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Great Northern Insurance Co. v. Power Cooling

September 10, 2007

GREAT NORTHERN INSURANCE CO., PLAINTIFF,
v.
POWER COOLING, INC., DEFENDANT.



The opinion of the court was delivered by: Kiyo A. Matsumoto United States Magistrate Judge

MEMORANDUM AND ORDER

MATSUMOTO, United States Magistrate Judge

Defendant Power Cooling, Inc. ("Power Cooling") moves this court for dismissal of plaintiff Great Northern Insurance Company's ("Great Northern") complaint on the grounds of spoliation of evidence. (See doc. no. 40, Letter filed by defendant, dated 6/6/07.) Plaintiff opposes the motion, asserting that defendant was on notice that the evidence, a steam turbine, would be disassembled and repaired, and failed to either object or avail itself of the opportunity to inspect the turbine before it was dismantled. (See doc. no. 41, Letter filed by defendant, dated 6/11/07.) For the reasons that follow, the court denies defendant's request to dismiss the complaint, and instead, orders that plaintiff be precluded from introducing any evidence regarding the missing or altered turbine parts at trial, or for any other purpose.

BACKGROUND

At all relevant times, Great Northern provided insurance coverage to Reckson Associates Realty Corporation ("Reckson") pursuant to Policy No. 3581-16-50. (See doc. no. 1, Complaint ("Compl.") ¶ 14.) Reckson, in turn, provided property management services to a forty-two story high-rise building located at 810 Seventh Avenue, New York, New York. (See id. ¶ 7-8.) On September 16, 2002, Reckson signed a service contract with Power Cooling, Inc. "for the inspection, maintenance, and service of, among other cooling system components, a 1232 horsepower Coppus Murray steam turbine, serial number 5128." (Id. ¶ 9.) Plaintiff alleges that on May 5, 2005, Power Cooling was servicing the turbine when "a catastrophic . . . failure occurred to the [turbine], causing extensive damage to the [turbine]." (Id. ¶¶ 10, 13.) Reckson made a claim under its insurance contract with Great Northern for damages resulting from the turbine's failure, and Great Northern duly paid Reckson the amount of $470,352.22. (See id. ¶ 15.)

On February 24, 2006, Great Northern filed this action against Power Cooling for damages sustained by Reckson due to the failure of the turbine, alleging that Power Cooling's negligence caused the turbine to malfunction and fail. (See id. ¶¶ 9, 13-15.)

PROCEDURAL HISTORY

Following the turbine's failure on May 5, 2005, plaintiff's counsel, Mark E. Utke, Esq., wrote to the Director of Risk Management for Power Cooling on May 13, 2005, stating, Please be advised . . . this office will seek to hold Power Cooling and its liability insurance carrier responsible for any proceeds paid as a result of the May 6, 2005 [sic] loss. In that regard, I request that you immediately forward this correspondence to your liability insurance carrier and request that they contact my office to further discuss this matter. (Doc. no. 41, Letter filed by plaintiff, dated 6/11/07, Exh. A.)

After Power Cooling failed to respond, Mr. Utke faxed the Director of Risk Management for Power Cooling a second letter on May 23, 2005 at 3:11 p.m., stating,

Please be advised, [the] steam turbine is now being transported to New Hampshire. This turbine will be repaired and processed by Energy Resources. In the event that either Power Cooling or its representatives desire to send a representative to the Energy Resources location for purposes of observing the disassembly of this turbine, I request that you immediately contact my office. I anticipate that this breakdown of the turbine will take place on May 24th, 25th, and 26th. Although Energy Resources will be retaining all parts from this disassembly, your ability to review the steam turbine in its present condition will require your presence for this disassembly, if desired. (Id., Exh. B.)

On May 24, 2005, the Claims Service Bureau of New York, Inc. ("CSB"), the representative for Power Cooling's insurance carrier, QBE Insurance Group ("QBE"), opened a claim file for the damage to the turbine. (Doc. no. 46, Letter filed by defendant, dated 6/22/07, Exh. A., Affidavit of Marvin Bernstein, dated 6/21/07 ("Bernstein Aff."), ¶ 1.) Marvin Bernstein, a claims examiner for CSB, explained that CSB opened the file "after receiving a First Report of Loss from Hartan Brokerage, Inc., on May 23, 2005, [which] included a letter dated May 13, 2005 from Mark Utke, Esq., to QBE insured, Power Cooling . . . ." (Id.) Mr. Bernstein further stated that he did not receive Mr. Utke's May 23, 2005 letter until May 27, 2005, when Hartan Brokerage forwarded it to CSB. (See id., ¶ 2)

On June 10, 2005, Reckson and Energy Resources entered into a contract to repair the turbine. (See doc. no. 41, Exh. D.) Phase I included work to inspect the cooling valves, steam seal, piping, base, supports and overspeed trip assembly, and to inspect and repair wiring. (See id.) Phase II included work to replace the turbine shaft and eighth stage wheel and buckets, and to repair the wheels and buckets for stages one through seven. (See id.)

On July 26, 2005, Mr. Bernstein, claims examiner for CSB, responded to Great Northern's second letter, dated May 23, 2005:

In response to your letter addressed to Power Cooling, Inc. dated May 23, 2005, we proceeded to conduct an investigation with Power Cooling, Inc. with regards to this matter . . . . Based upon our investigation . . . , we cannot accept responsibility for damages sustained by your client's turbine unit. (Id., Exh. C.) Plaintiff asserts that Power Cooling's insurance carrier "never made any further contact with Great Northern or its counsel." (Id. at 2.)

Energy Resources completed its inspection and repair of the turbine on August 20, 2005. (See id., Exh. E.) Seven of the eight stages of the turbine were refurbished and "placed back into use[,]" but "[t]he eighth stage and the rotor shaft were too severely damaged to be reused." (Id. at 2.) Plaintiff's counsel explained that, "[t]o remanufacture the eighth stage, it was necessary for Energy Resources to send a segment of twenty (20) blades to a machine shop to be reverse manufactured." (Id.) In addition, "[s]everal of the broken blades from the eighth stage were placed into a box . . . [which] was misplaced and cannot be located." (Id.)*fn1

Plaintiff's counsel further asserted that, "[a]t no time during the course of the repairs of the Subject Turbine did defendant Power Cooling or its insurance carrier express an interest in participating [sic], observing, or taking responsibility for the repairs to the turbine unit." (Id.)

After plaintiff commenced this action on February 24, 2006, the parties appeared before the undersigned for a settlement conference on April 23, 2007. To further settlement negotiations and the parties' preparation for trial, the court granted defendant leave "to retain a metallurgy expert . . . [to] inspect the turbine and parts." (Order dated 4/23/07.)

Accordingly, on May 23, 2007, counsel and defendant's experts, including the newly retained metallurgist, Joseph Crosson, traveled to Energy Resource's offices in New Hampshire to inspect the "turbine and its parts." (Id.; see also doc. no. 40 at 1.) Upon their arrival, however, plaintiff's counsel informed them that the parts had been moved to another facility in New Hampshire. (See doc. no. 40 at 1.) After arriving at the second facility, defendant found that "[t]here was the steel shaft and the eighth stage and nothing more. [Plaintiff's expert Michael] Murphy advised [defendant] that the other seven (7) stages had been re-used and re-installed in the subject turbine." (Id.) Plaintiff further explained that fifty-three blades were removed from the eighth stage, and placed in a box that subsequently could not be located. (See id.) Finally, unbeknownst to defendant, a second box containing four blades and other small parts had been shipped to MIT for mechanical and chemical testing by plaintiff's expert metallurgist. (See id.)

The parties promptly called this court on May 23, 2007, for an order regarding the missing turbine parts. The court noted:

The parties called the court from New Hampshire where defendant's metallurgy expert was to conduct an inspection of "the turbine and parts," as ordered by the court on 4/23/07. Inexplicably, plaintiff failed to make some of the parts available for inspection by defendant's expert, along with the turbine, as ordered. Accordingly, unless defendant's expert must inspect the turbine and parts together, plaintiff is ORDERED to make the parts available at the New York office of its counsel, at plaintiff's expense, no later than 6/7/07. (Order dated 5/23/07.)

On June 6, 2007, defendant moved this court for an order dismissing plaintiff's complaint on spoliation grounds, alleging that plaintiff almost completely disassembled the turbine and thus "grossly handicapped [defendant's] ability to definitively determine causation and to shield its experts from attack on claims of speculation or insufficient foundation." (Doc. no. 40 at 2.) Defendant claimed, "[p]laintiff has utterly failed to preserve the evidence in its damaged state for trial . . . . At the time this lawsuit was commenced on February 28, 2006 [sic], plaintiff had already destroyed[,] irrevocably lost, or altered seven (7) stages of the turbine and more than fifty (50) blades from the eighth stage." (Id.) That destruction, defendant asserted, "deprived this defendant and its experts of an opportunity to . . . evaluate the turbine . . . [and] determine where, how, and why this failure started." (Id.)

Plaintiff responded by letter dated June 11, 2007. (See doc. no. 41.) Plaintiff disputed defendant's claim that defendant was not provided with an opportunity to examine the turbine in its damaged state, because Power Cooling first received notice of Great Northern's claim on May 13, 2005 -- one week after the turbine's failure -- and again on May 23, 2005. (See id., Exh. A and B.) Plaintiff asserted that defendant failed to respond to either letter until July 26, 2005 (more than two months after first receiving notice of the claim), and failed to request that its representatives be present for the turbine's disassembly. (See id. at 1-2.) Plaintiff further noted, "[w]hile defendant contends that it was somehow prejudiced by not being able to view the turbine during the course of its repair, [defendant] provides no explanation as to why it chose not to react to the notice letters provided to Power Cooling placing it on notice of plaintiff's claim . . . ." (Id.) In addition, plaintiff contended that its own experts "are in no better position tha[n] the defendant's experts, as they have never physically examined (or for that matter, even photographed) the turbine parts that were contained in the box that was misplaced by Energy Resources . . . ." (Id. at 3.) Furthermore, plaintiff asserted that defendant's turbine expert, Jeffrey Porges, testified at his deposition that it was not necessary to physically examine the turbine's parts:

Q: [By Mr. Utke] Have you ever physically examined the pieces or parts of the ...


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