United States District Court, D. Idaho
ENGINEERED STRUCTURES, INC., A CORPORATION OF IDAHO, an Idaho corporation, Plaintiff,
v.
TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, a Connecticut corporation, Defendant.
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;…
******
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.”
*****
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
* * *
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.)
...