979 F. Supp. 2d 385
S.D.N.Y.2013Background
- Granite Ridge Energy suffered damage to a generator and transformer at its New Hampshire power plant; insurers issued “all risk” policies and liability for the generator (but not the transformer) was previously resolved in plaintiff’s favor.
- Parties submitted competing calculations of damages: agreed $53,242.91 for generator repair costs; dispute over business-interruption loss for July 7–19, 2006 (Plaintiff: $3,351,105; Defendants: $3,298,819) and certain model adjustments.
- Defendants’ expert (BCS) proposed a $40,301 “variance” reduction based on comparing the model to actual results for Jan–Mar 2006, and an $11,985 reduction based on an alleged model error in “water and chemicals” data.
- Defendants had filed a Rule 56.1 counterstatement admitting a business-interruption loss of $3,310,804, which did not reflect the water-and-chemicals reduction; court treated that admission as binding and waived the later attack on that error.
- The court excluded BCS’s variance methodology as unreliable under Daubert/Rule 702 because BCS failed to justify using Jan–Mar 2006 as a valid comparator or to show the variance reliably measured error for the disputed period.
- Major remaining dispute was prejudgment interest: which state law applies (New York per the policy choice-of-law clause v. New Hampshire as center-of-gravity) and when interest began to accrue (generator return date, proof-of-loss, or insurer disclaimer date).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper business-interruption amount for July 7–19, 2006 | Model yields $3,351,105; reliable measure of loss | Apply BCS’s $40,301 variance reduction (and $11,985 water/chemicals reduction) to lower loss | Excluded BCS variance; model stands — BI loss $3,351,105; $11,985 reduction waived by defendants’ Rule 56.1 admission |
| Validity of expert variance adjustment | N/A (Plaintiff accepts model) | BCS’s variance test against Jan–Mar 2006 validates downward adjustment | Variance excluded as unreliable under Fed. R. Evid. 702/Daubert — insufficient rationale linking comparator period to disputed period |
| Choice of law for prejudgment interest | New York law applies (policy choice-of-law clause governs interpretation and remedies) | New Hampshire law applies as center-of-gravity; or NY clause applies only to policy interpretation, not interest | New York substantive law governs prejudgment interest because parties validly chose NY law to govern the contract and conflicts rules (Second Restatement) apply |
| Date prejudgment interest began to accrue | From generator return to service (July 19/20, 2006) | From insurer’s proof-of-loss contention or later dates; or interest may not accrue under NY if proof insufficient | Interest accrues from earliest ascertainable date cause of action existed — insurer’s denial on July 24, 2007 is the start date; interest at 9% per annum from July 24, 2007, compounded once on July 30, 2012, until entry of final judgment |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (establishes summary judgment burdens and standards)
- Daubert v. Merrell Dow Pharm., 509 U.S. 579 (district courts act as gatekeepers on expert admissibility under Rule 702)
- Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (federal courts apply forum state conflict-of-laws rules in diversity cases)
- Schwimmer v. Allstate Ins. Co., 176 F.3d 648 (2d Cir.) (contracting party’s consent to New York law can govern prejudgment interest determination)
- Caruolo v. John Crane, Inc., 226 F.3d 46 (prejudgment interest is a loss-allocating issue; choice-of-law analysis differs for torts vs. contracts)
- Schultz v. Boy Scouts of Am., 65 N.Y.2d 189 (N.Y. Ct. App.) (distinguishes conduct-regulating vs. loss-allocating laws in conflict-of-laws analysis)