Exec. 1801 v. Eagle W. Ins. Co.

• Decision Date: 11 June 2021
• Docket Number: 3:18-cv-00580-SB
• Parties: EXECUTIVE 1801 LLC, an Oregon limited liability company, Plaintiff, v. EAGLE WEST INSURANCE COMPANY, a California corporation, Defendant.
• Court: U.S. District Court — District of Oregon

EXECUTIVE 1801 LLC, an Oregon limited liability company, Plaintiff,
v.
EAGLE WEST INSURANCE COMPANY, a California corporation, Defendant.

No. 3:18-cv-00580-SB

United States District Court, D. Oregon

June 11, 2021

AMENDED FINDINGS AND RECOMMENDATION

HON. STACIE F. BECKERMAN UNITED STATES MAGISTRATE JUDGE

Executive 1801 LLC (“Executive”) filed this action against Eagle West Insurance Company (“Eagle West”), alleging claims for breach of an insurance contract and breach of the implied covenant of good faith and fair dealing. Eagle West now moves for summary judgment. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332(a)(1). For the reasons explained below, the Court recommends that the district judge grant in part and deny in part Eagle West's motion for summary judgment.

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BACKGROUND^[1]

I. THE INSURED PROPERTY

Executive owns the Executive 1801 Apartments (the “property”), a multiple-building apartment complex located at 1801 Northeast 162nd Avenue in Portland, Oregon. (Dep. of Cheryl Dalton (“Dalton Dep.”) 8:1-23, 25:3-10, Feb. 5, 2020, ECF No. 44-1.) The property was built in the 1970s, and it consists of six buildings, which are two to three stories in height, wood-framed, and include elevated exterior walkways, attached decks, exterior access stair towers, and siding. (Decl. of Daniel Bentson in Supp. of Def.'s Mot. for Summ. J. (“Bentson Decl.”) Ex. C at 4; Dep. of Mark Rose (“Rose Dep.”) 18:20-25, 19:8-11, Nov. 22, 2019, ECF No. 44-1; Dalton Dep. 25:3-10, 57:22-25.)

II. THE INSURANCE POLICY

Eagle West insured the property between January 1, 2006, and January 1, 2016. (Decl. of Suzanna Leporati in Supp. of Def.'s Mot. for Summ. J. (“Leporati Decl.”) ¶ 2, ECF No. 45; Leporati Decl. Ex. A at 4.) The insurance policy (the “policy”) provides coverage for “direct physical loss of or damage to [the property] at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.” (Leporati Decl. Ex. A at 7.) The policy defines “Covered Causes of Loss” as “[r]isks of [d]irect physical [l]oss unless the loss is” either “[e]xcluded” or “[l]imited” in the policy's lists of exclusions and limitations. (Leporati Decl. Ex. A at 8.)

A.Limited Coverage for Collapse

The policy's list of exclusions includes the following provision regarding a loss or damage caused by or resulting from “collapse,” an undefined term in the policy: “We will not

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pay for loss or damage caused by or resulting from . . . [c]ollapse, except as provided in the Additional Coverage for Collapse. But if collapse results in a Covered Cause of Loss, we will pay for the loss or damaged caused by that Covered Cause of Loss.” (Leporati Decl. Ex. A at 16, 18.) The Additional Coverage for Collapse provision provides coverage for “direct physical loss or damage to [the property] caused by collapse of a building or any part of a building insured under this policy, if the collapse is caused by . . . [h]idden decay,” and specifies that “[c]ollapse does not include settling, cracking, shrinkage, bulging, or expansion.” (Leporati Decl. Ex. A at 9.)

B. Negligent Work Exclusion and Resulting Loss

The policy also excludes from coverage “loss or damage caused by or resulting from . . . [n]egligent [w]ork,” unless it “results in a Covered Cause of Loss.” (Leporati Decl. Ex. A at 16, 19) (bold typeface omitted). The policy includes the following description of negligent work:

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.

(Leporati Decl. Ex. A at 19.)

III.THE COVERAGE DISPUTE

In 2009, Executive hired a general contractor, Sage General Contracting (“Sage”), to install new siding on the property. (Dalton Dep. 70:3-12, 76:14-77:24.) Instead of “stripp[ing] the [old] siding before recladding it,” Sage, who discovered wood rot during “the course of its

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siding . . . work,” installed the new siding over the property's old siding. (Dalton Dep. 70:13-71:8.)

In 2014, Executive hired a contractor, Creative Contracting (“Creative”), to work on the property's attached decks. (Bentson Decl. Ex. D at 1.) After beginning the removal of the decks and balconies, Creative discovered “major dry rot” behind the ledger boards and found that “no flashing was put in [when Sage] re-did the [property's] siding,” which resulted in water “leaking in behind the siding for some time (between where the decks meet the building).” (Bentson Decl. Ex. D at 1.)

In 2015, Executive hired a construction consultant, CERTA Building Solutions (“CERTA”), to inspect the property and formulate a plan for addressing any damage. (Rose Dep. 21:11-16, 55:7-56:15.) During its inspection of the property, CERTA discovered, among other things, that the property's wooden decks and balconies and wood-framed staircases were (1) “in distress because of exposure to water,” (2) “missing flashing at window heads,” (3) had “improperly installed flashing,” and (4) had “improperly constructed weather sealant joints.” (Rose Dep. 23:23-25:17.)

Based on CERTA's findings, Executive filed a construction defect lawsuit against Sage in December 2015. (Bentson Decl. Ex. F at 1-9.) Executive amended its complaint on August 19, 2016, and added construction defect-related claims against Creative. (Bentson Decl. Ex. G at 1-12.) About four months later, in late December 2016, Executive, Sage, and Creative executed a settlement agreement, pursuant to which Sage and Creative agreed to pay $900,000 and $50,000,

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respectively, to Executive for performing defective construction work.^[2] (Dalton Dep. 117:6-119:15.)

A few months before entering into the settlement agreement, Executive filed an insurance claim with Eagle West for rain and collapse-related damage to the property. (Leporati Decl. Ex. B at 1-3.) In support of its claim, Executive explained that it enlisted the services of Jeff Lewis (“Lewis”), a structural engineer, who “noted widespread damage to the structural elements of decks and retaining walls at [the property], including, in places, ‘over an inch' of actual downward movement,” and “expressed concern over [such] collapse conditions.” (Leporati Decl. Ex. B at 3.) Executive further explained that it “shored its decks and retaining walls in response to . . . [the] extensive decay and resulting actual downward movement.” (Id.) Executive also stated that the policy's exclusions “did not apply to damage caused by rain that lands on and infiltrates exterior building components to cause damage.” (Leporati Decl. Ex. B at 2.)

After receiving notice of Executive's claim, Eagle West hired Ken Oliphant (“Oliphant”), a structural engineer, to assist with its investigation. (Leporati Decl. Ex. C at 1.) Oliphant participated in an initial observation of the property and “a joint destructive examination of select exterior locations,” and “performed detailed examination[s] of the decks and exterior stairways and walkways located at one of the six wood-framed apartment buildings.” (Bentson Decl. Ex. C at 1.)

In a report dated October 3, 2017, Oliphant explained that he examined the property's “exterior decks and walkways [to] determine if [they had] collapsed” and that, for the purposes of his report, “a collapsed deck or exterior stairway/walkway condition [would] be [found] if the structure [had] suffered substantial structural impairment to the extent that it is incapable of

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resisting Code-required gravity loading.” (Bentson Decl. Ex. C at 2.) Oliphant reported that he found no evidence of a collapsed deck, exterior stairway, or exterior walkway. (Bentson Decl. Ex. C at 2-42.)

In November 2017, Eagle West received a report from Executive's structural engineer, Felix Martin (“Martin”). (Leporati Decl. Ex. D at 1; Bentson Decl. Ex. H at 4-236.) Martin's October 23, 2017, report relied on the following definition of structural collapse: “A condition of structural collapse occurs when a building's (or a building portion's) structural support system has, due to a loss of strength, or through excess deflection or deformation, reached a state of structural instability and ceased to provide its intended structural support purpose.” (Bentson Decl. Ex. H at 7.)

Martin's investigation revealed: (1) “a significant amount of structural damage exists to the [property's] access stairways, entry walkways, exterior walls, and balconies” and that “[s]ome of these areas have reached a state of structural instability due to the unexpected partial to complete structural collapse of their structural components,” (2) “[i]n some cases, [a] collapse condition exists [that is] mostly hidden from view by the architectural finishes and its full extent was not known until those finishes were removed and the structural framing was exposed,” and (3) the “structural collapse damage [at the property] is extensive and systemic, with drastic reductions in structural capacity to areas of all [the] buildings on [the property].” (Bentson Decl. Ex. H at 6.) Martin's report also explained that the “damage observed . . . during visual inspections and destructive testing was all caused by water intrusion,” the “water intrusion occurred due to defective original construction which failed to properly protect the sheathing and framing beams due to non-existent or defective flashing and water protective barriers,” and the

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water intrusion “would have begun immediately after completion of the remodel in 2009.” (Bentson Decl. Ex. H at 11.)

After receiving Martin's report, Eagle West sent a letter to Executive on March 9, 2018, stating that “no coverage applies under the policy for any of the observed damage and defects...