Berkshire Hathaway Homestate Ins. Co. v. SQI, Inc., Case No. C14–0868JLR.
| Decision Date | 21 September 2015 |
| Docket Number | Case No. C14–0868JLR. |
| Citation | 132 F.Supp.3d 1275 |
| Parties | BERKSHIRE HATHAWAY HOMESTATE INSURANCE CO., Plaintiff, v. SQI, INC., et al., Defendants. |
| Court | U.S. District Court — Western District of Washington |
Gary A. Sparling, Soha & Lang PS, Seattle, WA, for Plaintiff.
Matthew Michael Kennedy, Morgan J. Wais, Richard Lawrence Martens, Martens Associates PS, Seattle, WA, for Defendants.
JAMES L. ROBART
, District Judge.
Before the court are (1) Plaintiff Berkshire Hathaway Homestate Insurance Company, formerly known as Cornhusker Casualty Company's ("Cornhusker"), motion for summary judgment (Corn. Mot. (Dkt. # 73)) and (2) Defendants and Counterclaimants SQI, Inc. ("SQI"), Ledcor Industries (USA), Inc. ("Ledcor") and Admiral Way, LLC's ("Admiral") motion for summary judgment (Def. Mot. (Dkt. # 70)). The court has considered the motions and the parties' submissions related to the motions, the balance of the record, and the relevant law. Being fully advised, the court DENIES Defendants' motion, GRANTS Cornhusker's motion, DECLARES that the insurance policies at issue provide no coverage to Defendants related to the underlying litigation, and DISMISSES Defendants' counterclaims.
This is an insurance dispute arising out of underlying construction defect litigation. Cornhusker moves for summary judgment that it has no obligation to indemnify its insured, SQI, with respect to the underlying litigation. (See Corn. Mot. at 17–19.) Cornhusker's motion also seeks dismissal of SQI's extra-contractual counterclaims (see id. at 19–21), Defendants' counterclaim for reformation (see id. at 2728), and Admiral's and Ledcor's counterclaims as putative additional insureds (see id. at 21–27). Defendants oppose Cornhusker's motion and, in their own motion, request that the court grant summary judgment in their favor on SQI's extra-contractual counterclaims. (See Def. Mot. at 2.)
The case has its origins in a construction project in West Seattle. In 2001, developer Admiral hired Ledcor as the general contractor to build the Admiral Way Project ("the Project"), a structure consisting of 65 residential units, two ground-floor commercial units, and an underground parking garage. Ledcor in turn hired multiple subcontractors. (See 1st Sparling Decl. ¶ 8, Ex. G ("Ledcor Compl.") ¶ 12; see also Gartin Decl. ¶ 4.) One of those subcontractors was SQI, which Ledcor hired to do the roofing on the Project. (Corn. Mot. at 6; Ledcor Compl. ¶¶ 12–13.) In addition to working on the original roofing, SQI also performed repairs on the roof in May and June of 2005.
SQI had three year-long commercial general liability ("CGL") insurance policies with Cornhusker stretching from May 2003 to May 2006. Only the third policy ("the Policy"), which applied from May 2005 to May 2006, is directly in issue.1 (See 2d Sparling Decl. ¶ 4, Ex. C ("Policy").) The Policy provided "Bodily Injury and Property Damage Liability" coverage ("BI/PD Coverage"),2 as well as several other categories of coverage not relevant here. (Policy at 4–14.)3 In addition, SQI paid extra premiums for products-completed operations hazard ("PCOH"), which extended SQI's BI/PD Coverage to bodily injury and property damage arising out of SQI's completed work or product as opposed to its ongoing operations.4 See Goodwin v. Wright, 100 Wash.App. 631, 6 P.3d 1, 4 (2000)
; (3/30/15 Order at 3–4 & n. 3, 15–19; 1st Martens Decl. ¶¶ 2–4, Exs. A–C.)
Multiple exclusions and limitations constrict the Policy's BI/PD Coverage. In particular, the Policy contains endorsements that add exclusions for residential construction5 (Policy at 24), and "injury or damage in progress"6 (id. at 25). Likewise, The Policy excludes property damage to "your work."7 (Id. at 7.) The Policy also limits covered property damage to that which occurs during the policy period. (Id. at 4.) None of these exclusions and limitations mentions any exception for PCOH.
Litigation related to the Project commenced in 2007, when the Admiral Way Condominium Owners Association ("ACOA") sued Admiral in King County Superior Court alleging defects in the construction of the Project and Admiral added Ledcor as a third-party defendant ("the ACOA Suit"). .) While the ACOA Suit was ongoing, Admiral and Ledcor sued SQI and various other subcontractors, also in state court ("the Contractor Suit"). In 2010, separate coverage-related litigation began between several insurance companies and Admiral and Ledcor ("the Coverage Suit"). (See Corn. Mot. at 14.)
The parties provide scant information regarding the property damage at issue in these lawsuits. One of the few documents in the record relating to problems with the Project is a "list of known construction defects" that ACOA created in 2007 for its suit against Admiral. (See 2d Martens Decl. (Dkt. # 72) ¶ 2, Ex. 4 ("Ledcor Tender") at 7–12 ("ACOA Defect List") (also discussed in 2d Sparling Decl. ¶ 13, Ex. L ("Colvard Report") at 7–8).) This document lists the following alleged defects in the construction of the roof at the Project: (1) the roof membrane has several areas that lack adhesion and have blisters; (2) lead flashings used to weatherproof vent stacks are poorly detailed and prone to water intrusions; (3) galvanized metal flashings are poorly detailed and are prone to water intrusion; (4) metal caps lack saddle flashings at transitions with above-roof vertical walls; (5) two large areas on the roof have evidence of water trapped between the roofing plies; and (6) several smaller areas have evidence of lack of adhesion between the roofing plies.
(ACOA Defect List at 2–3.) The list does not explain, however, what property damage, if any, arose out of those construction defects. In fact, the court has been unable to locate any admissible evidence on that subject.8
Cornhusker learned of the claims against its insured when it received a tender from Ledcor on October 29, 2007, asserting Ledcor's status as an additional insured and requesting coverage in the ACOA Suit. (See Def. Mot. at 3; 2d Martens Decl. ¶ 2, Ex. 3 ("Claim Notes") at 1; Ledcor Tender at 1, 6.) Cornhusker began investigating this claim within 24 hours by sending John Colvard of Washington Oregon Claim Service to examine the roof and prepare a report. (See Claim Notes at 1; see also Colvard Report (dated 11/19/07).) Cornhusker's claim notes show that Cornhusker knew on October 30, 2007, that SQI had performed both the original construction of the Project's roof and the 2005 repair work on the roof. (See Claim Notes at 1.) On December 10, 2007, Cornhusker sent SQI a reservation-of-rights letter. (See 2d Martens Decl. ¶ 2, Ex. 2 ("RoR").) Cornhusker's letter informed SQI that Cornhusker would defend SQI in the underlying dispute but that coverage might not exist under the policies due to, among other policy provisions, the "your work" and residential construction exclusions. (See id. at 1, 9–12.) Cornhusker's letter quoted the entire 2005–06 residential construction exclusion, including its full title; however, the letter did not specifically discuss the language in the exclusion related to coverage for repairs, but rather stated only that the "Residential Construction Exclusions specifically exclude coverage for residential condominiums." (Id. at 11–12.)
Multiple mediations took place regarding the Contractor Suit. First, in April 2008, before Ledcor filed suit against SQI, Cornhusker received an invitation from Ledcor to a mediation in May. (See 2d Martens Decl. ¶ 2, Ex. 6 ("4/08 Ledcor Letter"); Claim Notes at 6.) Cornhusker had retained R. Scott "Bud" Fallon and the firm of Fallon & McKinley as counsel to represent SQI against Ledcor's claims. ) Mr. Fallon represented SQI at the May 2008 mediation but apparently without prior settlement authority from Cornhusker. (See 2d Martens Decl. ¶ 2, Ex. 7; Def. Mot. at 12.) In an internal email sent prior to the May 2008 mediation, Cornhusker employee Tom Dashel stated that the mediation (2d Martens Decl. ¶ 2, Ex. 9.)
Two more mediations appear to have taken place in 2009 and another occurred in October 2010, all of which defense counsel attended—again, apparently without prior settlement authority from Cornhusker. (See 2d Martens Decl. ¶ 2, Ex. 7, Ex. 11.) After the 2010 mediation, Mr. Fallon wrote to Mr. Dashel explaining, 9 Mr. Dashel responded: "Payment of anything is a non starter [sic] for us ... Keep me posted Bud." (2d Martens Decl. ¶ 2, Ex. 12.) The parties point to no other information regarding what occurred at these mediations.10
A final mediation took place in March 2014. By this point, Admiral and Ledcor had settled the ACOA Suit (see Admiral Ans. ¶ 3.11 (...
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