Engineered Structures, Inc. v. Travelers Property Casualty Company of America

          MEMORANDUM DECISION AND ORDER

          HONORABLE CANDY W. DALE, UNITED STATES MAGISTRATE JUDGE

         INTRODUCTION

         This case involves a dispute regarding the proper interpretation and application of a builder's risk insurance policy issued by Defendant Travelers Property Casualty Company of America (“Travelers”) to Plaintiff Engineered Structures, Inc. (“ESI”) ESI asserts claims for Breach of Contract, Negligence under Idaho's Unfair Claims Settlement Practices Act, and Breach of the Implied Covenant of Good Faith and Fair Dealing, and asserts also that it is entitled to a declaratory judgment against Travelers.

         Both parties filed motions for summary judgment. (Dkt. 26, 30.) Travelers contends that coverage for ESI's claim is precluded under the insurance policy because the property damage and increased expense for which ESI makes its claim were the result of faulty workmanship, which is an expressly excluded cause of loss under the policy. Additionally, Travelers argues ESI's tort claims fail because the substantive law governing those tort claims is Oregon, not Idaho, and Oregon law does not permit the claims. ESI, on the other hand, argues the policy provides coverage for its losses, and that the faulty workmanship exclusion Travelers relies upon does not apply. As for its tort claims, ESI asserts Idaho substantive law governs, and therefore provides an avenue for recovery of its tort damages.

         The Court conducted a hearing on May 8, 2018. After careful consideration of the parties' arguments, briefs and supporting materials, the Court will grant in part and deny in part each motion. Specifically, ESI's motion will be granted with regard to its breach of contract claim and contract damages, and Traveler's motion will be granted with regard to ESI's remaining tort claims, for the reasons explained below.

         FACTS^[1]

         Plaintiff ESI is an Idaho corporation, with its principal place of business in Idaho. Compl. ¶ 1; Ans. ¶ 1. Travelers is an insurer, incorporated in Connecticut, and is authorized to transact business in Idaho. Compl. ¶ 2; Ans. ¶ 2. The Court has jurisdiction over these proceedings on the basis of diversity of citizenship, as the amount in controversy exceeds $75, 000.00. Compl. ¶ 3; Ans. ¶ 3.

         1. The Policy Terms

         On November 4, 2014, Travelers issued Policy Number QT-660-A154639-TIL-4, with effective dates of September 1, 2014 to September 1, 2015 (the “Policy”) to ESI. (ESI SOF ¶4; TPC SOF ¶ 1.)^[2] Included within the Policy is the CONSTRUCTION PAK - BUILDERS RISK COVERAGE FORM, Form CMT2210413 (the “Builders Risk Form”). (TPC SOF ¶ 2.)

         The Builders Risk Form states as follows:

         A. COVERAGE

         We will pay for direct physical loss of or damage to Covered Property caused by or resulting from a Covered Cause of Loss.

         1. Covered Property

         Covered Property, as used in this Coverage Form, means the following types of property you own or for which you are legally liable, the value of which is included in the estimated “total project value” shown in the Declarations:

         a. Permanent Works

         Materials, equipment, machinery, supplies and property of a similar nature that will become a permanent part of the project described in the Declarations during completion of such project or that will be used or expended in the completion of such project. Completion of the project includes site preparation (including demolition of existing buildings or structures), fabrication, assembly, installation, erection, alteration, renovation and similar construction activities.

         b. Temporary Works

         Cofferdams, construction forms, cribbing, falsework, hoarding, scaffolds, fencing, signs, office trailers (and their “contents”) and similar temporary buildings or structures incidental to completion of the project described in the Declarations.

         We will cover such property:

(1) At the job site described in the Declarations;…

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3. Covered Causes of Loss

Covered Causes of Loss means RISKS OF DIRECT PHYSICAL LOSS unless the loss is excluded in Section B - EXCLUSIONS.

4. Coverage Extensions

Each of the following Coverage Extensions applies unless Not Covered is indicated in the Declarations.

a. Expediting Expense and Extra Expense

(1) In the event of direct physical loss of or damage to Covered Property caused by or resulting from a Covered Cause of Loss, we will pay for the reasonable and necessary:

(a) Expediting charges, including overtime, night work, work on public holidays, express and air freight, and the extra cost of rental construction equipment, you incur solely to expedite repair or replacement of the Covered Property sustaining such loss or damage.

(b) Extra Expenses you incur during the period of restoration or repair of the Covered Property sustaining such loss or damage that are over and above the total costs that would normally have been incurred during the same period of time had no loss or damage occurred. We will only pay for such expenses you incur for the purpose of continuing as nearly as practicable the scheduled progress of undamaged work. Extra expense includes, equipment rental, emergency expenses, additional security, demobilization and remobilization of equipment and facilities, and temporary use of property, all when necessarily incurred to reduce time delays in the contract schedule.

* * * * *

d. Soft Costs

We pay for your “soft costs” during the “period of delay in completion.” Such “soft costs” must result from direct physical loss of or damage to Covered Property caused by or resulting from a Covered Cause of Loss which delays the completion of the applicable project described in the Declarations beyond the “planned completion date.”

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5. Additional Coverages

Each of the following Additional Coverages applies unless Not Covered is indicated in the Declarations.

a. Additional Cost of Construction Materials and Labor

We will pay for the following costs made necessary by a Covered Cause of Loss to Covered Property at the job site described in the Declarations:

(1) Your increased cost of construction materials and labor; and

(2) Your costs to make changes in construction specifications; when such loss or damage results in a total loss to Covered Property.

         The Builders Risk Form sets forth the following exclusion for “faulty, inadequate or defective” work:

         B. EXCLUSIONS

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4. We will not pay for loss or damage caused by or resulting from faulty, inadequate or defective:

a. Planning, zoning, development, surveying, siting;

b. Design, specifications, workmanship, repair, construction, renovation, remodeling, grading or compaction;

c. Materials used in repair, construction, renovation, remodeling, grading or compaction; or

d. Maintenance; of part or all of any property on or off the job site described in the Declarations.

If an excluded cause of loss listed in Paragraph 4.a. through 4.d. above, results in a Covered Cause of Loss, we will pay for the resulting loss or damage caused by that Covered Cause of Loss. But we will not pay for:

(1) Any cost of correcting or making good the fault, inadequacy or defect itself, including any cost incurred to tear down, tear out, repair or replace any part of any property to correct the fault, inadequacy or defect; or

(2) Any resulting loss or damage to the property that has the fault, inadequacy or defect until the fault, inadequacy or defect is corrected.

(TPC SOF ¶ 3.)

         2. The Burlingame Fred Meyer Fuel Center Project

         On September 29, 2014, ESI as Contractor and Fred Meyer Stores, Inc., as Owner entered into a contract (the Contract) to build the Burlingame Fred Meyer Fuel Center in Multnomah County, Portland, Oregon, which was to be a new multi-island fueling station and associated retail space (the Project). (TPC SOF ¶ 4; ESI SOF ¶1.)

         The Contract for the Project included by reference a project schedule, general conditions, specifications and drawings. (ESI SOF ¶ 2.) All work was to be performed in accordance with the schedule, general conditions, specifications, and drawings. (ESI SOF ¶ 2.) The Project specifications were contained in the Project Manual, prepared by the Project Architect, Anderson Wahlen & Associates. (ESI SOF ¶5.)

         The Contract called for installation of two underground storage tanks (“USTs”) for storage and sale of fuel in the anticipated Fred Meyer fueling station. (TPC SOF ¶ 6.) One UST had a 20, 000-gallon capacity designed to hold regular unleaded fuel, and the other was a split 18, 000-gallon tank designed to hold both premium and diesel fuel. (ESI SOF ¶ 8.) The 20, 000-gallon UST is the one at issue in this case. (ESI SOF ¶ 8.)

         ESI subcontracted with 3 Kings Environmental, Inc. (“3 Kings”) to install the Liquid Fuel Distribution & Electrical systems, a portion of which work included the installation of the two USTs. (ESI SOF ¶3.) ESI and 3 Kings were required to do their work in compliance with the Project Manual. (TPC SOF ¶ 13.) In mid-December of 2014, ESI and its subcontractors, including 3 Kings, began the process of installing the two USTs on the Project. (ESI SOF ¶ 8.)^[3]

         There is a section in the Project specifications relating to the UST at issue in these proceedings, Section 33 52 00 - Liquid Fuel Distribution. (ESI SOF ¶5.) General Condition 00 72 14 - 3.7.3 to the Contract provides that the contractor is to comply with the manufacturer's written instructions for installing products. (ESI SOF ¶ 6.) Similarly, the Liquid Fuel Distribution specification 33 52 00 - 1.5 requires that the contractor deliver, handle and install materials (including specifically the UST) in accordance with the manufacturer's instructions. (ESI SOF ¶ 6.) ...