Opinion
Case No. 8:99CV352
February 21, 2002
AMENDED MEMORANDUM AND ORDER
This matter is before the court upon a verbal motion to dismiss for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(h)(3) made by Defendant Siemens Aktiengesellschaft ("Siemens AG"). The motion was made during the final pretrial conference conducted on January 30, 2002, and is memorialized in the Order on the Final Pretrial Conference (Filing 215, at page 5). The parties have had an opportunity to brief the issues presented. Siemens AG has provided evidence in support of its motion (Filing 222), and Plaintiff Omaha Public Power District ("OPPD") has submitted evidence in opposition to the motion (Filing 224).
The Complaint alleges that this Court has jurisdiction over the action pursuant to 28 U.S.C. § 1332, based on diversity of citizenship and an amount in controversy of more than two million dollars (Filing 1, ¶ 10). There is no dispute regarding the diversity of the parties, but Siemens AG contends that OPPD's total damages related to this action are only $41,719.52. If Siemens AG's contention is accurate, then this Court may not have subject matter jurisdiction because 28 U.S.C. § 1332(a) requires that the amount in controversy exceed $75,000, exclusive of interest and costs.
This action arises out of an explosion and fire that occurred on September 14, 1995, at an OPPD power plant that was under construction in Sarpy County, Nebraska. OPPD was the owner of the real property and of the construction project. Kiewit-Black Veach ("KBV") was the general contractor on the project, and Siemens Power Corporation ("SPC") provided products and services in connection with the construction of a combustion turbine engine at the plant. Siemens AG designed and manufactured an emergency stop valve (ESV) and other component parts that were used in the engine. OPPD contends that a defect relating to the ESV proximately caused the fire and OPPD's damages.
OPPD and KBV executed a contract on the project that included a provision allocating the risk of loss for the Work during the construction phase to KBV (Filing 222, Tab 1). In addition, KBV contracted with SPC to provide design, procurement and fabrication services in connection with the combustion turbine engine (Filing 222, Tab 2). The parties also agreed to shift the risk of loss to an insurer. In their capacities as owner and general contractor, both OPPD and KBV had insurable interests in the construction project. Pursuant to the contract, OPPD agreed to purchase what is commonly referred to as a "builder's risk" insurance policy, which it later purchased from Federal Insurance Company, a subsidiary of Chubb Sons Insurance Company (hereafter "Chubb"). Filing 222 at Tab 1, Contract at F-22, Section 30.00(d). As required under the contract, the insurance policy also identified KBV, and others, including Siemens Power Corporation ("SPC"), as "additional" and "named insureds" under the policy. Id. at Tab 3, p. 5. One provision in the contract between KBV and SPC is that OPPD furnish the builder's risk policy at OPPD's expense. Filing 222, Tab 2, 4-25; 30.01(d). The rights that derive from the contract of insurance are at the crux of this motion.
"Work" is defined in the contract documents at Filing 222, Tab 1, F-2, 1.18.
Siemens Power Corporation is a separate legal entity from Siemens AG. Plaintiff has submitted as evidence correspondence dated November 2, 1995, from SPC to Siemens AG's parent corporation and insurer informing the parent corporation of the fire, of testing indicating that Siemens AG's valve caused the fire, of a potential claim against the parent corporation, of Chubb's and another insurer's potential subrogation interest, and of its belief that both SPC and Siemens AG were excluded from coverage under the Chubb policy. Filing 224, Exhibit 7.
The parties do not dispute the basic principles relating to the real party in interest in the context of an insured that sues for a loss that is partially covered by insurance. The Eighth Circuit has held that in diversity cases, the state's substantive law determines who is a real party in interest under Fed.R.Civ.P. 17. Dubuque Stone Products v. Fred L. Gray Co, 356 F.2d 718 (8th 1966). Nebraska law holds that an insured's cause of action against a tortfeasor cannot be split, and that, at all times, there is one cause of action on the part of the insured against the tortfeasor. Krause v. State Farm Mutual Insurance Co., 184 Neb. 588, 169 N.W.2d 601, 591 (1969). Thus, the Nebraska Supreme Court has held that "[w]hen indemnity paid by the insurer covers only part of the loss, . . . leaving a residue to be made good to the insured by the wrongdoer, the right of action remains in the insured for the entire loss." Id. at 593.
OPPD had a $5,000 deductible that it paid on the loss for which it made a claim on the Chubb policy and that is the subject of this action. Filing 224, Exhibit 1 Sullivan Aff. at ¶ 5. OPPD contends that it is entitled under Nebraska law to recover from Siemens AG compensation for the loss, with the understanding that if it recovers money in excess of $5,000 from Siemens AG, then OPPD must hold in trust for Chubb that amount in which Chubb claims a subrogation.
If OPPD recovers damages from Siemens AG in an amount in excess of $5,000, then it agrees that Chubb will have a subrogation interest in the recovery. Chubb's subrogation interest poses no particular problems because OPPD's claim is not against a contractor covered under the builder's risk policy. Siemens AG has not paid anyone on the loss that OPPD now claims was proximately caused by Siemens AG. Thus, there are no issues relative to an insurer seeking to recover from one insured under the policy for the benefit of another insured. See Midwest Lumber Co., v. Dwight E. Nelson Const. Co., 188 Neb. 308, 196 N.W.2d 377 (1972); and Reeder v. Reeder, 217 Neb. 120, 348 N.W.2d 832 (1984).
Siemens AG's motion is based on its belief that the money paid out by Chubb on this loss was not paid solely to OPPD for its loss, but to other contractors and vendors like KBV and SPC, which are identified in the insurance contract as "additional" or "named" insureds, for losses that Siemens AG contends are separate from OPPD's loss. Siemens AG's main evidence in support of its motion to dismiss is deposition testimony from two witnesses identified by OPPD as being qualified to provide information and opinions on OPPD's damages, Patrick Tansey and Kurt E. Harms. Both Tansey and Harms have acknowledged that OPPD's out-of-pocket loss, termed a "personal" loss in OPPD's brief, was $41,719.52 — an amount below the jurisdictional threshold amount of 28 U.S.C. § 1332. The other two million dollars-plus in damages that OPPD alleges in its Complaint, Siemens AG argues, are not OPPD's to claim. Upon consideration of the law and all the evidence submitted, this Court concludes that the loss covered by Chubb was deemed to be OPPD's loss, and none other.
OPPD opposes this motion on the basis that the loss claimed is OPPD's loss, and that no other vendor or contractor covered under the builder's risk policy has made a claim in connection with the fire. In addition to providing excerpts from the depositions of Tansey and Harms wherein they acknowledged that the total amount of the loss that OPPD claimed from Chubb was approximately two million dollars, OPPD has offered the affidavit of Debra Sullivan to support its position. (Filing 224, Exs. 15 and 16; and Ex. 1). Sullivan has been employed with Chubb since 1972, and at all times relevant to this case, she was employed as Chubb's Property Zonal Supervisor giving her personal knowledge of OPPD's claim in this case. Id. at ¶¶ 2-6. Sullivan states that after the fire and explosion occurred on September 14, 1995, OPPD submitted a timely notice of claim for all of the damage relating to the fire, and that no other claims incident to the fire were received. Id. at ¶¶ 8-9. She states that some of the contractors and vendors who were already employed on the construction project switched roles after the fire and were hired to assist OPPD in returning the site to the condition that it was in before the fire. These contractors included KBV and SPC. Id. at ¶ 11 and 12. After the site was restored to its pre-fire condition, the contractors and vendors previously engaged in the construction project resumed those roles. Id.
When the time came to pay the vendors for their work in restoring the site to its pre-fire condition, Chubb issued the checks directly to OPPD for dispersal to the vendors so that OPPD could approve their work before they received payment. Some of the checks were made payable to OPPD and a vendor or contractor jointly, and other checks were made payable to the contractor only. On the occasions when payment was made directly to the contractor, it was done so with OPPD's authorization to speed recovery work. Id. at ¶ 13. In this regard, Sullivan's statements are corroborated by documentary evidence demonstrating that OPPD expressly authorized Chubb to make payments directly to KBV to speed up the recovery operation (Filing 224,-Exs. 9 and 10). Sullivan's affidavit makes clear that Chubb, OPPD, and the other contractors and vendors associated with clean-up and refurbishing effort understood and conducted themselves as though OPPD was the owner of the real property, the construction project, and the loss claimed as a result of the fire. (Filing 224, at Exs. 12 and 13).
Nebraska law requires courts to construe contracts so as to give effect to the parties' intentions. The case relied upon by Siemens AG makes this point well:
[A] contractual provision must be interpreted in light of the other provisions of the contract and the rights and liabilities which the law imposes upon the parties as a result of the contract. Contracts should be so construed as to give effect to the intention of the parties. Gallagher v. Vogel, 157 Neb. 670, 678, 61 N.W.2d 245; General Motors Acceptance Corp. v. Blanco, 181 Neb. 562, 149 N.W.2d 516; Ely Constr. Co. v. S S Corp., 184 Neb. 59, 165 N.W.2d 562.Midwest Lumber Co. v. Dwight E. Nelson Const. Co,. 188 Neb. 308, 310, 196 N.W.2d 377, 379 (Neb. 1972). The Midwest Lumber court also recognized that the arrangement between OPPD and KVB as to insurance is common.
A building contractor who makes a contract to construct a building has during the course of construction an insurable interest in the building. The owner, of course, also has an insurable interest in the building under construction. Both interests can be and sometimes are insured in the same policy. It is apparent therefore that when the parties entered into the contract both had interest to protect against loss. It is evident that if each was interested only in protecting himself from loss each could have purchased his own insurance and he need not have consulted the other about it. The reason for including a specific provision for `Builders risk or fire and extended coverage insurance . . . paid for by the Owner' could be only to protect the separate interest of both parties and to determine how the cost thereof was to be paid. Under the terms of this construction contract the cost of the insurance was to be paid by the owner rather than included in the costs of the contractor and then charged back to the owner as part of the contract price.Id. (citations omitted).
Siemens AG's reliance on Midwest Lumber is misplaced because the facts in that case can be easily distinguished from the facts presented here. In Midwest Lumber, the owner of the project agreed to add the contractor as an insured to the builder's risk policy, which the owner had agreed to pay for, but the contractor was never added to the policy. Under those facts, the court concluded that, "The failure of the owner to cause the contractor to be named as an insured in accordance with the intent of the parties as is implicit in the construction contract, causes the owner to become the insurer of the contractor." Id. at 312, 196 N.W.2d at 380. The court concluded that the parties' intention was to cover both the owner and the contractors' risk under the insurance policy, and that intent precluded the owner from suing the contractor — even if the contractor was at fault — for the loss.
In this case, OPPD obtained the builder's risk policy at its own expense, and KBV, SPC, and others were named as insureds. In this case, OPPD is claiming compensation from a third party, not an insured under the builders risk policy. After the fire, OPPD made the claim for damages to the power plant that was under construction, and no other claims were made by the general contractor or other named insureds. All money that was paid under the insurance contract was either paid to OPPD or was paid to a contractor or vendor with OPPD's advance authorization. There is no evidence that any other insured covered under the insurance contract asserted a claim separate from OPPD's relating to the fire. Finally, there is no evidence that Chubb will seek to recoup from a named insured any of the moneys that it has paid out under the builder's risk policy.
Siemens AG also relies on Sandy Creek Public Schools v. St. Paul Surplus Lines, Ins., Co., 222 Neb. 424, 429-30, 384 N.W.2d 279, 283 (1986). This Court has considered that case and finds that it too should be distinguished from this case on the facts. In that case, a school district, one insured under a policy provided by the defendant, sought a declaratory judgment regarding its rights as against an insurer relating to coverage. The school district also tried to assert the rights of other insureds under the policy, individual school board members, whose rights were substantially different under the policy. The court held that absent an assignment, the school district had no right to pursue the claims of the school board members in the declaratory judgment action. Siemens AG relies upon this case to argue that OPPD may not pursue the claims of KBV and SPC without an assignment. However, because the Court finds as a matter of fact that the money paid by Chubb on OPPD's claim relates to losses sustained by OPPD as the owner of the project, the Sandy Creek case is not controlling.
Upon consideration of the Agreement between OPPD and KBV, including the incorporation of the builders' risk insurance provision; and the contract between OPPD and Chubb; and in light of the dealings of OPPD, Chubb, KVB and the other affected contractors and vendors following the fire, this Court concludes that the loss for which OPPD is seeking compensation is its own loss as the owner of the real property and the owner of the construction project.
The Court recognizes that this amended memorandum and order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of this litigation. Accordingly, all proceedings in this matter shall be stayed for a minimum period of 10 days from the date of this amended memorandum and order to allow either party to file a petition for permission to appeal to the Eighth Circuit Court of Appeals. If such filing is made, then the proceedings in this case shall be stayed until the Court of Appeals issues a final decision in the matter. For these reasons,
IT IS ORDERED THAT:
1) Siemens AG's motion to dismiss based on the Court's lack of subject matter jurisdiction under Fed.R.Civ.P. 12(h) [incorporated in Filing 215,] is denied.
2) The parties have permission to appeal this Amended Memorandum and Order pursuant to 28 U.S.C. § 1292(b); and
3) All proceedings in this matter are stayed for a period of 10 days from the date of this Amended Memorandum and Order, and if a party files a petition for permission to appeal this Amended Order to the Eighth Circuit Court of Appeals within those ten days, then all proceedings in this matter are stayed until the Eighth Circuit Court of Appeals issues a final decision in the matter.