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Alaska Village Electric Cooperative, Inc. v. Zurich American Insurance Co.

United States District Court, W.D. Washington, Seattle

August 27, 2014



RICHARD A. JONES, District Judge.


This matter comes before the court on Defendants' motion regarding the testimony of James Bauer. The court GRANTS the motion (Dkt. # 72) solely to the extent stated in this order. This order concludes with a set of restrictions with which Plaintiff must comply if it wishes to rely on Mr. Bauer's testimony at trial.


The Ninth Circuit has ruled that there is a genuine issue of fact as to the meaning of the insurance policy (the "Policy") at issue in this case. Sneed Shipbuilding obtained the Policy in accordance with a vessel construction agreement that it entered in June 2010 with Microgen Technologies, Inc., a subsidiary of Plaintiff Alaska Village Electrical Cooperative, Inc. ("AVEC"). The Policy is an American Institute of Marine Underwriters standard shipbuilder's risk policy that omits "Addendum No. 2." The court discussed the Policy and Addendum No. 2 in its order on the parties' summary judgment motions, and does not repeat that discussion here. For present purposes, it suffices to observe that the meaning of the omission of Addendum No. 2 is critical to AVEC's dispute with the issuers of the Policy over whether it covers repairs to faulty welds discovered during the construction of the two vessels that Sneed built for Microgen. The Ninth Circuit has held that extrinsic evidence, including information about the intent of Microgen, Sneed, and the underwriters from whom they obtained the Policy, creates a genuine issue of material fact underlying the interpretation of the Policy.

A. Attorney James Bauer Played an Integral Role in Advising the Parties on Obtaining Insurance for Their Shipbuilding Contract.

Some of the extrinsic evidence that AVEC hopes to rely on at trial comes from its attorney, James Bauer. As the court will discuss, to what extent Mr. Bauer continues to represent AVEC or its allies is not clear. What is clear is that he represented Microgen and its agent, Vitus Marine, LLC, in negotiations with Sneed over a contract for Sneed to build two barges for Microgen. Those negotiations culminated in a June 2010 meeting with Mr. Bauer, Mark Smith (who was representing Vitus and Microgen) and Mitch Jones from Sneed to finalize the construction agreement. The vessel construction agreement, which was based on a standard shipbuilding contract that Mr. Bauer had used for years, required the parties to obtain a standard shipbuilder's risk insurance policy that omitted Addendum No. 2. Mr. Bauer will testify that he told Mr. Smith and Mr. Jones that in order to ensure that the policy they obtained covered faulty workmanship, they must adhere to the construction agreement's requirement for a standard policy that omitted Addendum No. 2. During the same meeting, Mr. Bauer spoke on the telephone with insurance brokers for both Vitus and Sneed, offering the same explanation as to how the parties should obtain an insurance policy that covered the risk of faulty workmanship by deleting Addendum No. 2 from the standard policy.

After they signed the vessel construction agreement at the end of their meeting with Mr. Bauer, Microgen and Sneed made their own arrangements to find underwriters for the policy that the agreement demanded. Mr. Bauer did not assist them, nor did he know the underwriters they might approach.

Two underwriters later contacted Mr. Bauer to ask him questions about the insurance policy he had envisioned in the Sneed-Microgen vessel construction agreement. According to Mr. Bauer, he gave both underwriters the same overview of the policy that he had given to Mr. Smith and Mr. Jones, including his view on the omission of Addendum No. 2. Mr. Bauer does not recall the name of one of the underwriters or, apparently, the insurer for whom he or she worked. The other underwriter, Linda Windham, worked for National Casualty, one of the insurers who ultimately underwrote the policy. At the time Mr. Bauer spoke to her, he did not know if National Casualty would underwrite the policy.

Mr. Bauer had no further involvement until April 2011, when Mr. Smith called to inform him that an inspector had discovered the faulty welds on the barges, which were still in construction. Repairing the welds would cost more than a million dollars. Mr. Bauer advised Mr. Smith that Sneed should make a claim on the Policy. The underwriters denied the claim, which led to this litigation. In the lead-up to this suit, Mr. Bauer helped negotiate a settlement between Sneed and AVEC.

B. AVEC Sues the Underwriters of the Policy After They Deny Coverage for Repairing the Faulty Welds; Mr. Bauer Offers His Testimony.

AVEC sued each of the five underwriters, including National Casualty, who issued the Policy to Sneed. Mr. Bauer has continued to assist AVEC during the litigation.

Mr. Bauer submitted two declarations on behalf of AVEC in connection with its motion for partial summary judgment. They contained his account of the facts the court outlined in the previous subsection, but they also included many statements about Mr. Bauer's own view of the effect of excluding Addendum 2 from the standard shipbuilder's risk policy. They include this statement:

I believed and continue to believe the '79 builders risk clauses provide coverage for "faulty workmanship" and "faulty production procedures." And the Marine insurance industry agrees with me. My own experience with marine underwriters and ...

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