November 6, 2013
FISHER COMMUNICATIONS, INC., Plaintiff,
TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, Defendant,
CERTAIN UNDERWRITERS AT LLOYD'S subscribing to policy no. DP67048(1), and HOUSTON CASUALTY COMPANY, Third-Party Defendants.
THOMAS S. ZILLY, District Judge.
THIS MATTER comes before the Court on cross-motions for partial summary judgment, docket nos. 68 and 71, brought by defendant Travelers Property Casualty Company of America ("Travelers") and plaintiff/third-party defendants Certain Underwriters at Lloyd's and Houston Casualty Company (collectively, "Underwriters"),  respectively. Having reviewed all papers filed in support of, and in opposition to, each motion, the Court enters the following Order.
On July 2, 2009, arcing occurred in and damaged two 5000-amp busways located in the subterranean parking garage electrical room of Fisher Plaza East, located on Fourth Avenue North in Seattle. Ex. 1 to Louttit Decl. (docket no. 72-1). These busways ran from the adjacent Seattle City Light utility vault to Fisher Plaza East's switchgear, also located in this electrical room. Id. Power to the building was interrupted, and the arcing activated the sprinklers, causing water to spray over the switchgear cabinets. Id. The parties do not dispute that the switchgear did not experience arcing, but rather was damaged solely as a result of the water discharged by the fire suppression system. Haack Decl. at ¶¶ 3-4 (docket no. 69); Larkin Dep. at 18:16-19:1, Ex. A to Derrig Decl. (docket no. 70).
Pursuant to the "Boiler and Machinery" or "EnergyMax 21 Equipment Breakdown Protection" Policy issued to Fisher (the "Equipment Policy"), Travelers computed the total covered loss to be $948, 638.94, and after taking into account certain deductibles, Travelers paid Fisher the following amounts:
Property Damage $388, 409.19 Business Income Loss $ 34, 657.00
Extra Expense $475, 572.75 ___________ TOTAL $898, 638.94
Ex. 6 to Louttit Decl. (docket no. 72-8). In calculating the amount due to Fisher under the Equipment Policy, Travelers took the position that the peril resulting in Fisher's loss, namely wear and tear of the bus insulation from normal use, was excluded, but the ensuing Breakdown, i.e. the arcing, was itself covered, and that the subsequent perils of fire and water were also excluded and were not covered under the ensuing loss provision. See Order at 5 (docket no. 43). The Court previously entered partial summary judgment in favor of Travelers, holding that Fisher's damages resulting from fire and water were not covered by the Equipment Policy, but the Court made no ruling concerning whether "wear and tear" or "arcing" was the efficient proximate cause of Fisher's loss. Id. at 10 & 11 n.2.
After deciding the parties' earlier cross-motions for partial summary judgment, the Court directed the parties to file a joint status report indicating what, if any, issues remain for trial in this matter. Id. at 11. In response, the parties outlined the following claims. Underwriters asserted a claim that the Equipment Policy contains a "special grant of coverage for water damage" in the amount of $250, 000; Travelers denies this claim on the grounds that the provision at issue merely states a policy sub-limit and that the water damage at issue is specifically excluded. Travelers asserted a counterclaim that the portion of the Extra Expense paid to Fisher, which was associated with temporarily supplying power to the building, constitutes a "joint loss" for which Underwriters owes to Travelers a pro rata share; Underwriters deny this counterclaim and instead contend that Travelers owes half of the Extra Expense for the period from early July to late October 2009, or in the alternative for the period from early July to early August 2009. Joint Status Report (docket no. 47); Travelers Mtn. at 1-2 (docket no. 68); Underwriters Mtn. at 2 (docket no. 71). This Order will address these claims and related arguments.
A. Summary Judgment Standard
The Court shall grant summary judgment if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). To survive a motion for summary judgment, the adverse party must present "affirmative evidence, " which "is to be believed" and from which all "justifiable inferences" are to be favorably drawn. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 257 (1986). "Rule 56 mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.'" Beard v. Banks, 548 U.S. 521, 529 (2006) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)).
B. Insurance Contract Interpretation
The parties do not dispute that Washington law governs the insurance contract at issue. Washington courts construe insurance policies as a whole, giving the policy the "fair, reasonable, and sensible construction" that an average person purchasing insurance would. Vision One, LLC v. Phila. Indem. Ins. Co., 174 Wn.2d 501, 512, 276 P.3d 300 (2012); see also Panorama Vill. Condo. Owners Ass'n Bd. of Dirs. v. Allstate Ins. Co., 144 Wn.2d 130, 137, 26 P.3d 910 (2001). Inclusionary clauses are liberally construed in favor of coverage, while exclusionary provisions are interpreted strictly against the insurer. Assurance Co. of Am. v. Wall & Assocs. LLC of Olympia, 379 F.3d 557, 560 (9th Cir. 2004) (summarizing Washington law).
If the language of a policy is "clear and unambiguous, " the Court must "enforce it as written and may not modify it or create ambiguity where none exists." Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wn.2d 654, 666, 15 P.3d 115 (2000). On the other hand, if a provision is ambiguous, the Court may rely on extrinsic evidence of the parties' intent to interpret the clause, and may resolve any remaining ambiguities against the insurer as drafter of the policy. Id. A term of an insurance contract is ambiguous when it is "fairly susceptible to two different interpretations, both of which are reasonable." Id.
C. Water Damage
In arguing that the Equipment Policy contains a "special grant of coverage" for water damage, Underwriters rely on the following provision:
C. Limits of Insurance
4. The most we will pay for direct damage to "Covered Property" for each of the following is the amount indicated in the Declarations under Coverage Limitations. The limits are part of, not in addition to, the Limit of Insurance for Property Damage.
c. Water Damage
If "Covered Property" is damaged by water as a direct result of a "Breakdown" to "Covered Equipment, " we will pay for this kind of damage, including salvage expense.
Equipment Policy at § C.4.c, Appx. to Travelers Mtn. (docket no. 68 at 26). The Declarations indicate a coverage limitation of $250, 000 for water damage. Id. at Decl. (docket no. 68 at 21). This language is clear and unambiguous. It defines Travelers' maximum liability for water damage that is a "direct result" of a "Breakdown" to "Covered Equipment." It does not, however, nullify the specific exclusions of "[w]ater damage caused by the discharge or leakage of a sprinkler system" or "[w]ater or other means used to extinguish a fire." Id. at §§ B.3.d & B.10 (docket no. 68 at 24 & 25).
Contrary to Underwriters' contention, this section does not mean that the water damage to the switchgear is covered. Underwriters focus on the "we will pay" phrase of the water damage limitation, but they ignore the condition precedent in the provision, which is not satisfied in this case. The water damage to the switchgear was not a direct result of a "Breakdown, " i.e., the arcing in the busways, but rather was an indirect consequence of the arcing, which created fire and smoke, causing activation of the sprinkler system. See WEBSTER'S THIRD NEW INT'L DICTIONARY 640 (1981) (in this context, "direct" means "stemming immediately from a source" or "marked by absence of an intervening agency, instrumentality, or influence"). Underwriters provide no analysis and no authority to support the contrary position.
The term "Breakdown" is itself described in the Equipment Policy in terms of "direct physical loss, " including "[f]ailure of pressure or vacuum equipment, " "[m]echanical failure including rupture or bursting caused by centrifugal force, " and "[e]lectrical failure including arcing." Equipment Policy at § F.1.a (docket no. 68 at 28). When read together, the water damage limitation and the definition of "Breakdown" contemplate coverage for the discharge of water from the equipment experiencing the "Breakdown" or because the equipment suffered the "Breakdown." The damage at issue in this case, which resulted from the proper functioning of a fire suppression system, does not fall within the scope of water damage for which the sub-limit of $250, 000 was separately stated, and it is excluded by other provisions of the Equipment Policy. Travelers is entitled to partial summary judgment on this issue.
D. Extra Expense
The Equipment Policy extends coverage for "reasonable Extra Expense' you necessarily incur to operate your business during the Period of Restoration.'" Equipment Policy at § A.2.b(1) (docket no. 68 at 23). The Period of Restoration is defined as the period of time that:
a. Begins at the time of the "Breakdown"; and
b. Ends the number of consecutive days indicated in the Declarations after the date when the damaged property at the Covered Premises described in the Declarations could have been repaired or replaced with reasonable speed and similar quality.
Id. at § F.16 (docket no. 68 at 30). The Declarations specify 30 days as the "Period of Restoration' extension." Id. at Decl. (docket no. 68 at 21).
Travelers takes the position that the Period of Restoration for which Fisher was entitled to Extra Expense was five days, from July 2 until July 7, 2009. Travelers relies on the opinion of William Haack, an electrical engineer, who estimates that the amount of time required to temporarily restore power from the utility to the building would have been four days, if the sprinkler system had not been activated and the switchgear had not been damaged by water. Haack Decl. at ¶¶ 5 & 6 (docket no. 69). Travelers allowed five days, and paid all of the Extra Expense associated with the Breakdown of the busways for the period from July 2 to July 7, 2009.
Underwriters' all-risk policy contains a similar provision, which covers "Extra Expense incurred resulting from direct physical loss, damage, or destruction covered herein during the term of this policy to real or personal property as described" in a previous clause. Fisher Policy at § 7.C(1), Ex. 9 to Louttit Decl. (docket no. 72-13 at 24). Underwriters paid Extra Expense to Fisher from early July until late October 2009, when the permanent replacement busways were delivered and installed. See Underwriters Mtn. at 3, 5-6 (docket no. 71). The Extra Expense included the rental fees and fuel costs for generators, which together ran about $136, 750 per week.
According to Haack, the repairs effected by Fisher took longer than the time he estimated for temporary power restoration and permanent replacement of the busways because Fisher opted to redesign the entire system. Haack Decl. at ¶ 13 (docket no. 69). Moreover, because the switchgear was damaged by water, the relatively easy method for temporary power restoration (using "jumper" cables or a "cable bus") on which Haack's opinion was based could not actually be used. Id. at ¶¶ 5, 8, 13. Instead, a temporary power distribution system had to be designed and installed while the new switchgear was being manufactured, and Fisher did not reconnect to Seattle City Light power until approximately July 30, 2009. Id. at ¶ 13. The permanent repairs were not complete until late October 2009.
Underwriters seek contribution from Travelers for the Extra Expense paid until October 2009. Travelers proposes not only to limit the Extra Expense for which it is liable to the five days following the arcing incident, but also to require Underwriters to reimburse it for a share of what it paid Fisher. In presenting these arguments, both parties have ignored the policy language. The Equipment Policy is clear and unambiguous. It imposes on Travelers a duty to provide Extra Expense resulting from a covered peril for the Period of Restoration, which begins at the time of the Breakdown and continues until 30 days after the damage "could have been repaired or replaced with reasonable speed and similar quality."
Travelers indicates that temporary power restoration would have required five days if the switchgear had remained operational. Travelers presents evidence that another three days would have been needed to install permanent replacement busways. Thus, the damage could have been repaired with reasonable speed and similar quality within eight days. The Period of Restoration is therefore 38 days. Travelers was required to provide Extra Expense benefits relating to the Breakdown of the busways from July 2, 2009, until August 9, 2009.
Underwriters' contention that Travelers is responsible for Extra Expense until October 2009 runs contrary to the policy language "could have been repaired... with reasonable speed." Underwriters provide no evidence to contradict Haack's estimates, assuming the switchgear had not been damaged, of (i) the number of days needed to install "jumper" cables to temporarily restore power, or (ii) the number of days required to install permanent replacement busways. Underwriters also cite no authority for the proposition that, notwithstanding the policy language, Travelers is required to extend Extra Expense coverage to the date when repairs were actually completed rather than the date that was 30 days after repairs could have been done with reasonable speed and similar quality. Underwriters' alternative argument, however, that Travelers coinsured Fisher's Extra Expense for 30 days beyond the hypothetical repair period is consonant with the Court's ruling.
Travelers' assertion that the Period of Restoration is only five days is inconsistent with the Equipment Policy. The cases on which Travelers relies are all distinguishable because the contractual language in those cases differs substantially from the provision at issue. For example, in both Winters v. State Farm Fire & Cas. Co., 73 F.3d 224 (9th Cir. 1995), and Lava Trading Inc. v. Hartford Fire Ins. Co., 365 F.Supp.2d 434 (S.D.N.Y. 2005), the Period of Restoration ended on the date the damaged property could "be repaired, rebuilt or replaced with reasonable speed and similar quality." Winters, 73 F.3d at 229; Lava, 365 F.Supp.2d at 439. In Shaw Mortg. Corp. v. Peerless Ins. Co., 615 F.Supp.2d 1172 (S.D. Cal. 2009), the Period of Restoration began 72 hours after the loss or damage and ended on the earlier of (i) the date when the property "should be repaired, rebuilt or replaced with reasonable speed and similar quality" or (ii) the date when "business is resumed at a new permanent location." Id. at 1176. In Midland Broadcasters, Inc. v. Ins. Co. of N. Am., 636 F.Supp. 165 (D. Kan. 1986), the analogous Period of Recovery was defined as "only such length of time as would be required with the exercise of due diligence and dispatch to rebuild, repair, or replace that part of the property which has been damaged or destroyed commencing with the date of such damage or destruction, but no [sic] limited to the termination of this policy." Id. at 167. In all of these cases, the policies contained no fixed amount of time (for example, 30 days) that was added to the hypothetical repair period. Travelers' argument that the Period of Restoration ended on the date that power could have theoretically been temporarily restored is premised on the verbiage in other contracts but not on the Equipment Policy itself.
E. Joint Loss
The Equipment Policy contains a "Joint or Disputed Loss Agreement, " pursuant to which, if Travelers and a provider of a commercial property policy (here, Underwriters) disagree about whether the damage was caused by a covered cause of loss insured under the Equipment Policy or by a covered cause of loss insured under the commercial property policy, each insurer will pay one-half of the amount of the loss that is disputed. Equipment Policy at § E.3, Ex. 7 to Louttit Decl. (docket no. 72-9 at 30-31). Under this provision, Travelers and Underwriters are each responsible for one-half of the Extra Expense relating to the Breakdown of the busways for the 38-day period from July 2, 2009, until August 9, 2009. Having paid for either five or ten days of Extra Expense, Travelers has contributed less than its share, and Travelers' counterclaim for reimbursement from Underwriters is therefore moot and will be dismissed. As to the counterclaim, Underwriters' cross-motion for partial summary judgment is granted in part.
For the foregoing reasons, the Court ORDERS as follows:
(1) Travelers' motion for partial summary judgment, docket no. 68, is GRANTED in part and DENIED in part. Travelers' motion is GRANTED as to the requested holding that the Equipment Policy does not contain a "special grant" of coverage for water damage, and Underwriters' claim for $250, 000 pursuant to such nonexistent "special grant" of coverage is DISMISSED with prejudice. Travelers' motion is otherwise DENIED.
(2) Underwriters' motion for partial summary judgment, docket no. 71, is GRANTED in part and DENIED in part. With respect to Travelers' counterclaim for reimbursement of Extra Expense payments made to Fisher for the period from July 2 to July 7, 2009, Underwriters' motion is GRANTED and such counterclaim is DISMISSED with prejudice. With respect to Underwriters' claim that Travelers owes Extra Expense from early July through late October 2009, Underwriters' motion is DENIED, but with respect to Underwriters' alternative claim that Travelers is liable for one-half of the Extra Expense relating to the Breakdown of the busways for the period from July 2, 2009, to August 9, 2009, Underwriters' motion is GRANTED. As to the alleged "special grant" of coverage for water damage, Underwriters' motion is DENIED.
(3) The parties are DIRECTED to file a Joint Status Report within fourteen (14) days of the date of this Order indicating whether a trial is necessary concerning the precise amount due from Travelers to Underwriters and, if so, when the parties anticipate being ready for such trial, how many days such trial will require, and whether such trial will be before a jury or the bench.
IT IS SO ORDERED.