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Berry Plastics Corp. v. Illinois National Insurance Co.

United States District Court, S.D. Indiana, Evansville Division

March 22, 2017

BERRY PLASTICS CORPORATION, Plaintiff,
v.
ILLINOIS NATIONAL INSURANCE COMPANY, Defendant.

          ENTRY ON CROSS MOTIONS FOR SUMMARY JUDGMENT

          RICHARD L. YOUNG, JUDGE

          This case arises out of a lawsuit between Plaintiff, Berry Plastics Corporation, and its former customer, Packgen, which resulted in a $7.2 million jury verdict against Berry. Packgen v. Berry Plastics Corp., et al., Cause No. 2:12-cv-80-JAW (D. Maine). At the time of the events alleged in the Packgen lawsuit, Berry had $1 million in commercial general liability (or “CGL”) insurance coverage with Federal Insurance Company and an additional $25 million in commercial umbrella liability insurance coverage that was issued by the Defendant herein, Illinois National Insurance Company. Federal agreed to defend and indemnify Berry in the Packgen lawsuit; Illinois National did not.

         In Count I of Berry's Complaint for Declaratory Relief and Damages, Berry seeks a declaration that Illinois National had a duty to defend and indemnify it against the Packgen lawsuit, including the judgment and appeal. Berry brings two additional claims against Illinois National: breach of contract (Count II) and bad faith (Count III).

         Illinois National moves for summary judgment on Counts I-III of Berry's Complaint or, in the alternative, moves for summary judgment on Count II and III. Berry, in turn, cross-moves for summary judgment on Counts I-II. The court, having read and reviewed the parties' written submissions, the designated evidence, and the applicable law, now GRANTS Illinois National's Motion for Summary Judgment and DENIES Berry Plastics' Cross-Motion for Summary Judgment.

         I. Background

         Packgen manufactures and sells intermediate bulk containers (“IBCs”) that are used, among other applications, by petroleum refineries to transport and store catalyst, a chemical agent used to refine crude oil. (Filing No. 1-2, Packgen Complaint ¶ 4). Packgen manufactured the subject IBCs out of a woven polypropylene fabric that is chemically bonded to a layer of foil laminate. (Id. ¶ 6). The design was custom-made for CRI, one of Packgen's customers and a producer of fresh catalyst. (Filing No. 41-1, Trial Transcript of John Lapoint[1] (“Lapointe Tr.”) at 34). Berry manufactured and sold the foil laminate to Packgen. (Id. at 17).

         From October 2007 to March 2008, CRI purchased 7, 567 IBCs for nearly $1.5 million, and it placed an order for 1, 359 IBCs to be delivered in April 2008. See Packgen v. Berry Plastics Corp., 847 F.3d 80, 84 (1st Cir. 2017). Packgen also marketed its newly-designed IBC to other refineries in North America, focusing on thirty-seven refineries where CRI supplied catalyst containers. (Lapointe Tr. at 83).

         The Packgen lawsuit arises out of an incident that occurred at CRI on April 4, 2008. (Id. at 43, 59). While CRI was lifting an IBC to reposition the container, the foil laminate separated from the woven fabric such that the liner of the IBC was exposed. (Id. at 59, 65). The liner is meant to work as an oxygen barrier to the catalyst to prevent the catalyst from self-heating. (Id. at 65). After the incident, CRI cancelled its pending order for 1, 359 IBCs with Packgen and has not purchased any IBCs since that time. (Id. at 81-82). In addition, the thirty-seven refineries did not order IBCs as Packgen had anticipated. (Id. at 105).

         On December 9, 2011, Packgen brought suit against Berry for breach of contract, breach of express warranty, breach of implied warranty of fitness for a particular purpose, breach of implied warranty of merchantability, and negligence, in the Superior Court for Androscoggin County, Maine. (Filing No. 1-2, Packgen Complaint at 84-91). The Packgen lawsuit was subsequently removed to the United States District Court for the District of Maine, under Cause No. 2:12-cv-80-JAW.

         Berry timely notified Federal and Illinois National of the Packgen lawsuit. (Filing No. 55-8, Declaration of Allyson Claybourn (“Claybourn Decl.”) ¶ 5). Federal agreed to defend and indemnify Berry. (Id. ¶ 6). Illinois National assigned a claims administrator who monitored and received regular updates on the Packgen lawsuit. (Id. ¶ 7). In June 2013, Illinois National retained coverage counsel to provide legal advice, and in October 2013, sent a reservation of rights letter to Berry. (Filing No. 42-3, Responses of Illinois National to Berry's First Set of Interrogatories at 22-23).

         In September 2014, Illinois National's claims administrator contacted Berry to advise that the investigation to date indicated covered exposure was within the limits of the Federal Policy and thus, the Illinois National Policy was not implicated. (Id. at 23). In November 2014, Illinois National sent a supplemental reservation of rights to Berry. (Id.).

         On December 10, 2014, Illinois National's coverage counsel sent a letter to Berry explaining its position that “lost anticipated profits due to anticipated orders that never materialized” are not property damages within the meaning of the Policy. (Filing No. 55-10, Letter dated December 10, 2014). On December 12, 2014, Illinois National attended a mediation of the Packgen lawsuit with Federal. (Filing No. 55-9, Claim Notes). Although Federal offered its $1 million policy limits, Illinois National explained its coverage position to the mediator. (Id.). The mediation unsuccessfully concluded. (Id.).

         The case went to trial in November 2015. As is relevant to the present motion, Packgen's President, John Lapointe, testified that Packgen's out-of-pocket losses due to Berry's defective product totaled $643, 039.30. (Lapointe Tr. at 92). Packgen's damages expert, Mark Filler, testified that Packgen's lost profits from cancelled orders from CRI would have netted Packgen future profits of $130, 629.93. Had CRI continued to do business with Packgen, Filler opined, its sales over the succeeding ten-year period would have earned Packgen future profit of $4, 606, 405.00. (Filing No. 41-2, Trial Transcript of Mark Filler (“Filler Tr.”) at 26). With regard to the thirty-seven oil refineries which expressed interest in purchasing IBCs from Packgen but changed their minds after the incident, Filler testified that Packgen would have earned future profits of $1, 957, 202.00 over a ten year period. (Id. at 48). In Filler's opinion, anticipated lost profits damages totaled $6, 563, 607.00. (Id. at 42, 48). In addition, the jury was instructed on legal cause; in particular, whether Packgen's damages were “either a ‘direct result' or a ‘reasonably foreseeable consequence' of the act or failure to act.” (Filing No. 55-4, Jury Instructions at 10). The jury was also instructed on the following:

If you should find for Packgen in accordance with these instructions, then you must determine the amount of damages to which Packgen is entitled as a result of injuries proximately caused by Berry . . . . The elements of damages at issue in this case may include: Actual damages; Incidental damages; and Consequential damages.

(Id. at 13-14).

         The jury returned a verdict in favor of Packgen and against Berry on November 12, 2015, in the amount of $7, 206, 646.30 ($643, 039.30 $6, 563, 607.00). (Filing No. 55-5, Special Verdict Form). The district court entered judgment in favor of Packgen and against Berry the following day.

         On November 23, 2015, Berry notified Illinois National of the verdict and requested coverage for the verdict and subsequent judgment. (Claybourn Decl. ¶ 8; Filing No. 55-11, Nov. 23, 2015 Letter). Illinois National maintained that its Policy did not cover Berry's exposure beyond the limits of the Federal Policy. (Claybourn Decl. ¶ 8).

         Berry appealed the judgment to the First Circuit Court of Appeals, contending that the district court erred by: (1) denying its motion to exclude Filler's testimony, (2) allowing Packgen employees to testify concerning potential customers' intent to purchase Packgen's IBCs, and (3) denying Berry's motion for judgment as a matter of law, a new trial, or to alter or amend the judgment. Packgen Corp., 847 F.3d at 83. On February 1, 2017, the First Circuit Court of Appeals affirmed the judgment of the district court. Id. at 91.

         II. Berry's Insurance Coverage

         At the time of the events alleged by Packgen, Berry had two commercial general liability policies to protect it against any liability it may face stemming from its products: the Federal commercial general liability policy covering the first $1 million in liability, and the Illinois National commercial umbrella liability policy covering the next $25 million. (Claybourn Decl. ¶ 4; Filing No. 42-2, Federal Policy at ¶ 000087; Filing No. 42-4, Illinois National Policy at ¶ 0017914). Both policies are occurrence-based and include “products-completed operations” coverage. (Federal Policy at ¶ 000118; Illinois National Policy at ¶ 0017924).

         The Federal Policy provides that it will “pay damages that [Berry] becomes legally obligated to pay by reason of liability: imposed by law; or assumed in an insured contract; for . . . property damage caused by an occurrence.” (Federal Policy at ¶ 000091). The Illinois National Policy provides that it will “pay on behalf of [Berry] those sums in excess of the Retained Limit [the $1 million in the Federal Policy] that [Berry] becomes legally obligated to pay as damages by reason of liability imposed by law because of . . . Property Damage . . . to ...


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