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Smagala v. Sequoia Ins. Co.

United States District Court, D. Oregon

August 21, 2013

JAMES E. SMAGALA, an individual, and LINDA M. FERRO, an individual, Co-Trustees of THE SMAGALA-FERRO 2001 FAMILY TRUST DATED MARCH 13, 2001, Plaintiffs,
SEQUOIA INSURANCE COMPANY, a California insurance business corporation, and AMERICAN FAMILY MUTUAL INSURANCE COMPANY, a Wisconsin insurance business corporation, Defendants

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For Plaintiff: CHRISTOPHER GRADY, KEVIN AMBROSE EIKE, Aldrich Eike, P.C., Portland, OR.

For Sequoia Insurance Company, Defendant: RALPH C. SPOONER, TYLER E. STAGGS, Spooner & Much, PC, Salem, OR.

For American Family Mutual Insurance Company, Defendant: JAMES L. HILLER, Hitt Hiller & Monfils, LLP, Portland, OR.

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ANNA J. BROWN, United States District Judge.

This matter comes before the Court on Defendant Sequoia Insurance Company's Motion (#12) for Summary Judgment. For the reasons that follow, the Court GRANTS Defendant's Motion and DISMISSES Plaintiffs' claims against Sequoia.


The following facts are taken from the Joint Statement of Agreed Facts and the parties summary-judgment materials.

The Westbrook Apartments were built in the 1970s and are located in Beaverton, Oregon. Westbrook is comprised of four buildings containing 48 individual apartment units, a leasing office, storage, parking buildings, and common areas.

In 2007 and 2008 SKL Properties, LLC, and Premium Rental Properties LLC (PRP), acting as developers and general contractors, performed renovations and repairs at Westbrook to prepare the property for sale.

On May 29, 2008, Plaintiffs entered into a contract to purchase Westbrook on completion of the property improvements being undertaken by SKL and PRP.[1] While the improvements were being made, Plaintiffs entered into a lease with SKL for the property.

On August 26, 2008, Defendant Sequoia Insurance Company issued a Commercial Multi-Peril Insurance Policy to Plaintiff Smagala-Ferro 2001 Family Trust covering Westbrook effective August 15, 2008, through August 15, 2009.

In November or December 2008 SKL and PRP represented to Plaintiffs that the improvements and repairs to Westbrook were complete. At that time Plaintiffs terminated their lease with SKL and PRP and took possession of the property.

On July 27, 2009, Sequoia issued a Commercial Multi-Peril Insurance Policy to Smagala-Ferro 2001 Family Trust covering Westbrook effective August 15, 2009, through August 15, 2010.

In June 2011 Plaintiffs hired Western Architectural (WA) as forensic architects and engineers to perform an invasive investigation of Westbrook to determine whether there were defects in the Westbrook buildings.

On July 1, 2011, WA issued an Invasive Building Envelope Assessment Report in which it described a number of issues with the buildings, construction, and repairs at Westbrook.

On September 26, 2011, Plaintiffs submitted a Notice of Claim/Proof of Loss to Sequoia in which they advised Sequoia in pertinent part:

There have been covered losses at the premises that have been discovered thus far, including coverage for property damage and collapse. Smagala hired Western Architectural to perform an invasive exterior envelope assessment of the Westbrook Apartments. The investigation performed by Western Architectural identified property damage and

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collapse conditions. Enclosed please find a copy of the Western Architectural report dated July 1, 2011.
To help resolve this claim, we ask that Sequoia Insurance Company:
1. Immediately investigate the claim with Westbrook Apartments' expert, Western Architectural, and share in the cost of the investigation (e.g., contractors for destructive investigation, scaffolding, equipment, etc); and
2. Work with Westbrook Apartments and its expert to determine covered and uncovered loss promptly.

Decl. of Lola Hogan, Ex. 1 at 1-2.

Sequoia hired West Coast Forensics, Engineering and Design, LLC, to investigate the alleged defects at Westbrook.

On November 2, 2011, Structural Engineer Jeffrey Lewis of West Coast performed an on-site investigation at Westbrook. Lewis testifies in his Declaration that although the WA report referenced " potential collapse conditions, . . . [the WA report] does not provide any documentation whatsoever of any collapse of any of the buildings at the Westbrook Apartments as of the date of the report." Decl. of Jeffrey Lewis at ¶ 3. During the investigation and inspection Lewis " looked for any evidence of collapse. None of the buildings had collapsed as of the date of [his] investigation. There was no evidence that any part of any of the buildings had abruptly fallen down or caved in." Lewis Decl. at ¶ 5. Lewis testifies " [a]t the time of this investigation, all of the units at the Westbrook Apartment complex were occupied with the exception of one or two units that were being cleaned and prepared for new tenants." Id . at ¶ 4.

On November 23, 2011, Plaintiffs filed an action in Washington County Circuit Court against SKL, PRP, and others alleging misrepresentation, breach of contract, and negligence related to the repairs, renovations, and sale of Westbrook. Specifically, Plaintiffs alleged, among other things, that the defects caused water intrusion and property damage that included causing " portions of the apartments to collapse and . . . imminent risk of additional movement and collapse of building components, all of which continue to threaten the integrity and livability at the Westbrook apartments." Decl. of Ralph Spooner, Ex. 1 at ¶ 15.

On December 22, 2011, Sequoia issued a denial letter to Plaintiffs in which Vice President of Claims, Lola Hogan, noted Sequoia had reviewed Plaintiffs' Notice of Claim and WA's report, had retained its own consultant to inspect and to review the property, and had reviewed the " emergency repairs" performed at the property on December 12, 2011. Hogan also noted:

The Sequoia policies include various Additional Coverages, including the Additional Coverage of Collapse. The Sequoia policies define the term " collapse" and the additional coverage of collapse to mean as follows:
1. With respect to buildings:
a. Collapse means an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose;
b. A building or any part of a building that is in danger of falling down or caving is not considered to be in a state of collapse;
c. A part of a building that is standing is not considered to be in a state of collapse even if it is separated from another part of the building;

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d. A building that is standing or any part of the building that is standing that is not considered to be in a state of collapse even if it shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinking or expansion.
The Western Architectural Report was issued on July 1, 2011. None of the units within any of the buildings have at this point been vacated because of a potential of collapse. The inspection of the property did not reveal any building or any part of any building that had been the subject of an abrupt falling down or falling in. None of the buildings had sustained a collapse which had caused that building or any part of the building not to be occupied for its intended purpose.
The December 2, 2011 report from Jeffery Lewis advises of his analysis on the issue of collapse. As indicated by Mr. Lewis in his letter:
" After reviewing the policy definition of collapse (attached) I have determined that no area at the complex had collapsed at the time of my investigation. Please note also that the Western Architectural report only references potential collapse conditions and provides no documentation whatsoever of any collapse."
Sequoia's investigation into this claim, including having the property inspected by a qualified structural engineer, has determined that the West Brook Apartments is not the subject of a collapse as that term is defined in the Sequoia policies. Under the circumstances of this claim, there is no Application of the additional Coverage of Collapse.

Hogan Decl., Ex. 2 at 11-12. Ultimately Sequoia denied Plaintiffs' claim " [b]ased on the information provided to Sequoia, as well as the request for additional information requested on October 26, 2011, Sequoia's inspection of the property and its reliance on the observations and conclusions of Mr. Lewis and West Coast Forensics." Id . at 12.

Hogan, however, advised Plaintiffs:

[I]f either you or your clients are aware of any facts which in your opinions is relevant to the coverage afforded under the Sequoia policies, we welcome those thoughts and will give serious consideration to any information provided. Should any information whatsoever be developed which bears in any way upon ...

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