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South Boston Energy, LLC v. Hartford Steam Boiler Specialty Insurance Co.

United States District Court, E.D. Virginia, Alexandria Division

August 15, 2019

SOUTH BOSTON ENERGY LLC, D/B/A NOVEC ENERGY PRODUCTION HALIFAX COUNTY BIOMASS, Plaintiff,
v.
HARTFORD STEAM BOILER SPECIALTY INSURANCE COMPANY, Defendant.

          MEMORANDUM OPINION

          LIAM O'GRADY JUDGE

         This matter comes before the Court on Defendant's Motion for Summary Judgment, Dkt. 90, and Plaintiffs Motion for Attorney's Fees and Costs. Dkt. 78. For the following reasons Defendant's Motion for Summary Judgment is denied. Plaintiffs Motion for Attorney's Fees and Costs is granted.

         I. Background

         This case, which involves a dispute between a Virginia power plant and its insurer, begins in Poland. There, during the manufacture of a 50MW Alstom Steam Turbine Generator (the "turbine"), a foreign metal object somehow made its way into the turbine and evaded detection. The turbine was then shipped to the United States - with the foreign metal object onboard as a stowaway - where it became the centerpiece of Plaintiff NO VEC's biomass power plant in South Boston, Virginia. NOVEC then operated the turbine for approximately two-and-a-half years without any known issues.

         The foreign metal object was finally discovered in April 2016 when General Electric ("GE") conducted a routine borescope inspection of the turbine during a planned maintenance outage. Upon discovery of the foreign metal object, NOVEC contacted Alstom, the turbine's original equipment manufacturer. Alstom advised NOVEC that continuing to operate the turbine with the foreign metal object inside would put the turbine at risk. NOVEC then hired Turbine Generator Maintenance, Inc. ("TGM") to disassemble and inspect the turbine to assess the damage the foreign metal object had caused.

         Because of the size of the turbine, this disassembly process was extensive. TGM hired 90- and 250-ton cranes to remove the turbine's building enclosure and lift the turbine's upper casing and rotor out of the building. Once TGM gained access to the turbine's internal components, it inspected each of them onsite. The components that required repair in GE's shop were shipped there for GE's evaluation, repair recommendations, and repairs. The inspection of the turbine's internal components revealed damage to the turbine's blades and seals.

         On May 18, 2016, Plant Manager John Rainey submitted a loss notice to NOVEC's insurance provider, HSB Specialty Insurance Company ("HSB"), Defendant in this action. NOVEC had a policy with HSB which insured against losses due to accidents inside the turbine that caused direct physical damage to the equipment up to $175 million. The policy had a $500, 000 deductible.

         Rainey's initial loss notice stated that the "Probable Amount Entire Loss" was $450, 000. Jill Baur, a claims adjuster for HSB responded that based on that number the cost to service the turbine was below the deductible. NOVEC's risk manager, Brian Cornell responded within fifteen minutes and stated that in a previous email between Rainey and NOVEC's CEO, "it was stated the total cost could be 1 million or so." Rainey also responded, saying "[t]he cost of removal will include rental services of a crane, the disassembly and reassembly of the turbine, the actual shop repairs, the alignment determination, the root cause analysis, and any other potential charges necessary to restore the unit to operating parameters." Baur copied portions of this exchange into her claim file notes but did not include the statement that the claim could total "1 million or so."

         HSB then hired Harold Ornstein to investigate the loss. Omstein inspected the turbine in person at the GE facility on May 23, 2016. In his initial report, Ornstein informed HSB that there was damage to the seals that appeared to have occurred as a result of two vibration events and that the initial GE estimate for repairs may be cut back because not all of the seals were damaged. HSB requested that Ornstein supplement this initial report with more detail.

         A couple weeks later, on June 6, 2016, Rainey and Baur spoke on the phone about the costs NOVEC incurred in disassembling the turbine. Baurs notes in her case file detail these costs as "TGM $450K Disassembly/Reassembly Shop[, ] ¶ 450K blade carriers which doesn't include seals or pistons[, ] Crane rental $150K."

         By the end of June, HSB had engaged another engineer to examine the damage done to the turbine. On June 22, 2016, Ed Paprocki, a member of HSB's engineering division, submitted a report to Baur in which he analyzed photos of the turbine and reports about the turbine. Based on his analysis of the photos and reports, Paprocki concluded that there was no evidence of a mechanical breakdown or component liberation. He stated that the seal and cover damage was likely to have been caused by startup/shut down rubs. He conceded the damage to the trailing edge of the airfoils in Blade Carrier 2 could have been caused by the foreign object, but stated this would depend on where the object was discovered - something he did not know at the time of his report. Based on his review of the photos and reports, Paprocki calculated the damages caused by the foreign metal object to total at most $39, 710, and that the total repair cost, including disassembly and reassembly of the turbine would top out at $484, 030.80. He stated this estimate was based on his experience watching people do repair work at sites.

         Ornstein submitted his final report on August 5, 2016. The report stated that "the bulk of the damage" was caused by "one or more foreign objects," which were "rubbed by rotating blades," causing "vibration anomalies" that damaged the seals. The report did not provide an estimate or analysis of the alleged damages or of the necessary repair scope. Ornstein also referred to the turbine as a gas turbine in the report.

         On August 18, 2016, HSB retained Marcus Crahan, a third engineer, to review the claim. Crahan concluded that the issues with the seals were attributable to normal wear and tear and there was "no evidence or indication of sudden physical damage from liberation of a foreign object." Crahan estimated the total costs to disassemble the turbine, remove the foreign metal object, repair the damage observed to the trailing edge of the airfoils in Blade Carrier 2, and reassemble the turbine at $399, 700.

         Crahan also at HSB's request reviewed NOVEC's invoices. Crahan had four takeaways. First, Crahan noted that another company's proposal to overhaul the steam turbine did not include all the work needed. Crahan suggested contacting a third shop for a quote on the same work scope. Second, Crahan noted a justification to justify balancing the rotor was not included, something that absent justification HSB should not cover. Third, Crahan stated that South Boston overpaid on crane services because the crane company charged them for twenty-four hours per day despite not working for twenty-four hours per day. Finally, Crahan asked if Baur would like him to forensically analyze the TGM charges. Crahan notes that this would cost "$$," but "TGM's bill is 50% of the total cost, so it's a big nut." Baur did not request a forensic analysis of TGM's charges. Crahan's company, Power Engineering, also reviewed NOVEC's invoices, and on September 21, 2016, emailed Baur that overall, apart from "a few ambiguous line items," the "invoicing seems reasonable."

         Nine days later, on September 30, 2016, HSB informed South Boston that its investigation revealed the amount of loss did not exceed the $500, 000 deductible and that it would refuse coverage. This litigation followed in which NOVEC sought $770, 635 in damages in addition to pre- and post-judgment interest. Before trial, HSB filed a Motion to Bifurcate NOVEC's request for attorney's fees and a Motion for Summary Judgment on whether HSB denied NOVEC's claim in bad faith. The Court granted the Motion to Bifurcate and denied the Motion for Summary Judgment as untimely.

         After a jury trial held May 6 to May 9, 2019, the jury returned a verdict in favor of Plaintiff for $770, 634.52 in damages and $133, 014 in pre-judgment interest. Now that a jury has found HSB liable, HSB's Motion for Summary Judgment on the bad ...


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