INSURANCE: Ambiguous Builders’ Risk policy construed to cover pipeline right of way after it was cleared, excavated, and leveled as “structure” and therefore “Covered Property,” not precluded by “land” exclusion, interpretation not inconsistent with additional coverage for Site Preparation… right of way sustained “direct physical loss or damage” as result of extreme precipitation, covered by policy… insurer did not waive and is not estopped from asserting policy defenses by not including them in reservation letter… Christensen.
Barnard Pipeline contracted with Kern River Gas Transmission to complete the 28-mile Apex Pipeline Expansion Wasatch Loop in Utah. Travelers Property Casualty insured Barnard under a Builder’s Risk policy. Phase 1 involved construction and/or improvement of roads to access the right of way. Unusually heavy precipitation the fall and winter of 2010 led to Barnard filing claims in 12/11 based on damage to access roads and environmental control equipment and losses associated with damage to the right of way. Travelers paid for damage to the roads and environmental equipment but denied the claim for losses to the right of way, concluding that access roads and environmental control equipment were “Covered Property” which had sustained direct physical loss or damage from a “Covered Cause of Loss,” while the right of way was “land” for which coverage was expressly excluded and also that it had not sustained direct physical loss or damage. It stated in a reservation of rights letter in 8/13:
The project description on the Declarations page expressly includes “project access roads” and therefore Travelers is accepting this element of Barnard’s claim. Land is not covered property under the policy. The land making up the right-of-way is distinguished from project access roads which are expressly identified in the policy Declarations. Further, Travelers does not agree that land which becomes saturated is “damaged.”
Travelers paid $1,486,949 for “expenses to repair only access roads that Barnard constructed or improved for the purposes of this project” and the damage to environmental control equipment, and denied the balance of the claim. The parties request partial summary judgment.
Barnard notes that “Covered Property” is defined as “Builders’ Risk” which includes all buildings & structures, even temporary structures, described on the Declarations page. It emphasizes the expansive description of “Builders’ Risk” on the Declarations page and asserts that the work required to prepare the right of way was extremely costly and notes that it was included in the limits of insurance and premium calculation. It points out that the work altered the natural state of the land and served a critical function in completing the project. Once cleared, excavated, and graded, the right of way became a lane for heavy equipment and a platform for construction & installation of the pipe. It asserts that the cleared, excavated, and leveled right of way meets the legal and common definition of “structure” and thus should constitute “Covered Property.”
Travelers contends that the clearing, excavating, and leveling where the pipe was to be laid did not transform the land into a structure as that term is commonly understood and the Court need not look to a dictionary definition of “structure.” It notes that the right of way, even after the work performed on it, was comprised only of soil, and contends that applying Barnard’s definition of “structure” is inconsistent with the policy viewed as a whole because it provides additional coverage for “`Builders’ Risk’ Site Preparation,” which would be rendered unnecessary if excavating a job site transformed the site into a structure.
Travelers’ position runs contrary to the canons of interpretation of an insurance contract, in particular that any ambiguities must be narrowly & strictly construed against the insurer. Hardy (Mont. 2003); Revelation (Mont. 2009). Further, the Court is not persuaded that the work to the right of way did not render it a structure or temporary structure, as that term is understood pursuant to policy provisions. The Montana Supreme Court has approved use of dictionaries to interpret an insurance contract. Horton (Mont. 2003). Travelers cannot dispute that the cleared, excavated, and leveled right of way meets the definition of “structure” as defined in legal and common dictionaries. The policy does not define “structure.” Travelers was obligated to draft a more restrictive definition if the common and legal definition was to be regarded as too expansive. Black’s defines “structure” as “any construction, production, or piece of work artificially built up or composed of parts purposefully joined together.” Webster’s defines it as “something built or constructed, as a building or dam.” These definitions are not inconsistent with what one would typically consider a structure. The right of way existed as raw land before Barnard began working. It extensively changed the inert natural state through use of heavy machinery, turning it into something “artificial” and “purposely joined together,” free of vegetation, level, compact, and more useful for its construction purposes. It used the cleared right of way as a place to perform work and as a lane for its machinery. As Travelers admits, the photo of the excavated right of way submitted with Barnard’s brief appears very much like a large road. Although the right of way may not be the first thing that comes to mind when one thinks of a “structure,” the excavated right of way cannot be easily excluded from the general category of things falling within its broad meaning. The policy does not limit a broad definition of “structure.” Indeed, it invites the reader to be flexible with one’s ordinary understanding of “buildings and structures.” According to the definitions section, “buildings or structures including temporary structures” is part of “Builders’ Risk,” which is what is “Covered Property.” Although it may be difficult to think of “Builders’ Risk” as synonymous with “buildings and structures,” that is what the policy requires. “Builders’ Risk” is then further defined by reference to the Declarations Page, where “Builders’ Risk” appears under the heading of “Covered Property.” Below this is the statement that “We cover only the buildings and structures shown below.” It would be reasonable to expect a list of the “buildings and structures” that the policy covers. However, instead of addresses or specific descriptions of certain buildings and structures, one finds, under “Description,” the following: “APEX PIPELINE EXPANSION WASATCH LOOP SPANNING DAVIS, SALT LAKE & MORGAN COUNTIES, UTAH, INCLUDING THE PROJECT ACCESS ROADS AND ALL PIPE STORAGE SITES IN CONNECTION WITH THIS PROJECT.” Thus the Declarations Page presents the “buildings and structures shown below” in a manner that includes the entire project. It is also notable that on the same line as the expansive project description one finds that the policy identifies only “1” building. The policy thus appears to cover in a unified, all-encompassing manner the project as described. The “Covered Property” is the “Builders’ Risk,” which is “the buildings and structures” as defined in the expansive, all-caps language on the Declarations Page. Indeed, Travelers’ reservation of rights letter refers to “the project description on the Declarations page.” Although its statement of undisputed facts suggests that the all-caps language describes the “job site” rather than the project description, Ms. Young’s deposition testimony stands for the proposition that the all-caps language describes both the “job site” and the “project.” Given that the “job site” is apparently not covered by the policy and that the “project” is covered, this is a confusing explanation indeed.
The Declarations page and definition of “Builders’ Risk,” when read for determining what is “Covered Property,” is ambiguous and the Court will therefore “interpret any doubts in coverage strictly against the insurer.” Brabeck (Mont. 2000). The right of way, after it had been cleared, excavated, and leveled, constituted a “structure” and was therefore “Covered Property.”
The land exclusion, also construed narrowly, does not clearly exclude coverage for the right of way after it had been intentionally & systematically altered from its natural state to improve its functional capacity for completion of the project. Klockner (SDNY 1991) (land exclusion did not preclude damage to excavated site);Mortensen (D.Minn. 1999) (compacted soil in subgrade did not constitute “land”). While the case law is particularly sparse, Travelers has cited no cases that support its reading of the land exclusion.
The Court is not persuaded that interpreting the policy in this manner is impermissibly inconsistent with additional coverage for Site Preparation. To exclude coverage otherwise available under the basic grant of insurance would turn the protective purpose of insurance on its head. The Court also finds persuasive Barnard’s position that this additional coverage generally pertains to where which damage to a building or structure gives rise to the need for additional site preparation. The right of way here constitutes a “structure” under the policy.
The right of way sustained “direct physical loss or damage” as those terms are used in the policy. Travelers does not really contest otherwise. Its argument is based on the proposition that “land” cannot be damaged, but the Court rejects its assertion that the right of way remained “land” after it was cleared, excavated, leveled, and used in the course of construction. The Court also agrees with Barnard that “direct physical loss or damage” suggests that “there was an initial satisfactory state that was changed by some external event into an unsatisfactory state.” Dupuy (MD La. 2012); Trinity (5th Cir. 1990). Damage to the right of way from the extreme precipitation meets this definition of direct “physical loss or damage.”
Barnard contends that it is entitled to summary judgment on Travelers’ affirmative defenses because Travelers can point to no evidence supporting them and that it waived them by not raising them in its reservation letter. Travelers was not obligated to detail all potential defenses in its reservation letter and it has not waived and is not estopped from asserting other defenses. “Waiver is a voluntary and intentional relinquishment of a known right or claim.” Edwards (Mont. 2009). Travelers’ reservation letter expressly reserves its right to pursue additional policy defenses. Thus Barnard has always been on notice of its intention to pursue all available defenses. While MCA 33-18-201(14) requires an insurer to “promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim,” an insurer does not waive all defenses that are not included in a reservation letter. Portal (Mont. 1993); EOTT (D.Mont. 1999).Portal rejected the contention that an insurer is limited to defenses detailed in a reservation letter when the insured fails to demonstrate prejudice, distinguishingEllinghouse (Mont. 1986) wherein an insurer was estopped from denying coverage when it had initially accepted coverage and assumed defense without reservation. Barnard has always been on notice of Travelers’ intent to assert all applicable policy defenses.
Summary judgment on Travelers’ failure to mitigate defense is inappropriate. Barnard has not explained why it should be dismissed as to damages it is claiming beyond those owed under the policy, and Travelers points to provisions in Barnard’s contract with Kern which arguably could have been utilized to avoid or reduce some of its damages.
Barnard argues that Travelers’ agents admitted in depositions that it has no evidence to dispute the damages Barnard has claimed for damage to the right of way. Travelers cites its expert reports in which they opine that Barnard’s claimed damages are inflated. It also contends that once it decided there was no coverage for losses associated with damages to the right of way it had no duty to further investigate details of the claim, and that it retains the right to investigate and contest the claimed losses. Disputed fact issues remain as to the extent of damages claimed.
Barnard Pipeline v. Travelers Property Casualty, 41 MFR 352, 3/13/14.
Christian Nygren & Patrick Brown (Barnard Pipeline), Bozeman, and Richard Beal (Ashbaugh Beal), Seattle, for Barnard; Marshal Mickelson & Annie Harris (Corette Black Carlson & Mickelson), Butte, Daniel Bentson, Seattle, and Ronald Clark, Portland (Bullivant Houser Bailey), for Travelers.
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