ("Eli Lilly II"). Eli Lilly II applied the Indiana Supreme Court's answer to certified questions in Eli Lilly & Co. v. Home Insurance Co., 482 N.E.2d 467 (Ind.1985) ("Eli Lilly I"). In Eli Lilly I the Indiana Supreme Court held that the traditional rule of interpretation applied in favor of a major pharmaceutical company because, although the company may have been involved in drafting the policies, it was state policy to promote indemnity. Eli Lilly I, 482 N.E.2d at 471. But assuming that Eli Lilly I supports Vought's position, it is not binding on this court, the case has not been extensively followed outside Indiana, and there is no indication that Texas would follow it.
Accordingly, the court holds that the sophisticated insureds exception can conceivably apply in this case.
The summary judgment evidence does not permit the court to conclude at the summary judgment stage that the traditional rule or the sophisticated insureds exception applies.
Defendants will have the burden at trial of negating the application of the traditional rule by proving that Vought participated in drafting the Policy.
Defendants point to evidence that the footer contains the name of Vought's broker—Marsh USA, Inc. ("Marsh")—stating "0304 Marsh Form." E.g., Ds. Oct. 10, 2009
Vought argues that it had no part in negotiating any provision of the Policy, it never instructed Marsh to negotiate any language in the Policy, Falvey drafted the Policy on its own form, and a Falvey executive, Robert E. Falvey, Esquire ("Robert"), testified to that effect. But Robert's testimony does not indicate that Falvey drafted the Policy. Asked who drafted the Policy, Robert responded: "I don't know who drafted that. It is a policy that I—I believe [is] provided to us through the broker and from underwriters." P. Nov. 6, 2009 App. 377. In response to a question about whether Falvey had any role in approving the Policy language, Robert responded: "Yes, they will. For periodic revisions and reviews they will meet and present requests for clarifications or changes, etc., from time to time." Id. Vought also stresses that a high-ranking Marsh executive was unfamiliar with the Policy form. But it is not surprising that the executive in question was unaware of the Policy because he appears to have been involved in handling claims rather than placing policies. Finally, Vought argues that the Marsh broker who placed the Policy had seen the form only once and did not know who drafted the language. That broker agreed to the statement that the Policy "would have been issued by Falvey [from its home office]." P. Nov. 6, 2009 App. 429. He stated that he had used the policy once before, also with Falvey, and that he did not know who prepared the form. He then described the Policy as "a Marsh agreed form with Falvey." Id. at 430. And he stated that the Machinery Clause was a "standard clause in a broker's form," id., explaining that brokers tended to draft more expansive terms than did insurers.
Based on the record evidence, the court holds that there is a genuine fact issue as to whether Marsh participated in drafting the Policy. Marsh's main representative to Vought indicated that the Policy was drafted by Marsh, which is in keeping with the insurer's role. And the Policy describes itself as a "manuscript policy." D. Nov. 6, 2009 App. 33. But Marsh's cargo insurance specialist stated that he did not know who wrote the Policy, and that he had seen it only once, and in connection with Falvey. If Marsh participated in the drafting of the form, it is likely that the specialist would have known of its origin. The remaining evidence is ambiguous and does not clearly show who drafted the Policy.
Accordingly, at the summary judgment stage, the court cannot say definitively that the traditional rule of interpretation does or does not apply. Although the court cannot determine whether the traditional rule of interpretation applies, it can still determine as a matter of law whether the Policy is ambiguous. If the Policy is ambiguous, then the trier of fact, in resolving the ambiguity as a factual matter, must
Having addressed this threshold question, the court considers the parties' motions for summary judgment regarding Vought's claim that defendants breached the Policy by failing to pay for "expediting charges" that Vought incurred.
When the damaged stabilizer was returned to Vought's facility, Vought modified the assignment of its workers. Some were tasked with finishing on an expedited basis the next stabilizer in line so that Vought could provide it to Boeing as a replacement for the damaged stabilizer. Others were pulled from the main production line to repair the damaged stabilizer. Vought brought in other workers to replace reassigned members of the regular production line. By the time Vought finished repairing the damaged stabilizer, it had completed six other stabilizers and shipped them to Boeing. Vought asserts that the Policy covers three categories of expenses that defendants did not reimburse: (1) the cost of resources brought in to replace workers
Vought contends that reimbursement for these expenses is covered by the Machinery Clause. The Machinery Clause provides, in relevant part, that, at Vought's election, defendants are liable for the cost and expense of replacing or repairing the damaged stabilizer parts
The court disagrees with Vought's contention that the Machinery Clause affords coverage for replacing resources on its main production line (the first category of expediting costs) or building or shipping the six stabilizers (the second and third categories of expediting costs). Under the clause, Vought had the option to recover the cost of replacing or repairing the damaged stabilizer parts. Regardless which option Vought chose, defendants became liable for any "cost [or] expense of replacing or repairing . . . the lost or damaged part . . . so that the machine or article is restored to its condition at the time of shipment." Ds. Oct. 10, 2009 App. 15 (emphasis added). Defendants' liability includes only the expenses necessary to restore a damaged machine or article to its condition at the time of shipment. The Machinery Clause does not provide that defendants would pay all expenses related to or occasioned by a covered loss. The expediting expenses that Vought seeks were not necessary to repair the damaged stabilizer. That stabilizer would have been repaired even had the other stabilizers not been completed. These expediting expenses were incurred to meet separate, preexisting obligations to Boeing.
Interpreting the Machinery Clause,
If the Machinery Clause were interpreted as Vought contends, an insured could recover potentially significant costs and expenses that were not necessitated by the repair of the damaged part. If such potentially open-ended costs and expenses were covered, an insurer could not fairly evaluate the risk it was assuming in exchange for the premium paid. Its liability would depend, not on what it could reasonably
Vought also relies on the Expediting Cost Clause to recover the costs incurred in completing and shipping the six stabilizers.
Vought argues that this clause covers the shipping and manufacturing both of the initial replacement stabilizer and of the others shipped before the damaged stabilizer was repaired and reinserted into the production line. It posits that the clause covers "overtime repair costs" and "other additional expenses." Vought maintains that
P. Oct. 9, 2009 Br. 23. Vought also asserts that because the Expediting Cost Clause uses the plural term "replacements" rather than the singular "replacement," all six stabilizers should be covered and that this interpretation provides coverage that meets the foreseeable needs of a supplier of complex machinery, since damage to one product will necessarily affect the insured's current and future obligations.
Defendants respond that Vought's claim fails because the Expediting Cost Clause only applies when the replacement part is sent by a different mode of transportation, such as by air instead of by ship; these expediting costs amount to delay and disruption costs
Defendants' initial argument, that the Expediting Cost Clause does not apply unless Vought used a different mode of transportation, is not supported by the language of the Expediting Cost Clause. The clause is designed to allow Vought to make an expedited shipment of replacements or replacement parts and thereby incur expediting costs for such a delivery. The "means other than the means by which the original shipment was dispatched" can include a faster version of the same mode of transportation (e.g., via a trucking company who, for an increased fee, guarantees delivery on an accelerated basis rather than on a standard schedule).
The court also disagrees with defendants that Vought is seeking delay and disruption costs. Section 45 of the Policy excludes coverage for "loss of market or loss, damage, or expense arising from delay" unless this risk is expressly assumed in the Policy. Vought faced possible fines or damages from Boeing, but it never actually incurred such expenses. Vought incurred the costs in question to avoid loss, damage, or expense arising from delay. The expenses were not themselves delay and disruption costs.
The court also declines to credit defendants' argument that the court cannot consider whether the Policy covers expediting expenses. Vought submitted the claim to both Falvey and another insurer so that the insurers could fully evaluate coverage. In the claim, it detailed the expenses making up the claim, differentiating between repair costs and expediting costs. Defendants appear to reason that, in doing so, Vought submitted the repair costs to Falvey and the expediting costs to the other insurer. But in submitting its claim, Vought offered no opinion as to which insurer ought to pay which expenses. The entire claim was submitted to Falvey in the first instance, and the court will consider it in its entirety.
The court agrees with defendants, however, that the Policy does not cover the costs Vought incurred in manufacturing and shipping on an expedited basis the five subsequent stabilizers. And the court agrees with defendants that the Expediting Cost Clause does not cover the cost of manufacturing, on an expedited basis, the initial replacement stabilizer. But the court concludes that the Expediting Cost Clause is ambiguous regarding whether it covers the cost of shipping the initial replacement stabilizer where, as here, the insured chose to repair and ship the damaged stabilizer.
The Expediting Cost Clause must be read in the context of the Policy as a
The intent of the Expediting Cost Clause is to allow Vought to meet quickly the need of a customer whose good was damaged or lost in shipment. A single good is replaced once another good meets the previous need; it is not replaced by multiple identical objects. Here, because only one stabilizer was damaged, only one stabilizer can be considered the replacement covered by the Expediting Cost Clause. Defendants are only responsible for the costs associated with that one replacement stabilizer.
The court therefore rejects Vought's contention that, because the Expediting Cost Clause refers to "replacements," the Policy provides Vought reimbursement for the five subsequent stabilizers on the Vought production line. The Expediting Cost Clause provides coverage for the shipment of multiple replacement parts only if multiple parts are the subject of the claim. The five stabilizers completed after the first one did not replace the damaged stabilizer; they met separate contractual demands. The Policy does not cover any costs—including labor, other direct costs, overhead, or shipping—attributable to the five subsequent stabilizers. Defendants are therefore entitled to summary judgment dismissing this aspect of Vought's breach of Policy claim. Vought is not entitled to partial summary judgment in its favor as to this component of the claim.
The Expediting Cost Clause also does not cover the cost of completing construction of the initial replacement stabilizer. The clause provides coverage for "expediting costs," "overtime repair costs," and "other additional expenses including duties, taxes and destination charges." The cost of constructing the initial stabilizer does not fall within any of these categories.
The meaning of "expediting costs" can be determined from the context of the clause. Expediting costs are expenses "involved" with "forward[ing] replacements and/or replacement parts by means other than the means by which the original shipment was dispatched." Ds. Oct. 10, 2009 App. 20. The clause relates the means of forwarding, and therefore expediting costs, to the means of dispatching the original shipment. In other words, expediting costs are costs associated with the shipment of the replacement. They do not include labor for original construction.
"[O]vertime repair costs" refers to overtime costs incurred when Vought opts to ship a repaired replacement part. The costs of completing a new stabilizer are not repair costs at all, so they cannot qualify as "overtime repair costs."
The court holds that the clause is ambiguous regarding whether it covers Vought's cost of shipping the newly-constructed replacement stabilizer to Boeing (defendants reimbursed Vought for the cost of shipping the repaired stabilizer). From the perspective of Boeing, the newly-constructed stabilizer replaced the damaged stabilizer. And from the perspective of Vought, this stabilizer met the obligation that it intended to satisfy when it shipped the stabilizer that was damaged in transit. But the court cannot say as a matter of law that the Expediting Cost Clause covers the cost of shipping the entire wing. And it is also ambiguous whether, assuming the clause does cover the entire wing, the clause covers a newly-constructed replacement stabilizer when Vought opted to repair rather than replace the damaged stabilizer.
Where, as here, the covered article consists of multiple parts, the Machinery Clause limits coverage for the loss to the repair or replacement of the damaged part or parts. The Expediting Cost Clause provides coverage for expenses related to shipping "replacements and/or replacement parts." If the Machinery Clause limits Vought's entire claim to the repair or replacement of the damaged part or parts, it would also appear to limit the coverage provided by the Expediting Cost Clause to charges related to the expedited shipment of the covered replacement part or parts. It would not cover shipping costs related to the replacement of the entire machine or multipart article. Vought argues that the Expediting Cost Clause should not be read so narrowly because it provides coverage for replacements, replacement parts, or both. But this interpretation overlooks the fact that the expedited item must be a covered replacement. If the coverage of the underlying claim is limited to the damaged part or parts, the Expediting Cost Clause only covers costs of shipping the replacements for those parts.
But there is another reasonable interpretation of the Policy: that the Expediting Cost Clause is not limited by the Machinery Clause. Defendants' liability is ultimately created by § 16.2, which provides that defendants are to "pay for. . . any physical loss of or damage to the [covered] goods." Ds. Oct. 10, 2009 App. 10-11. The covered good—the subject of Vought's claim—is the entire stabilizer. While the Machinery Clause limits defendants' liability for the repair of a multipart good such as the stabilizer, the Expediting Cost Clause may operate independently of the Machinery Clause to cover the cost of shipping the entire replacement good, even if only part needed repair.
But there is still another potential meaning. Even if the coverage of the Expediting Cost Clause is not limited by the Machinery
In sum, the court holds that the Policy does not cover the cost of replacing resources pulled from the normal production line, the cost of constructing the six stabilizers, or the cost of shipping the five subsequent stabilizers. The court grants defendants' motion for summary judgment and denies Vought's motion for summary judgment as to these costs. Because the Policy is ambiguous regarding coverage for the shipment of the initial replacement stabilizer, the court denies the motions for summary judgment of both Vought and defendants as they relate to shipping costs for this stabilizer. See Recursion Software, Inc. v. Interactive Intelligence, Inc., 425 F.Supp.2d 756, 784 (N.D.Tex.2006) (Boyle, J.) ("Summary judgment is generally appropriate only if the language of the contract is wholly unambiguous.")
Vought also sues to recover overhead expenses related to the repair of the damaged stabilizer. These expenses consist of $206,920.00 in direct overhead and $77,589.00 in general and administrative costs.
The Machinery Clause requires that defendants pay "the cost and expense of replacing or repairing . . . the . . . damaged part . . . and all other necessary charges so that the machine or article is restored to its condition at the time of shipment." Ds. Oct. 10, 2009 App. 15. Vought argues that, as a government contractor, it must follow well-defined accounting procedures to allocate general corporate expenses—such as the depreciation of its facilities, lighting bills, and executives' salaries—among its various manufacturing activities, and that these expenses are a cost of repairing the damaged stabilizer. The court rejects this argument because Vought points to nothing in the Policy indicating that the Policy adopts government contracting regulations.
Vought also maintains that overhead costs are an inherent part of repair costs. It cites a number of cases in which courts construed insurance policies (usually homeowner policies) to pay an insured the
Vought's argument relies on two assumptions: first, that the cases on which it relies are relevant because the general contractors' "overhead and profits" are essentially equivalent to Vought's "overhead" expenses; and, second, that the Policy requires defendants to pay something akin to the cash value of a repair rather than the actual costs and expenses of making the repair. In effect, Vought reasons that its costs should include any type of costs and expenses that a third-party would charge for the repair, including overhead expenses. But the overhead expenses that Vought seeks to recover and the overhead at issue in cases like Ghoman are not necessarily identical, despite coincidental names. A general contractor's overhead is part of the fee for his services. Rather than charge an hourly or per-job fee, he charges a fee tied to the expense of the project. The fee reimburses him for his own expenses and provides a profit. For Vought, however, overhead consists of fixed costs that it incurs at a more general level. To be profitable, Vought must factor a share of these costs into each product that it sells. The two types of overhead do, however, have one key common aspect: an insured will incur either cost if he hires a third party to perform the repair work. Just as a third-party contractor would charge "overhead and profit," another contractor would pass along its fixed "overhead" as a cost of repairing the stabilizer. They are both expenses an insured is reasonably likely to incur.
Defendants argue that another contractor would not have charged overhead for this repair. Where a policy provides cash value for a repair, whether cash value includes a contractor's overhead and profit depends on whether the repair is so complex that hiring a contractor is likely. See Mee v. Safeco Ins. Co. of Am., 908 A.2d 344, 350 (Pa.Super.Ct.2006). In the case of home repair, if damage is so severe that a number of different trades would be necessary to complete the repair, a general contractor likely would be necessary. Conversely, if the repair were so simple that it could be completed by one tradesman, no general contractor would be needed. Defendants argue that the damage to
The question, then, is whether the Policy entitles Vought to recover the actual cash value of the repair or only the cost of the repair. Vought argues that the Policy need not be an actual cash value policy for the rule to apply. It maintains that, in Ghoman, the court held that "actual cash value" meant repair costs less depreciation, and that repair costs included any cost an insured would likely incur. Therefore, Vought reasons, the court was really defining "repair costs." But Vought's interpretation isolates that phrase from the rest of Ghoman.
In Ghoman the policy "provide[d] that the insurance company `will determine the value of Covered Property in the event of loss or damage . . . [a]t actual cash value as of the time of loss or damage[.]'" Ghoman, 159 F.Supp.2d at 931-32 (alterations and ellipses in original). Ghoman essentially held that where an insured had purchased cash value coverage, he was entitled to the value of repairing his property, i.e., all expenses he could foreseeably incur in repairing it. See id. at 934 ("The court concludes that `actual cash value' under the policy means repair or replacement costs less depreciation. Repair or replacement costs include any cost that an insured is reasonably likely to incur in repairing or replacing a covered loss.") (alteration and internal quotation marks omitted). The Ghoman court thus defined repair or replacement costs, in light of the nature of the policy, to provide the value of the damage.
But the provision under which Vought seeks coverage is different.
Vought also relies on the indemnity nature of the Policy to seek the overhead costs. Citing several cases in which courts awarded overhead costs as part of damages, Vought argues that overhead costs are necessary to make it whole. Dillingham Shipyard v. Associated Insulation Co., 649 F.2d 1322 (9th Cir.1981), is representative of these cases, and the only one that involves a contract.
In Dillingham a shipyard contracted to install a sonar system in a United States Coast Guard cutter. Id. at 1323. To perform the work, it subcontracted with a company to install a tile dampening system in an ammunition handling room. Id. The subcontractor left a leaky gas tank in the room, causing an explosion. Id. Per its contract with the Coast Guard, the shipyard repaired the damage to the cutter. Id. The shipyard then sued the subcontractor based on a provision in the subcontract in which the subcontractor promised to indemnify and hold harmless the shipyard for any damages, costs, and expenses paid by the shipyard as a result of the subcontractor's negligence. Id. at 1324. The court determined that the indemnification award should include the shipyard's overhead (including overhead attributed to its home office) "because such expenses must be included in the judgment in order to compensate [the shipyard] fully for its costs and expenses in making the repairs." Id. at 1326.
But Dillingham and the other cases Vought cites do not apply in the insurance policy context. In Dillingham the court was attempting to award all costs resulting from a particular event. "It is [a] fundamental principle that reasonable expenses, including overhead expenses, incurred as a result of a breach of contract or a tortious act are proper items of recoverable damages." William Wrigley Jr. Co. v. Waters, 890 F.2d 594, 604 (2d Cir.1989). In the tort or contractual damages context, the court's intent is to make the injured party whole. Because the court's assessment comes after the damage is sustained, the full amount of injury can be accurately assessed. In the insurance context, however, the insurer and the insured bargain for a specific level of reimbursement. In advance of any loss, the insurer calculates the premium to be charged based on the risk it is assuming. Vought and defendants contracted for a specific level of coverage, so the Policy's terms dictate whether Vought is entitled to recover the overhead expenses related to repairing the damaged stabilizer.
Vought asserts that its overhead costs should be reimbursed because "[i]n each instance in which the Policy provides that Vought should receive compensation, the Policy itself makes clear that Vought should be fully compensated[.]" P. Oct. 9, 2009 Br. 19. It points to § 9.1, which provides that insured goods should be valued at the invoice price; the invoice price, it argues, reflects Vought's overhead. But Vought ignores the effect of the Machinery Clause, which is to limit a claim for a damaged good consisting of multiple parts to the cost of repairing or replacing the damaged part. The effect on coverage of that clause is the subject of this dispute.
Vought maintains that the expense of operating its business is a necessary cost of repairing the damaged parts in the stabilizer. It reasons:
P. Oct. 9, 2009 Br. 17. In other words, Vought's overall cost of operating its business is one aspect of the cost of everything it does. Moreover, the use of Vought's equipment, space, and personnel actually reduced the resources the company had available for other potential projects (i.e., imposed opportunity costs). Defendants contend, however, that to award Vought a portion of overhead expenses would unjustly enrich the insured. At bottom, they posit, the overhead expenses that Vought seeks would have been incurred in the same amount regardless of whether Vought had to repair the stabilizer parts.
Both positions have some merit, and the Policy does not clearly answer which position is correct. The Policy requires defendants to pay repair costs and expenses and "all other necessary charges" so that the stabilizer is restored to its condition at the time of shipment. On the one hand, Vought would have incurred the same costs of executives' salaries and depreciation on property if the repair had not been made. The expenses could thus be seen as general expenditures, not necessary charges for repairing the damaged stabilizer. On the other hand, Vought could not have made the repair were it not for the infrastructure of personnel, buildings, and equipment in place at Vought's facility. In this sense, the overhead charges were necessary so that the stabilizer could be repaired.
The court therefore holds as a matter of law that the Machinery Clause is ambiguous in this respect. On the one hand, "other necessary charges" could include overhead of some type, including some or all of the overhead for which Vought sues in connection with its repair of the damaged stabilizer.
The court turns next to Vought's claim that defendants breached the duty of good faith and fair dealing. Defendants move for summary judgment dismissing this claim.
The common law duty of good faith and fair dealing is breached when an insurer denies or delays payment of a claim after its liability has become reasonably
An insurer cannot escape liability, however, by performing an inadequate investigation. Within the duty of good faith is an insurer's obligation to conduct an adequate investigation of the claim. United Serv. Auto. Ass'n v. Croft, 175 S.W.3d 457, 469 (Tex.App.2005, no pet.). "[A]n insurer cannot insulate itself from bad faith liability by investigating a claim in a manner calculated to construct a pre-textual basis for denial." State Farm Fire & Cas. Co. v. Simmons, 963 S.W.2d 42, 44 (Tex.1998). Similarly, an insurer cannot escape liability by "failing to investigate a claim so that it can contend that liability was never reasonably clear." Universe Life, 950 S.W.2d at 56 n. 5.
Vought alleges that defendants breached the duty of good faith by failing to conduct a proper investigation. According to Vought, Falvey's determination of which claims were covered was improper because Falvey instructed the accounting firm that it retained to analyze the claim to exclude overhead costs from its calculation. It also posits that the accounting was improper because the accountant relied on Falvey's interpretation of the Policy rather than on an independent reading. Vought does not argue that using an independent accountant to determine coverage was improper.
A reasonable jury could not find in Vought's favor on this theory. It could only find that the examples of breach on which Vought relies are instances of Falvey's attempting to interpret what the Policy covers. The determinations Falvey made before employing the accounting firm are no different than the decisions it would have needed to make had it determined coverage without outside assistance. That Falvey decided some aspects of coverage before retaining the accounting firm to analyze Vought's claim in detail would not permit a reasonable jury to find that the accountants' report was a pretext to deny most of Vought's claim. Moreover, the accounting firm did not perform an investigation; instead, it analyzed the expenses that Vought submitted.
Vought also alleges that Falvey breached this duty by refusing to pay the full claim. Defendants maintain that Falvey's denials were proper and that its liability for Vought's claimed overhead and expediting expenses was never clear, i.e., that there was a bona fide dispute about coverage. Indeed, the court has determined that defendants are not liable to Vought for most of the costs associated with the manufacture and shipment of the six stabilizers. And defendants' liability for Vought's overhead expenses related to the repair of the damaged stabilizer or for the cost of shipping the initial stabilizer is not reasonably clear even now.
Accordingly, the court grants summary judgment dismissing Vought's claim for breach of the duty of good faith and fair dealing.
Defendants also move for summary judgment dismissing Vought's claim for unfair insurance practices under the Texas Insurance Code.
Vought alleges that defendants violated Tex. Ins.Code Ann. §§ 541.051 to 541.061 and 541.151. Defendants contend that because Vought's common law good faith claim fails, its statutory claim fails as a matter of law. But a "defense to an insured's common law bad faith claim also serves to defeat each of its other extracontractual causes of action only if `each cause was nothing more than a recharacterization of the bad faith claim.'" Mid-Continent Cas. Co. v. Eland Energy, Inc., 2009 WL 3074618, at *26 n. 28 (N.D.Tex. Mar. 30, 2009) (Fitzwater, C.J.) (emphasis in original) (quoting Escajeda v. Cigna Ins. Co. of Tex., 934 S.W.2d 402, 408 (Tex.App. 1996, no writ)). Two of Vought's statutory allegations are recharacterizations of the common law claim. Vought asserts that defendants failed to effectuate a prompt, fair, and equitable settlement once its liability became clear, and that defendants refused to pay the claim without a reasonable investigation. These claims fail for the same reason as do their common law analogues.
But several other of Vought's statutory claims are not recharacterizations of its common law claim. Vought alleges that Falvey misrepresented the benefits of the Policy; misrepresented the Policy provisions during settlement; failed to promptly explain its denial of the claim; undertook to obtain a full and final release when only a partial payment had been made; failed to affirm or deny coverage within a reasonable time; misrepresented the quality of its services; and failed to disclose material information at the sale of the Policy with the intent to induce Vought to buy a Policy that it would not have otherwise bought. Defendants' defense to the common law claims therefore does not defeat these claims.
Defendants also argue that there is no evidence to support the remainder of Vought's statutory allegations. Vought responds by asserting only that Falvey misled it into repairing the stabilizer by withholding its decision not to cover overhead costs.
The evidence to which Vought points would not enable a reasonable jury to find that Falvey violated § 541.061. Section 541.061 provides:
Vought has not provided evidence that defendants could be liable under § 541.061(2) because it has not pointed to a statement that a reasonable jury could find was rendered misleading by Falvey's failure to disclose it would not cover overhead costs. Nor has Vought pointed to a statement that could be found to violate § 541.061(3). After Vought informed Falvey that it intended to file a claim for repair expenses, a Falvey officer responded:
P. Nov. 6, 2009 App. 59. A reasonable jury could not find that anything in this statement should have led Vought to believe it would be reimbursed for overhead. And Vought has not pointed to a misstatement of law.
In sum, Vought has pointed to no facts that would enable a reasonable jury to find that defendants violated any provision of the Texas Insurance Code. The court therefore grants summary judgment dismissing Vought's claim under Tex. Ins. Code Ann. §§ 541.051 to 541.061 and 541.151.
Defendants also move for summary judgment dismissing Vought's claim that defendants breached a contract formed when Vought offered, and defendants agreed, that Vought should perform the repairs on the horizontal stabilizer.
Vought alleges that when it and defendants reached this agreement, Vought became the equivalent of a third-party repair contractor who was entitled to full compensation. Defendants maintain that Vought chose to repair the stabilizer without discussing the matter with them, and that they never agreed to fund the repair. Vought reasons that the Policy provided that defendants would pay for the stabilizer repair, but did not specify that Vought was required to perform the repair itself. It maintains that, by informing defendants that it planned to repair the stabilizer itself, it was making an offer as a third-party contractor. And it contends that defendants accepted the offer.
A valid and enforceable contract requires an offer by one party and an acceptance by the other party, in strict compliance with the terms of the offer. See Searcy v. DDA, Inc., 201 S.W.3d 319, 322 (Tex.App.2006, no pet.). To obtain summary judgment, defendants can point the court to the absence of evidence to support the claim. See Celotex Corp., 477 U.S. at 325, 106 S.Ct. 2548. Vought must then adduce evidence that would permit a reasonable jury to find in its favor.
Regardless whether Vought's communication could be considered an offer, a reasonable jury could not find that defendants expressed an intention to accept the offer. In a response to the letter from Vought describing planned repairs, a Falvey executive referred to a claim under the Policy but stated only that the company would "await the results of the repairs and the ensuing repair cost calculations in order to proceed with the claim settlement." P. Nov. 6, 2009 App. 59. The executive's reference to a claim settlement indicates the correspondence was concerned with defendants' obligations under the existing contract, not under a new contract.
Vought has failed to point to evidence that would permit a reasonable jury to find that defendants accepted Vought's offer in strict compliance with its terms. Defendants are therefore entitled to summary judgment dismissing Vought's claim (count four) that defendants breached the repair agreement.
Defendants move for summary judgment dismissing Vought's promissory estoppel claim. They maintain that Vought cannot establish any of the elements of promissory estoppel, particularly the requirement that defendants promised to pay for the entire cost of the repair.
Defendants move for summary judgment dismissing Vought's claim for quantum meruit.
To prevail on this claim, Vought must prove that "(1) valuable services were rendered; (2) to the party sought to be charged; (3) which services were accepted by the party sought to be charged; (4) under such circumstances as reasonably notified the recipient that the plaintiff, in performing such services, expected to be paid by the recipient." Collins & Aikman Floorcoverings, Inc. v. Thomason 256 S.W.3d 402, 407-408 (Tex.App.2008, pet.denied). Vought posits that repairing the stabilizer was a valuable service rendered for defendants and that Vought could justifiably have expected to have been paid at least as much as a third-party contractor hired to make the repairs. Defendants counter that, before Vought undertook the repairs, it did not notify them that they were expected to pay expediting or overhead costs.
Vought has failed to cite evidence that would enable a reasonable jury to find that Vought performed services under such circumstances as reasonably notified defendants that Vought expected to be paid overhead or expediting costs. Because a contract of insurance was in place, a reasonable jury could only find that defendants expected that they would be required to pay Vought as provided under the terms of the Policy. Accordingly, the court grants summary judgment dismissing Vought's quantum meruit claim.
Defendants move for summary judgment dismissing Vought's claim for unjust enrichment. They point to the absence of evidence that they obtained a benefit by fraud, duress, or undue advantage.
"A party may recover under the unjust enrichment theory when one person has obtained a benefit from another by fraud, duress, or the taking of an undue advantage." Heldenfels Bros., Inc. v. City of Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992). Vought argues that Falvey induced Vought to repair the stabilizer under circumstances that suggested that Vought would be fully compensated for its services; Falvey had already decided not to fully fund the repair, and it had a duty to disclose this fact to Vought; and this omission took undue advantage of Vought's willingness to make the repairs itself rather than obtain the services of a third party. Vought reasons that the undue benefit is the amount the third party would have charged to make the repairs, which includes both overhead and expediting charges, and that defendants received the additional benefit of not having to pay the replacement cost of the stabilizer, which Vought could have sought instead.
A reasonable jury could not find in Vought's favor on this claim. Vought's reasoning is inconsistent with its explanation of the events leading up to the stabilizer's repair. According to Vought, the stabilizer is highly specialized, and only Vought could have made the repair. Vought decided to repair the stabilizer after
XL moves for summary judgment on the alternative ground that it cannot be liable to Vought because it was at all times acting as an agent for a disclosed principal.
XL maintains that it acted as an agent for Dornoch, a disclosed principal who was the lead underwriter for Lloyd's Syndicate 1209, and that pursuant to basic principles of agency law, it cannot be held liable. Vought responds that XL never disclosed its agency, and, alternatively, never disclosed the existence or identity of the principal for which it was acting. Vought posits that there is a genuine issue of material fact about XL's liability because, in an answer to an interrogatory, defendants identified XL as an insurer.
To determine whether XL qualifies as an agent for a disclosed principal, the court must first analyze the Lloyd's of London ("Lloyd's") insurance market through which the Policy was placed. Lloyd's is not itself an insurance company, but a market in which members may buy and sell insurance. See Corfield v. Dallas Glen Hills LP, 355 F.3d 853, 857 (5th Cir.2003) (citing John M. Sylvester & Roberta D. Anderson, Is It Still Possible To Litigate Against Lloyd's in Federal Court?, 34 Tort & Ins. L.J. 1065, 1068 (1999)). Lloyd's members are individuals or corporations called "names"; these names are the parties who actually contract to insure a risk. Id. at 858. Lloyd's regulates membership, ensuring the solvency of its members. Id. Most names insure risks by forming "syndicates," an administrative entity with no legal status apart from its names. Id. Names agree to underwrite a certain percentage of each risk to which the syndicate subscribes. On most policies, the risk is underwritten by several different syndicates, each of which agrees to be liable for a certain percentage of the risk. Id.
Each syndicate appoints, by contract, a "managing agent," normally a business entity, to be responsible for the management of the risks underwritten by the syndicate. Id. The managing agent typically selects one of its employees to be the "active underwriter" for the syndicate, who can then buy and sell insurance on behalf of the syndicate. Id. "Each Managing Agent is responsible for its own syndicate's financial well-being; it tries to attract capital and underwriting business." Roby v. Corp. of Lloyd's, 996 F.2d 1353, 1357 (2d Cir.1993). Managing agents "among other things, accept or reject the risks submitted for underwriting, collect premiums, pay losses and disburse all funds." Alexander & Alexander Servs., Inc. v. Lloyd's Syndicate 317, 902 F.2d 165, 166 (2d Cir.1990). "Active underwriters and at least two principals of the managing agency are required to participate in the syndicates that they
Any given policy typically involves multiple syndicates; the syndicates usually designate one of the active underwriters from one of the syndicates as the "lead" underwriter on the policy. Corfield, 355 F.3d at 858-59. This lead underwriter is typically the first underwriter to subscribe to a policy and the one to assume the greatest risk. Id. at 859. Usually, the lead underwriter is the only name disclosed; the others remain anonymous. Id. The insured need only sue the lead underwriter, however, because the typical policy allows one name on the policy to appear as a representative of the rest. Id. The typical policy also requires the other names to abide by the final judgment in the lead underwriter's case. Id.
Insurance policies must be placed through a Lloyd's approved broker. Alexander & Alexander Servs., 902 F.2d at 166. The broker prepares a "slip" that sets out the insured risk, and it submits it to multiple managing agents. Id. A managing agent then indicates whether his syndicate will underwrite any of the risk, and, if so, in what percentage. Id. Once the entire risk is subscribed, the broker informs the insured that the insurance has been placed. Id. Then the Corporation of Lloyd's, which manages the Lloyd's market, issues the policy through its Policy Signing Office. Id. at 166-67. This policy lists the numbers of the subscribing syndicates and the percentage of the risk that each has underwritten. See Landoil Resources Corp. v. Alexander & Alexander Servs. Inc., 720 F.Supp. 26, 27 (S.D.N.Y. 1989).
Having set out material aspects of how the Lloyd's insurance market functions, the court now determines whether XL is entitled to summary judgment on the ground that it was acting only as the agent for a disclosed principal. A party forming a contract is presumed to be a party to that contract. See, e.g., Lake v. Premier Transp., 246 S.W.3d 167, 171 (Tex.App.2007, no pet.). To avoid liability, the agent must disclose both that it is acting in a representative capacity and the identity of its principal.
XL points to what it describes as "managing agents' agreements" to demonstrate that it was acting as an agent for Syndicate 1209. One document states that a company called Brockbank Syndicate Management, Limited ("Brockbank") was to serve as agent for Dornoch; another states that Brockbank was to serve as agent for County Down, Limited; and the third states that XL was to serve as agent for Stonebridge Underwriting, Ltd. Even if this evidence establishes XL's actual agency, it does not establish that XL disclosed that agency, or the identity of its principal, to Vought prior to the contract. Nor does XL point to any other evidence that it disclosed its agency or its principal.
XL's role in insuring the risk is demonstrated by the "Binder for International Transportation Insurance" ("Binder") that was attached to the Policy. The Policy frequently refers to the liability of "the
Ds. Oct. 10, 2009 App. 31 (bold font omitted). The attached Binder provides pertinent terms concerning the Policy, such as the identity of the insured, the interest insured, deductibles, and policy limits. The Binder includes the declaration that "[t]his is to certify that the undersigned have arranged insurance as hereinafter specified 100% with Underwriters at Lloyd's, London, England as per Covernote JC492803." Id. at 46. Page 2 of the Cover Note contains the heading, "UNDERWRITERS AT LLOYD'S LONDON BINDING AUTHORITY AGREEMENT," Ds. Oct. 10, 2009 App. 48, and appears to be a standard Lloyd's form. It grants Falvey the authority "to bind insurance for the Underwriters' account." Id. The final page lists a series of syndicates and the amount of the risk each assumes. Id. at 74. Following the name of each syndicate are a set of initials and "London." Id. Above the list are the words "HEREON: 100.0000% Being Order Hereon." Id. The next line reads, "36.3637% Lloyd's Underwriter Syndicate No. 1209 XL, London." Id. The other lines list different syndicates with percentages of their risk.
The document does not indicate the identity of "XL, London" or the nature of its relationship to the Policy. This description suggests that XL is the active underwriter for Syndicate No. 1209 and, because Syndicate No. 1209 assumed the greatest risk on the Policy, that XL is also the lead underwriter on the policy. While Vought does not contend that XL is the active underwriter, the Binder does not show that XL was acting as an agent or that it disclosed its principal.
Moreover, in response to an interrogatory that asked that defendants "[i]dentify each Underwriting Entity on the Policy," they listed Syndicate 1209 and XL as a "Syndicate Owner." P. Oct. 9, 2009 App. 240. This response creates a genuine issue of material fact about whether XL was merely an agent acting for a disclosed principal, an agent acting for an undisclosed principal, or perhaps itself a principal. Accordingly, XL's alternative motion for summary judgment is denied.
Vought moves to exclude certain evidence on which defendants rely in support of their summary judgment motion and to strike defendant's affirmative defense of ambiguity.
The court turns first to Vought's motion to exclude evidence. Vought challenges evidence that consists of statements by various employees of Vought, Falvey, and Marsh directly or indirectly indicating their understanding of the Policy's coverage. Vought contends that this is parol evidence about the meaning of the Policy; the evidence is only admissible to support a defense of ambiguity; and defendants failed to plead this affirmative defense in their answer or elsewhere, as required by Texas law.
Defendants respond that whether a policy is ambiguous is a matter of law for the court to determine; they need not have previously pleaded ambiguity for the court to hold that the Policy is ambiguous; the evidence is relevant to Vought's bad faith and unjust enrichment claims; some of the evidence is admissible as a party admission; the evidence is properly authenticated (it consists of deposition testimony or documents attested to by deposition witnesses); and changes to Policy terms are only a subsequent remedial measure where the change is made by the insurer.
Fed.R.Civ.P. 8(c) requires that a party specifically plead an affirmative defense. Rule 8(c) contains a nonexclusive list of affirmative defenses that does not include ambiguity. Under Texas law, however, ambiguity is an affirmative defense that must be pleaded. See Old Republic Sur. Co. v. Palmer, 5 S.W.3d 357, 360 (Tex.App.1999, no pet.). Even in a diversity case, however, interpretation of a contract is a matter of law, and the court can conclude that a contract is ambiguous even when no party pleads ambiguity. See Recursion Software, 425 F.Supp.2d at 785 (quoting In re Newell Indus., Inc., 336 F.3d 446, 449 n. 5 (5th Cir.2003)); Dyll v. Adams, No. 3:91-CV-2734-D, slip op. at 3 & n. 2 (N.D.Tex. Sept. 30, 1996) (Fitzwater, J.) ("This procedural requirement of Texas law does not preclude the court from concluding that the release is ambiguous. It is well-settled that state procedural law does not bind a federal court when it sits in a diversity case."), aff'd in part, rev'd in part on other grounds, 167 F.3d 945 (5th Cir.1999).
The court has held above, see supra § V(C), that the Machinery Clause is ambiguous concerning whether covered "other necessary charges" include overhead of some type, including some or all of the overhead for which Vought sues in connection with repairing the damaged stabilizer, and is ambiguous concerning whether the Expediting Cost Clause covers expediting costs. Therefore, parol evidence is admissible to determine the meaning of the Policy. See, e.g., Nautilus Ins. Co. v. Nicky & Claire's Day Care, Inc., 630 F.Supp.2d 727, 734 (W.D.Tex.2009).
The court also declines to exclude the evidence as unauthenticated or as evidence of a subsequent remedial measure. The requirement of authentication is satisfied by evidence sufficient to support a finding that the evidence in question is what its
Defendants move for leave to file a supplemental appendix. Because consideration of the evidence in the appendix would not alter the reasoning or results of this memorandum opinion and order, the motion is denied as moot.
For the foregoing reasons, Vought's October 9, 2009 motion for partial summary judgment is denied. The October 10, 2009 motion for summary judgment of Falvey, Dornoch, and XL is granted in part and denied in part. Vought's November 6, 2009 motion to exclude evidence and to strike affirmative defense of ambiguity is denied. And defendants' December 7, 2009 motion for leave to file supplemental appendix is denied as moot.
AMX Corp. v. Pilote Films, 2007 WL 1695120, at *1 n. 2 (N.D.Tex. June 5) (Fitzwater, J.) (citing U.S. Bank Nat'l Ass'n v. Safeguard Ins. Co., 422 F.Supp.2d 698, 701 n. 2 (N.D.Tex. 2006) (Fitzwater, J.)), modified in part on other grounds, 2007 WL 2254943 (N.D.Tex. Aug. 7, 2007) (Fitzwater, J.).
Ds. Oct. 10, 2009 App. 22.
P. Nov. 6, 2009 Br. 4 (citations omitted).
