Barnard Pipeline, Inc. v. Travelers Prop. Cas. Co. of Am.

• Decision Date: 13 March 2014
• Docket Number: No. CV 13–07–BU–DLC.,CV 13–07–BU–DLC.
• Citation: 3 F.Supp.3d 865
• Court: U.S. District Court — District of Montana
• Parties: BARNARD PIPELINE, INC., a Montana Corporation, Plaintiff, v. TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, Defendant.

3 F.Supp.3d 865

BARNARD PIPELINE, INC., a Montana Corporation, Plaintiff,

v.TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, Defendant.

No. CV 13–07–BU–DLC.

United States District Court,

D. Montana,

Butte Division.

Filed March 13, 2014.

Christian T. Nygren, Attorney at Law, Bozeman, MT, Richard T. Beal, Jr., Ashbaugh Beal, Seattle, WA, J. Patrick Brown, Bozeman, MT, for Plaintiff.

Daniel R. Bentson, Bullivant Houser Bailey, PC, Seattle, WA, Ronald J. Clark, Bullivant Houser Bailey, Portland, OR, Annie Harris, Marshal L. Mickelson, Corette Black Carlson & Mickelson, Butte, MT, for Defendant.

ORDER

CHRISTENSEN, District Judge.

Before the Court are the parties cross motions for partial summary judgment. Jurisdiction is based on diversity. For the reasons explained, the Court grants Plaintiff's motion for partial summary judgment in part and denies it in part and denies Defendant's cross motion for partial summary judgment.

Factual and Procedural Background

Plaintiff Barnard Pipeline, Inc., (“Barnard”) brings this action against its insurer, Defendant Travelers Property Casualty Company of America (“Travelers”), for a declaratory judgment that Travelers is obligated to provide coverage for losses claimed by Barnard under a builder's risk policy issued by Travelers to Barnard. Barnard also asserts a claim of insurance bad faith against Travelers. The parties' cross motions seek summary judgment on Barnard's claim for coverage. Barnard's motion also seeks dismissal of some of Travelers' affirmative defenses.

Barnard contracted with Kern River Gas Transmission Company to complete the Apex Pipeline Expansion Wasatch Loop project (“the Project”), which involved the construction and installation of a 28–mile gas pipeline along a right of way traveling through the Wasatch Mountain Range in Utah. Travelers reviewed the agreement between Kern and Barnard and insured Barnard under a builder's risk policy (“the Policy”). Travelers issued the Policy in October 2010.

The first phase of the Project involved construction and/or improvement of various roads to access the right of way. The first phase of the Project also involved the clearing of vegetation, stripping of topsoil, and leveling and/or grading of the right of way. The object of this excavation work was to get a level, safe, and compacted soil surface on which to perform the next phase of work. Once prepared, the right of way was used as a route of travel for heavy equipment and also used as a working surface for constructing and installing the pipe.

After preparation and excavation of the right of way, the plan of construction was that Barnard would then dig a trench along the right of way, string the pipe along side the trench, perform any bending of the pipe as necessary, weld sections of the pipe together, and then install the pipe in the trench. After the pipe was installed and the trench backfilled, the right of way was then reseeded and restored to a more “natural” condition.

Through the fall and winter of 2010, the Wasatch Range received an unusually high amount of precipitation The record high levels of precipitation damaged various access roads Barnard had constructed and made travel and work along the right of way exceedingly difficult. Barnard was forced to regrade the right of way, and place the saturated soil along the right of way. The soil could not be removed from the right of way and this additional soil, piled within the right of way, narrowed the available work space. The heavy precipitation, the saturated soil, and the constricted work space led to various increases in equipment and labor costs. The precipitation also caused damage to Barnard's various access roads, which required continuous maintenance and repair work.

In December of 2011, Barnard filed claims with Travelers based on damage to the access roads and certain environmental control equipment and losses associated with damage to the right of way. Travelers reviewed the claim and ultimately paid Barnard for losses associated with damage to the roads and environmental control equipment, but denied Barnard's claim to the extent it sought payment for losses associated with damages to the right of way. Travelers concluded that the access roads and environmental control equipment were “Covered Property” under the Policy which had sustained direct physical loss or damage from a “Covered Cause of Loss.” Travelers concluded that the right of way was not “Covered Property,” but was instead “land” for which coverage was expressly excluded under the Policy. Travelers also denied that the right of way had sustained direct physical loss or damage.

Travelers sent Barnard a reservation of rights letter detailing these coverage determinations on August 23, 2013, approximately eight months after Barnard filed the instant action. In the letter, Travelers details some of the Policy provisions it deems pivotal, and goes on to explain, in part, why Travelers deemed the losses associated with damage to the roads to be covered, while it deemed losses associated with damage to the right of way not to be covered:

We understand that part of Barnard's claim is for repair to the project access roads. The project description on the Declarations page expressly includes ‘project access roads' and therefore Travelers is accepting this element of Barnard's claim.... Land is not covered property under the policy. The land making up the right-of way is distinguished from project access roads which are expressly identified in the policy Declarations. Further Travelers does not agree that land which becomes saturated is ‘damaged.’

Id. at 3–4 (emphasis added). Travelers thus paid for Barnard's “expenses to repair only access roads that Barnard constructed or improved for the purposes of this project” and the damage to various environmental control equipment, and denied the balance of the claim. Id. Travelers paid Barnard $1,486,949.00, and denied the remaining claimed losses which amounted to over $17 million.

The Policy's insuring agreement states: “We will pay for direct physical loss of or damage to Covered Property from any of the Covered Causes of Loss.” (Doc. 55–1 at 20.) “Covered Property” is defined as “Builder's Risk,” id., which is itself a defined term. Id. at 34. “Builder's Risk” is defined in the Policy as follows:

“Builders' Risk” means:

Property described in the Declarations under “Builders' Risk” owned by you or for which you are legally liable consisting of:

a. Buildings or structures including temporary structures while being constructed, erected or fabricated at the “job site”

...

“Builders' Risk” does not include:

...

c. Land (including land on which the property is located) or water.

Id. Thus, “Builder's Risk” (and by extension “Covered Property”) is defined in the Policy and by reference to “Property described in the Declarations under “Builders' Risk.” Id.

The Declarations Page reads as follows:

I. COVERED PROPERTY AND LIMITS OF INSURANCE

IM PAK COVERAGE

“BUILDERS' RISK”

We cover only the buildings and structures shown below:

LOCATION, DESCRIPTION AND COINSURANCE PERCENTAGE

“Job Site”

Building Number

Description [ ]

1

1

APEX PIPELINE EXPANSION WASATCH LOOP SPANNING DAVIS, SALT LAKE & MORGAN COUNTIES UTAH, INCLUDING THE PROJECT ACCESS ROADS AND ALL PIPE STORAGE SITES IN CONNECTION WITH THIS PROJECT.

(Doc. 55–1 at 11.) “Job site” is defined in the policy as “the premises where the ‘Builders' Risk’ will be permanently located at completion of the construction, installation, erection or fabrication.” Id. at 37. “Project” is defined as “the total construction of all Covered Property at the ‘job site.’ ” Id. at 38. The terms “buildings” and “structures” are not defined. However, pursuant to the definition of “Builders' Risk”, the terms “buildings” and “structures” include “temporary structures while being constructed erected or fabricated at the ‘job site.”’ (Doc. 55–1 at 34.)

Summary Judgment Standard

Summary judgment is appropriate “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.Civ. P. 56(a). The movant bears the initial burden of informing the Court of the basis for its motion and identifying those portions of “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (internal quotation marks omitted). The movant's burden is satisfied when the documentary evidence produced by the parties permits only one conclusion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251–52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Where the moving party has met its initial burden, the party opposing the motion “may not rest upon the mere allegations or denials of his pleading, but ... must set forth specific facts showing that there is a genuine issue for trial.” Id. at 248, 106 S.Ct. 2505 (internal quotation marks omitted).

Applicable Law

A federal court sitting in diversity applies the substantive law of the forum state. Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). In this case, the Court applies Montana law.

Interpretation of Insurance Contracts

In Montana, the interpretation of an insurance contract is a question of law. Marie Deonier & Assoc. v. Paul Revere Life Ins. Co., 301 Mont. 347, 9 P.3d 622, 630 (2000). In interpreting an insurance contract, the court “will read the insurance policy as a whole, and will if possible, reconcile its various parts to give each meaning and effect.” Farmers Alliance Mut. Ins. Co. v. Holeman, 289 Mont. 312, 961 P.2d 114, 119 (1998). The language of an insurance policy governs if it is clear and explicit. Marie Deonier & Assoc., 9 P.3d at 630.

“Any ambiguity in an insurance policy must be construed in favor of the insured and in favor...