Seattle Tunnel Partners v. Great Lakes Reinsurance (UK) PLC

• Decision Date: 02 August 2021
• Docket Number: No. 80260-7-I),No. 78691-1-I (consolidated with No. 79060-9-I,78691-1-I (consolidated with No. 79060-9-I,80260-7-I)
• Citation: 492 P.3d 843
• Parties: SEATTLE TUNNEL PARTNERS, a Washington joint venture, Petitioner, Washington State Department of Transportation, Appellant-Petitioner, Hitachi Zosen U.S.A. Ltd., Intervenor-Petitioner, v. GREAT LAKES REINSURANCE (UK) PLC, a foreign insurance company; Zurich American Insurance PLC, a New York insurance company; Starr Surplus Lines Insurance Company ; a Illinois insurance company; Indian Harbor Insurance Company, a Connecticut insurance company; Allianz Global Corporate & Specialty SE, a foreign insurance company; Torus Insurance (UK) Limited, a foreign insurance company; Partner re Ireland Insurance Limited, a foreign insurance company; Does 1-100, individual and/or corporate members of Syndicate 382 at Lloyd's, London; and Does 101-200, individual and/or corporate members of Syndicate 1882 at Lloyd's, London, Respondents.
• Court: Washington Court of Appeals

492 P.3d 843

SEATTLE TUNNEL PARTNERS, a Washington joint venture, Petitioner,Washington State Department of Transportation, Appellant-Petitioner,Hitachi Zosen U.S.A. Ltd., Intervenor-Petitioner,

v.GREAT LAKES REINSURANCE (UK) PLC, a foreign insurance company; Zurich American Insurance PLC, a New York insurance company; Starr Surplus Lines Insurance Company ; a Illinois insurance company; Indian Harbor Insurance Company, a Connecticut insurance company; Allianz Global Corporate & Specialty SE, a foreign insurance company; Torus Insurance (UK) Limited, a foreign insurance company; Partner re Ireland Insurance Limited, a foreign insurance company; Does 1-100, individual and/or corporate members of Syndicate 382 at Lloyd's, London; and Does 101-200, individual and/or corporate members of Syndicate 1882 at Lloyd's, London, Respondents.

No. 78691-1-I (consolidated with No. 79060-9-I

No. 80260-7-I)

Court of Appeals of Washington, Division 1.

FILED August 2, 2021

Guy M. Bowman, Attorney at Law, P.O. Box 40113, Olympia, WA, 98504-0113, Karl Francis Oles, Bart Weldon Reed, Rachel Dunnington Groshong, Stoel Rives LLP, 600 University St. Ste. 3600, Seattle, WA, 98101-4109, David R. Goodnight, Jill Diane Bowman, Stoel Rives LLP, 600 University St. Ste. 3600, Seattle, WA, 98101-3197, for Appellant.

Dale Lawrence Kingman, Matthew Franklin Pierce, Gregory David Pendleton, John Douglas Cadagan, Guinevere Becker Bogusz, Gordon Tilden Thomas & Cordell, LLP, 600 University St. Ste. 2915, Seattle, WA, 98101-4172, Haley K. Krug, Kirton McConkie, 999 W Main St. Ste. 100, Boise, ID, 83702-9001, Joseph Luciana, Samantha Brutout, DFL Legal, 3rd Floor, 20 Stanwix Street, Pittsburg, PA, 15222, Leonard J. Feldman, Peterson Wampold Rosato Feldman Luna, 1501 4th Ave. Ste. 2800, Seattle, WA, 98101-3677, Karl Francis Oles, Bart Weldon Reed, Rachel Dunnington Groshong, Stoel Rives LLP, 600 University St. Ste. 3600, Seattle, WA, 98101-4109, David R. Goodnight, Jill Diane Bowman, Stoel Rives LLP, 600 University St. Ste. 3600, Seattle, WA, 98101-3197, Daniel Wilder Galvin, Attorney At Law, P.O. Box 11011, Olympia, WA, 98508-1011, Guy M. Bowman, Attorney at Law, P.O. Box 40113, Olympia, WA, 98504-0113, for Petitioner.

Michael K. Mccormack, Bullivant Houser Bailey, 925 4th Ave. Ste. 3800, Seattle, WA, 98104-1129, Matthew Gonzalez, Zelle LLP, 45 Broadway, Suite 720, New York, NY, 10006, Philip Albert Talmadge, Talmadge/Fitzpatrick, 2775 Harbor Ave. Sw, Third Floor Ste. C, Seattle, WA, 98126-2138, Dan Millea, Zelle LLP, 500 Washington Ave. S, Suite 4000, Minneapolis, MN, 55415, for Respondents.

Richard Ottesen Prentke, Vs L. Woolston, Nicholas Peter Gellert, Perkins Coie LLP, 1201 3rd Ave. Ste. 4900, Seattle, WA, 98101-3095, Vivek Chopra, Perkins Coie, 700 Thirteenth Street Nw, Suite 600, Washington, DC, 20005-3960, Lester Brown, 3150 Porter Drive, Palo Alto, CA, 94304, for Appellant Intervenor.

Richard Ottesen Prentke, Vs L. Woolston, Nicholas Peter Gellert, Perkins Coie LLP, 1201 3rd Ave. Ste. 4900, Seattle, WA, 98101-3095, Dale Lawrence Kingman, Matthew Franklin Pierce, Gregory David Pendleton, John Douglas Cadagan, Miles C. Bludorn, Guinevere Becker Bogusz, Gordon Tilden Thomas & Cordell, LLP, 600 University St. Ste. 2915, Seattle, WA, 98101-4172, Haley K. Krug, Kirton McConkie, 999 W Main St. Ste. 100, Boise, ID, 83702-9001, Leonard J. Feldman, Peterson Wampold Rosato Feldman Luna, 1501 4th Ave. Ste. 2800, Seattle, WA, 98101-3677, for Other Parties.

PUBLISHED OPINION

Chun, J.

¶ 1 In 2011, Seattle Tunnel Partners (STP) contracted with the Washington State Department of Transportation (WSDOT) to construct a tunnel to replace the Alaskan Way Viaduct in Seattle. As part of the agreement, STP procured builder's risk insurance coverage (Policy). Section 1 of the Policy concerns the tunneling works and Section 2 concerns the tunnel boring machine (TBM) nicknamed "Bertha." The Policy names STP and WSDOT as insureds. Various insurers (Insurers) underwrote the Policy.

¶ 2 In 2013, the TBM ceased functioning and STP and WSDOT tendered claims under the Policy. The Insurers disputed coverage and STP and WSDOT sued, alleging wrongful denial of their claims. Hitachi Zosen U.S.A., which designed and manufactured the TBM, joined as an intervenor-plaintiff. The dispute raised questions relating to the interpretation of the Policy. The parties filed a series of cross motions for partial summary judgment, and the trial court granted the Insurers’ motions and denied STP's, WSDOT's, and Hitachi's (Petitioners’¹ ) motions.

¶ 3 STP and WSDOT petitioned for discretionary review. A commissioner of this court granted such review on whether the trial court erred in determining as a matter of law that (1) the Policy's Section 2 mechanical breakdown exclusion (MBE) excludes coverage for design defects, and (2) the claimed damages resulted from a single occurrence. The commissioner reserved for the panel whether to grant discretionary review on (1) whether STP and WSDOT can recover under Section 1 of the Policy, (2) the meaning of the term "any item" in the Policy's Section 2 MBE, and (3) whether the Policy provides coverage for delay costs. The commissioner allowed the parties to brief these issues.

¶ 4 After the commissioner granted discretionary review, at the trial court level, the Insurers moved for summary judgment on WSDOT's remaining damages claims and its claim for declaratory judgment. The trial court granted summary judgment, entered partial final judgment, and WSDOT appealed the ruling. This court consolidated WSDOT's appeal with the grant of discretionary review. Hitachi moves to join the consolidated matter under RAP 5.3(i).

¶ 5 We grant Hitachi's motion to join this matter as a petitioner and grant review on the issues reserved by the commissioner. We reverse in part and affirm in part as follows: in the Petitioners’ favor, we reverse the partial summary judgment rulings that a single occurrence caused the TBM damage and that "any item" in the Section 2 MBE means the entire TBM; and we reverse the summary judgment ruling that none of WSDOT's claimed damages relates to TBM repairs and dismissing WSDOT's claim for declaratory judgment. And in the Insurers’ favor, we affirm the partial summary judgment rulings that STP and WSDOT cannot recover under Section 1 or for delay costs and that the Section 2 MBE bars recovery for damage caused by design defects.

I. BACKGROUND

A. The Policy

¶ 6 In 2011, STP contracted with WSDOT to construct a tunnel to replace the Alaskan Way Viaduct. The contract required STP to procure builder's risk insurance coverage for the tunneling works and the TBM, and STP acquired this coverage. The Policy names STP and WSDOT as insureds. STP obtained the TBM from Hitachi, which designed and manufactured it.

¶ 7 The Policy's Insuring Clause provides in pertinent part, "The Insurers will indemnify the Insured in respect of direct physical loss, damage or destruction (hereinafter referred to as ‘Damage’) not specifically excluded herein ... happening to the Interest Insured." (Emphasis added.)

¶ 8 The Interest Insured under Section 1 of the Policy is:

The permanent and/or temporary works executed and in the course of execution materials supplies equipment and other goods (excluding Contractors Plant and Equipment) including Employers supplied items / free issue materials or any other property including temporary buildings and their contents for which the Insured is responsible or for which they hold themselves responsible or any of the Insured has agreed to insure or have instructions to insure which are used or intended for use in connection with the Project.

The Interest Insured under Section 2 of the Policy is the TBM.

¶ 9 The Policy covers damage to the TBM for a sublimit of up to $85 million for each "occurrence." The Policy defines "occurrence" as "one event or series of events consequent on or attributable to one source instance or cause, which results in Damage to or the destruction of Interest Insured."

¶ 10 Section 2 of the Policy includes the MBE, which excludes compensation for "Loss of or Damage in respect any item by its own explosion mechanical or electrical breakdown, failure breakage or derangement.

This exclusion does not apply to resultant Damage to the property."

B. The Coverage Dispute

¶ 11 The TBM began mining in July 2013. In October 2013, the rotating part of the center pipe of the TBM cracked. In December 2013, the TBM ceased functioning.² The TBM did not resume mining until December 2015.

¶ 12 WSDOT and STP tendered insurance claims based on the TBM damage, losses from the delay in mining, and construction of an access shaft built to repair the TBM. The Insurers denied these claims. STP sued the Insurers, claiming breach of contract, violation of unfair claims settlement practices regulations, Consumer Protection Act³ violations, Insurance Fair Conduct Act⁴ violations, and breach of the implied covenant of good faith. They also sought declaratory relief. WSDOT was joined as a necessary party by STP's First Amended Complaint. WSDOT filed a complaint, requesting declaratory relief. Hitachi joined the action as an intervenor-plaintiff.

¶ 13 STP and the Insurers cross-moved for partial summary judgment. Hitachi joined STP's motion and opposed the Insurers’ motion. WSDOT said that STP's motion should be granted in part and denied in part, and that the Insurers’ motion should be denied in full. The motions raised various issues relating to the interpretation of the Policy. The trial court granted the Insurers’ motion, concluding that the Section 2 MBE "excludes coverage for property damage to the TBM caused by any alleged design defects." The court denied STP's motion, in which they argued to the contrary.

¶ 14 Petitioners STP and WSDOT then both moved for partial summary judgment, saying that the term "any item" as used in the Section 2 MBE refers to a component part of the TBM. The trial court denied these motions.

¶ 15 The Insurers then moved...