Opinion ID: 4556131
Heading Depth: 2
Heading Rank: 2

Heading: The Claim-Adjustment Period

Text: Shortly after the fire, Sinclair filed a claim under the Policy, assisted by experts from the firm AON. The Market retained independent loss adjusters to review the claim. The Market’s team included Dan McLain, the lead loss adjuster, Ennio Mastracci, a refinery expert, and Mike Clarke, an accounting expert. For approximately the next 20 months—from October 2013 through May 2015—the Market’s adjusters worked with Sinclair and its experts in an attempt to value the claim. During this claim-adjustment period, Sinclair and the Market, along with their respective experts, disagreed over how best to value Sinclair’s business -5- interruption loss. Although this analysis depended on numerous factors, two issues became particularly contentious: (1) the amount of time it should have taken Sinclair to repair the #4HDS Unit 3 and (2) the appropriate model to use to estimate Sinclair’s lost profits. With respect to the repair timeline, the experts disagreed over what constituted a reasonable hypothetical restart date assuming the exercise of due diligence and dispatch in repairing the #4HDS Unit. On May 11, 2015, in one of the final reports on the issue, Mr. Mastracci stated that the appropriate theoretical restart date may have been as early as March 1, 2014—almost two months before the actual restart date of April 26, 2014. See Aplt. Supp. App. at 364–65. Mr. Mastracci arrived at this conclusion by starting with the actual restart date of April 26, 2014 and then subtracting time for numerous categories of work—including fireproofing, welding, repairing errors resulting from poor workmanship, and ordering new parts—that he reasoned were either not attributable to the fire or were not performed with sufficient alacrity or efficiency. Id. In this report, however, Mr. Mastracci noted certain issues required additional discussion with Sinclair. Id. at 365. 3 As Mr. McLain reiterated throughout the claim-adjustment period in “reports, meetings and conference calls” with the Market, “reaching an agreement with [Sinclair] on a reasonable timeline for the period of restoration w[as] the key factor” in resolving Sinclair’s claim. Aplt. Supp. App. at 397 (emphasis added). -6- On June 7, 2015—less than a month after his earlier report—Mr. Mastracci issued an updated report listing April 1, 2014 as an appropriate theoretical start date. Id. at 412. In justification for his adjusted timeline, Mr. Mastracci stated, “my comments have been revised to reflect the new information and clarifications provided by Sinclair during the meeting in Salt Lake City on June 2, 2015.” Id. According to Mr. Mastracci, in that meeting, “Sinclair explained that work on the #4HDS Unit undertaken and performed during the month of March 2014,”—work that Mr. Mastracci had earlier opined was unrelated to the fire—“was the result of physical damage sustained during the September 27, 2013 incident.” Id. As such, he concluded, that work “should be considered in preparing a theoretical restoration timeline.” 4 Id. The Market adjusters and Sinclair also disagreed over what linear program model (LP Model) to use to calculate Sinclair’s lost profits. In this context, an LP Model is a computer program that describes the operations of a refinery, estimating what gasoline, diesel, and other products the facility would have produced in a but-for world where no fire had occurred. Comparing this 4 In his June 9, 2015 final report to the Market, Mr. McLain explained Sinclair’s acceptance of this theoretical start date by saying “[i]n brief, the Insured agreed that repair timeline issues associated with faulty workmanship involving heat exchanger 25EX-2877 (.9.5 days) and fireproofing activities (.16 days) needed to be removed from the loss-related period of restoration. The elimination of these activities ultimately changed the restoration timeline to reflect a startup date on or about 1 April 2015.” Aplt. Supp. App. at 398. -7- theoretical output against the actual output of the refinery during the repair period, one can calculate Sinclair’s lost business. In the wake of the fire, a Sinclair employee, Jon Christensen, prepared the November 2014 LP Model. But after testing the model and additional analysis by the Market’s expert, Mr. Christensen agreed to make certain modifications, resulting in the March 2015 LP model. As a result of this agreement, both AON, working on behalf of Sinclair, and the Market’s experts used the March 2015 LP model during the claim-adjustment period. 5