University of Cincinnati v. Arkwright Mut. Ins. Co.

• Decision Date: 17 April 1995
• Docket Number: No. 94-3320,94-3320
• Parties: 99 Ed. Law Rep. 723 UNIVERSITY OF CINCINNATI, Plaintiff-Appellant, v. ARKWRIGHT MUTUAL INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1277

51 F.3d 1277

99 Ed. Law Rep. 723

UNIVERSITY OF CINCINNATI, Plaintiff-Appellant, v. ARKWRIGHT MUTUAL INSURANCE COMPANY, Defendant-Appellee.

No. 94-3320.

United States Court of Appeals,

Sixth Circuit.

Argued March 23, 1995.

Decided April 17, 1995.

Edgar A. Strause (argued and briefed), Arthur E. Phelps, Jr., Vorys, Sater, Seymour & Pease, Columbus, OH, for plaintiff-appellant University of Cincinnati.

W. Roger Fry, Jonathan P. Saxton, Rendigs, Fry, Kiely & Dennis, Cincinnati, OH, Katherine F. Zupan, Alan R. Miller (argued and briefed), Robins, Kaplan, Miller & Ciresi, Boston, MA, for defendant-appellee Arkwright Mut. Ins. Co.

Before: MILBURN and NORRIS, Circuit Judges; MILES, District Judge. ^*

MILBURN, Circuit Judge.

Plaintiff University of Cincinnati appeals the district court's grant of defendant Arkwright Mutual Insurance Company's motion for summary judgment in this diversity action in which plaintiff seeks a declaration that the insurance policy it obtained from defendant covered the damages sustained by its property during the removal of asbestos prior to the demolition of the property. On appeal, the issues are (1) whether the district court erred in granting defendant's motion for summary judgment, thereby finding that the damage to plaintiff's property caused by the asbestos removal was not a "fortuitous" loss covered by plaintiff's all-risk insurance policy; (2) whether the district court erred by failing to grant plaintiff's motion for summary judgment and failing to find that the damages plaintiff sustained were insured losses resulting from physical damage rather than uninsured economic losses; (3) whether plaintiff's action is untimely in light of a provision in the insurance policy requiring all actions to be commenced within one year after the insured discovers the occurrence giving rise to the claim; and (4) whether coverage for plaintiff's asbestos-related losses is precluded by the insurance policy's exclusions for contamination and inherent vice. For the reasons that follow, we affirm.

I.

A.

In 1985, 1988, and 1991, plaintiff University of Cincinnati purchased from defendant Arkwright Mutual Insurance Company an "all-risk" property insurance policy to insure against "ALL RISKS OF PHYSICAL LOSS OR DAMAGE" to plaintiff's real and personal property, except those risks or losses explicitly excluded under the terms of the policy. J.A. 15, 145. ¹ Plaintiff's decision to seek all-risk insurance, rather than the standard "named peril" coverage it had previously utilized, was based on the desire to consolidate its coverage and benefit from the "broader coverage" against property damage offered by an all-risk policy. Prior to 1985 and plaintiff's decision to seek a single all-risk policy, plaintiff's property insurance portfolio had consisted of multiple layers of insurance provided by numerous insurers. This arrangement left gaps in plaintiff's coverage, although it was significantly less expensive than the single policy plaintiff obtained from defendant. Prior to 1985, defendant had written boiler and machinery policies for plaintiff.

One of the buildings covered by plaintiff's policy with defendant was a multi-story building known as Sander Hall, which was located at 45 West Charlton Street, in Cincinnati, Ohio. The building was constructed as a dormitory between 1969 and 1972 and served as a student residence facility until 1982. After a fire demolished part of the sixth floor, the building was closed and, except for occasional use, was primarily utilized as storage space. Plaintiff claims that structural and design problems unrelated to the presence of asbestos-containing materials ("ACMs") dictated that the building remain largely unused.

Plaintiff learned in 1983 that ACMs had been used in the construction of Sander Hall, a 29-story building. (Defendant claims that the building was 27 stories tall.) There is no evidence, though, that plaintiff had made plans to remove the ACMs or to demolish Sander Hall by 1985, when defendant first issued the all-risk policy to plaintiff. In July 1989, however, plaintiff completed a cost-benefit analysis that weighed the possibility of renovating Sander Hall against the cost of demolition and concluded by recommending demolition. On December 13, 1989, plaintiff's Board of Trustees voted to demolish Sander Hall because it was not suitable for any use without major renovation. The presence of the ACMs does not appear to have been a factor in the trustees' decision. However, removal of the ACMs prior to demolition was required both by Ohio law, Ohio Admin. Code Sec. 3745-20-01 et seq., and by federal regulation, 40 C.F.R. Secs. 61.145 and 61.150, ² and the trustees clearly acted with knowledge that the ACMs would have to be removed before demolition could take place.

In order to move forward with the planned demolition, plaintiff hired a private consulting firm to perform an environmental assessment of Sander Hall. In May 1990, the consulting firm recommended to plaintiff that all of the ACMs in Sander Hall be physically removed prior to demolition, except for a few ACMs located in the roof and floor of the building that posed little risk of releasing asbestos fibers into the air during the implosion process. This recommendation effectively warned plaintiff that destruction of the interior of Sander Hall was certain if plaintiff chose to proceed with the planned demolition of the building. Plaintiff stuck to its decision to demolish the building, and the process of removing the ACMs from Sander Hall began in July 1990. In accordance with the consulting firm's recommendation, workers tore out walls, ceilings, and interior and exterior panels of the building. The asbestos removal was completed in June 1991, and the demolition was accomplished through implosion of the building on June 23, 1991. The cost of the removal totalled approximately $2,204,253.00.

Plaintiff, through its legal counsel, sent a notice of loss to defendant on March 27, 1991, requesting payment for the cost of removing the ACMs from Sander Hall under the terms of its all-risk policy. A proof of claim was filed on or about June 27, 1991. Defendant denied coverage for the claimed expenses on September 12, 1991. There is no indication that plaintiff ever considered whether defendant's all-risk policy covered costs incurred in connection with asbestos removal or that any representative of plaintiff ever discussed the subject with defendant prior to the assertion of plaintiff's asbestos-related claim. Moreover, the word "asbestos" does not appear in either the 1985 or the 1988 policy.

B.

Plaintiff commenced this action on October 15, 1991. In its complaint, plaintiff requested a declaration that the cost of removing the ACMs was within the coverage of plaintiff's 1985 and 1988 policies and a judgment for the amount of the expenses. Plaintiff claimed that "the presence of asbestos-containing materials in Sander Hall" was the physical loss or damage it had sustained; it did not refer to the damage to the building caused by the removal process. ³ J.A. 10. Both parties moved for summary judgment on November 30, 1992. The magistrate judge reviewing the motions recommended that the district court grant defendant's motion for summary judgment on the ground that the damage sustained by plaintiff during the asbestos removal process was not "fortuitous" and thus was not covered by the all-risk policy. The district court adopted the magistrate judge's recommendation. On February 24, 1994, the district court issued an order granting defendant's motion for summary judgment, denying plaintiff's motion, and dismissing plaintiff's complaint with prejudice. This timely appeal followed.

II.

A.

Plaintiff argues that the district court erred in granting defendant's motion for summary judgment and in holding that the property damage caused by the removal of the ACMs from Sander Hall was not a "fortuitous" loss covered by plaintiff's all-risk insurance policy with defendant. Plaintiff argues that the damages were the result of a fortuitous loss since the asbestos removal was not contemplated at the time the policy was entered and was not certain to occur. Because plaintiff is a citizen of the State of Ohio, defendant is a corporation incorporated in the State of Massachusetts, and the amount in controversy exceeds $50,000, this court will exercise its diversity jurisdiction and will be bound by Ohio substantive law. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938). The facts in this case are not in dispute, so we must consider only whether the district court erred in determining that plaintiff's damages did not constitute a fortuitous loss sufficient to trigger the provisions of the all-risk policy issued to plaintiff by defendant.

"We review a district court's grant of summary judgment de novo." Brooks v. American Broadcasting Cos., 932 F.2d 495, 500 (6th Cir.1991). "[D]e novo review permits us to draw our own inferences and legal conclusions from the record...." Lancaster Glass Corp. v. Philips ECG, Inc., 835 F.2d 652, 658 (6th Cir.1987). Under Federal Rules of Civil Procedure 56(c), summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." See LaPointe v. United Autoworkers, Local 600, 8 F.3d 376, 378 (6th Cir.1993); Canderm Pharmacal, Ltd. v. Elder Pharmaceuticals, Inc., 862 F.2d 597, 601 (6th Cir.1988). In considering a motion for summary judgment, "[t]he court must determine whether 'the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.' " Kunz v. United Food & Commercial Workers, Local 876, 5 F.3d 1006, 1009 (6th Cir.1993) (quotin...