Bethany Boardwalk Grp. LLC v. Everest Sec. Ins. Co., Civil Action No. ELH-18-3918

CourtUnited States District Courts. 4th Circuit. United States District Court (Maryland)
Writing for the CourtEllen L. Hollander United States District Judge
PartiesBETHANY BOARDWALK GROUP LLC, Plaintiff, v. EVEREST SECURITY INSURANCE COMPANY, Defendant.
Decision Date05 March 2020
Docket NumberCivil Action No. ELH-18-3918

BETHANY BOARDWALK GROUP LLC, Plaintiff,
v.
EVEREST SECURITY INSURANCE COMPANY, Defendant.

Civil Action No. ELH-18-3918

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND

March 5, 2020


MEMORANDUM OPINION

This insurance dispute arises from losses sustained by a hotel due to a windstorm on September 9, 2018. Plaintiff Bethany Boardwalk Group LLC ("Bethany"), which owns the hotel, submitted a claim under its insurance policy with defendant Everest Security Insurance Company ("Everest"), seeking to recover costs incurred to repair the hotel's roof and for interior water damage, as well lost business income. Everest denied the claim on the ground that the hotel's roof was defective, and therefore Bethany's losses were subject to the policy's exclusion for faulty workmanship.

Thereafter, Bethany filed suit against Everest for breach of contract and declaratory judgment. ECF 1 (the "Complaint"). Plaintiff seeks a declaration that the policy covers the storm "as an occurrence and a specified cause of loss," and that Everest is liable for all losses sustained by the hotel "as a direct or consequent loss for the wind event." Id. ¶ 28(a). In addition to damages, Bethany requests prejudgment interest. Id. ¶ 28(b).1

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Bethany has filed a "Motion For Partial Summary Judgment As To [Everest's] Liability." ECF 27. The motion is supported by a memorandum of law (ECF 27-1) (collectively, the "Bethany Motion"), and seven exhibits. ECF 27-2 to ECF 27-8. Everest has filed a combined opposition to the Bethany Motion and a cross-motion for summary judgment (ECF 28), supported by a memorandum. ECF 28-1 (collectively, the "Everest Motion"). Bethany filed a combined opposition to the Everest Motion and a reply in support of its own summary judgment motion. ECF 29. Everest has replied. ECF 30.2

The motions are fully briefed and no hearing is necessary to resolve them. See Local Rule 105(6). For the reasons that follow, I shall grant the Bethany Motion (ECF 27) in part and deny the Everest Motion (ECF 28).

I. Background3

The material facts are undisputed. See ECF 27-2 ("Bethany's Statement of Undisputed Facts"); ECF 28-1 at 6 ("Everest adopts the statement of undisputed facts submitted by Bethany[.]").

Bethany owns and operates the "Bethany Beach Ocean Suites Residence Inn," a hotel located in Bethany Beach, Delaware (the "Hotel"). ECF 27-3 ("Burbage Affidavit"), ¶ 4. Built in 2015, the Hotel is comprised of two structures, each three stories, referred to as the "North Building" and the "South Building." See id. ¶ 7. In total, the Hotel includes 112 suites, five meeting rooms, a restaurant and bar, an indoor swimming pool with a retractable roof, and a fitness center and spa. Id. ¶¶ 4-5.

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During the construction of the Hotel, CCS Roofing LLC ("CCS") was retained to install a thermoplastic polyolefin ("TPO") roof system. ECF 27-6 (10/5/2018 AET Preliminary Report) at 2. The roof system was manufactured by Firestone Building Products ("Firestone") and guaranteed by Firestone's 20-year "Red Shield Warranty." Id. CCS was a Firestone-licensed applicator. Id.

Installation of the TPO roof system unfolded in three phases. First, CCS covered the concrete roof deck with "polyiso insulation boards," rigid foam insulation sandwiched between reinforced paper material. ECF 27-7 (11/20/2018 AET Supplemental Report) at 7. CCS then stacked the boards in successive layers to create the roof slope necessary to direct roof runoff to various drain locations. Id. Finally, CCS glued a TPO membrane atop the insulation boards to form the roof's surface. ECF 27-6 at 3.

On September 9, 2018, a storm occurred in Bethany Beach, Delaware. Id.; see also ECF 27-3, ¶ 8. The storm produced "one of the windiest days on record since the TPO roof was installed" on the Hotel, generating wind gusts of up to 39 m.p.h. ECF 27-7 at 3. Although this was well below the 55-m.p.h. limit for a properly constructed TPO roof, according to Firestone's warranty, id. at 7, it was the third-highest wind speed recorded in the area since 2015. Id. And, the storm deposited between 0.11 and 0.50 inches of rain over a 48-hour period. Id. at 3.

During the storm, a roughly 50-foot section of the TPO membrane of the North Building's roof "peeled back," exposing the polyiso boards to the elements. Id. at 7; see also ECF 27-3, ¶ 8; ECF 27-6 at 3. As a result of the roof blow-off, water infiltrated the North Building at two locations. ECF 27-6 at 4. Water "migrated down an opening for a roof drain" into suite No. 301, requiring the replacement of portions of the drywall and the room's carpeting. Id. And, water migrated into the Hotel's restaurant, staining the drywall ceiling. Id.

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Firestone dispatched Quality Exteriors Inc. ("Quality"), a licensed Firestone contractor, to perform emergency work on the roof on September 13 and 14, 2018. Id. at 3. Quality distributed sand bags and masonry blocks throughout the affected area to temporarily re-fasten the TPO membrane to the roof. Id. Nevertheless, Bethany incurred damages in excess of $100,000, including the cost of temporary and permanent repairs to the roof and to the interior of the Hotel, as well as lost business income. ECF 27-3, ¶ 12.

Following the storm, Bethany submitted a claim to Everest, its commercial property insurer. Id. ¶ 14. At the time, the Hotel was insured under a one-year commercial property casualty insurance policy issued by Everest on July 2, 2018. Id. ¶ 5; ECF 27-4 (the "Policy"). The Policy covered $9,669,000 for the North Building; $3,225,000 for business personal property; and $2,200,000 for loss of business income. ECF 27-4 at 17.

The Policy contains three forms relevant to coverage in this case: (1) the "Building and Personal Property Coverage Form," ECF 27-4 at 38-53; (2) the "Causes of Loss - Special Form," id. at 67-76; and (3) the "Wind-Driven Rain Limitation." Id. at 65.

Regarding coverage generally, the "Building and Personal Property Coverage Form" provides, id. at 38:

A. Coverage

We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.

With respect to lost business income, the Policy states that Everest will pay for "actual loss of Business Income" sustained "due to the necessary 'suspension' of your 'operations' during the 'period of restoration.'" Id. at 54. However, in order for lost business income to be covered, the "loss or damage must be caused by or result from a Covered Cause of Loss." Id.

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Section A of the "Causes of Loss - Special Form" defines "Covered Causes of Loss" as any "direct physical loss unless the loss is excluded or limited in this policy." Id. at 67. Further, Section G states: "Specified causes of loss mean the following: fire; lightening; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire-extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice or sleet; water damage." Id. at 76 (emphasis added).

Section B delineates the various events that are excluded from coverage under the Policy. Section B(1) provides that Everest "will not pay for loss or damage caused directly or indirectly" by (a) "Ordinance Or Law"; (b) "Earth Movement"; (c) "Governmental Action"; (d) "Nuclear Hazard"; (e) "Utility Services"; (f) "War And Military Action"; (g) "Water"; and (h) "Fungus, Wet Rot, Dry Rot And Bacteria." Id. at 67-69. Section B(1) contains what is known in the industry as an "anti-concurrent cause of loss of provision." See ECF 27-1 at 13. That clause specifies that loss or damage caused by these events "is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss." ECF 27-4 at 67.

A second set of exclusions, located in Section B(2), provides, in relevant part, id. at 69:

2. We will not pay for loss or damage caused by or resulting from any of the following:

* * *

d.(1) Wear and tear;
(2) Rust or other corrosion, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself;

* * *

But if an excluded cause of loss that is listed in 2.d.(1) through (7) results in a "specified cause of loss" or building glass breakage, we will pay for the loss or damage caused by that "specified cause of loss" or building glass breakage.

Finally, Section B(3) contains a third set of exclusions. It states, id. at 70-71:

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3. We will not pay for loss or damages caused by or resulting from any of the following, 3.a. through 3.c. But if an excluded cause of loss that is listed in 3.a. through 3.c. results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.

a. Weather conditions. But this exclusion only applies if weather conditions contribute in any way with a cause or event excluded in Paragraph 1. above to produce the loss or damage.

b. Acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body.

c. Faulty, inadequate or defective:
(1) Planning, zoning, development, surveying, siting;
(2) Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
(3) Materials used in repair, construction, renovation or remodeling; or
(4) Maintenance; of part or all of any property on or off the described premises.

The parties acknowledge that the language in Section B(3) that restores coverage for a covered cause of loss that results after an excluded cause of loss is an "ensuing loss clause." See ECF 27-1 at 9, 14; ECF 28-1 at 8.

Also relevant here, Section C of the Cause of Loss - Special Form, titled "Limitations," states, id. at 72:

The following limitations apply to all policy forms and endorsements unless otherwise stated:

1. We will not pay for loss of or damage to property, as described and limited in this section. In addition, we will not pay for
...

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