Pyramid Technologies, Inc. v. Hartford Casualty Insurance Co
752 F.3d 807
| 9th Cir. | 2014Background
- Pyramid Technologies operated a warehouse storing ~52 million electronic parts in moisture‑proof packaging but without climate control; on Aug. 11, 2005 the warehouse floor flooded 1–2 inches and employees observed condensation on lower shelves. ServPro dried the facility over several days.
- Pyramid sued its insurer Hartford after Hartford refused wholesale inventory testing (costly) and initially denied coverage; Pyramid later engaged experts and quarantined >250,000 items showing visible corrosion/tarnish/discoloration. Hartford later tested a small sample (374), finding corrosion on 147 and two failures under the lab’s standards.
- Pyramid proffered three experts (Spiegel, Pytlewski, Mortenson) to support causation (flood-induced humidity breached packaging and damaged parts); the district court excluded all three (later reconsidered but still excluded Spiegel and Pytlewski) without a Daubert hearing and granted summary judgment for Hartford.
- On appeal the Ninth Circuit reviewed the evidentiary exclusions for abuse of discretion and summary judgment de novo, concluding the district court abused its discretion excluding Spiegel and Pytlewski but did not err excluding Mortenson.
- The Ninth Circuit held there were genuine disputes of material fact as to inventory damage causation (so summary judgment on breach of contract and bad faith claims was improper), but affirmed summary judgment for Pyramid’s business‑interruption claim (loss of potential WMS business) as speculative.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of Spiegel (humidity expert) | Spiegel was qualified and relied on weather, thermohygrometer, infrared, ServPro records and site visits to opine that humidity exceeded packaging limits and could have compromised parts | Spiegel unqualified on scientific data; methodology unreliable and based on post‑event and extrapolated data | Exclusion abused discretion; Spiegel admissible (helpful to jury) |
| Admissibility of Pytlewski (metallurgist) | Pytlewski’s metallurgical opinions rebut Dr. Kumar (nonuniform corrosion is consistent with moisture) and support causation | Opinions unreliable/lacked disclosed methodology; not tied to perceptions | Exclusion abused discretion; Pytlewski admissible |
| Admissibility of Mortenson (standards critique) | Mortenson criticized lab’s use of military vs. commercial suitability standards | Mortenson lacked requisite knowledge of commercial standards and methodology | Exclusion affirmed (not admitted) |
| Summary judgment on inventory loss (causation and damages) | Evidence (visible corrosion, quarantined items, expert inference, sample failures extrapolated) creates triable issues on whether flood humidity was efficient proximate cause and whether damage reduced market value | Hartford argued no proof flood caused corrosion; other causes (age, lack of climate control) plausible | Court reversed summary judgment as to inventory loss—genuine disputes on causation and damages for jury |
| Summary judgment on business interruption (WMS loss) | Pyramid: WMS likely would have bought ~$1M absent flood; loss of expected income covered | Hartford: negotiations were tentative, approval conditioned on testing; causation/speculation too remote | Affirmed summary judgment for Hartford—loss too speculative |
| Bad faith / implied covenant claim | Hartford delayed testing, minimized damage, misled third parties, relied on cursory experts—investigation potentially biased and unreasonable | Hartford had expert basis for denial and genuine dispute as to coverage | Reversed summary judgment on bad faith—triable issues exist (genuine dispute doctrine not dispositive given investigation concerns) |
Key Cases Cited
- Daubert v. Merrell Dow Pharm., 509 U.S. 579 (trial judge is gatekeeper on expert admissibility)
- Primiano v. Cook, 598 F.3d 558 (9th Cir.) (expert testimony need only be reliable and helpful; shaky but admissible evidence is for jury)
- Alaska Rent-A-Car, Inc. v. Avis Budget Grp., Inc., 738 F.3d 960 (9th Cir.) (gatekeeper should screen unreliable nonsense but not exclude impeachable opinions)
- Estate of Barabin v. AstenJohnson, Inc., 740 F.3d 457 (9th Cir. en banc) (trial court’s Daubert role and standards for discretionary review)
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment burden rules)
- Narayan v. EGL, Inc., 616 F.3d 895 (9th Cir.) (standard for whether a reasonable jury could find for non‑movant at summary judgment)
- Julian v. Hartford Underwriters Ins. Co., 35 Cal.4th 747 (California) (efficient proximate cause doctrine for mixed‑peril insurance losses)
- Guebara v. Allstate Ins. Co., 237 F.3d 987 (9th Cir.) (genuine dispute doctrine can defeat bad faith claim when reasonable dispute exists)
- Amadeo v. Principal Mut. Life Ins. Co., 290 F.3d 1152 (9th Cir.) (reasonableness of insurer conduct is normally a question of fact)