Black & Veatch Corp. v. Aspen Ins. (UK) LTD

• Court: U.S. Court of Appeals — Tenth Circuit
• Writing for the Court: MATHESON, Circuit Judge.
• Citation: Black & Veatch Corp. v. Aspen Ins. (UK) LTD, 882 F.3d 952 (10th Cir. 2018)
• Decision Date: 13 February 2018
• Docket Number: No. 16-3359,16-3359
• Parties: BLACK & VEATCH CORPORATION, Plaintiff–Appellant, v. ASPEN INSURANCE (UK) LTD; Lloyd's Syndicate 2003, Defendants–Appellees.

882 F.3d 952

BLACK & VEATCH CORPORATION, Plaintiff–Appellant,

v.ASPEN INSURANCE (UK) LTD; Lloyd's Syndicate 2003, Defendants–Appellees.

No. 16-3359

United States Court of Appeals, Tenth Circuit.

February 13, 2018

David T. Dekker of Pillsbury Winthrop Shaw Pittman LLP, Washington, D.C. (David L. Beck of Pillsbury Winthrop Shaw Pittman LLC, Washington, D.C., and Roy Bash of Polsinelli PC, Denver, Colorado, with him on the brief) for Plaintiff–Appellant.

Robert J. Franco (Andrew C. Patton and Scott O. Reed with him on the brief), of Franco & Moroney, LLC, Chicago, Illinois, for Defendants–Appellees.

Before BRISCOE, MATHESON, and PHILLIPS, Circuit Judges.

MATHESON, Circuit Judge.

This case is an insurance coverage dispute between Plaintiff–Appellant Black & Veatch Corporation ("B&V") and Defendants–Appellees Aspen Insurance (UK) Ltd. and Lloyd's Syndicate 2003 (collectively, "Aspen"). The issue is whether Aspen must reimburse B&V for the costs B&V incurred due to damaged equipment that its subcontractor constructed at power plants in Ohio and Indiana. The district court held that Aspen need not pay B&V's claim under its commercial general liability ("CGL") insurance policy (the "Policy") because B&V's expenses arose from property damages that were not covered "occurrences" under the Policy. Because the only damages involved here were to B&V's own work product arising from its subcontractor's faulty workmanship, the court concluded that the Policy did not provide coverage and granted Aspen's motion for partial summary judgment. B&V appealed.

The district court had diversity jurisdiction under 28 U.S.C. § 1332. We exercise appellate jurisdiction under 28 U.S.C. § 1291. Because we predict that the New York Court of Appeals would decide that the damages here constitute an "occurrence" under the Policy, we vacate the court's summary judgment decision and remand for further consideration in light of this opinion.

I. BACKGROUND

A. Factual Background

B&V is a global engineering, consulting, and construction company. A portion of its work involves "EPC contracts." "EPC" stands for engineering, procurement, and construction. Under an EPC contract, B&V delivers services under a single contract. It supervises the project and typically subcontracts most—if not all—of the actual procurement and construction work.

1. Underlying Claim Against B&V for Property Damages

In 2005, B&V entered into EPC contracts with American Electric Power Service Corporation ("AEP") to engineer, procure, and construct several jet bubbling reactors ("JBRs"), which eliminate contaminants from the exhaust emitted by coal-fired power plants.¹ For at least seven of these JBRs, which were located at four different power plants in Ohio and Indiana, B&V subcontracted the engineering and construction of the internal components to Midwest Towers, Inc. ("MTI"). Deficiencies in the components procured by MTI and constructed by MTI's subcontractors caused internal components of the JBRs to deform, crack, and sometimes collapse.

After work on three of the JBRs was completed, and while construction of four others was ongoing, AEP alerted B&V to the property damage arising from MTI's negligent construction. AEP and B&V entered into settlement agreements resolving their disputes relating to the JBRs at issue here. Under the agreements, B&V was obligated to pay more than $225 million in costs associated with repairing and replacing the internal components of the seven JBRs.

2. The B&V–Aspen CGL Policy

B&V had obtained several insurance policies to cover its work on these JBRs.²

Zurich American Insurance Company ("Zurich") provided the primary layer of coverage for up to $4 million for damage to completed work. Under the CGL Policy at issue here, Aspen provides the first layer of coverage for claims exceeding the Zurich policy's limits.³ The Policy limits coverage up to $25 million per occurrence and $25 million in the aggregate. The structure of the Policy consists of (a) a basic insuring agreement defining the general scope of coverage, (b) exclusions from coverage, and (c) exceptions to the exclusions.

a. Basic insuring agreement

The Policy's basic insuring agreement reads:

We [the Insurer] will pay on behalf of the "Insured" those sums in excess of the [liability limit provided by other insurance policies] which the "Insured" by reason of liability imposed by law, or assumed by the "Insured" under contract prior to the "Occurrence", shall become legally obligated to pay as damages for:

(a) "Bodily Injury" or "Property Damage" ... caused by an "Occurrence" ...

ROA, Vol. 1 at 68.

It defines the key terms as follows:

• Occurrence: "an accident, including continuous or repeated exposure to substantially the same general harmful conditions, that results in 'Bodily Injury' or 'Property Damage' that is not expected or not intended by the 'Insured'." Id. at 71.

• Property Damage: "physical injury to tangible property of a 'Third Party', including all resulting loss of use of that property of a 'Third Party' ...." Id. at 72.

• Third Party: "any company, entity, or human being other than an 'Insured' or other than a subsidiary, owned or controlled company or entity of an 'Insured'." Id.

In sum, the Policy covers damages arising from an "occurrence," which includes an accident causing damage to the property of a third party. It does not define "accident."

b. Exclusions

Following the basic insuring agreement, the Policy then scales back coverage through several exclusions, two of which are relevant here. The first, known as the "Your Work" exclusion, or "Exclusion F," excludes coverage for property damage to B&V's own completed work. It reads:

This policy does not apply to ... 'Property Damage' to 'Your Work' arising out of it or any part of it and included in the 'Products/Completed Operations Hazard.'

Id . at 74. "Products/Completed Operations Hazard" refers to property damage or bodily injury arising out of completed work. Id. at 72. "Your Work" is defined as "work operations performed by you or on your behalf" by a subcontractor. Id. at 73. References to B&V's own work thus include work done by B&V as well as MTI.

The second exclusion, known as "Endorsement 4," excludes coverage for property damage to the "particular part of real property" that B&V or its subcontractors were working on when the damage occurred.

Id. at 83. This exclusion pertains only to ongoing , rather than completed, work.

c. Exception

The "Your Work" exclusion is subject to an exception, thus restoring some coverage. The exception provides that "[the 'Your Work' exclusion] does not apply if the damaged work or the work out of which the damage arises was performed on [B&V's] behalf by a subcontractor ." Id. at 74 (emphasis added). In other words, the Policy does not cover property damage to B&V's own completed work unless the damage arises from faulty construction performed by a subcontractor. We refer to this as the "subcontractor exception."

B. Procedural History

B&V submitted claims to its liability insurers for a portion of the $225 million it cost to repair and replace the defective components. After B&V recovered $3.5 million from Zurich, its primary insurer,⁴ it sought excess recovery from Aspen. Aspen denied coverage. B&V sued Aspen in federal district court for breach of contract and declaratory judgment as to B&V's rights under the Policy. B&V sought coverage for approximately $72 million, a portion of the total loss. On cross-motions for partial summary judgment on the coverage issue, the court sided with Aspen, holding that damage arising from construction defects was not an "occurrence" under the Policy unless the damage occurred to something other than B&V's own work product. Because the damages here occurred only to the B&V's own work product—the JBRs—the court found they were not covered.⁵ This appeal followed.

II. DISCUSSION

We begin with our standard of review. We then discuss standard-form CGL policies, relevant New York law regarding CGL policies and insurance contract interpretation, and the relevance of our decision in Greystone Construction, Inc. v. National Fire & Marine Insurance Co. , 661 F.3d 1272, 1289 (10th Cir. 2011), which addressed a similar coverage issue. Interpreting the Policy in light of applicable law, we conclude the district court erred in determining that a subcontractor's faulty workmanship causing damage to an insured's own work can never be an "occurrence."

The threshold and primary question is whether the New York Court of Appeals, the highest court in the State of New York, would hold that the Policy's basic insuring agreement covers the property damage to the JBRs as an "occurrence." Greystone , 661 F.3d at 1282 (explaining that in the absence of a decision by the highest court of a state, we follow a decision by an intermediate court unless we find a convincing reason to do otherwise). We conclude the damages constitute an "occurrence" under the Policy because they were accidental and harmed a third party's property. Further, a contrary reading would render the "subcontractor exception" and "Endorsement 4" mere surplusage, in violation of New York law. The subcontractor exception does not create coverage. Only the basic insuring agreement can do that. But the subcontractor exception informs our understanding of an "occurrence" based on New York's rule that we should read the insurance policy as a whole and avoid interpretations that render provisions meaningless. Applying these analytical tools, we predict the New York Court of Appeals would conclude that the damages at issue here are "occurrences" under the Policy's basic insuring agreement.

New York state court decisions have not resolved whether subcontractor damages can be deemed an "occurrence" under a CGL policy containing a subcontractor exception. The district court and Aspen contend that New York courts have answered this question, relying heavily on George A. Fuller Co. v. United States Fidelity and Guaranty Co. , 200 A.D.2d 255, ...