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Snohomish County Public Hospital District No. 1 v. Hartford Fire Insurance Co.

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

May 15, 2018





         Before the court are the parties' cross-motions for partial summary judgment. (See Pl. MSJ (Dkt. # 24); Def. MSJ (Dkt. # 21).) The court has considered the parties' motions, their submissions in support of and in opposition to the motions, the relevant portions of the record, and the applicable law. Being fully advised, [1] the court GRANTS in part and DENIES in part Plaintiff Snohomish County Public Hospital District No. 1 d/b/a EvergreenHealth Monroe's (“EHM”) motion for partial summary judgment, and DENIES Defendant Hartford Fire Insurance Company's (“Hartford”) motion for partial summary judgment.


         EHM is a “small public hospital in Snohomish County, Washington.” (Compl. (Dkt. # 1-1) ¶ 1.1.) This is an insurance coverage dispute related to the failure of the hydraulic cylinder-depicted directly below-in EHM's elevator. (Id. ¶ 4.1.)

         (Image Omitted)

         (1st Pendleton Decl. (Dkt. # 25) ¶ 2.) The court recounts below the relevant factual and procedural background.

         A. Factual Background

         1. The Policy

         On October 20, 2015, Hartford issued EHM Policy No. 10 UUN HV1618 (“the Policy”) covering November 1, 2015, to October 1, 2016. (1st Pendleton Decl. ¶ 3, Ex. 1 (“Policy”) at 3-4; see also 1st Adams Decl. (Dkt. # 22) ¶ 2, Ex. 1.)[2] The Policy stated that Hartford “will pay for direct physical loss of or direct physical damage to . . . Covered Property caused by or resulting from a Covered Cause of Loss.” (Policy at 4.) Covered Property included “[p]ermanently installed machinery and equipment” (id.), and a Covered Cause of Loss included “direct physical loss or direct physical damage that occurs during the Policy Period . . . unless the loss or damage is excluded or limited in this policy” (id. at 14). The Policy specifically provided coverage arising from an “Equipment Breakdown Accident to Equipment Breakdown Property.” (Id. at 20.) The Policy defined an “Equipment Breakdown Accident” as “direct physical loss or direct physical damage” such as “[m]echanical breakdown, including rupture or bursting caused by centrifugal force.” (Id.) The Policy also defined “Equipment Breakdown Property” as “property . . . that generates, transmits or utilizes energy, including electronic communications and data processing equipment.” (Id.)

         The Policy further contained a “Special Business Income Coverage Form, ” which covered “the actual loss of Business Income [EHM] sustain[ed] and the actual, necessary and reasonable Extra Expense [EHM] incur[red] due to the necessary interruption of [its] business operations.” (Id. at 10.)

         The Policy also contained two exclusions relevant here: (1) an underground vessels exclusion, and (2) a corrosion exclusion. The Policy stated that,

[t]he following is not Equipment Breakdown Property[:] . . . Any sewer piping, any underground vessels or piping, any piping forming a part of a sprinkler system or water piping other than boiler feedwater piping, boiler condensate return piping or water piping forming a part of a refrigerating or air conditioning system.

(Id. at 20-21 (bolding added).) The corrosion exclusion stated that Hartford “will not pay for loss or damage caused by or resulting from any of the following . . . Wear and tear, or change in color, texture, or finish; . . . Rust, corrosion, decay, or deterioration.” (Id. at 20 (bolding added).)

         2. Damage to the Hydraulic Cylinder

         On April 6, 2016, one of EHM's elevators stopped working properly, and EHM subsequently tendered its claim to Hartford.[3] (See, e.g., 1st Pendleton Decl. ¶ 3, Ex. 3 (“McIntosh Rep.”) at 24.) EHM sought the cost of removal, manufacture, expedited shipping, and installation of a new hydraulic cylinder. (Id. at 27.) EHM also sought lost business income of $70, 000.00. (Id.; see also 1st Pendleton Decl. ¶ 3, Ex. 4 (“Rog. Ans.”) at 42.)

         According to an investigation report by Brian McIntosh, a Loss Control Inspector for Hartford Steam Boiler (“HSB”), one of EHM's elevators began making “a horrible noise.” (McIntosh Rep. at 25.) EHM's maintenance department called the elevator manufacturer, ThyssenKrupp, and a technician came to EHM and filled the oil reservoir. (See id.) After filling the reservoir, the technician tested the elevator by raising it to the second floor “to see how long the elevator would hold its position.” (Id.) After only minutes, “the elevator lowered a foot.” (Id.) EHM then took the elevator out of service overnight, and when the elevator was checked the next morning, it had descended to the first floor. (See id.) EHM then “discovered that the elevator hydraulic [cylinder] had a leak.” (Id.) EHM removed the hydraulic cylinder “from the hole in the elevator pit after the hydraulic oil was pumped out.” (Id.) The hydraulic cylinder measured approximately 14 feet long and 6 inches in diameter. (See id.) The physical damage- depicted in the photo below-to the hydraulic cylinder was “a small hole” that “blew out of a piece of the metal cylinder.” (Id. At 26.)

         (Image Omitted)

         (1st Adams Decl. ¶ 4, Ex. 3 at 3.) Mr. McIntosh noted at that time that hydraulic pressure apparently caused the damage. (McIntosh Rep. at 26.) The elevator would be inoperative until the hydraulic cylinder could be replaced, and because of the inoperative elevator, one of EHM's tenants had to relocate. (Id. at 27.)

         On May 6, 2016, Hartford denied EHM's claim on two bases: (1) the elevator did not meet the definition of covered equipment breakdown because the hydraulic cylinder was an underground vessel; and (2) the hydraulic cylinder had corroded.[4] (1st Adams Decl. ¶ 3, Ex. 2 (“5/6/16 Denial”) at 4; see also 1st Pendleton Decl. ¶ 3, Ex. 8 at 64.) Internal Hartford emails show that Hartford believed because the cylinder was “below grade, ” it was “underground.” (1st Pendleton Decl. ¶ 3, Ex. 11 at 74.) The photo below shows the hole in the ground in which part of the cylinder was housed:

         (Image Omitted)

         (1st Adams Decl. ¶ 4, Ex. 3 at 3; see also 2d Pendleton Decl. (Dkt. # 36) ¶ 2 (authenticating a similar image embedded in EHM's response brief); Pl. Resp. (Dkt. # 34) at 4 (depicting a similar image).) At least one Hartford agent, however, questioned that conclusion, because “regardless of location[, ] a pump (hydraulic ram) simply pushes or moves liquid but does not contain or store liquid as would a vessel.” (1st Pendleton Decl. ¶ 3, Ex. 12 at 78.) And as of June 28, 2016, a Hartford representative stated that it “still ha[s] no written evidence that confirms that Corrosion was the cause of the Hydraulic [Cylinder] Failure, only [ESI's] report listing Hydraulic Pressure.” (Id. at 79.)

         On September 1, 2016, Parker, Smith & Fleek (“PSF”), EHM's insurance broker, responded to Mr. McIntosh's report and Hartford's denial of coverage. (1st Pendleton Decl. ¶ 3, Ex. 9 (“1st PSF Letter”) at 67-69.) PSF shared its “belief that the declination was issued in error” because “there were no findings during the investigation that the hydraulic . . . cylinder sustained damage relating to wear and tear, rust or maintenance issues.” (Id. at 68.) PSF further stated that “[n]othing in the report makes any reference of the hydraulic [cylinder] being located underground. . . . The pit is below grade but certainly not ...

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