Summary
In Richardson, the plaintiffs sought insurance coverage after discovering extensive construction-related defects at their three retail office buildings.
Summary of this case from Exec. 1801 v. Eagle W. Ins. Co.Opinion
Civil No. 03-1185-HA.
May 25, 2004
Dean E. Aldrich, J. Lee Street, The Aldrich Law Office, Portland, Oregon, Attorneys for Plaintiff.
John A. Bennett, Margaret M. Van Valkenburg, Bullivant Houser Bailey, P.C., Portland, Oregon, Attorneys for Defendant.
OPINION AND ORDER
This case was filed in Washington County, Oregon on July 18, 2003, and removed to this court on September 2, 2003, on the basis of diversity jurisdiction. Defendant has moved for summary judgment (Doc. #9) and oral argument on the matter was heard on April 12, 2004. For the following reasons, the Motion for Summary Judgment is denied.
BACKGROUND
This case is brought by the co-Trustees of their own Living Trust. They own a commercial development known as the Pacific Place Center ("Pacific Place") in Beaverton. Pacific Place consists of three retail office buildings, Buildings A, B, and C.
Plaintiffs purchased a Business Owners Insurance Policy (the "policy") from defendant. The parties agree that the policy attached as Exhibit 4 to the Affidavit of Margaret Van Valkenburg is a true and correct copy of the policy.
The policy contains several exclusions found at Sec. A (3). These provide that the insurer "will not pay for loss or damage caused by or resulting from . . . (c.) Faulty, inadequate or defective . . . (2) Design, specifications, workmanship, repair, construction, renovation, remodeling . . . (3) Materials used in repair, construction, renovation or remodeling; or (4) Maintenance."
The policy also excludes coverage for losses or damage caused by "(d.) wear and tear," and "(k.) Collapse, except as provided in the Additional Coverage for Collapse. . . ." Plaintiffs' additional coverage for collapse is found at Sec. A(6)b of the policy. The additional coverage extends insurance coverage for loss or damage:
caused by or resulting from risks of direct physical loss involving collapse of a building or any part of a building caused only by one or more of the following:
1. The `specified causes of loss'. . . .;
2. Hidden decay;
* * *
6. use of defective material or methods in construction, remodeling or renovation, if the collapse occurs during the course of the construction, remodeling or renovation.
"Collapse" itself is not defined by the policy. However, the policy states in the Additional Coverage terms that "Collapse does not include settling, cracking, shrinkage, bulging or expansion."
In November 2001, plaintiffs discovered extensive construction-related defects throughout Pacific Place. Plaintiffs' investigations "revealed that these construction defects had allowed water to enter behind the cladding, damaging the underlying sheathing and structural framing and causing extensive hidden decay of structural members." Plaintiffs' Opposition at 2. After repairs were undertaken in February 2003, extensive decay damage was revealed that had been hidden by synthetic stucco. Beams and structural members were determined to be incapable of supporting their design loads, and some were crumbling into a state of "imminent collapse."
STANDARDS FOR SUMMARY JUDGMENT
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, 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).
The moving party has the burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party shows the absence of a genuine issue of material fact, the nonmoving party must go beyond the pleadings and identify facts which show a genuine issue for trial. Id. at 324. Assuming that there has been sufficient time for discovery, summary judgment should be entered against a "party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322.
Special rules of construction apply to evaluating summary judgment motions: (1) all reasonable doubts as to the existence of genuine issues of material fact should be resolved against the moving party; (2) all inferences to be drawn from the underlying facts must be viewed in the light most favorable to the nonmoving party; and (3) the court must assume the truth of direct evidence set forth by the nonmoving party if it conflicts with direct evidence produced by the moving party. T.W. Elec. Serv. v. Pacific Elec. Contractors, 809 F.2d 626, 630 (9th Cir. 1987). When different ultimate inferences can be reached, summary judgment is not appropriate. Sankovich v. Life Ins. Co. of N. Am., 638 F.2d 136, 140 (9th Cir. 1981).
The issue of material fact required by Rule 56 to entitle a party to proceed to trial need not be resolved conclusively in favor of the party asserting its existence; all that is required is sufficient evidence supporting the claimed factual dispute to require a jury or judge to resolve the parties' differing versions of the truth at trial. Id. At this stage of the litigation, the judge does not weigh conflicting evidence or make credibility determinations. These determinations are the province of the factfinder at trial. Id.; see also Abdul-Jabbar v. General Motors Corp., 85 F.3d 407, 410 (9th Cir. 1996).
ANALYSIS
Defendant seeks summary judgment contending that the policy explicitly and broadly excludes recovery for collapse, and the limited exception to the exclusion is inapplicable. Defendant interprets the Additional Coverage as providing insurance for losses involving actual collapse. Defendant argues that because the insured property never actually collapsed, this exception to the coverage exclusion should be deemed inapplicable.
Defendant asserts that there is only one reasonable and plausible meaning of "collapse," which is " falling to the ground." The term collapse is commonly understood and is reasonably distinguishable from "in imminent danger of collapsing."
Plaintiffs assert that "risks of direct physical loss involving collapse" is ambiguous and — in light of the "clear majority trend" in the courts, so too is the term "collapse." The policy fails to positively define either term, except "collapse" is described as not including "settling, cracking, shrinkage, bulging or expansion." The interpretation of an insurance policy is a question of law. Hoffman Constr. Co. v. Fred S. James Co., 836 P.2d 703, 706 (1992). "A term is ambiguous in the sense that justifies application of the rule of construction against the insurer only if two or more plausible interpretations of that term withstand scrutiny" and continue to be reasonable after the terms are examined in the context of their usage in the policy and the broader meaning of the policy itself. Id. (emphasis in original).
The meanings of "collapse" and " risks of direct physical loss involving collapse" appear to be questions of first impression in Oregon. Defendant refers to the decision in Montee v. State Farm Fire Casualty, 782 P.2d 435 (Or.Ct.App. 1989) because "collapse" is mentioned within an umbrella of occurrences for which there was no coverage in absence of certain exclusions. Defendant's reliance upon this decision as meaningful authority for interpreting "collapse" is misplaced. The Montee court concluded that because the insured's house had not actually collapsed, there were no "ensuing losses" that might have fallen within the scope of certain exclusions to the coverage. Instead, the losses ensued from settling and cracking. Because the policy contained an exclusion that referred to the term "collapse," the court examined whether coverage could be derived from the extensive settling and cracking. Here, alternatively, plaintiffs purchased an Additional Coverage provision that extended coverage for " risks of direct physical loss involving collapse."
This court concludes that defendant's reliance upon the purported ordinary meaning of "collapse" is eclipsed by the inclusion of the phrase risks of direct physical loss involving collapse in the Additional Coverage portion of the policy. This view was explained by the Superior Court of Pennsylvania last year when it reversed a lower court's ruling and held that a policy that insured against " risks of direct physical loss involving collapse" covered risks of collapse that did not require the actual and complete collapse of the insured property. See 401 Fourth Street, Inc. v. Investors Ins. Group, 823 A.2d 177, 179 (Pa. 2003).
There is more than one reasonable alternative meaning to the terms "collapse" and " risks of direct physical loss involving collapse." Meanings of ambiguous terms are construed against the terms' drafter. Hoffman, 836 P.2d at 707 (holding that any reasonable doubt as to intended meanings of terms should be resolved against the insurer and in favor of extending coverage to the insured).
Courts have split in addressing the subject of defining "collapse" in insurance policies. The "clear modern trend is to hold that collapse coverage provisions . . . which define collapse as not including cracking and settling — provide coverage if there is substantial impairment of the structural integrity of the building or any part of the building." See Monroe Guaranty Ins. Co. v. Magwerks Corp., 796 N.E.2d 326, 333 (Ind.App. 2003), quoting American Concept Ins. Co. v. Jones, 935 F. Supp. 1220, 1226 (D. Utah 1996); see also The Sandalwood Condominium Assoc at Wildwood, Inc. v. Allstate Ins. Co., 294 F. Supp.2d 1315, 1318 (M.D. Fla. 2003) (holding that a structure need not be in imminent danger of collapse, but the damage to it must substantially impair the structure of the building").
The court is unpersuaded by defendant's reliance upon the more traditional, or minority view, which asserts that coverage should be denied because the insured property did not fall to the ground. While the primary policy specifically excludes coverage for damages caused by faulty workmanship and decay, the plaintiffs' purchase of additional coverage for " risks of direct physical loss involving collapse" broadened the policy coverage and expanded that coverage for something more than merely the ordinary meaning of "collapse."
This court adopts the "majority view" interpreting "collapse" and " risks of direct physical loss involving collapse" as referring to a substantial impairment to the structural integrity of a property. Plaintiffs purchased coverage against the risks of loss involving collapse, and the policy's exclusions are inapplicable to the terms of this "Additional Coverage." At the very least these terms are ambiguous and as such, must be interpreted in favor of the insured and against the drafter. Although defendant asserts that such interpretations could render policies more ambiguous or harder to apply, the court agrees with the reasoning provided by the court in 401 Fourth Street:
[I]t is not the trial court's responsibility to rewrite the policy to protect the insurer. If [the insurer] wanted to limit its risk to actual and complete collapse to the ground, it could easily have done so.401 Fourth Street, 823 A.2d at 179.
CONCLUSION
For the reasons provided, this court DENIES defendant's Motion for Summary Judgment (Doc. #9). There are issues of fact as to whether the hidden decay discovered by plaintiffs amount to a "substantial impairment to the structural integrity" of the insured property. The court also notes that in its Answer defendant contends that plaintiffs may have named the wrong defendant. If defendant continues to maintain that plaintiffs have so erred, this court concludes that there has been no material harm and that defendant has not been misled by plaintiffs' filings. Accordingly, if necessary, plaintiffs are granted leave to amend the pleadings with proper interlineations to add the appropriate defendant's entity.
The court will conduct a telephonic status conference on Tuesday, June 1, 2004 at 1:30 p.m. for the purpose of setting dates for lodging the Pretrial Order, exchanging ADR Reports, and conducting the trial in this matter.
IT IS SO ORDERED.