Unigard Insurance Company v. Metro Metals Northwest, Inc. et al, No. 3:2017cv05743 - Document 33 (W.D. Wash. 2018)
Court Description: ORDER granting 20 Plaintiff's Motion for Summary Judgment; signed by Judge Ronald B. Leighton.(DN)
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gs or during discovery). 20 Therefore, although Unigard is not using exclusion j.(5) as an affirmative defense, Unigard did 21 plead the exclusion and Metro/PCS will not be prejudiced if it is addressed on summary 22 judgment. 23 24 ORDER GRANTING MOTION FOR SUMMARY JUDGMENT - 8 1 Multiple Washington cases have held that the ongoing operations exclusion applies 2 broadly. In Vandivort Construction Co. v. Seattle Tennis Club, the insured contractor’s 3 operations caused an earthslide that damaged the site. 11 Wash. App. 303 (1974). The contractor 4 tendered the matter to its insurer, which denied coverage, and the contractor paid the additional 5 costs itself. Id. at 303-04. In holding that the insurer correctly denied coverage, the court relied 6 on policy language excluding “damage to ‘that particular part of any property, . . . upon which 7 operations are being performed by . . . insured . . . arising out of such operations.’” Id. at 308. 8 Although the insured argued that the exclusion could not apply to damage that was claimed 9 outside the tennis club’s property line, the court held that the plain language of the exclusion 10 covered all damage caused by the insured’s operations. Id.; see also Ohio Cas. Ins. Co. v. Ferrell 11 Developments, LLC, 2011 WL 5358620 (D. Or. July 27, 2011) (also applying the exclusion to 12 bar coverage for any damage arising out of the contractor’s work on the property). 13 Canal Indemnity Co. v. Adair Homes, Inc. similarly applied an ongoing operations 14 exclusion to bar coverage for construction work that caused a mold problem. Canal Indem. Co. 15 v. Adair Homes, Inc., 737 F. Supp. 2d 1294, 1297 (W.D. Wash. 2010), aff'd, 445 F. App'x 938 16 (9th Cir. 2011). The relevant exclusion barred coverage for “property damage to [t]hat particular 17 part of real property which you or any contractors or subcontractors . . . are performing 18 operations if the property damage arise [sic] out of those operations . . .” Id. at 1301. The court 19 noted that this type of policy language is “not limited to [the] portion of property that was subject 20 to operations.” Id. The court then held that the plain language of the exclusion barred coverage 21 for property damage occurring during the construction. Id. at 1302. The court also explained that 22 CGL policies are designed to cover such risks as “employee injuries while on the work site and 23 physical damage to property other than the work of the insured,” but are not intended to protect 24 ORDER GRANTING MOTION FOR SUMMARY JUDGMENT - 9 1 the insured from “common business risk[s]” or function as a performance bond. Id. (internal 2 quotations omitted). Here, the underlying complaint repeatedly alleges that Metro/PCS’s operations caused 3 4 the damage to the dock. It describes the damage as “degradation of the concrete surface, exposed 5 reinforcing steel rebar, and missing reinforcing steel rebar,” and states that Metro/PCS “was the 6 only entity using the dock, and therefore, their operations were responsible for the damage.” Dkt. 7 #21, Ex. 2, at 4. The demand letter from the Port, which was attached to the underlying 8 complaint, also describes how Metro/PCS’s tore apart the dock’s concrete and caused the 9 reinforcing steel to become exposed or missing by moving scrap metal around. Id. at 17. 10 Metro/PCS itself characterizes the complained-of conduct as “negligence by dumping HMS and 11 scrap while conducting loading activities onto berthed ships at the Terminal 2 dock.” Dkt. #25 at 12 22. Whether Metro/PCS’s operations were performed responsibly is not the issue. Under even a 13 liberal interpretation of these allegations, the damage to the Terminal 2 dock arose from 14 Metro/PCS’s scrap metal operations performed on “that particular part of real property.”3 15 Therefore, coverage is excluded and Unigard has no duty to defend. 16 Metro/PCS argue that the exclusion does not apply in this situation because the damage 17 caused by Metro/PCS does not amount to a “workmanship defect.”4 Although they do not say so, 18 Metro/PCS essentially read the phrase “real property on which you . . . are performing 19 20 21 22 23 24 Metro/PCS make an extended argument that the Court may not consider extrinsic evidence when determining the duty to defend, and therefore cannot look at the full KPFF report that is referenced in the underling complaint but not attached to it. See Dkt. #21, Ex. 2, at 3. The Court need not address this because the underlying complaint and the documents that are attached, including the agreement between the Port and Metro/PCS and the Port’s subsequent demand letter, are sufficient to resolve the issue here. 3 Metro/PCS may have obtained this reference to “workmanship defects” from Canal, where the court stated, “This exclusionary language is designed to exclude coverage for defective workmanship by the insured builder causing damage to the construction project.” 737 F. Supp. 2d at 1302. However, the court was referring to a different part of the exclusion barring coverage for “[t]hat particular part of any property that must be restored, repaired or replaced because [the insured’s] work was incorrectly performed on it.” Id. That language is not at issue here. 4 ORDER GRANTING MOTION FOR SUMMARY JUDGMENT - 10 1 operations” to require some sort of improvements to the claimant’s real property for the 2 exclusion to apply. However, it is irrelevant that the operations at issue were not a construction 3 project intended to improve the dock because “[t]he plain meaning of the language covers the 4 situation here.” Vandivort, 11 Wash. App. at 308. The type of damage suffered by the Port falls 5 squarely within the realm of “common business risk[s]” that this language is intended to exclude, 6 regardless of whether the business is construction or loading scrap metal. See Canal, 737 F. 7 Supp. 2d at 1302. Indeed, numerous courts have applied the ongoing operations exclusion in 8 contexts other than construction. See, e.g., Burlington Ins. Co. v. Steve's AG Servs., Ltd., 259 F. 9 App'x 45, 47 (9th Cir. 2007) (logging); Arroyo v. Unigard Ins. Co., 669 F. App'x 881 (9th Cir. 10 2016) (development and management of a vineyard); Houston Bldg. Serv., Inc. v. Am. Gen. Fire 11 & Cas. Co., 799 S.W.2d 308, 311 (Tex. App. 1990) (janitorial services). 12 In addition, Metro/PCS’s narrow reading contradicts the holding in Vandivort. In that 13 case, the Washington Court of Appeals applied the ongoing operations exclusion to damaged 14 parts of the site that the insured was not working on, as well as entirely separate property owned 15 by the city. Vandivort, 11 Wash. App. at 304, 308; see also William Crawford, Inc. v. Travelers 16 Ins. Co., 838 F. Supp. 157, 158 (S.D.N.Y. 1993) (applying the exclusion where the insured only 17 worked on one apartment but caused damage to other parts of the building). Thus, although the 18 insured in Vandivort was improving the claimant’s real property, the application of the exclusion 19 had nothing to do with that. The insured could have just as easily caused the earthslide because 20 of scrap metal loading operations. 21 Even if the Court were to adopt a narrower reading of the exclusion, the agreement 22 between the Port and Metro/PCS encompasses the latter’s improvements to the dock. The 23 agreement states that Metro/PCS will “repair damage to the terminal areas used for scrap metal 24 ORDER GRANTING MOTION FOR SUMMARY JUDGMENT - 11 1 operations.” Dkt. #21, Ex. 2, at 12. This is, in essence, a contract to export certain quantities of 2 metal from the Terminal 2 dock while maintaining it in good condition.5 Metro/PCS’s failure to 3 accomplish this amounts to a “workmanship defect.” Finding a duty to defend in this situation 4 would thus change the CGL policy into exactly the kind of “performance bond” described in 5 Canal. See 737 F. Supp. 2d at 1302. The Court also rejects Metro/PCS’s argument that the dock is not “real property” and 6 7 therefore cannot be subject to the exclusion. Permanent improvements upon tidelands are 8 considered real property in Washington. In Pier 67, Inc. v. King County, the court assessed the 9 tax status of a motel built on a pier leased from the state. 71 Wash. 2d 92, 93, 426 P.2d 610, 611 10 (1967). The court described the building as “permanently erected on real property,” and agreed 11 with the trial court that “[t]he improvements became, as erected, a part of the realty.” Id. at 94. In 12 other words, the court found that the pier was real property, which means that the dock at issue 13 here is also real property. See also Garrisey v. Westshore Marina Assocs., 2 Wash. App. 718, 14 726 (1970) (“[A] dock or pier . . . is considered an extension of the land.”); Curry v. Skipanon 15 Investments Oregon Ltd., 83 Or. App. 694, 695 (1987) (“We agree with the trial court that the 16 docks are part of the real property.”). 17 Metro/PCS’s argument that the exclusion does not apply because the agreement with the 18 Port did not concern Metro/PCS’s “entire operations” likewise misses the mark. Canal did state 19 that the ongoing operations exclusion applies “to the insureds’ entire operations,” but the 20 subsequent citation to Vandivort makes clear that the court merely meant that the exclusion is 21 “not limited to [the] portion of the property that was subject to operations.” 737 F. Supp. 2d at 22 23 24 Metro/PCS claim that they did not “engage in operations for the Port in any respect,” but this is inaccurate even aside from the repair provision. The main purpose of the agreement between Metro/PCS and the Port was to provide Metro/PCS with more space so it could ship more metal through the Port. Dkt. #21, Ex. 2, at 12. Metro/PCS’s scrap metal operations were thus “for” the Port in the sense that they directly benefitted it. 5 ORDER GRANTING MOTION FOR SUMMARY JUDGMENT - 12 1 1301. The court did not mean that an insured’s “entire operations” must be at the site of the 2 damage, as Metro/PCS suggest. Just because Metro/PCS may perform other aspects of its 3 operations at other sites does not mean that it was not also performing operations at the Terminal 4 2 dock. Consequently, exclusions j.(5) and m.(1) apply to relieve Unigard of its duty to defend. 5 D. 6 Other Exclusions The Court does not reach the issue of whether exclusion a., which bars coverage for 7 “expected or intended” damage, or exclusions j.(1) and m.(1), which bar coverage for damage to 8 property owned, rented, or occupied by the insured, apply in this case. CONCLUSION 9 10 For the reasons stated above, Unigard’s Motion for Summary Judgment (Dkt. #20) is 11 GRANTED. 12 IT IS SO ORDERED. 13 14 Dated this 11th day of October, 2018. 15 A 16 Ronald B. Leighton United States District Judge 17 18 19 20 21 22 23 24 ORDER GRANTING MOTION FOR SUMMARY JUDGMENT - 13
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