Taylor Corporation v. XL Insurance America, Inc.

Background

Taylor Corporation, including its subsidiary Curtis 1000 as referred to collectively in the opinion, leased a printing facility in Fridley, Minnesota. The facility had six specially reinforced press pads for printing equipment. When Taylor attempted to install a Heidelberg press, one pad had moved and the press could not be leveled. Taylor’s investigation found unsuitable and shifting soil beneath the facility. Taylor eventually removed all six pads and replaced them with a substantially more expensive design supported by deeper foundations and micropiles.

Taylor sought coverage under identical insurance policies issued by XL Insurance America, Inc., Westport Insurance Corp., and Liberty Mutual Fire Insurance Co. The insurers denied the claim. Taylor then brought this action seeking a declaration that the insurers had to pay its losses. The parties filed cross-motions for summary judgment on liability and damages limitations, and each side moved to exclude the other side’s damages expert under Federal Rule of Evidence 702.

Summary-judgment rulings

The court granted Taylor’s motion for summary judgment on liability. It found no genuine dispute that earth movement caused the damage to the six press pads. The court relied on its earlier ruling that earth movement caused by faulty workmanship or settling was covered by the policies’ earth-movement coverage extension, regardless of whether faulty workmanship or settling was the direct cause of the loss. The insurers’ arguments that the damage was not earth movement or was excluded as settlement were therefore rejected.

The court also ruled that the insurers were liable for replacement of all six press pads, not only Press Pad B. The court found that the earth movement affected the entire press-pad area and injured all six pads by making them inoperable. Under the policy and Minnesota law, direct physical loss did not require destruction or structural damage; injury to insured property was sufficient.

The court agreed with the insurers that Taylor could recover only the theoretical cost of replacing the pads on a like-kind-and-quality basis. The policy did not require an identical replacement, but it did not cover the full cost of Taylor’s upgrade from approximately $125,000 for the original pads to more than $2 million for the replacement system. The jury will determine the cost of a like-kind-and-quality replacement.

The court granted the insurers’ motion in full concerning Protection and Preservation of Property coverage for Taylor’s temporary removal and storage of the Heidelberg press. The court also granted the insurers’ motion to the extent that Taylor could not seek attorney’s fees under the policy for its breach-of-contract claim.

The court denied the insurers’ request to limit Taylor’s time-element damages to eight weeks. The policy measures the liability period through the time when, with due diligence and dispatch, the building and equipment could have been repaired or replaced and made ready for operations under equivalent conditions. The length of that period remains a question for the jury.

Accordingly, the order granted the insurers’ summary-judgment motions in part and denied them in part. Defendants’ Motions 1, 2, and 5 were denied in full. Motion 3 was denied as to limiting coverage to one pad but granted as to limiting coverage to like-kind-and-quality replacement of all six pads. Motion 4 was granted in full, and Motion 6 was granted to the extent that Taylor could not seek attorney’s fees under the policy for its breach-of-contract claim.

Expert-testimony rulings

The court granted the insurers’ motion to exclude Taylor’s damages expert, Mark Hosfield, in part and denied it in part. Hosfield could not testify that Taylor was entitled to recover the full cost of upgrading the press pads. He could revise that portion of his report to estimate the cost of like-kind-and-quality replacement. The court otherwise found his methods relevant and reliable, including his calculations based on the disputed length of the liability period, and allowed the insurers to challenge those assumptions through cross-examination and their own evidence.

The court granted Taylor’s motion to exclude the insurers’ damages expert, Matthew Woodcock, in part and denied it in part. Woodcock could not testify that the insurers’ liability was limited to replacing only one press pad. In all other respects, the court found that his alternative damages calculations and methods were sufficiently reliable and helpful to the jury. The experts were permitted to revise their testimony to conform to the order.

What remains for trial

Liability was resolved in Taylor’s favor. The jury must determine the length of the policy’s liability period and the amount of any covered damages for variable production costs, excess facility and machine-maintenance costs, and like-kind-and-quality replacement of the six press pads. The case was placed on the court’s next trial calendar.