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Travelers Property Casualty Co. of America v. Northwest Pipe Co.

United States District Court, W.D. Washington, Tacoma

June 22, 2017

TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, et al., Plaintiffs,
v.
NORTHWEST PIPE COMPANY, et al., Defendants.

          ORDER DENYING PLAINTIFFS' MOTION TO STRIKE AND DEFENDANTS' JOINT MOTION TO STAY AND RESERVING RULING ON DEFENDANT'S MOTION TO AMEND AND THE PARTIES' MOTIONS FOR SUMMARY JUDGMENT

          BENJAMIN H. SETTLE United States District Judge

         This matter comes before the Court on the following motions: Defendant Norwest Pipe Company's (“NPC”) motion for partial summary judgment (Dkt. 14); Plaintiffs Travelers Property Casualty Company of America's (“Travelers”) and The Phoenix Insurance Company's (“Phoenix”) (collectively “Plaintiffs”) motion for summary judgment (Dkt. 17); NPC's and Defendant Greater Vancouver Water District's (“Water District”) (collectively “Defendants”) joint motion to stay (Dkt. 21); and NPC's motion for leave to amend its answer to the complaint (Dkt. 26).

         I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

         A. Underlying Dispute and Litigation Between the Water District and NPC

         On August 7, 2015, the Water District commenced an action against NPC in the Supreme Court of British Columbia. Dkt. 18-12. In that action, the Water District alleges that it suffered damages in the construction of a large water pipeline, referred to as the “Twin Tunnels” project, arising from the alleged failure of circumferential welds that were being used to attach grout plugs to a large steel pipe liner. Id. Both the grout plugs and steel liner were manufactured and supplied to the Water District by NPC. Id. at 5. Specifically, the Water District brought the following allegations against NPC:

Claim against Northwest Pipe
39. Northwest Pipe had an obligation under the Pipe Supply Contract and owed a duty of care to the GVWD to ensure that the Material that it manufactured and supplied to the GVWD conformed to the design specifications, was free from defects and was fit for the purpose for which it was to be used.
40. Northwest Pipe breached the Pipe Supply Contract and was negligent by failing to exercise the reasonable skill, care or diligence of a competent metals fabricator, particulars of which include the following:
a. failing to ensure that the Material that it manufactured and supplied to the GVWD conformed to the design specifications provided to Northwest Pipe;
b. failing to ensure that the Material that it manufactured and supplied to the GVWD was free from defects;
c. failing to ensure that the Material that it manufactured and supplied to the GVWD was fit for the purpose for which it was to be used; and
d. such further and other particulars as may be advised.
41. Northwest Pipe's breach of contract and negligence caused the Grout Plug Failures and delayed the construction of the Twin Tunnels.
42. As a result of the breach of contract and negligence of Northwest Pipe, the GVWD has suffered and continues to suffer loss, damage and expense.
* * *
Damages
47. As a result of the negligence, breach of duty and breaches of contract by HMM, Northwest Pipe and SCP, the GVWD has incurred additional and unnecessary cost, including the following:
a. additional cost to investigate the cause of the Grout Plug Failures;
b. additional cost to redesign the method for sealing the grout ports of the Steel Liner;
c. the additional cost to install, remove and then replace the failed grout plugs;
d. delay in construction of the Twin Tunnels as a result of Grout Plug Failures; and
e. such further and other particulars as may be provided to the defendants prior to the trial of this action.

Id. at 10-11.

         On August 5, 2016, NPC tendered a claim to Plaintiffs based on this underlying lawsuit. Dkt. 18-13 at 1. On August 9, 2016, Plaintiffs acknowledged NPC's claim. Id. On October 26, 2016, Plaintiffs assumed the defense of NPC under a reservation of rights, including the right “to withdraw from the defense of NPC in regard to the Underlying Lawsuit.” Dkt. 18-15.

         B. Policy Provisions Applicable to Reservation of Rights

         Plaintiffs' reservation of rights letter highlighted potential coverage issues based on the theory that the damage alleged in the underlying litigation may not constitute “property damage” as covered by the policy. Dkt. 18-15 at 8. The policy's applicable coverage provision and relevant definitions are provided below:

SECTION I - COVERAGES COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages for “bodily injury” or “property damage” to which this insurance does not apply. We may, at our discretion, investigate any “occurrence” and settle any claim or “suit” that may result. But:
(1) The amount we will pay for damages is limited as described in Section III - Limits Of Insurance; and
(2) Our right and duty to defend ends when we have used up the applicable limit of insurance in the payment of judgments or settlements under Coverages A or B or medical expenses under Coverage C.
No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Supplementary Payments - Coverages A and B.
b. This insurance applies to “bodily injury” and “property damage” only if:
(1) The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory”;
(2) The “bodily injury” or “property damage” occurs during the policy period; and
(3) Prior to the policy period, no insured listed under Paragraph 1. of Section II - Who Is An Insured and no “employee” authorized by you to give or receive notice of an “occurrence” or claim, knew that the “bodily injury” or “property damage” had occurred, in whole or in part.
* * *
17. “Property damage” means:
a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.

Dkt. 18-1 at 20-21, 34.

         Additionally, Plaintiffs' reservation of rights letter stated that coverage may be precluded by any of several exclusions, including: (1) the “Your Product” exclusion, (2) the “Impaired Property” exclusion, and (3) the “Recall” exclusion. See Dkt. 18-15 at 8- 16. Those exclusions and relevant definitions are set forth in the applicable policy as follows:

2. Exclusions
This insurance does not apply ...

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