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Evanston Insurance Co. v. Xytex Tissue Services, LLC

United States District Court, S.D. Georgia, Augusta Division

March 27, 2019

EVANSTON INSURANCE COMPANY, Plaintiff,
v.
XYTEX TISSUE SERVICES, LLC; XYTEX CRYO INTERNATIONAL, LTD.; XYTEX PROPERTIES LLC; LINDSEY MEAGHER, Individually, and as Executor for the Estate of Greg Meagher; MARY M. MEAGHER; and EMMA G. MEAGHER, Defendants.

          ORDER

          J. RANDAL HALL CHIEF JUDGE.

         Before the Court are the following motions: (1) Plaintiff and Defendants Xytex Issue Services, LLC, Lindsey Meagher, Mary M. Meagher, and Emma G. Meacher's ("Existing Parties") joint motion to add defendants (Doc. 48); (2) Plaintiff's motion to exclude expert testimony (Doc. 24); and (3) Plaintiff's motion for summary judgment (Doc. 25) . The joint motion to add defendants is GRANTED. Plaintiffs' motion to exclude expert testimony is GRANTED IN PART and DENIED IN PART. Finally, Plaintiff's motion for summary judgment is GRANTED IN PART and DENIED IN PART.

         I. BACKGROUND

         A. Underlying State Court Action

         The facts alleged in the underlying state court tort action, Meagher v. Xytex Tissue Services, LLC, No. 2017RCCV00492, Superior Court of Richmond County, Georgia (''Underlying Lawsuit"), giving rise to the present coverage action are largely undisputed. (See Underlying Lawsuit Compl., Doc. 1-2.) Defendant Xytex Tissue Services, LLC ("Defendant Xytex") stores biological material at low temperatures. (St. of Mat. Facts, Doc. 25-2, ¶ 1 (admitted).)[1]To keep the material cooled to the appropriate temperature, Defendant Xytex employs cryogenic storage freezers "cooled by an on-site liquid nitrogen delivery system." (Id. ¶ 3 (admitted).) If the pressure in the delivery system exceeds the permissible limits, the relief valves open to release liquid nitrogen and lower the pressure in the system. (Id. ¶¶ 6, 10 (admitted).) Once released, the liquid nitrogen vaporizes into nitrogen gas. (See id. ¶¶ 6, 14 (admitted).) On February 5, 2017, the pressure release process occurred. (Id. ¶¶ 8, 10 (admitted).) The system released the liquid nitrogen - which subsequently vaporized - into Defendant Xytex's warehouse. (Id. ¶ 7 (admitted).)

         The discharge of the nitrogen into the warehouse set in motion a series of unfortunate events. At the outset, the oxygen level in the warehouse began to drop, triggering the warehouse's oxygen sensor alarm. (Id. ¶ 11 (admitted).) The accumulation of gaseous nitrogen in the warehouse formed a dense fog setting off the warehouse's motion detectors and burglar alarms. (Id. ¶¶ 14, 15 (admitted).) A Defendant Xytex employee first responded to the alarms, then collapsed in the warehouse. (Id. ¶¶ 21-22; Underlying Lawsuit Compl., ¶ 30.) Next, Deputy Greg Meagher entered the warehouse. (St. of Mat. Facts, ¶ 23 (admitted).) He, too, succumbed to the conditions in the warehouse and died as a result. (Id. ¶ 24; Underlying Lawsuit Compl., ¶ 33.)

         Following Deputy Meagher's passing, Lindsey Meagher, Mary Margaret Meagher, and Grace Meagher ("Meagher Defendants") filed the Underlying Lawsuit against Defendant Xytex and other defendants. (Underlying Lawsuit Compl.) Plaintiff, disputing its duties to indemnify and defend, is defending Defendant Xytex in the Underlying Lawsuit under a reservation of rights. (Reservation of Rights Letters, Docs. 22-1, 22-3, 22-4, 22-6.)

         B. The Declaratory Judgment Action

         Believing coverage is excluded under two insurance policies, Plaintiff filed the instant declaratory judgment suit. (See Compl., Doc. 1.) Defendant Xytex is an additional named insured under commercial general liability policy number 3AA116895 ("Primary Policy") and named insured on commercial excess policy number EZXS1005877 ("Excess Policy," and collectively with Primary Policy, "Policies"). (St. of Mat. Facts, ¶¶ 33, 34 (factual assertions admitted).) Plaintiff asks that the Court grant summary judgment, thereby declaring that it has no duty to defend or indemnify Defendant Xytex in connection with the Underlying Lawsuit. (Mot. for Summ. J., Doc. 25, at 1.)

         1. Insurance Policies

         The General Policy contains the following coverage:

SECTION I - COVERAGES
COVERAGE A - BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" ... to which this insurance applies.[2] We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" ... to which this insurance does not apply. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result. But:
(1) The amount we will pay for damages is limited as described in Section III - Limits Of Insurance; and
(2) Our right and duty to defend ends when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages A or B or medical expenses under Coverage C.
No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Supplementary Payments - Coverages A and B.

(Primary Policy, Doc. 1-3, at 30.)

         The Parties[3] agree that the Primary Policy is modified by a Total Pollution Exclusion Endorsement that provides, in relevant part: "This insurance does not apply to: . . . (1) 'Bodily injury' . . . which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants' at any time." (Id. at 56.) As defined by the Primary Policy, "pollutants" are "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste." (Id. at 44.)

         The Punitive or Exemplary Damages Exclusion in the Combination General Endorsement further modifies the Primary Policy: "This insurance does not apply to: . . . Fines, penalties, and punitive or exemplary damages, or any expenses or any obligation to share such damages or repay another." (Id. at 59.) The Combination General Endorsement also contains a Hazardous or Toxic Materials exclusion: "This insurance does not apply to: . . . 'Bodily injury' ... or any injury, loss, or damage, including consequential injury, loss or damage, arising out of, caused or contributed to by 'hazardous or toxic materials' . . . ." (Id. at 59-60.) "Hazardous or toxic materials" is defined as "asbestos, lead, silica dust, toxic dust, 'fungi', bacteria, organic pathogens, bio-organic growth or systemic chemical poison." (Id. at 61.)

         The Excess Policy insured Defendant Xytex beyond the limits of the Primary Policy. (St. of Mat. Facts, ¶¶ 40-41 (factual assertions admitted).) As with the Primary Policy, the Excess Policy contains a Pollution exclusion: "This policy does not apply to . . . [a]ny liability arising out of actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants' at any time." (Excess Policy, Doc. 1-4, at 37.) "Pollutants," in relevant part, is defined the same in the Excess Policy as the Primary Policy. (Compare id., with Primary Policy, at 44.) The Excess Policy additionally contains a Punitive or Exemplary Damages exclusion. (Excess Policy, at 38.)

         2. Reservation of Rights

         Plaintiff drafted and sent Defendant Xytex several "Reservation of Rights" letters. The first letter, dated February 13, 2017, explained that Plaintiff was investigating the incident and reserved the right to supplement the letter in the future. (Doc. 22-1.) At the time of the second Reservation of Rights letter, dated June 12, 2017, no lawsuit had been filed, and Plaintiff notified Defendant Xytex that it was continuing to investigate the matter. (Doc. 22-3.) The third Reservation of Rights letter confirmed Defendant Xytex's receipt of notice of the Underlying Lawsuit. (Doc. 22-4.) In relevant part, the third letter "reserve[d] the right to seek reimbursement of any defense costs paid on Xytex's behalf if a court finds that [Plaintiff] has no duty to defend Xytex for all of the claims in the Lawsuit." (Id. at 12.) Plaintiff sent a final letter (Doc. 22-6) in response to a letter from Defendant Xytex's counsel. Plaintiff again expressed it would "continue to defend Xytex for the Lawsuit, but that defense will be subject to the full reservation of rights set out in the" third Reservation of Rights letter. (Id.)

         3. Testimony of Dr. Eric J. Zuckerman

         Defendant Xytex offers the testimony of Dr. Eric J. Zuckerman as an expert in chemistry. (Resp. to Mot. to Exclude Test., Doc. 31, at 2, 7.) Dr. Zuckerman is an Associate Professor in the Department of Chemistry and Physics at Augusta University. (Zuckerman Curriculum Vitae, Doc. 16-1, at 1.) Dr. Zuckerman holds bachelor's, master's, and doctorate degrees in chemistry. (Id.) Defendant Xytex tenders Dr. Zuckerman's testimony to support its position that liquid nitrogen is not an irritant, contaminant, or systemic chemical poison. (Zuckerman Expert Report, Doc. 16; Resp. to Mot. to Exclude Test., at 7.)

         Plaintiff asks the Court to exclude Dr. Zuckerman's testimony entirely or, in the alternative, exclude portions of his testimony interpreting the insurance contract. (Br. Supp. Mot. to Exclude Test., Doc. 24-1, at 11-21.) Plaintiff argues that Dr. Zuckerman's testimony is improper because interpreting the contract is a matter of law for the Court and he is unqualified to testify as an expert regarding matters of insurance. (Id.)

         4. Joint Motion to Add Defendants

         After completing summary judgment briefing, the Parties filed their joint motion to add Lindsey Meagher, as Executor for the Estate of Greg Meagher[4]; Xytex Cryo International, LTD.; and Xytex Properties LLC as party defendants in this action pursuant to Federal Rules of Civil Procedure 19 and 21 ("Joinder Defendants," and collectively with Defendant Xytex and Meagher Defendants, "Defendants"). (Joint Mot. to Add Defs., Doc. 48.) The Parties represent that the Underlying Lawsuit was recently amended to add Lindsey Meagher, as Executor for the Estate of Greg Meagher, as a plaintiff and the remaining Joinder Defendants as defendants. (Id. ¶ 2.) The joint motion further: (1) Requests that the Joinder Defendants be treated as if they were parties from the commencement of this action; and (2) States that the Joinder Defendants agree to be bound by the rulings on Plaintiff's motions for summary judgment and to exclude expert testimony. (Id. ¶¶ 9, 13.)

         II. JOINT MOTION TO ADD DEFENDANTS

         The Parties agree that with the addition of the Joinder Defendants to the Underlying Lawsuit, they are necessary defendants in this action. (Joint Mot. to Add Defs., ¶¶ 1-2, 4-5.) The Court agrees that adding the Joinder Defendants is proper.

         III. MOTION TO EXCLUDE EXPERT TESTIMONY

         Plaintiff objects to the admission of Dr. Zuckerman's testimony pursuant to Federal Rule of Evidence 702 and Daubert. Defendant Xytex responds that Dr. Zuckerman meets all necessary requirements as a chemistry expert. The Court initially addresses the standard employed to analyze such disputes.

         A. Daubert Standard

         Federal Rule of Evidence 702 provides:

A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if:
(a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert has reliably applied the principles and methods to the ...

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