Millville Quarry, Inc. v. Liberty Mutual Fire Insurance

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
MILLVILLE QUARRY, INCORPORATED, 
Plaintiff-Appellant,
v.
 No. 01-2122
LIBERTY MUTUAL FIRE INSURANCE
COMPANY,
Defendant-Appellee.

Appeal from the United States District Court
for the Northern District of West Virginia, at Martinsburg.
W. Craig Broadwater, District Judge.
(CA-98-4-3)
Argued: February 25, 2002
Decided: March 19, 2002
Before WIDENER, WILLIAMS, and MOTZ, Circuit Judges.
Affirmed and remanded by unpublished per curiam opinion.
COUNSEL
ARGUED: Howard Gary Goldberg, GOLDBERG, PIKE & BES-
CHE, P.C., Baltimore, Maryland, for Appellant. Walter Minitre Jones,
III, MARTIN & SEIBERT, L.C., Martinsburg, West Virginia, for
Appellee. ON BRIEF: Michael A. Simpson, GOLDBERG, PIKE &
BESCHE, P.C., Baltimore, Maryland, for Appellant. James W.
Logan, Jr., James D. Jolly, Jr., LOGAN, JOLLY & SMITH, L.L.P.,
Anderson, South Carolina, for Appellee.
2 MILLVILLE QUARRY v. LIBERTY MUTUAL FIRE INSURANCE
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
OPINION
PER CURIAM:
In this diversity insurance dispute, Millville Quarry, Incorporated
appeals from the district court’s order granting summary judgment in
favor of its insurer, Liberty Mutual Fire Insurance Company. Millville
contends that a policy issued by Liberty entitles it to greater recovery
for expenses it incurred after a flood. For the reasons set forth below,
we affirm and remand.
I.
Millville owns and operates a quarry located in Millville, West Vir-
ginia. J.A. 534. Four permanent water pumps, which were designed
to remove natural accumulations of water from the quarry, were
affixed to a stationary platform inside the quarry approximately 25
feet above the quarry floor. Id.
In April 1997, the quarry flooded when water entered through the
quarry wall and floor. Id. The flood waters submerged the pumps,
rendering them inoperable, and caused Millville to suspend its quarry-
ing operations. J.A. 206, 366, 534-35.
In order to remove the water, Millville initially leased and installed
temporary diesel-powered pumps. J.A. 391, 535. These pumps proved
inadequate, however, to discharge the flood waters, which continued
to flow into the quarry at a variable rate of 15,000 to 35,000 gallons
per minute (gpm). J.A. 534. Millville therefore increased the pumping
capacity inside the quarry to 29,000 gpm by adding four more pumps,
which it mounted on a floating barge. J.A. 391, 535. These four
pumps were the same type and model as the four original pumps,
although they were powered by diesel fuel, rather than electric power.
J.A. 189, 191, 391-92. Millville first floated this pump barge on May
19, 1997, by which time the water level had peaked at 85 feet above
MILLVILLE QUARRY v. LIBERTY MUTUAL FIRE INSURANCE 3
the quarry floor. J.A. 535. According to Millville, however, the
pumps on the barge did not become fully operational until June 3,
1997, due to "a faulty breaker and constant interruptions of service
due to electrical switch gear problems." J.A. 515, 540.
The new pumps on the pump barge, together with the temporary,
portable pumps, were still insufficient to compensate for the water
inflow. J.A. 535. By mid-August 1997, Millville had floated a second
pump barge, mounted with yet more pumps, to achieve a total pump-
ing capacity of 33,000 gpm. J.A. 536. The combination of the two
pump barges plus the temporary pumps succeeded in stabilizing the
water level, albeit at a level above the four original permanent pumps
and platform, and Millville was able "to successfully continue mining
operations" by the end of October. J.A. 393, 515. Millville nonethe-
less determined that its network of pumps would be unable, over the
long term, to substantially lower the water level or reduce the water
inflow, which it predicted would increase over time, and concluded
that "[p]umping after the water has entered the quarry will exacerbate,
not solve the present [water] situation." J.A. 56.
Millville then searched for means, other than the ongoing addition
of pumps, to further reduce the water level and prevent future flood-
ing problems. Millville’s retained experts, after a water inflow inves-
tigation, opined that the flood waters were entering the quarry through
conduits that had developed in underground limestone formations.
J.A. 536. Beginning in late fall and early winter, contractors hired by
Millville grouted the formations with cement and hot bituminous
material. J.A. 68, 536. According to Millville, this grouting procedure
succeeded in lowering the water level in the quarry and in eliminating
or substantially reducing further water inflow from the Shenandoah
River. J.A. 469.
During the period in which these events occurred, Millville was a
named insured under a policy issued by Liberty, and its quarry was
a "covered location" under this policy. J.A. 533-34. The policy pro-
vided potential coverage to Millville for damage attributable to the
flood under two provisions: the Basic Property coverage and the
Additional Expense coverage. For purposes of both the Basic Prop-
erty coverage and the Additional Expense coverage, the "covered
property" includes only the four permanent pumps and platform, and
4 MILLVILLE QUARRY v. LIBERTY MUTUAL FIRE INSURANCE
not the land or quarried stone. J.A. 534. The parties also do not dis-
pute that the flood was a "covered cause of loss" that damaged the
permanent pumps and platform. J.A. 534.
Under its Basic Property coverage from Liberty, Millville was enti-
tled to (1) the "replacement cost" of the four permanent pumps and
platform "if actually repaired or replaced," or (2) the "actual cash
value" of the permanent pumps and platform "[i]f . . . not repaired or
replaced." J.A. 298-99. In the event Millville was entitled to the "re-
placement cost," the policy limited Liberty’s obligation to no more
than either (a) the cost to replace the four permanent pumps and plat-
form, "on the same site, with other property of identical material and
used for the same purpose" or (b) the cost to repair the four permanent
pumps and platform "with property of comparable material and qual-
ity and used for the same purpose." J.A. 299.
The Additional Expense provisions of the policy provided coverage
to Millville for the "actual and necessary ‘additional expense’" Mill-
ville incurred "due to ‘loss,’ caused by or resulting from COVERED
CAUSE OF ‘LOSS’, to COVERED PROPERTY[.]" J.A. 306
(emphasis in original). The policy defines the term "Additional
expense" as "all expenses that exceed the ‘normal’ operating expenses
of [the insured’s] ‘operations’ during the ‘period of recovery.’" J.A.
307. The "period of recovery," in turn, is defined as the period
between the date of the direct physical loss of the permanent pumps
and platform and the date on which the permanent pumps and plat-
form "should be repaired, rebuilt or replaced with reasonable speed
and similar quality." Id.
Pursuant to the Additional Expense provisions, Millville submitted
installments of costs incurred on its flood claim to Liberty Mutual at
various intervals. J.A. 535. Millville apportioned these costs across
four categories: operating interim or replacement water pumps
("pumping activities"), totaling $1,452,873.50; constructing and
maintaining floating pump barges, totaling $923,129.40; conducting
water inflow investigations, totaling $428,514.04; and grouting the
underground conduits, totaling $6,191,572.50. J.A. 34. Millville also
maintained that it was entitled to the replacement cost of the four per-
manent pumps and platform pursuant to its Basic Property coverage.
J.A. 35.
MILLVILLE QUARRY v. LIBERTY MUTUAL FIRE INSURANCE 5
Liberty Mutual advanced $450,000 to Millville, pursuant to the
Additional Expense provisions, toward the costs of pumping activi-
ties. J.A. 541. In addition, Liberty Mutual agreed to pay the replace-
ment cost of the four permanent pumps and platform, subject to the
policy’s limitations, once Millville submitted "documentation relating
to the damaged pumps." J.A. 70, 144. Liberty Mutual denied cover-
age, however, for the cost of continuing pumping activities, construct-
ing and maintaining floating barges, conducting water inflow
investigations, and grouting the limestone conduits on the ground that
they were not covered under the Basic Property or the Additional
Expense provisions. J.A. 69-70.
On February 6, 1998, Millville filed this action against Liberty
Mutual to recover all disallowed costs. J.A. 12-17. In its amended
complaint, Millville assessed these costs as having climbed to more
than $10,000,000. J.A. 207; R. Vol. II (Tab 63, at 3). The parties then
entered stipulations of fact and filed cross-motions for summary judg-
ment. J.A. 25-70; 71-92.
On March 29, 1999, the district court granted summary judgment
to Liberty Mutual, stating that Millville was not entitled to recover the
cost of its grouting procedures because such costs were not "neces-
sary to attempt to recover those permanent pumps," but instead were
incurred "to prevent the further inflow of water into the quarry in
order either to restore mining operations or to recover the land," nei-
ther of which were covered by the policy. J.A. 372-82. The court did
not address the parties’ dispute with respect to the scope of pumping
activities covered by the policy, the pump barges, or the water inflow
investigations, except to conclude that Liberty Mutual had "fulfilled
its obligations under the Policy" through its "advances of $450,000
[paid] primarily for pumping operations and related expenses." J.A.
380.
The district court denied Millville’s subsequent motion to clarify
or amend, but stated that in its view the pump barges, like the grout-
ing procedures, were not covered under the policy and that Liberty
Mutual "will be entitled to a credit for the amount of $450,000 which
has already been paid" once Millville "finalizes and documents its
claims." J.A. 433-38. The court then informed the parties that
although it was dismissing the case with prejudice, "any party may
6 MILLVILLE QUARRY v. LIBERTY MUTUAL FIRE INSURANCE
move to reopen the case, provided that such motion is filed within
ninety (90) days of the date of this Order." J.A. 438.
Millville appealed from the district court’s order. We remanded the
case without reaching the merits of Millville’s appeal because certain
issues remained unresolved and because the district court’s order
allowing parties to reopen the case violated the "final judgment rule."
See Millville Quarry, Inc. v. Liberty Mut. Fire Ins. Co., No. 99-2169,
2000 WL 1005202 (4th Cir. July 20, 2000). On remand, the parties
again filed cross-motions for summary judgment. J.A. 470-518. This
time, the parties set forth the remaining disputes, and their respective
positions as to these disputes, in a "Stipulation of Procedural History"
signed by both parties and the district court. J.A. 533-48.
On August 15, 2001, the district court granted summary judgment
to Liberty Mutual "on outstanding issues." J.A. 577-80. With respect
to the Basic Property coverage, the court held that as the "replacement
cost" of the four permanent pumps and stationary platform, Millville
was entitled to recover the original cost, $151,322.17, "less its deduct-
ible." J.A. 577. The court further held that Millville was not entitled
to recover the cost of the construction of the pump barges, the water
inflow investigations, or the grouting procedure because none was
necessary to recover the permanent pumps. J.A. 578-79. Finally, the
court granted summary judgment to Liberty Mutual "as to the dates
[Millville] replaced the permanent pumps with the Pump Barges and
the amount [Millville] is thereby entitled to recover for the Pump
Barges under the ‘Additional Expense’ coverage provisions of the
policy." J.A. 579. The court then dismissed the action, ruling that
"any and all obligations" owed by Liberty to Millville had been "re-
solved by payment and satisfaction." J.A. 580.
II.
Millville appeals the district court’s orders entering summary judg-
ment to Liberty Mutual. We review a district court’s grant of sum-
mary judgment de novo. Miller v. AT&T Corp., 250 F.3d 820, 830
(4th Cir. 2001). Here, the parties do not dispute the relevant facts, and
thus the inquiry is whether the district court properly applied the law
to those facts. Hopkins v. AT&T Global Info. Solutions Co., 105 F.3d
153, 155 (4th Cir. 1997).
MILLVILLE QUARRY v. LIBERTY MUTUAL FIRE INSURANCE 7
A.
As to the Basic Property coverage, Millville challenges the district
court’s determination that it was entitled only to $151,322.17, "less
its deductible," as the "replacement cost" of the four permanent
pumps and platform. Millville’s sole contention on the Basic Property
coverage is that because the district court ruled that it "replaced" its
permanent pumps with the first floating pump barge, it is entitled to
the cost of the floating pump barge as its "replacement cost."
This contention fails because the insurance policy expressly limits
recovery of the "replacement cost" to the cost to replace the four per-
manent pumps and stationary platform, "on the same site, with other
property of identical material and used for the same purpose" or the
cost to repair them "with property of comparable material and quality
and used for the same purpose." Millville admits that the floating
pump barge was qualitatively different from the four permanent
pumps and stationary platform, and therefore was not property of
"identical" or "comparable material." J.A. 514 (Millville stating that
"pump barges and pumps installed on them were not of ‘similar qual-
ity’ to the stationary platform and pumps"). Millville further acknowl-
edges that if it is not entitled to the cost of the floating barge as part
of the "replacement cost," then the original cost of the four permanent
pumps and stationary platform, or $151,322.17, represents an ade-
quate measure of the "replacement cost" of comparable equipment.
See J.A. 514, 518 n.a.
Given these concessions, the district court correctly held Millville
entitled to $151,322.17 (less its deductible) for the "replacement cost"
of the four permanent pumps and stationary platform under the Basic
Property coverage. See Georgia-Pacific Corp. v. Allianz Ins. Co., 977
F.2d 459, 461-62 (8th Cir. 1992) ("The policy makes clear that [the
insurer] will pay the lesser of repairing or replacing the property. If
the insured decided to replace the property with property of a better
kind or quality or of a larger capacity, [the insurer] will not pay for
the extra cost.").
B.
With respect to the Additional Expense coverage, Millville argues
that it is entitled to the cost of pumping water after the first pump
8 MILLVILLE QUARRY v. LIBERTY MUTUAL FIRE INSURANCE
barge was floated, constructing the pump barges, conducting water
inflow investigations, and grouting the underground conduits — a
series of costs amounting to more than $10,000,000. J.A. 176, 518;
R. Vol. II (Tab 42, at 2). In support of its claim for these costs, Mill-
ville relies on and seeks the benefit of the policy language providing
that "additional expenses" are "expenses that exceed the ‘normal’
operating expenses of [Millville’s] ‘operations’ during the ‘period of
recovery.’" J.A. 307. Millville further argues that the only causation
requirement is that the additional expenses be "due to" the flood.
Millville ignores, however, the express language and threshold limita-
tion of the Additional Expense provision, which requires the expenses
to be "actual and necessary" expenses "due to ‘loss,’ caused by or
resulting from [the flood], to covered property," i.e., the four perma-
nent pumps and platform, not all expenses "due to" loss caused by the
flood. (Emphasis added.) Cf. Archer-Daniels-Midland Co. v. Phoenix
Assurance Co., 936 F. Supp. 534 (S.D. Ill. 1996) (recognizing that
"extra expense" provision in policy covered liability "incurred as a
result of damage to covered property").
None of the additional expenses for which Millville seeks to
recover are "due to" damage to the permanent pumps and platform.
The operation of additional pumps after the first pump barge was
floated, the construction of the pump barges, the water inflow investi-
gations, and the grouting of the underground conduits would have
been required even if Millville’s four permanent pumps had remained
operational because the water inflow beginning in April 1997
exceeded the pumping capacity of the permanent pumps, making the
rising or fluctuating water level unavoidable. Indeed, Millville has
conceded that by October 1997, pumping activities were exacerbating
the water inflow problems rather than remedying them. Furthermore,
once Millville floated the first pump barge mounted with four pumps
identical to its four permanent pumps, and operated those pumps in
addition to temporary portable pumps, it proved its expenses were not
"due to" damage to the permanent pumps and platform; the status of
the quarry was exactly as (or better than) if the permanent pumps
were operational.1
1
We do not fault Millville for any of its undertakings in remedying the
effects of the flood and employing measures to prevent future floods.
MILLVILLE QUARRY v. LIBERTY MUTUAL FIRE INSURANCE 9
Similarly, it is clear that the "period of recovery," which imposes
a temporal rather than substantive limitation on the Additional
Expense coverage, ended on May 19, 1997, when the first pump
barge was floated. At that time, pumps having a total pumping capac-
ity of 29,000 gpm should have been operational.2 Millville’s ability
to operate pumps identical to its permanent pumps, from an alterna-
tive power source and on an alternative platform that would account
for the fluctuating water level, demonstrates that the permanent
pumps "should be repaired, rebuilt or replaced with reasonable speed
and similar quality" by this date.
This result accords with the district court’s grant of summary judg-
ment in favor of Liberty "as to the dates [Millville] replaced the per-
manent pumps with the pump barges," J.A. 579, because this date can
only be May 19, 1997. This is so because (consistent with its position
throughout the litigation) Liberty, in its motion for summary judg-
ment, after reciting the Stipulations of Procedural History verbatim,
expressly requested that the district court find "that Millville is enti-
tled to Additional Expense Coverage for pumping operations through
May 19, 1997, when Pump Barge 1 was floated." (J.A. 504) In addi-
tion, this is the only date from which the district court could conclude
from the Stipulation of Procedural History, without resolving factual
disputes, that Liberty’s payment of $450,000 satisfied its obligations
Such efforts presumably constituted a wise business decision if, as Mill-
ville predicted, erosion of the underground limestone conduits would
have led to future flooding problems and business interruption. Nonethe-
less, to the extent that the permanent pumps, or even a greater total of
pumps used after the flood, were incapable of remedying Millville’s
water problems, the district court correctly concluded that the costs were
incurred "to either restore mining operations or to recover the land" and
thus cannot be said to be "due to" damage to the permanent pumps.
2
Millville argues that the "period of recovery" continued at least until
June 3, 1997, when the pumps on the first pump barge were operational,
due to "a faulty breaker and . . . electrical switch gear problems." J.A.
515. This contention fails because these complications were unrelated to
damage to the permanent pumps or to the flood. Thus the May 19 date
appropriately represents the date on which the permanent pumps "should
be repaired, rebuilt or replaced with reasonable speed and similar qual-
ity." (Emphasis added.)
10 MILLVILLE QUARRY v. LIBERTY MUTUAL FIRE INSURANCE
under the Additional Expense coverage.3 The bulk of the costs for
which Millville seeks Additional Expense coverage, including pump-
ing activities conducted after May 19, 1997, construction of the sec-
ond pump barge, water inflow investigations undertaken after May
19, 1997, and grouting of the underground conduits therefore are fur-
ther barred as occurring outside the "period of recovery."
C.
Finally, Millville challenges the district court’s determination that
Liberty’s payment of $450,000 satisfies all of its obligations under the
policy. Millville argues, and Liberty agrees, that Liberty’s payment of
$450,000 satisfies only its Additional Expense coverage obligation,
and that Liberty’s obligation to compensate Millville for the "replace-
ment cost" of the permanent pumps and platform under the Basic
Property coverage remains outstanding. We therefore remand to the
district court for an order granting Millville $151,322.17, less its
deductible, under its Basic Property coverage, in addition to the
$450,000 already paid by Liberty in satisfaction of Millville’s claim
under the Additional Expense provision.
III.
For the reasons set forth above, we affirm the district court’s grant
of summary judgment in favor of Liberty, but remand for entry of an
order granting Millville judgment in the amount of $151,322.17, less
its deductible, for the "replacement cost" of the permanent pumps and
platform pursuant to its Basic Property coverage.
AFFIRMED AND REMANDED
3
Although Liberty stated that it would have paid only $394,116.49 of
Millville’s pumping costs through May 19, 1997, Liberty accepts that its
advance of $450,000 fully satisfies its Additional Expense obligations
because it has never made any claim for set-off or reimbursement and
only argued for a credit of that amount in the event it was held responsi-
ble for a greater sum. J.A. 504.