Opinion
Case No. C03-5047FDB.
May 21, 2004
ORDER GRANTING DEFENDANT ZURICH AMERICAN INSURANCE COMPANY'S MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on the motion of Zurich American Insurance Company ("Zurich") for summary judgment dismissing all claims of Plaintiff General Construction Company ("General Construction") and Plaintiff-Intervenor Con-Force Structures, Ltd. ("Con-Force") on the grounds that their claims are not covered under Builders Risk Policy No. IM 3500204 (the "Zurich policy"). The Court, having reviewed parties' written briefs, declarations, exhibits, the balance of the record, and having heard argument of counsel on May 19, 2004, finds, for the reasons set forth herein, that Zurich's motion for summary judgment shall be granted.
Also before the Court is General Construction's motion to strike Zurich's expert reports. As Zurich has submitted corrected expert reports and in light of the parties' agreement that the ensuing loss exception to the insurance policy is controlling to the issue presently before the Court, the motion to strike shall be denied.
I.
The underlying claims in this action involve the failure of steel-reinforced hollow concrete piles (the "Concrete Piles") used in the construction of Pier D at Naval Base Bremerton (the "Pier D Project"). The Pier D Project included demolition of an existing pier and construction of a new carrier pier in the same location. The new carrier pier utilized for its foundation system a combination of solid 24 inch concrete octagonal piles and the Concrete Piles. The Concrete Piles were designed by Third-Party Defendant Berger/ABAM Engineers, Inc. ("Berger/ABAM"), manufactured by Con-Force and installed at the naval base by General Construction. Defendant Zurich issued the Zurich policy, which insured the Pier D Project, to General Construction.
During the course of construction, the Concrete Piles exhibited vertical cracking and the Navy refused to accept them. General Construction was required to remove the Concrete Piles and replace them with solid octagonal concrete piles and steel pipe piles. It is the cost of the Concrete Piles and the cost to replace them (the "Claimed Loss") for which General Construction and Con-Force seek recovery under the Zurich policy.
II.
Zurich argues that the Claimed Loss is not covered under the Zurich policy because the loss was not fortuitous, it was an excludable consequential loss, and an excludable cost of making good either a design defect or defective workmanship resulting from an inherent or latent defect or cracking. General Construction and Con-Force argue that design defects caused the Concrete Piles to crack and, because there is a genuine dispute between the parties as to what actually caused the Concrete Piles to crack, Zurich's motion must fail. General Construction also argues that, although a design defect is an excludable loss, the cracking of the Concrete Piles is an "ensuing loss," which is a covered loss.III.
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Summary judgment is not proper if material factual issues exist for trial. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir. 1995), cert. denied, 516 U.S. 1171 (1996).
If the moving party shows that there are no genuine issues of material fact, the non-moving party must go beyond the pleadings and designate facts which show a triable issue. Celotex Corp. v. Catrett, 477 U.S. 317, 322-323 (1986). Summary judgment is proper if the moving party shows that there is no evidence which supports an essential element to the non-moving party's claim.Celotex, 477 U.S. 317 (1986). The substantive law governs whether a fact is material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
The interpretation of an insurance policy presents a question of law appropriate for summary judgment determination. Roller v. Stonewall Ins. Co., 115 Wn.2d 679, 682, 801 P.2d 207 (1990). Summary judgment is appropriate on questions of policy language interpretation unless an ambiguity exists in the policy and extrinsic evidence is introduced to demonstrate the intent of the parties. Ryan v. Harrison, 40 Wn.App. 395, 397, 699 P.2d 230, reh. denied, 104, Wn.2d 1003 (1985). Where the policy language is clear and unambiguous, courts will enforce it as written.Washington Public Utility Districts' Utilities System v. PUD No. 1 of Clallam County, 112 Wn.2d 1, 11, 771 P.2d 701 (1989). In applying exclusions to policy language, each exclusion operates separately and independently on grant of coverage such that the application of a single exclusion defeats coverage even if other exclusions may not apply to achieve the same result. E.g., Kelley v. Farmers, Inc. Co., Inc., 281 F. Supp.2d 1290, 1295 (W.D. Okla 2003).
IV.
General Construction concurs that there were problems in the manufacture of the Concrete Piles, but states that it has consistently asserted that an error in the design of the Concrete Piles led to their cracking on installation and rejection by the Navy. Con-Force argues that faulty design underlies all of the difficulties with the Concrete Piles. Each submits the declaration of its expert in support and argue that this evidence is sufficient to defeat Zurich's motion for summary judgment.
Zurich argues that its motion does not require this Court to pinpoint a specific cause of loss in order to answer the legal coverage question because, if an excluded cause is at play, the Court need only determine whether the "ensuing loss" exception operates to reinstate coverage. The Court agrees and makes no final determination on causation as to the Concrete Piles. For purpose of this motion only, the Court accepts the position of General Construction and Con-Force that the Concrete Piles were defectively designed. Furthermore, General Construction admits that the "cost of making good fault, defect, error, deficiency or omission in design is an excluded loss" and that its demand upon Zurich for coverage "comes down to whether the damage (cracking of the pile) was an ensuing loss from a defective pile design." Thus, the issue before the Court is whether, as a matter of law, the "ensuing loss" exception operates to reinstate coverage. The "ensuing loss" exception provides coverage when direct physical loss or damage by an insured peril ensues.
The Zurich policy equally excludes "the cost of making good" the consequences of defective design, defective manufacturing or defective installation and all three causes are equally tempered by the ensuing loss exception.
V.
Because an ensuing loss provision operates as an exception to a policy exclusion, the insured bears the burden of establishing it suffered a covered ensuing loss. See, e.g., Smith v. State Farm Fire Cas. Co., 656 N.W.2d 432, 436 (Minn.App. 2003) (although the insurer bears the burden of proving an exclusion applies, "once the insurer shows the application of an exclusion clause, the burden of proof shifts back to the insured because the exception to the exclusion `restores' coverage for which the insured bears the burden of proof"); see also E-Z Loader Boat Trailers, Inc. v. Travelers Indemn. Co., 106 Wn.2d 901, 906, 726 P.2d 439 (1986) (insured bears burden of proving all elements necessary to obtain coverage).There is no dispute that the Navy did not accept the Concrete Piles and that General Construction was required to remove and replace them at great cost. There is also no dispute that the defective Concrete Piles did not cause any damage to any other portion of the structure, other persons or property.
General Construction argues, however, that "the only reasonable interpretation of `direct physical loss or damage' as used in the ensuing loss provision of the clause is damage that occurs subsequent to, and as a result of, a design defect." In other words, General Construction posits that the design defect is the excluded loss, the cracking and costs incurred to repair and replace the cracked Concrete Piles is the ensuing loss. The Court does not agree.
The damage to the Concrete Piles cannot, in themselves be an "ensuing loss" because they are not separate and distinct from the faulty design, a condition which is specifically excluded. Replacement of the defectively designed Concrete Piles cannot be an ensuing loss because the defective Concrete Piles caused no damage to any other portion of the Pier D Project or some other portion of the work. See, e.g. Allianz Ins. Co. v. Impero, 654 F. Supp. 16, 18 (E.D.Wash. 1986) (Where defective concrete caused deficiencies in a wall but caused no damage to any other portion of the structure, persons or property, insured's cost of repairing the wall was not loss separate to "some other portion of the work," bringing it within the ensuing loss exception).
General Construction's reliance on National Fire Ins. Co. v. Valero Energy Corp., 777 S.W.2d 501 (Tex.Ct.App. 1989) is of no avail. In that case, the Texas Court of Appeal excluded the cost of "making good" a defectively designed citrate scrubber but allowed coverage for replacement of a transition piece and demisters which were damaged as a result of the faulty design. The distinction between Valero and the facts of this case are clear. In Valero, there was physical damage to something other than the defectively designed component. In this case, it is undisputed that the only damage is to the defectively designed component, i.e., the Concrete Piles.
Because the Court finds no ensuing loss separate and distinct from the Concrete Piles, it does not address the additional exclusions offered by Zurich as grounds to defeat coverage.
ACCORDINGLY,
IT IS ORDERED:
(1) Defendant Zurich American Insurance Company's motion for summary judgment (Dkt.#32) is GRANTED;
(2) Plaintiff's motion to disqualify expert reports (Dkt.#45) is DENIED; and
(3) The Clerk is directed to issue Judgment accordingly.