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Hilton v. Indemnity Insurance Co. of North America

United States District Court, D. Oregon, Pendleton Division

April 6, 2017

ANTHONY and KFMBERLY HILTON, Plaintiffs,
v.
INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, Defendant.

          OPINION AND ORDER

          PATRICIA SULLIVAN, United States Magistrate Judge

         Plaintiffs Anthony and Kimberly Hilton purchased an insurance policy from defendant Indemnity Insurance Company of North America, covering, inter alia, a horse arena on their La Grande, Oregon property. After a windstorm damaged the arena, including by blowing off two metal roof panels, plaintiffs filed a claim for replacement of the roof. Defendant declined to cover replacement of the entire roof and claimed the policy required paying to repair only the damage to the two panels. The replacement cost of the two panels and a temporary fix of some of the screws on the roof was below the policy's deductible. Plaintiffs filed a claim for breach of the insurance contract. The Court has removal diversity jurisdiction under 28 U.S.C. §§ 1332 and 1441. Defendant has moved for summary judgment (Docket No. 13), which plaintiffs oppose (Docket No. 22). Defendant has also moved to strike the testimony of plaintiffs' expert John Lackey (Docket No. 15), which plaintiffs oppose in part (Docket No. 20). The Court heard oral argument on March 20, 2017. (Docket No. 35). After review of the parties' arguments and submissions, the Court DENIES defendant's Motion for Summary Judgment, and GRANTS IN PART AND DENIES IN PART, without prejudice, defendant's Motion to Strike.[1]

         FACTUAL BACKGROUND

         Plaintiffs own a house with several outbuildings in La Grande, Oregon. One outbuilding is a horse arena with open sides and a metal roof. Clark Decl. (Docket No. 14) ¶ 3, Ex. B (Docket No. 14-1), at 12-14. Defendant issued plaintiffs a farmowners insurance policy that insured the main house and outbuildings, with a policy period of December 5, 2014, to December 5, 2015. Hilton Decl. (Docket No. 23) ¶ 2; Clark Decl. (Docket No. 14) ¶ 2, Ex. A (Docket Nos. 14-8 & 14-9), at 8-11 (the insurance policy). The arena was subject to a $1, 000 deductible. Id. at 9. The policy covered the horse arena with "broad" form covered causes of loss, id. at 8 & 9, which included coverage for windstorm damage, id. at 111 B.2. Broad form coverage did not explicitly list as included, nor did it explicitly state as excluded, damage from faulty workmanship or construction defects. See Pis.' Resp. (Docket No. 22), at 7(x).

         On April 15, 2015, a windstorm damaged the arena and blew off two metal roof panels. Pis.' Resp. (Docket No. 22), at 2 (plaintiffs' statement of "Undisputed material facts provided in defendant's summary judgment motion"). Defendant agreed to cover only the damage to these two panels. Id. at 3. Because defendant's adjuster estimated the cost of the work at $952.98, less than the $1, 000 deductible, defendant refused to pay for replacement. Clark Decl. (Docket No. 14) ¶ 3, Ex. B (Docket No. 14-1), at 2, & ¶ 6, Ex. E (Docket No. 14-4), at 3.[2]

         Defendant had an insurance adjuster and an engineer investigate the damage. Clark Decl. (Docket No. 14) ¶¶ 3 & 4, Ex. B (Docket No. 14-1) (adjuster report) & Ex. C (Docket No. 14-2) (engineer report). Both concluded that the roof had been improperly constructed, for several reasons. The adjuster reported that roofing screws were drilled through the oriented strand board ("OSB, " similar to particle board) sheathing only, instead of into joists, allowing the screws to come loose and leave holes in the sheathing. Clark Decl. (Docket No. 14) ¶ 3, Ex. B (Docket No. 14-1), at 1. Water was able to penetrate the roof at these holes. Id. The engineer reported three construction defects with the roof: overdriven (overtightened) fasteners, inadequate fastener penetration depth, and lack of felt paper underlayment between the panels and the OSB sheathing. Clark Decl. (Docket No. 14) ¶ 4, Ex. C (Docket No. 14-2), at 6-7. These defects, plus weakened sheathing at fastener locations, allowed wind at otherwise "non-damaging" speeds to pull the fasteners loose. Id. at 6. Overdriven fasteners also allowed water leakage. Id.

         An engineering expert and a construction expert plaintiffs hired disagreed with defendant's experts regarding the roof damage. Leslie Tipton, plaintiffs' engineering expert, reported that the two metal roofing panels' displacement during the windstorm "appeared to have been caused mainly by wind pulling the roofing screws up and out of the OSB" sheathing which underlay the metal roofing, and which was fastened directly to the purlins (horizontal roofing beams). Williams Decl. (Docket No. 25) ¶ 3, Ex. 2 (Docket No. 25-1), at 2 I.B.2-3 (Tipton expert report). He concluded that "it is apparent . . . there are other metal roofing panels in jeopardy of blowing off the same roof in a windstorm." Id. at 2 I.C; see also Williams Decl. (Docket No. 25) ¶ 6, Ex. 5 (Docket No. 25-1), Tipton Dep. 10:21-24 ("Once the roofing starts to blow off, then it's very likely that more panels would get blown off. And if these two panels had gotten blown off, there is the likelihood that more panels would get blown off"). This is because the "metal roofing panels are subject to significant expansion and contraction, " specifically at the fastening screws, and "over time, will likely result in a looser connection with the screw threads in the OSB." Williams Decl. (Docket No. 25) ¶ 3, Ex. 2 (Docket No. 25-1), at 2 I.C. Additionally, moisture could enter the screw threads, softening the OSB and making screws easier to pull out. Id. Installing screws into sawn lumber (instead of into OSB) and installing an underlayment of building paper beneath the metal roof panels to keep moisture out would prevent these problems. Id. Tipton disputed that the screws were fastened to an insufficient depth, based on his reading of an apparent contradiction in the metal roofing panel installation guide, which stated a required minimum penetration into wood of 5/8 inches, but also allowed for installation into 1/2 inch wood panels, suggesting that shallower fastener penetration was acceptable. Id. at 3 I.C; see also Clark Decl. (Docket No. 14) ¶ 7, Ex. F (Docket No. 14-5), at 10. At deposition, Tipton testified that the roofing panels could be fastened directly to the OSB, and that fastening to the purlins, though "probably recommended, " was not "required." Williams Decl. (Docket No. 25) ¶ 6, Ex. 5 (Docket No. 25-1), Tipton Dep. 12:18-22. Tipton concluded his report by saying that preventing additional panels from blowing off would require removing the existing panels, installing building paper over the OSB sheathing, and fastening new panels with screws through the OSB into the purlins (instead of just into the OSB). Williams Decl. (Docket No. 25) ¶ 3, Ex. 2 (Docket No. 25-1), at 3 I.C.

         Plaintiffs' construction expert, Bret Wheeler, reported that "[t]here were several roof panels that have blown off completely and others that appear to have been bent from wind." Williams Decl. (Docket No. 25) ¶ 4, Ex. 3 (Docket No. 25-1), at 2 I.B.I (Wheeler expert report). He stated that "[t]he installation of the metal roofing is typical of how this product is installed in our area and appears to be installed per the manufacture specifications . . . ." Id. at 2 LB.2. He repeated Tipton's analysis of the required screw penetration depth and reported that the screws were properly installed. Id. At his deposition, Wheeler conceded that some fasteners were overtightened, damaging the washers, but testified that a majority were not overtightened. Williams Decl. (Docket No. 25) ¶ 5, Ex. 4 (Docket No. 25-1), Wheeler Dep. 12:16-13:7; see also Williams Decl. (Docket No. 25) ¶ 4, Ex. 3 (Docket No. 25-1), at 2 I.B.3 ("Generally the fasteners do not appear to be over tightened or under tightened."). Wheeler testified at deposition that the roofing panels could be installed directly into plywood (i.e., OSB), and that installation guidelines did not require attachment to the purlins. Williams Decl. (Docket No. 25) ¶ 5, Ex. 4 (Docket No. 25-1), Wheeler Dep. 15:2-7. Wheeler's report also stated that he "did not observe any workmanship that appeared to be defective or substandard." Williams Decl. (Docket No.

         Defendant does not address whether it must pay for replacement of these bent roof panels in addition to the two displaced panels; defendant argues it must pay only for the two damaged panels, and plaintiff argues that defendant must pay to replace the entire roof. 25) ¶ 4, Ex. 3 (Docket No. 25-1), at 2 I.B.4. In his Conclusions section, Wheeler stated that, to his knowledge, there was no "prior damage" to the roof before the April 2015 wind event. Id. at 2 I.C. He continued, "there is no way to determine which panels were compromised by the wind event." Id. He stated that the "manufacturer recommended installation specifications for fastening the panels in this application were inadequate." Id. Like Tipton, he stated that the "only long term fix" was to completely replace the metal roofing panels, with screws fastened directly to the purlins, at a depth greater than the manufacturer's specifications. Id. at 2-3 I.C.

         Of defendant's asserted construction defects, the only one plaintiffs arguably acknowledge is the lack of underlayment building paper. Pis.' Resp. (Docket No. 22), at 6(s).[4]But plaintiffs argue, based on Tipton's deposition, that this paper underlayment too was "not typically required, only recommended, " for the purpose of facilitating expansion and contraction of the metal roofing panels and preventing water penetration. Id.; see also Williams Decl. (Docket No. 25) ¶ 6, Ex. 5 (Docket No. 25-1), Tipton Dep. 13:16-14:20 (testifying that felt or building paper was probably not required, only recommended, for easing expansion and contraction and preventing water penetration).

         Based on their expert reports that state that all the metal roofing panels must be replaced, plaintiffs seek to have defendant pay to replace the entire arena roof. Wheeler estimated the replacement cost at $123, 903.53. Williams Decl. (Docket No. 25) ¶ 4, Ex. 3 (Docket No. 25-1), at 7. Defendants' insurance adjuster estimated that the replacement cost (which he described as the "long-term fix for the roof) would exceed $60, 000, without overhead or profit. Clark Decl. (Docket No. 14) ¶ 3, Ex. B (Docket No. 14-1), at 2.

         PROCEDURAL BACKGROUND

         I. Plaintiffs' Claims for Relief

         In their Complaint, plaintiffs originally brought two claims for relief under Oregon state law: (1) breach of contract, for defendant's failure to pay for plaintiffs' claim for water damage to roof sheathing, which damage was revealed when wind blew a roof panel off; and (2) breach of contract, for defendant's failure to pay plaintiffs' claim for windstorm damage to the arena roof. Notice of Removal (Docket No. 1) ¶ 3, Ex. A (Docket No. 1-1). The first breach of contract claim incorporated an allegation that "a construction defect was the cause of the water damage to the roof, " id. ΒΆ 6, but the second cause of action excluded any allegation of construction defect. In their Response to defendant's Motion for Summary Judgment, ...


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