Seattle Tunnel Partners v. Great Lakes Reinsurance (UK) PLC
| Decision Date | 15 September 2022 |
| Docket Number | 100168-1 |
| Court | Washington Supreme Court |
| Parties | SEATTLE TUNNEL PARTNERS, a Washington joint venture; and WASHINGTON STATE DEPARTMENT OF TRANSPORTATION, Petitioners, v. GREAT LAKES REINSURANCE (UK) PLC, a foreign insurance company; ZURICH AMERICAN INSURANCE PLC, a New York insurance company; STARR SURPLUS LINES INSURANCE COMPANY, an 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; PARTNERRE 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. HITACHI ZOSEN U.S.A. LTD., Intervenor-Petitioner, |
This consolidated case concerns the interpretation of a builder's "all-risk" insurance policy. Petitioners-Washington State Department of Transportation (WSDOT) and Seattle Tunnel Partners (STP)-seek reversal of a published Court of Appeals decision affirming the partial summary judgment rulings that the insurance policy does not provide coverage for certain losses. At issue in WSDOT's petition for review is whether the loss of use or functionality of the insured property constitutes "physical loss" or "physical damage" that triggers coverage. STP's petition asks whether the insurance policy excludes coverage for damage to the insured property caused by alleged design defects and whether the policy covers delay losses. Intervenor-petitioner Hitachi Zosen U.S.A. Ltd. joins in STP's petition for review but not in WSDOT's petition and joins only in the issue concerning the exclusion for alleged design defects.[1]
This case arises out of a major construction project to replace the Alaskan Way Viaduct in Seattle. In 2011, STP contracted with WSDOT to construct a tunnel to replace the viaduct. As part of the agreement, STP obtained a builder's all-risk insurance policy (Policy) from Great Lakes Reinsurance (UK) PLC and several other underwriters[2] (collectively Great Lakes). The Policy named STP and WSDOT as insureds. This Policy insured against damage to both the tunneling works and the tunnel boring machine (TBM). "Section 1" of the Policy concerned the tunneling works and "Section 2" concerned the TBM. The tunneling works refer to "the tunnel itself during the course of construction, and property being used or intended for use in the construction of the tunnel (except the TBM)." Clerk's Papers (CP) at 4695.
The TBM began operating in July 2013. In December 2013, after excavating part of the tunnel, the machine stopped working. The TBM did not resume mining until December 2015. The project was unable to continue during the two-year period while the TBM was disassembled, removed, and repaired. STP and WSDOT tendered insurance claims under the Policy. Great Lakes denied coverage, and STP and WSDOT sued the insurers alleging wrongful denial of their claims.
The parties filed a series of cross motions for partial summary judgment. The motions raised various issues relating to the interpretation of the Policy. The trial court granted Great Lakes' motions and denied petitioners' motions. Relevant to this case, the trial court ruled, as a matter of law, that (1) the "Machinery Breakdown Exclusion" (MBE) in Section 2 "excludes coverage for property damage to the TBM caused by any alleged design defects," (2) the Policy does not afford coverage for losses due to project delays, and (3) the loss of use or functionality of the tunnel does not constitute "'direct physical loss, damage, or destruction'" that is covered by the Policy. CP at 2516, 8911. After granting discretionary review, the Court of Appeals affirmed these partial summary judgment rulings. We affirm the Court of Appeals.
I. Standard of Review
" " Kut Suen Lui v. Essex Ins Co., 185 Wn.2d 703, 709-10, 375 P.3d 596 (2016) (citation omitted) (quoting Durland v. San Juan County, 182 Wn.2d 55, 69, 340 P.3d 191 (2014)). Washington courts interpret language in insurance policies as a matter of law, and this court reviews de novo a lower court's interpretation of policy language. Kut Suen Lui, 185 Wn.2d at 710.
The issues presented in this case require us to interpret language in the Policy to determine whether, as a matter of law, the alleged specified loss is covered. Specifically, we are asked to determine (1) whether a design defect is an internal cause of damage that falls within the MBE, (2) whether the Policy's basis of indemnity provision covers losses due to project delays, and (3) whether physical loss or damage includes loss of use or functionality.
Petitioners do not challenge the rules we apply when interpreting insurance contracts. They challenge the Court of Appeals' application of those rules and the outcome. Rules for interpreting insurance contracts are well settled. We construe insurance policies as a whole and give the language "'a fair, reasonable, and sensible construction as would be given to the contract by the average person purchasing insurance.'" Queen Anne Park Homeowners Ass'n v. State Farm Fire & Cas. Co., 183 Wn.2d 485, 489, 352 P.3d 790 (2015) (internal quotation marks omitted) (quoting Queen City Farms, Inc. v. Cent. Nat'l Ins. Co. of Omaha, 126 Wn.2d 50, 65, 882 P.2d 703, 891 P.2d 718 (1994)). Where a term is not defined in the policy, it is assigned its "'plain, ordinary, and popular meaning.'" Queen Anne Park, 183 Wn.2d at 491 (quoting Queen City Farms, 126 Wn.2d at 77).
"'[I]f the policy language is clear and unambiguous, we must enforce it as written; we may not modify it or create ambiguity where none exists.'" Kut Suen Lui, 185 Wn.2d at 712 (alteration in original) (quoting Quadrant Corp. v. Am. States Ins. Co., 154 Wn.2d 165, 171, 110 P.3d 733 (2005)). If the language is ambiguous, we take additional steps in our interpretation analysis. Language in an insurance contract is ambiguous if, on its face, it is fairly susceptible to two different but reasonable interpretations. Kut Suen Lui, 185 Wn.2d at 712. II. Machinery Breakdown Exclusion
STP first challenges the Court of Appeals holding that design defects fall within the MBE. The Policy at issue is a builder's "all-risk" policy. In an all-risk policy, the applicable rule is "'any peril that is not specifically excluded in the policy is an insured peril.'" Vision One, LLC v. Phila. Indem. Ins. Co., 174 Wn.2d 501, 513, 276 P.3d 300 (2012) (some emphasis omitted) (quoting Findlay v. United Pac. Ins. Co., 129 Wn.2d 368, 378, 917 P.2d 116 (1996)). Once the insured shows the loss falls within the scope of the policy's coverage, the burden shifts to the insurer to show "the loss is excluded by specific policy language" in order to avoid coverage. McDonald v. State Farm Fire & Cas. Co., 119 Wn.2d 724, 731, 837 P.2d 1000 (1992).
Here, the Policy's insuring clause provided that the insurers would cover "direct physical loss, damage or destruction (hereinafter referred to as 'Damage') not specifically excluded herein . . . to the Interest Insured." CP at 135. It is undisputed that the TBM (the insured interest) suffered "physical loss, damage or destruction." The question is whether one of the alleged causes of that damage falls within the Policy's MBE.
The cause (or causes) of damage to the TBM is disputed between the parties. All parties appear to agree that the damage may have resulted from one or more of the following: design defects in the TBM, operator error, and/or the encounter with a steel well casing. The cause of the damage remains a question of fact left to be resolved by a fact finder. The question before this court is whether, as a matter of law, the MBE excludes coverage for damage to the TBM caused by the TBM's alleged design defects.
Great Lakes investigated and determined that the CP at 2901. "Stated differently, the 'under dimensioned' design and the lubrication system caused the TBM to operate improperly and/or cease operating." CP at 2901. STP understood this to mean that Great Lakes concluded the cause of the damage to the TBM was the TBM's own defective design. Based on this conclusion, Great Lakes denied coverage.
In its suit against Great Lakes, STP filed a summary judgment motion, arguing that Section 2 of the Policy did not exclude coverage for damage caused by alleged design defects. Great Lakes filed a cross motion. The trial court denied STP's motion and granted Great Lakes' cross motion. It ruled, "as a matter of law," that the MBE "excludes coverage for property damage to the TBM caused by any alleged design defects." CP at 2516. The Court of Appeals affirmed, reasoning that the MBE excludes losses due to internal causes of damage, and a design defect constitutes an internal cause of damage.
The parties disagree over whether a design defect constitutes an internal cause of damage. Looking at the Policy language, undefined terms in an insurance policy are given their plain, ordinary, and popular meaning in accord with the understanding of the average purchaser of insurance. We will often turn to the dictionary definition of an undefined term to determine its meaning.
Section 2 of the Policy, which concerns the TBM,...
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