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Joseph Skilken & Co. v. Berkley Aviation LLC

United States District Court, D. Maine

March 27, 2018

JOSEPH SKILKEN & CO., Plaintiff,
v.
BERKLEY AVIATION LLC, Defendant.

          ORDER ON MOTION FOR ORDER REDUCING PLAINTIFF JOSEPH SKILKEN & CO.'S AWARD OF DAMAGES

          JOHN A. WOODCOCK, JR., UNITED STATES DISTRICT JUDGE

         In this reach and apply action, the Court grants in part and denies in part the Defendant insurer's motion to reduce the damages the Court previously awarded by default judgment against the insured entity.

         I. PROCEDURAL HISTORY

         This lawsuit follows another.

         A. Joseph Skilken & Co. v. Oxford Aviation, Inc.: 2:13-cv-00322-JAW

         The first lawsuit began on August 21, 2013, when Joseph Skilken & Co. (Skilken) filed a civil action against Oxford Aviation, Inc. (Oxford) in this Court. Joseph Skilken & Co. v. Oxford Aviation, Inc., No. 2:13-cv-00322-JAW, Compl. (ECF No. 1). Skilken served Oxford on August 26, 2013. Summons in a Civil Action (ECF No. 7). After Oxford failed to file a timely answer, on September 18, 2013, Skilken filed a motion for entry of default. Pl's Req. for Entry of Default (ECF No. 8). On September 18, 2013, the Clerk of Court entered default against Oxford. Order Granting Mot. for Entry of Default (ECF No. 8). On October 16, 2013, Skilken moved for default judgment. Pl's Mot. for Default J. (ECF No. 10).

         On October 24, 2013, the Court issued an order, requiring Skilken to comply with Key Bank v. Tablecloth Textile Co., 74 F.3d 349 (1st Cir. 1996), either by giving notice to Oxford of the damages hearing or by filing affidavits establishing that Oxford had not "appeared" within the meaning of Key Bank. Order on Mot. for Default J. (ECF No. 18). On November 15, 2013, the Court issued an order on Skilken's motion for default judgment, raising questions about two areas of claimed damages. Order on Mot. for Default J. at 5-6 (ECF No. 21). The Court ordered Skilken to file a further explanation of the bases for these two areas of claimed damages. Id.

         Specifically, in its November 15, 2013 Order, the Court expressed concern as to the propriety of aspects of the damages Skilken claimed were associated with replacement travel. Id. at 5-6. The Court wondered whether Skilken might have calculated the claimed damages in such a way as to include "expenses that it actually avoided while the Cessna was idle." Id. at 6. It also stated that "[o]f course, Mr. Skilken's personal trips could not be properly claimed as part of the damages suffered by the business." Id. Additionally, the Court observed that, by not crediting against its damages figure for replacement travel any expense that it would have incurred from using the aircraft, "Skilken has presented a gross damages figure but has failed to set forth a net damages figure." Id. The Court found that "[t]he remaining damages claims are in order, " not requiring further inquiry. Id.

         On the same day, Skilken's counsel wrote to the Court, affirming that Skilken accepted a damages order without the two areas of damages the Court had questioned. Notice Concerning Pl's Resp. to Order on Mot. for Default J. (ECF No. 22). On November 28, 2013, the Court issued an order granting judgment in favor of Skilken and against Oxford in the total amount of $423, 295.77. Order on Mot. for Default J. (ECF No. 23).[1] The Court confirmed that it found that Skilken had proven these elements of damage and that they were proper. Id. at 2.

         B. Joseph Skilken & Co. v. Berkley Aviation LLC: 2:15-cv-00161-JAW

         On May 1, 2015, Skilken[2] filed a complaint in this Court against Berkley Aviation LLC (Berkley) claiming its right to reach and apply the proceeds of an insurance policy Berkley issued to Oxford in effect at the time of the event giving rise to the damages. Compl. to Reach and Apply Insurance Benefits (ECF No. 1). On June 30, 2015, Berkley answered the complaint. Answer to Compl. (ECF No. 6). On November 30, 2015, Skilken moved to amend the complaint to add a third count. Pis.' Mot. to Amend Compl. (Consent Mot.) (ECF No. 14). On December 1, 2015, the Court granted the motion to amend the complaint. Order Granting Without Obj. Mot. to Amend (ECF No. 16). On December 2, 2015, Skilken filed the First Amended Complaint. First Am. Compl. (ECF No. 18). On December 16, 2015, Berkley answered the First Amended Complaint. Def. 's Answer to Pis. 'Am. Compl. (ECF No. 19).

         On June 17, 2016, Skilken filed a motion to obtain a court order clarifying the effect of Berkley's June 17, 2016 tender of a check for $105, 179.09 to Ms. Skilken. Pis.'Mot. to Determine Effect of Tender (ECF No. 34) (Tender Mot.). On July 8, 2016, Berkley filed its opposition. Def. Berkley Aviation's Resp. to Pis.'Mot. to Determine Effect of Tender (ECF No. 38) (Tender Opp'n).

         On July 18, 2016, Skilken filed a motion for summary judgment, Pis.'Mot. for Summ. J. (ECF No. 39) (Skilken Mot.), with a statement of facts, Pis.' Statement of Material Facts (ECF No. 40) (PSMF), and a set of stipulated facts. Stip. (ECF No. 41). Skilken requested oral argument. Skilken Mot. at 1. On August 8, 2016, Berkley filed a response to Skilken's motion for summary judgment, Def. Berkley Aviation's Opp'n to Pis.'Mot. for Summ. J. (ECF No. 48) (Berkley Opp'n), and a response to its statement of facts. Def. Berkley Aviation's Opposing Statement of Facts (ECF No. 49) (DRPSMF). On August 15, 2016, Skilken replied to Berkley's opposition to its motion for summary judgment. Pis.'Reply to Mem. in Opp'n to Pis.'Mot. for Summ. J. (ECF No. 50) (Skilken Reply).

         On July 18, 2016, Berkley filed a cross-motion for summary judgment, Def. Berkley Aviation's Mot. for Summ. J. (ECF No. 43) (Berkley Mot.), with a statement of facts. Def. Berkley Aviation's Statement of Material Facts (ECF No. 44) (DSMF). On August 6, 2016, Skilken responded to Berkley's motion, Pis.'Mem. in Opp'n to Def.'s Mot. for Summ. J. (ECF No. 45) (Skilken Opp'n), and filed a responsive statement of facts. Pis.' Opposing Statement of Material Facts (PRDSMF). On August 17, 2016, Berkley replied to Skilken's opposition to its motion for summary judgment. Def. Berkley Aviation's Reply to Pis.' Opp'n to Def.'s Mot. for Summ. J. (ECF No. 52) (Berkley Reply).

         On August 16, 2016, the Court granted the motion for oral argument, Order Granting Mot. for Oral Arg. and Hr'g (ECF No. 51), and on March 8, 2017, the Court held oral argument on the pending motions. Min. Entry (ECF No. 56). On March 15, 2017, the Court issued an order on the cross-motions. Order on Mot. to Determine Effect of Tender & Cross-Mots, for Summ. J. (ECF No. 57) (Summ. J. Order). The Court granted Skilken's motion on Count One of its Complaint only insofar as the Court determined that the Defendant is liable to the Plaintiff under 24-A M.R.S. § 2904, Maine's reach and apply statute. Id. at 40. The Court granted Berkley's motion on Count Two of the Complaint. Id. The Court dismissed both motions as to Count Three of the Complaint, and it denied the remainder of both motions. Id. at 40-41. At the urging of the parties, the Court left for later the reasonableness of the damages awarded in the default judgment against Oxford. Summ. J. Order at 1, 40.

         That time arrived soon after the Court issued its order on the cross-motions for summary judgment. On April 20, 2017, Berkley filed a motion to reduce the damages the Court awarded Skilken in the default judgment against Oxford. Def. Berkley Aviation's Mem. Regarding Pl's Alleged Damages (ECF No. 63) (Def. 's Mot.). Berkley filed twelve attachments with its motion. Def.'s Mot. Attachs. 1-12. Skilken filed its opposition on May 11, 2017, along with two attachments. Pl's Obj. to Def.'s Mot. Regarding Pl's Alleged Damages (ECF No. 66) (Pl's Opp'n); Id. Attachs. 1-2. On May 25, 2017, Berkley replied and filed two attachments. Def. Berkley Aviation's Reply to Pl's Obj. to Def. 's Mem. Regarding Pl's Alleged Damages (ECF No. 67) (Def. 's Reply); Def's Reply Attachs. 1-2 (ECF No. 68). On June 2, 2017, Skilken filed a sur-reply. Pl's Sur-Reply to Def's Reply to Pl's Obj. to Berkley Aviation's Mot. Regarding Pl's Alleged Damages (ECF No. 72) (Pl's Sur-Reply). It filed two attachments. Pl's Sur-Reply Attachs. 1-2.

         On June 9, 2017, the Court held a telephone conference with counsel during which it discussed its concern about the way the issues in the case had been framed. Min. Entry (ECF No. 74). The Court observed that Skilken's First Amended Complaint alleged that the hard landing of May 13, 2013 had proximately caused damages to Skilken and that Berkley had denied those allegations. Then, on March 15, 2017, the Court had issued an order, concluding that Berkley is liable to Skilken under the reach and apply statute but leaving open the question of damages. As the Court had understood the lawsuit, two questions were left for resolution: (1) what damages were caused by the hard landing; and (2) were the causally-related damages reasonable. The Court did not understand that there was a third issue, namely whether reasonable damages caused by the hard landing were excluded under the terms of the Berkley policy. Yet, in its filings, Berkley had raised a "Your Work" policy exclusion as a defense as regards the so-called "bad paint job" claim of $62, 175. In response, Skilken questioned whether Berkley could raise a policy exclusion as a defense.

         The Court discussed a distinction between causation and exclusion. The Court informed counsel that it thought Berkley was entitled to defend the reach and apply action based on its contention that the bad paint job had nothing to do with the hard landing because Skilken's civil action is premised on the allegation that its damages were caused by the hard landing.

         However, the Court said it had doubts about whether Berkley could assert that, even though reasonable damages were caused by the hard landing, those damages were excluded under the terms of the policy. This is because an insurer is generally required to place the insured on notice as to the reasons a claimed loss is not covered under the terms of the policy. Here, as the Court understood it, Berkley merely informed Oxford that there was no coverage at all because the policy had lapsed, not that if the policy were effective, some elements of the claimed damages would not be covered.

         The Court was not certain whether it would need to reach the issue because, if it concluded that the bad paint job was not caused by the hard landing, it would not need to address whether the bad paint job was covered or excluded under the policy. The Court suggested to counsel that they supplement their briefing to address the Court's concerns.

         On June 20, 2017, Skilken filed a brief addressing these issues. Pl's Additional Br. Concerning Berkley Aviation's Mot. Regarding Pl's Alleged Damages (ECF No. 77) (Pl's Addt'l Br.). On June 28, Berkley filed its response with two attachments. Def. Berkley Aviation's Resp. Br. to Pl's Additional Br. Regarding Pl's Alleged Damages (ECF No. 80) (Def.'s Addt'l Opp'n) Attachs. 1-2. Skilken replied on July 7, 2017. Pl's Reply to Berkley Aviation's Resp. to Pl's Additional Br. Regarding Pl's Alleged Damages (ECF No. 81) (Pl's Add'l Reply).

         II. THE PARTIES' POSITIONS

         A. Berkley's Motion

         In its motion, Berkley reiterated the categories of damages that Skilken claimed leading to the Court's November 15, 2013 damages award to Skilken in the amount of $423, 295.77:

(1) Repairs to the Cessna aircraft as a result of emergency landing, totaling $138, 848.59;
(2) Repair of the defective work performed on the Cessna aircraft by Oxford in the amount of $62, 175.00;
(3) Expenses from the unexpected stop in Colorado Springs, Colorado in the amount of $2, 371.31;
(4) Expenses related to flight-testing the Cessna after the repairs in the amount of $2, 425.79;
(5) Loss of use for the Cessna for three and one-half months in the amount of $53, 840.00;
(6) Replacement travel during the period the Cessna was unavailable due to repairs in the amount of $17, 475.08;
(7) Rental of a Net Jets plane for a planned flight in the amount of $38, 916.47;
(8) Rental vehicles for trips where the Cessna would have been used in the amount of $1, 933.14; and
(9) Diminished value of the Cessna aircraft from repaired damage caused during the emergency landing in the amount of $200, 000.

Def.'s Mot. at 1-2 (citing Summ. J. Order at 4-5). Noting that the Court expressed compunctions about items five, seven and eight, Berkley observed that Skilken withdrew those claims, which totaled $94, 749.61, leading to a net damages award of $423, 295.77. Id. at 2-3. Berkley affirmed that it does not challenge the reasonableness of Skilken's claimed damages as to categories one ($138, 848.59 for repairs due to the emergency landing); three ($2, 371.31 for expenses due to the unexpected stop in Colorado Springs); and four ($2, 425.79 for expenses due to flight testing). Id. at 3. Berkley challenged the reasonableness of categories two ($62, 175.00 to repair defective work Oxford performed on the Cessna), six ($17, 475.08 for replacement travel during the time the Cessna was unavailable while being repaired), and nine ($200, 000.00 for diminished value of the Cessna aircraft). Id. Thus, with Berkley's concessions, the area of dispute melted from $423, 295.77 to $279, 650.08.

         1. The Defective Work Claim

         In its motion, Berkley argued that Skilken's claim of $62, 175 for Oxford's "bad paint job" is not the proper subject of the reach and apply action because it is not a covered loss under the Berkley policy. Id. at 3-4. Quoting 24-A M.R.S. § 2093, Berkley emphasized that a reach and apply action is proper only when a "loss or damage, for which the insured is responsible, occurs." Id. at 4. It contended that the Berkley policy insuring Oxford expressly excludes Oxfords own work from coverage, the so-called Your Work exclusion. Id. at 4-5 (citing id. Attach. 8 Commercial General Liability Aviation Insurance Policy Coverage A-Bodily Injury and Property Damage Liability § 2(j)(6) (Oxford Policy)). Berkley further maintained that coverage for the bad paint job would be unavailable under the Hangarkeeper's Liability section of the policy. Id. (citing Oxford Policy Coverage D-Hangarkeepers' Liability § 2(e)). Finally, Berkley said that the bad paint job would not qualify as a "Loss" or "Occurrence" under the policy. Id. at 5 (citing policy definitions).

         2. The Replacement Travel Claim

         A second category of damages is Skilken's claim for replacement travel in the amount of $17, 475.08; the amount Skilken paid for certain persons to fly on commercial aircraft while Skilken's Cessna was under repair. Id. at 6. Berkley contended that at least one of these trips was purely personal, namely, for Steve Skilken, President of Joseph Skilken & Company, to travel to St. Louis, Missouri to attend a diving meet for his daughters. Id. at 6-7. Berkley argued that the cost of this trip should be excluded because the cost did not represent damages to Skilken as a business and was not specific enough to be compensable. Id. at 7. In addition, Berkley isolated a trip to Dallas, Texas for which it maintains Skilken provided inadequate documentation. Id. Finally, Berkley objected to a trip to Milan, Italy on the ground that this trip is not sufficiently related to Skilken's business to be compensable under the Oxford policy. Id. at 7.

         3. The Diminished Value Claim

         Berkley disputed the $200, 000 loss of value figure for the Cessna aircraft on three bases: (1) after the May 31, 2013 hard landing, Skilken agreed to a value of the Cessna equal to $1.6 milhon; (2) Skilken's valuations expert Wayne Muhler's methodology for arriving at the $200, 000 diminished value figure was flawed because it did not account for actual sales figures of comparable aircraft; and (3) Wayne Muhler's valuation of the diminished value of the Cessna was flawed because the parties dispute the fair market value of the aircraft to begin with. Id. at 8-17.

         4. The Reasonableness Standard

         Finally, Berkley cited Patrons Oxford Insurance Company v. Harris, 2006 ME 72, 905 A.2d 819 and Planalto v. Ohio Casualty Insurance Company, No. 2:07-cv-00142-DBH, 2008 U.S. Dist. LEXIS 41036 (D. Me. 2008) for the proposition that an insurer is not liable for damages awarded in an uncontested default hearing if the damages are determined to be unreasonable. Id. at 17. Berkley acknowledged that Harris and Planalto place the burden to prove unreasonableness on different parties: Harris on the insured, and Planalto on the insurer. Id. But it said that Harris controls because it is a matter of state substantive law. Id. In total, Berkley urged the Court to find the $62, 175.00 for repair of defective work uninsured, the replacement travel portion of $17, 475.08 unrelated to Skilken's loss as a business, and the diminished value of the Cessna to equal $40, 308 based on Berkley's expert's valuation. Id. at 18. Berkley asked the Court to reduce the damage award from $423, 295.77 to $143, 645.69. Id. at 19.

         B. Skilken's Response

         1. Waiver of Exclusions

         In its response, Skilken acknowledged that a Planalto proceeding "allows an insurer to challenge the reasonableness of, in this case, damages awarded in a default judgment." Pl's Opp'n at 2 (quoting Planalto, 2008 U.S. Dist. LEXIS 41036, at *20-21). However, Skilken argued that, even though Berkley may contest the reasonableness of the damages, it may not now assert coverage defenses because Berkley may not "plead and prove a policy coverage exception which should have been brought, if at all, by counterclaim." Id. It explained that Maine law places a burden on the plaintiff in a reach and apply action to prove coverage under the insurer's policy, but it places a burden on the insurer to prove an exclusion to coverage. Id. (citing Mut. Firelns. Co. v. Hancock, 634 A.2d 1312, 1312-13 (Me. 1993)).

         Skilken pointed out that in its March 15, 2017 decision on the cross-motions for summary judgment, the Court concluded that the Berkley policy was in effect when the hard landing occurred and that Berkley had sufficient notice of the Skilken claim to allow the policy to be reached. Id. at 3. Skilken conceded that when an insurer defends a civil action under a reservation of rights and the insured enters into a settlement without its consent, the insurer "is free to litigate the facts of coverage in a declaratory judgment action brought after the settlement is entered." Id. (quoting Harris, 2006 ME 72, ¶ 22, 905 A.2d 819). But Skilken contended that in order to raise a policy exclusion as a defense, an insurer must preserve the exclusion by filing a declaratory judgment action, by asserting a counterclaim in the reach and apply action, or at a minimum by asserting the coverage exclusion as an affirmative defense in the reach and apply action. Id. (citing Harris, 2006 ME 72, ¶ 16, 905 A.2d 819; Fed.R.Civ.P. 13(a)(1)). Here, Skilken observed that Berkley refused Oxford's demands for a defense and for indemnification, and it asserts that "by doing so waived its right ... to assert the policy exclusions it now argues." Id. at 4. It noted that Berkley did not file a counterclaim to the reach and apply action and did not raise coverage exclusions as an affirmative defense to the reach and apply action. Id.

         Skilken speculated that Berkley may have "made an early strategic decision to go 'all or nothing'-to rely entirely on its dual arguments that the policy terminated before the hard landing and that even if the policy were in effect insufficient notice defeated reach and apply-rather than risk offering an additional argument which, while preserving policy exclusion defenses, might tacitly concede that the policy was in effect and notice sufficient." Id. In any event, Skilken claimed, Berkley is "bound by its choices." Id.

         2. Burden of Proof on Insurer

         Skilken disputed Berkley's contention that the burden to prove the reasonableness of the damages rests with Skilken. Id. at 4-6. It distinguished Harris, where the Maine Supreme Judicial Court was confronted with the appearance of collusion between the plaintiff and defendant in the underlying action and held that it was the plaintiffs burden to demonstrate that the settlement was "reasonable" and "nonfraudulent." Id. (quoting Harris, 2006 ME 72, ¶ 21, 905 A.2d 819). Here, by contrast, Skilken pointed out, the underlying judgment was judicially-awarded after the entry of default and a damages hearing. Id. at 4-5. Skilken also noted that if Berkley had provided a defense as it was required to do under the Oxford policy, it would have been represented through insurance defense counsel at the damages hearing. Id. at 5. Skilken stated that the Court issued the underlying judgment only after receiving declarations and other proof and only after challenging certain elements of the damages claim, which Skilken withdrew. Id. Skilken argued that Planalto stated the proper rule for this case, namely that the insurer bears the burden to demonstrate the awarded damages are unreasonable. Id. at 5-6.

         3. Judicial Determination of Berkley's Liability

         Skilken quoted the Court's March 15, 2017 order, "[t]he Policy, if it was in effect at the time of the hard landing, would also have required [Berkley subsidiary] StarNet to indemnify Oxford for the claims set forth in the case of Joseph Skilken & Co. v. Oxford Aviation, Inc., 2:13-cv-00322-JAW." Id. at 6 (quoting Summ. J. Order at 8). Skilken stated that the Court's order did not "distinguish between losses which might have been covered under the policy and losses which the policy might have excluded from coverage." Id.

         4. Equitable ...


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