United States District Court, E.D. Arkansas, Western Division
OPINION AND ORDER
LEON HOLMES, UNITED STATES DISTRICT JUDGE
plaintiffs, Welspun Pipes, Inc., and Welspun Tubular, LLC,
suffered an interruption in business due to a fire that
damaged a facility in Little Rock, Arkansas, while the
facility was covered by a commercial insurance policy issued
by Liberty Mutual Fire Insurance Company. The plaintiffs
contend that, as a result of the fire, they incurred expenses
in mitigating their business loss that are covered under the
policy which Liberty Mutual has refused to pay. Liberty
Mutual denies that the mitigation expenses at issue are
covered; it contends that it has paid all of the covered
losses. The parties have submitted cross motions for summary
judgment. For the reasons to be explained, Liberty
Mutual's motion for summary judgment is granted, while
the plaintiffs' motion is denied.
SUMMARY JUDGMENT STANDARD
should grant summary judgment if the evidence demonstrates
that there is no genuine dispute as to any material fact and
the moving party is entitled to judgment as a matter of law.
Fed.R.Civ.P. 56(a). The moving party bears the initial burden
of demonstrating the absence of a genuine dispute for trial.
Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106
S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). If the moving party
meets that burden, the nonmoving party must come forward with
specific facts that establish a genuine dispute of material
fact. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89
L.Ed.2d 538 (1986); Torgerson v. City of Rochester,
643 F.3d 1031, 1042 (8th Cir. 2011) (en banc). A genuine
dispute of material fact exists only if the evidence is
sufficient to allow a reasonable jury to return a verdict in
favor of the nonmoving party. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91
L.Ed.2d 202 (1986). The Court must view the evidence in the
light most favorable to the nonmoving party and must give
that party the benefit of all reasonable inferences that can
be drawn from the record. Pedersen v. Bio-Med.
Applications of Minn., 775 F.3d 1049, 1053 (8th Cir.
2015). If the nonmoving party fails to present evidence
sufficient to establish an essential element of a claim on
which that party bears the burden of proof, then the moving
party is entitled to judgment as a matter of law.
Rule 56.1 provides that a party moving for summary judgment
must annex to the motion a separate, short and concise
statement of the material facts as to which it contends that
there is no genuine issue to be tried. The rule adds that a
nonmoving party who opposes the motion must file a separate,
short and concise statement of the material facts as to which
it contends a genuine issue exists to be tried. Any material
facts stated by the moving party are deemed admitted unless
controverted by the statement filed by the nonmoving party.
plaintiffs are subsidiaries of Welspun Corp. Ltd., a global
pipe manufacturer based in India. Lib. Mut.'s Mot. for
S.J., Ex. 1, Chokhani Dep. at 94-95. Welspun Corp. is the
parent company of a group of pipe manufacturers. Id.
This group includes plaintiff Welspun Pipes, Inc., a pipe
manufacturer based in the United States, and Welspun Tradings
Ltd., a pipe manufacturer based in India. Id., Ex.
2, Johnson Dep. at 129. Welspun Pipes, in turn, wholly owns
Welspun Tubular, LLC, and Welspun Global Trade, LLC.
Pl.'s Resp. to Def.'s Undisp. Mat. Facts ¶ 1
¶¶ 2-3. Welspun Tubular manufactures pipes in
Little Rock, Arkansas, while Welspun Global is the marketing
arm of Welspun Pipes and is responsible for negotiating and
securing purchase orders, which are fulfilled by Welspun
facilities such as Welspun Tubular. Id.
April 2012, Enterprise Products Partners circulated a
“Request for Quote Package for the Seaway Expansion
Project.” Lib. Mut.'s Mot. for S.J., Ex. 4 at
Seaway 000005. The Seaway project planned to stretch 670
miles of pipeline from Cushing, Oklahoma, to Houston, Texas.
Id. at Ex. 5, Ohlsson Dep. at 26-28. Enterprise was
the construction manager for the project. Pl.'s Resp. to
Def.'s Undisp. Mat. Facts ¶ 3, ¶ 10. Welspun
Global bid on the project, and in May 2012, Enterprise
awarded six segments of the project-approximately 220 metric
tons of Helically Submerged Arc Welded (HSAW) pipe-to
Welspun, worth nearly $330 million. Id. at 3,
¶¶ 13-14. After awarding the project to Welspun,
Enterprise asked whether Welspun could produce a portion of
the pipe as Longitudinal Submerged Arc Welded (LSAW) instead
of HSAW. Id. at 6, ¶ 20. Joel Johnson, a
Welspun Global executive, informed Enterprise that Welspun
Tubular could not produce that type of pipe but that Welspun
Tradings could. Id. at 6-7, ¶¶ 21-22.
Welspun and Enterprise agreed to revise the order.
Id. at 7, ¶ 23. The revision shifted 36, 592
metric tons of pipe from production at Welspun Tubular in
Little Rock to production at Welspun Tradings in India.
Id. Johnson told Enterprise that the shift would
result in no additional cost to Enterprise. Id. at
7, ¶ 24. With this shift in production to India, the
Seaway order required the plaintiffs to deliver approximately
180, 000 metric tons of HSAW pipe on a rolling basis with
delivery to be completed by August 31, 2013. Pl.'s St. of
Mat. Facts ¶ 2, ¶ 10.
for the project was scheduled to begin on July 25, 2012, with
final delivery on August 31, 2013. Pl.'s Resp. to
Def.'s Undisp. Mat. Facts ¶ 7-8, ¶¶ 25-27.
On July 14, 2012, a fire damaged Welspun's Little Rock
facility. Id. at 7-8, ¶¶ 25-27. The damage
caused Welspun to cease production until repairs could be
made. Id. at 8, ¶ 28. At the time of the fire,
Welspun Tubular had three outstanding purchase orders: the
Seaway order, an order from Access NEX, and an order from
AB-BC. Pl.'s Mot. for S.J., Ex. 2, Chokhani Dep. at 36.
To fulfill these orders, Welspun Tubular was scheduled to be
at full production capacity for the next 12 months, beginning
from the time of the fire. Lib. Mut.'s Mot. for S.J., Ex.
7, Bredeson Rep. at 3.
Tubular promptly notified Enterprise of the fire. Pl.'s
Resp. to Def.'s Undisp. Mat. Facts ¶ 8-9, ¶ 30.
Although Welspun Tubular had a purchase order with Enterprise
and the parties had prepared a written contract, the written
contract had not been executed. Lib. Mut.'s Mot. for
S.J., Ex. 12 at Welspun 001179. Nevertheless, Welspun Tubular
gave notice that it was invoking the force majeure provision
in the unexecuted contract. Id. Despite that notice,
Welspun Tubular offered Enterprise two solutions to side-step
the force majeure issue. Pl.'s Mot. for S.J., Ex. 7,
Johnson Dep. at 51. Johnson testified that Welspun Tubular
first sought to revise the delivery deadlines but Enterprise
rejected this proposal. Id., Johnson Dep. at
51-52. Welspun Tubular then proposed shifting a
portion of the production to Welspun Tradings in India.
Id., Johnson Dep. at 53. The shift was proposed to
allow Welspun Tubular to meet the purchase order's
delivery deadlines. Pl.'s Mot. for S.J., Ex. 13, Johnson
Email at Welspun 003009. Whereas the original plan was for
the Little Rock facility to produce pipe for the Seaway
project intermittently-in July, October and December of 2012
and March through August of 2013-the proposed schedule, with
part of the production shifted to India, provided for a
“single rolling campaign” in which the Little
Rock facility would produce pipe for the Seaway project from
mid-February of 2013 through August of 2013. Id. at
3009 and 3012. Welspun Tubular asked Welspun Tradings to
agree to the shift in order to prevent Welspun from losing
the entire Seaway order, and it assured Welspun Tradings that
it would bear all additional costs incurred as a result of
the shift. Pl.'s Mot. for S.J., Ex. 9, Chokhani Letter,
August 5, 2012. Enterprise and Welspun Tradings agreed to the
shift. Pl.'s Mot. for S.J., Ex. 12, Johnson Email at
Welspun 045259-60; Pl.'s Resp. to Def.'s Undisp. Mat.
Facts ¶ 12, ¶¶ 40-41. The result was a second
shift in production of approximately 40, 000 metric tons of
pipe to India. Lib. Mut.'s Mot. for S.J., Ex. 15, Ben-Ami
Rep. at 6.
time of the fire, the Welspun Pipes facility in Little Rock
was covered by a commercial insurance policy issued by
Liberty Mutual Fire Insurance Company. Pl.'s Mot. for
S.J., Ex. 1. The policy provided coverage for real property
and personal property, equipment breakdown, loss of business
income, which included necessary expenses incurred that
reduced the loss of business income, and extra expenses.
Id. at ¶ 000014. The coverage limit for loss of
business income was $68, 128, 941; its coverage limit for
extra expenses was $1, 000, 000. Id. at LM000017.
August of 2016, Welspun Pipes retained
PriceWaterhouseCoopers, LLP, a forensic accounting firm, to
assist it in calculating and submitting a claim for lost
business income. Pl.'s Resp. to Def.'s Undisp. Mat.
Facts ¶ 16, ¶ 47. On behalf of Welspun, the
forensic accountants submitted two preliminary claims for
real and personal property damage, lost business income,
mitigation expenses, and extra expenses-one on September 21,
2012, and another on November 15, 2012, Pl.'s Resp. to
Def.'s Undisp. Mat. Facts ¶ 17, ¶ 52, and at
20, ¶ 61. The latter submission claimed a business
income loss of approximately $28, 000, 000 as well as an
estimated $14, 500, 000 in what Welspun Pipes characterized
as mitigation expenses. Id. at ¶ 61. These
expenses resulted from the incremental costs, such as steel
price differential, excess freight, and double-jointing and
coating costs, associated with the second shift of production
to Welspun Tradings. Lib. Mut.'s Mot. for S.J., Ex. 15,
Ben-Ami Rep. at 7. Welspun claimed that it incurred the
estimated $14, 500, 000 in order to mitigate its loss of
business income-in other words, if it had not spent the $14,
500, 000 to shift the pipe production to Welspun Tradings, it
would have been at risk of losing the entire Seaway order.
Id. at 6. Marc Ben-Ami, the plaintiffs' forensic
accountant, has since reported that the plaintiffs incurred
actual mitigation expenses of $13, 413, 882 in direct costs
and $495, 193 in indirect, overhead costs. Id. at
2-3. Liberty Mutual paid a portion of the direct costs-$413,
432-as “Extra Expenses, ” so, according to Ben-Ami,
the unpaid direct mitigation costs total $13, 000, 450.
Id. at 2. The indirect, overhead costs of $495, 193
have not been paid. Id. at 3.
Mutual disagreed with Welspun's calculation of its loss
of business income and its characterization of the expenses
associated with the shift as necessary expenses. Liberty
Mutual agreed that the policy provided coverage for the
expenses but considered them “Extra Expenses”
subject to the $1, 000, 000 policy limit. Pl.'s Mot. for
S.J., Ex. 14. Despite this disagreement, the parties reached
a partial settlement in which Liberty Mutual paid
Welspun's loss of business income claim in the amount of
$22, 300, 026 and a total of $1, 000, 000 for what Liberty
Mutual characterized as the insured's “Extra
Expense” claim. Id. The partial settlement
agreement acknowledged that Liberty Mutual and Welspun
disagreed over the characterization of the expenses and that
a dispute remained as to Welspun's claim for mitigation
expenses. Id. The plaintiffs commenced this action
to resolve that dispute.
Relevant Policy Provisions
relevant portions of the insurance policy provide:
coverage for loss of business income is provided . . ., we
will pay for:
1. The actual loss of business income you incur during a
period of restoration directly resulting from damage by a
peril insured against to the type of property covered by this
policy at a covered location.
2. The necessary expenses you incur in excess of your normal
operating expenses that reduces your loss of business income.
We will not pay more than we would pay if you had been unable
to make up lost production or continue operations or
* * *
5. In determining the actual loss of business income,
consideration must be given to:
a. The experience of the business before the loss and the
probable experience after the loss;
b. The continuation of only those normal charges and expenses
that would have been incurred had no interruption of
production or suspension of business operations or services
c. The demonstration of an actual loss of sales, income, or
rental income; and
d. Any amount recovered, at selling price, for loss or damage
to merchandise that will be considered to have been sold.
6. We will not pay unless you are wholly or partially
a. producing goods; or b. continuing business operations or
7. You are required to mitigate your loss by:
a. Making up lost production within a reasonable period of
time not limited to the ...