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

CourtUnited States State Supreme Court of Washington
Citation516 P.3d 796
Docket Number100168-1
Parties SEATTLE TUNNEL PARTNERS, a Washington joint venture ; and Washington State Department of Transportation, Petitioners, 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, 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.
Decision Date15 September 2022

516 P.3d 796

SEATTLE TUNNEL PARTNERS, a Washington joint venture ; and Washington State Department of Transportation, Petitioners,

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, 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.

No. 100168-1

Supreme Court of Washington.

Argued June 28, 2022
Filed: September 15, 2022


Guy M. Bowman, Attorney at Law, P.O. Box 40113, Olympia, WA, 98504-0113, David R. Goodnight, Karl Francis Oles, Rachel Dunnington Groshong, Bart Weldon Reed, Stoel Rives LLP, 600 University St., Ste. 3600, Seattle, WA, 98101-4109, 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, Richard Ottesen Prentke, V. 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, Dale Lawrence Kingman, Matthew Franklin Pierce, Gregory David Pendleton, John Douglas Cadagan, Miles C. Bludorn, Gordon Tilden Thomas & Cordell, LLP, 600 University St., Ste. 2915, Seattle, WA, 98101-4172, Guinevere Becker Bogusz, Amazon, 2021 7th Ave., Seattle, WA, 98121-2601, Haley K. Krug, Kirton McConkie, 1100 W Idaho St., Ste. 930, Boise, ID, 83702-9001, Leonard J. Feldman, Peterson Wampold Rosato Feldman Luna, 1001 4th Ave., Ste. 4131, Seattle, WA, 98154-1155, Joseph Luciana III, DFL Legal, 3rd Floor, 20 Stanwix Street, Pittsburg, PA, 15222, for Petitioners.

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.

Jennifer Daranee Bucher, Vulcan Inc., 505 5th Ave., S Ste. 900, Seattle, WA, 98104-3821, for Amicus Curiae on behalf of Vulcan, Inc.

Gabriel Ernest Verdugo, Keller Rohrback L.L.P., 1201 3rd Ave., Ste. 3200, Seattle, WA, 98101-3052, Joseph D. Jean, Janine Stanisz, Benjamin D. Tievsky, Maria T. Galeno, Scott D. Greenspan, Pillsbury Winthrop Shaw Pittman LLP, 31 West 52nd Street, New York, NY, 10019, for Amicus Curiae on behalf of United Policyholders.

JOHNSON, J.

516 P.3d 799

¶1 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

¶2 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 underwriters2 (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.

¶3 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.

¶4 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

516 P.3d 800

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.

ANALYSIS

I. Standard of Review

¶5 " ‘This court reviews summary judgment determinations de novo, engaging in the same inquiry as the trial court. Summary judgment is proper where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law.’ " Kut Suen Lui v. Essex Ins. Co. , 185 Wash.2d 703, 709-10, 375 P.3d 596 (2016) (citation omitted) (quoting Durland v. San Juan County , 182 Wash.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 Wash.2d at 710, 375 P.3d 596.

¶6 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.

¶7 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 Wash.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 Wash.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 Wash.2d at 491, 352 P.3d 790 (quoting Queen City Farms , 126 Wash.2d at 77, 882 P.2d 703 ).

¶8 " ‘[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 Wash.2d at 712, 375 P.3d 596 (alteration in original) (quoting Quadrant Corp. v. Am. States Ins. Co. , 154 Wash.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 Wash.2d at 712, 375 P.3d 596.

II. Machinery Breakdown Exclusion

¶9 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 Wash.2d 501, 513, 276 P.3d 300 (2012) (some emphasis omitted) (quoting Findlay v. United Pac. Ins. Co. , 129 Wash.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 Wash.2d 724, 731, 837 P.2d 1000 (1992).

¶10 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

516 P.3d 801

whether one of the alleged causes of that damage falls within the Policy's MBE.

¶11 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...

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3 cases
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