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U.S. Specialty Insurance Co. v. Elcon Associates, Inc.

United States District Court, D. Oregon

May 29, 2018

U.S. SPECIALTY INSURANCE COMPANY, a Texas corporation, Plaintiff,
ELCON ASSOCIATES, INC., an Oregon corporation Defendant.

          JASMINE C. HITES Troutman Sanders, LLP TERRENCE R. MCINNIS BINH DUONG T. PHAM Troutman Sanders LLP Attorneys for Plaintiff

          GREGORY L. BAIRD Gordon & Polscer, LLC PETER J. MORGAN Morgan Rider Riter Tsai, P.C. Attorneys for Defendant



         This matter comes before the Court on Plaintiff U.S. Specialty Insurance Company's Request (#45) for Judicial Notice and Defendant Elcon Associates's Motion (#42) to Dismiss Pursuant to the Federal Declaratory Judgment Act. The Court has reviewed the record on these Motions and concludes it is sufficiently developed such that oral argument would not be helpful. For the reasons that follow, the Court GRANTS in part and DENIES in part Plaintiff's Request for Judicial Notice and DENIES Elcon's Motion to Dismiss.


         The following facts are taken from the Amended Complaint and the parties' materials related to Defendant's Motion to Dismiss.

         I. The Construction Dispute

         Defendant Fluor/HDR Global Design Consultant's (F/HDR) is a limited liability company with two shareholders: Fluor Corporation and HDR Engineering, Inc. F/HDR is incorporated in Delaware, and its principal place of business is Greenville, South Carolina. F/HDR was established for the purpose of pursuing and delivering transportation “design-build projects [in North America] with anticipated construction values in excess of $500 million.” In 2009 F/HDR developed a “specific and unique Business Plan . . . addressing how [it] intended to get awarded” those kinds of projects. Second Aff. of Bruce Gerhardt at ¶ 2.

         On June 9, 2008, F/HDR and Defendant Elcon Associates, Inc., “entered into a Teaming Agreement, . . . which was amended on January 29, 2009.” Am. Compl. at ¶ 16. The Teaming Agreement related to the design and construction of the Eagle P3 commuter rail in Denver, Colorado (the Eagle Project). The Teaming Agreement and Task Order No. 13 “tasked” Elcon with “preliminary design of the Overhead Contact Systems (OCS) poles.” Am. Compl. at ¶ 17. Elcon was also “required to design the OCS in sufficient detail to quantify the construction work required and [to] determine typical details for the OCS poles and foundations for cost estimating purposes.” Id. (quotation omitted).

         At some point in 2010 Denver Transit Constructors (DTC) was awarded the contract to perform work on the Eagle Project “based on the . . . cost proposal [it submitted] that relied in part on the information provded by F/HDR and Elcon, including Elcon's design parameters for the OCS poles prepared for cost estimating purposes.” Am. Compl. at ¶20.

         On September 1, 2010, DTC entered into a design contract with F/HDR for the “final design and construction on the [Eagle] Project. Once that agreement was executed, [F/HDR] executed subcontracts with its subconsultants, including Elcon.” Am. Compl. at ¶ 21.

         At some point DTC “discovered . . . the information and design parameters Elcon provided during the Proposal Phase regarding the sizes and height of the OCS poles were significantly underestimated, resulting in a substantial price difference between the proposal and final design and construction of the OCS poles (the ‘OCS Pole Allocation Design Dispute').” Am. Compl. at ¶ 22.

         In February 2014 DTC and FHDR agreed the OCS Pole Allocation Design Dispute “remain[ed] open and should be submitted as an [errors & omissions] claim under a professional liability insurance policy. DTC agreed to provide a formal notice to [F/HDR] of the remaining potential errors & omissions claims that had not been resolved, including the OCS Pole Allocation Design Dispute.” Am. Compl. at ¶ 26 (quotation omitted).

         On March 14, 2014, DTC sent F/HDR a letter in which it asserted F/HDR failed to meet the standard of care for providing professional services in connection with “certain proposal and execution related services” and demanded “repayment of costs incurred as a result of these errors and/or omissions” (the DTC Demand Letter). The DTC Demand Letter set out several alleged deficiencies “in support of DTC's proposal, ” including the “Design of OCS Poles.” Am. Compl. at ¶ 27.

         II. The Insurance Dispute

         Before May 2014 Elcon had been insured by Plaintiff “under successive professional liability policies . . . with limits of $1 million per Claim.” Am. Compl. at ¶ 32 (emphasis in original).

         On April 2, 2014, Elcon submitted a “renewal application for the May 6, 2014 to May 6, 2015 policy year with [Plaintiff] seeking limits of liability of $1 million per Claim.” Am. Compl. at ¶ 33 (emphasis in original).

         On April 28, 2014, Elcon requested Plaintiff to increase the limits of liability from $1 million per claim to $5 million per claim. Plaintiff agreed to increase the liability limits.

         In 2015 Plaintiff issued Policy No. USS 15 25806 to Elcon for the period of May 6, 2015, to May 6, 2016. The Policy provided in relevant part:

The Company shall pay Loss and Claim Expenses . . . that an Insured shall become legally obligated to pay as a result of a Claim made against an Insured for a Wrongful Act arising from Professional Services, provided always that: (1) the Claim is first made against an Insured during the Policy Period . . .; [and] (2) an Insured's partners, principals, officers, directors, members or insurance managers had no knowledge of any circumstance, dispute, situation or incident that gave rise to such Claim or could reasonably have been expected to give rise to such Claim prior to the Knowledge Date [of May 6, 2014].

         Am. Compl., Ex. 1 at 1(A)(emphasis in original). The policy also contained a Limit of Liability of $5 million “for each Claim . . . and in the aggregate.” Am. Compl. at ¶ 13. The Limit of Liability, however, also contained an endorsement amending coverage as follows: “That portion of the Limit of Liability in excess of $1, 000, 000/$2, 000, 000 shall have a Retroactive Date of 05/06/2014.” Am. Compl., Ex. 1 at 26.

         On November 10, 2015, Elcon “first provided notice to [Plaintiff] of its dispute with ...

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