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CSX Insurance Co. v. Pacific Rail Services

February 26, 2010

CSX INSURANCE COMPANY, ET AL., PLAINTIFF,
v.
PACIFIC RAIL SERVICES, LLC, DEFENDANT. AND PACIFIC RAIL SERVICES, LLC, PLAINTIFF,
v.
CSX INTERMODAL, INC., DEFENDANT.



The opinion of the court was delivered by: Judge Blanche M. Manning

MEMORANDUM AND ORDER

This case involves a crane that malfunctioned in September 2001, crushing to death its operator, Warren Kubicek, and causing significant property damage at the railyard where the crane operated. The company responsible for operating the crane and which employed Kubicek, Pacific Rail Services, has engaged in protracted litigation over the accident with the crane's owner, CSX Intermodal, Inc., as well as CSX Insurance Company (the court will use " CSX" when referring to either entity except where distinguishing between the two is necessary). A state court previously settled some of the disputed issues, and additional disputed issues were tried before this court without a jury.

Pursuant to Federal Rule of Criminal Procedure 52(a), and after carefully observing the trial and reviewing the transcript and trial exhibits, the court enters the following written findings of fact and conclusions of law based upon consideration of all the admissible evidence, as well as the court's own assessment of the credibility of the trial witnesses.

FINDINGS OF FACT

CSX owns and operates the Bedford Park railyard where Warren Kubicek worked as a crane operator. The railyard is known as an intermodal yard, meaning that workers operate large cranes to load cargo containers onto railroad flatcars. CSX entered into a Lift Services Agreement with Pacific Rail, under which CSX agreed to pay Pacific Rail to operate the crane and other equipment used to load and unload the cargo containers. The parties were operating under the Lift Services Agreement at the time of the incident that led to Kubicek's death.

The Lift Services Agreement

Under § 5.1.3 of the Lift Services Agreement, CSX agreed to "maintain the Lift Equipment at CSXI's cost." Under § 5.1.4, Pacific Rail agreed to "complete a Lift Equipment inspection report at the beginning of each work shift" and to "deliver such reports to CSXI or, as designated by CSXI, CSXI's maintenance contractor each workday." CSX hired Central Intermodal to operate as its maintenance contractor.

Under § 9.1 of the Lift Services Agreement, Pacific Rail was required to obtain automobile and commercial general liability insurance naming CSX as an additional insured, as well as workers' compensation and employers' liability insurance. Section 9.1.2 detailed the specific commercial general liability insurance that Pacific Rail was required to purchase:

9.1.2 commercial general liability insurance, naming CSXI as an additional insured, covering bodily injury and property damage, arising out of exposures not covered by other insurance coverages, with a coverage limit of not less than $5,000,000 per occurrence and containing contractual liability coverage or an appropriate endorsement which will cover the obligations assumed by [Pacific Rail] under this Agreement; Lift Services Agreement at 9.

Under § 9.4.1, Pacific Rail was obligated to indemnify CSX for, among other things, all liability, loss, damage, and attorneys' fees incurred as a result of the death of anyone, including Pacific Rail employees, as well as the loss, destruction of, or damage to property. Section 9.4.2 limits the extent of Pacific Rail's obligation to indemnify CSX as follows:

9.4.2 Contractor's [Pacific Rail's] indemnification shall extend, without limitation, to the defense of claims and actions alleging that an indemnified party's negligence, gross negligence, or willful misconduct was or might have been the sole or contributing cause of the subject indemnity event, but shall not extend to any judgment, award or settlement to the extent (on a comparative basis) it has been finally determined judicially or through arbitration, or agreed by the indemnified party, that the indemnified party's negligence, gross negligence or other tortious conduct was a cause of the indemnity event (each an "indemnity exception"). CSXI shall reimburse Contractor for the reasonable incremental costs incurred by Contractor in defending an indemnified party with respect to an indemnity exception.

Lift Services Agreement at 12.

Negligence on the part of CSX would not only limit its rights to be indemnified, but would also render inapplicable a release of liability provision found in the Lift Services Agreement. Specifically, under § 9.3, CSX is not liable for, and Pacific Rail releases all claims against CSX with respect to, "any injury to or death of persons or damage... caused (in whole or in part) by... the condition of any equipment or other property in, on or at the Terminal or storage yard," except "to the extent caused by the negligence or willful misconduct of CSXI."

The Collapse of Crane 4087 and Its Maintenance History

Kubicek was an experienced crane operator, and had operated cranes for Pacific Rail since 1995. On September 8, 2001, he operated the crane he normally operated, crane 4087. Just before the accident, Kubicek was maneuvering crane 4087 from tracks 3, 4 and 5 to tracks 6 and 7. Fellow crane operator Mark McGrath witnessed parts of Kubicek's move to tracks 6 and 7. According to McGrath, as Kubicek began making the move to tracks 6 and 7, his crane behaved normally and traveled as its usual speed. Eventually, though, McGrath recalled seeing the left rear wheel of Kubicek's crane begin to buckle or break. McGrath also recounted seeking sparks come from the wheel and saw the wheel move towards the middle of the crane as the crane began to collapse.

Crane 4087 collapsed completely, meaning that the four columns that normally extended vertically toward the sky fell and landed in a horizontal position. Two side beams that are normally upright and to which the crane's wheels attach also fell and landed in a horizontal position. Employees of Mi-Jack, the company that manufactured crane 4087, had never seen any crane collapse in the manner that crane 4087 had collapsed. However, Mi-Jack crane 4187-a crane virtually identical to and manufactured at the same time as crane 4087-collapsed in 1989. The collapse of crane 4187 differed from the collapse of crane 4087 in that both side beams and three of the four vertical columns remained upright in the 1989 collapse, whereas all of the side beams and columns of crane 4087 landed in a horizontal position.

The 1989 collapse of Mi-Jack crane 4187 was caused by the failure of a turntable bearing, specifically a faulty weld on the bearing. As a result, much of the investigation into the collapse of crane 4087 focused on its turntable bearings. Turntable bearings attach each of crane 4087's wheels to the structure of the crane. The turntable bearings consist of an outer race, which is attached to the crane, and an inner race, which is attached to the wheel. The inner and outer races are held together by bearing balls. To prevent excessive wear, the bearing balls and raceways must be properly maintained by lubricating them. Failing to keep the bearing balls and raceways properly lubricated allows moisture to penetrate the raceways, leading to corrosion. It can also result in metal-to-metal contact, which contributes to excessive wear. The corrosion and excessive wear caused by failing to keep the bearing balls and raceways properly lubricated can cause the raceway and bearing balls to become pitted. Pitting of the raceway and bearing balls leads to even more wear.

Investigators discovered that the left rear wheel turntable bearing on crane 4087 showed signs of wear. Specifically, the raceway and bearing balls were pitted and corroded. None of the original surface of the raceway of the left rear wheel remained and, in fact, the raceway had grown larger in diameter as a result of the original surface having been worn away. According to Lyndall Myers, the chief design engineer for Rotek (the turntable bearing's manufacturer), as the raceway grows larger due to wear, the turntable bearing can begin to wobble and become unsteady, making it unsafe to use.

The operations manual for crane 4087 states that "turntable bearings should be inspected for wear every three months or 750 hours." One way to inspect turntable bearings for wear is to perform a vertical deflection test. Although the accuracy of the tests has been questioned, they were the only tests of crane 4087's turntable bearings that Central Intermodal ever conducted. Central Intermodal was required to document all vertical deflection tests. Its practice was to record all vertical deflection tests in a log to create a permanent record that the test had been performed-there were no exceptions to the practice. According to Central Intermodal's log, the last vertical deflection test performed on crane 4087 occurred on November 1, 2000, 10 months before the crane collapsed. During that 10-month period of time, the crane had been in use for more than 4,000 hours. Frank Caminata testified at trial that he performed vertical deflection testing on crane 4087 after November 1, 2000, but was impeached with his prior deposition testimony that he did not recall any vertical deflection tests being performed on crane 4087 after November 1, 2000, and that if he had performed such a test he would have logged it as required.

According to Central Intermodal's log for crane 4087, vertical deflection tests performed on new turntable bearings typically measured between.06 and.085 inches. The first vertical deflection test on the left rear wheel turntable bearing that was on crane 4087 when it collapsed was performed on May 24, 2000, and measured.100 inches. The November 1, 2000, test on crane 4087's left rear wheel turntable bearing measured a vertical deflection of.115 inches. When the vertical deflection reaches.140 inches, the turntable bearing must be replaced. The left rear wheel turntable bearing on crane 4087 was not replaced between the November 1, 2000, test and the crane's collapse on September 8, 2001.

The maintenance records that Central Intermodal maintained were owned by CSX and, therefore, CSX had the right to inspect them. However, CSX never checked those maintenance records and, therefore, never determined whether Central Intermodal was performing preventative maintenance or inspections. Indeed, CSX admits that its employees lacked any training or expertise in crane maintenance. Although Central Intermodal provided CSX with copies of all of the maintenance records for crane 4087, CSX found the records to be too voluminous to review and, in any event, the employee designated to receive the records lacked the training and expertise to throughly review the maintenance records.

Previous Litigation and Settlement

Following the September 8, 2001, collapse that killed Warren Kubicek, his wife filed a wrongful death lawsuit in state court. The complaint alleged that CSX had been negligent for failing to properly repair, maintain, and detect deficiencies in the repair and maintenance of the crane that malfunctioned. CSX tendered the defense of Kubicek's claim both to Pacific Rail under § 9.4.2 of the Lift Services Agreement, as well as to Pacific Rail's commercial general liability insurance carrier. Pacific Rail accepted the tender and spent $834,128.62 defending CSX.

In the meantime, CSX filed a third-party complaint against Pacific Rail in the state court proceeding seeking contribution. The third-party complaint alleged that Pacific Rail had been negligent for failing to properly train and supervise its employees and for failing to have them inspect equipment before using it. But CSX's third-party claim against Pacific Rail was short-lived. Pacific Rail filed a motion for summary judgment. CSX stated that it had no objection to the motion, and the state court granted it.

CSX and the other defendants ultimately settled the state court proceeding with the Kubicek estate. CSX's share of the settlement payment totaled $2,000,000. CSX then turned to Pacific Rail seeking to be reimbursed for $2,000,000 it paid to settle the state court proceeding. However, Pacific Rail's commercial general liability insurance carrier refused to reimburse CSX based upon a term in the policy that Pacific Rail had purchased that excluded coverage for a liability that arose from the fault or negligence of an additional insured.

Pacific Rail also refused to reimburse CSX, citing § 9.4.2 of the Lift Services Agreement under which Pacific Rail was not required to indemnify CSX to the extent "it has been finally determined judicially or through arbitration, or agreed by the indemnified party, that the indemnified party's negligence, gross negligence or other tortious conduct was a cause of the indemnity event." Pacific Rail's position was that CSX had admitted its negligence by settling the claim of negligence brought by Kubicek's widow.

Pacific Rail has not only refused to indemnify CSX for the $2 million settlement payment, but has also demanded that CSX pay Pacific Rail $834,128.62, the amount that Pacific Rail paid to defend CSX in the state proceeding, as well as the $666,406.77 it spent to defend itself in state court. CSX refused to reimburse Pacific Rail for those defense costs.

Instant Litigation & Trial

Following the resolution of the state court claims, Pacific Rail and CSX each filed separate lawsuits against the other in federal court. In case 07 CV 2738, CSX sued Pacific Rail alleging that Pacific Rail breached the Lift Services Agreement by: (1) obtaining a commercial general liability insurance policy that excluded coverage for CSX's negligence and that was issued by a carrier that was not authorized to do business in Illinois (Count I); and (2) failing to indemnify CSX (Count II).

In case 07 CV 4185, Pacific Rail sued CSX: (1) seeking a declaratory judgment that (i) CSX's negligence was responsible for the crane's collapse and Kubicek's death, (ii) CSX's settlement constitutes an admission under the doctrine of collateral estoppel that its negligence was responsible for the crane's collapse and Kubicek's death, (iii) CSX breached the Lift Services Agreement by failing to properly maintain the crane that collapsed, (iv) CSX must reimburse Pacific Rail the costs of defending CSX in state court, and (v) CSX must reimburse Pacific Rail for fees and costs incurred in the instant actions (Count I); (2) CSX breached the indemnity provision of the Lift Services Agreement by refusing to ...


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