United States District Court, D. Oregon, Portland Division
12W RPO, LLC, an Oregon limited liability company; and GED GALLERY, LLC, an Oregon limited liability company, Plaintiffs,
AFFILIATED FM INSURANCE COMPANY, a Rhode Island corporation, and STEADFAST INSURANCE COMPANY, a Delaware corporation, Defendants. AFFILIATED FM INSURANCE COMPANY, a Rhode Island corporation, and STEADFAST INSURANCE COMPANY, a Delaware corporation, Defendants.
MICHAEL E. FARNELL KRISTOPHER L. KOLTA PARSONS FARNELL &
GREIN, LLP ATTORNEYS FOR PLAINTIFF
D. JONES BULLIVANT HOUSER BAILEY PC ATTORNEY FOR DEFENDANT
OPINION & ORDER
A. HERNANDEZ UNITED STATES DISTRICT JUDGE
12W RPO ("12W") and GED Gallery ("GED")
bring this breach of contract action against Defendant
Affiliated FM Insurance Company. The dispute arises from
Defendant's denial of insurance claims made by Plaintiffs
related to the failure of plumbing components and certain
"spandrel glass" windows used in the construction
of a multi-story, mixed-use apartment and office building in
Portland. Defendant moves for summary judgment on
both the plumbing and spandrel glass claims. Plaintiffs move
for partial summary judgment on the spandrel glass claim
only. Because I conclude that the insurance policy excludes
coverage for both claims, I grant Defendant's motion and
deny Plaintiffs' motion.
the developer of "The Indigo @ Twelve West"
("The Indigo"). First Am. Compl. ¶ 10, ECF 41.
12W is The Indigo's current owner and is landlord to The
Indigo's residential and commercial tenants. Id.
¶ 11. Defendant issued a series of first-party property
insurance policies to 12W under which GED is also a named
insured. Id. ¶ 7.
to the allegations in the First Amended Complaint, The
Indigo's hot and cold water plumbing systems were
constructed with various materials composed of or containing
ethylene propylene diene monomer rubber ("EPDM").
Id. ¶ 12. The EPDM components, made by
Victaulic Company, included valves, pipe couplings, gaskets,
and fittings for piping systems. Id.
EPDM materials failed by decomposing, disintegrating, and in
some instances dissolving into sludge. Id. ¶
13. According to Plaintiffs' investigation, the EPDM
materials had an "unanticipated chemical reaction"
with Portland's water supply. Id. ¶ 14.
Chloramine compounds, which Portland adds to its domestic
water, caused the EPDM materials to "decompose,
disintegrate, and/or dissolve." Id. This
disintegration and dissolution of the EPDM materials resulted
in damage to The Indigo's potable water supply, to the
domestic water plumbing system, and to other property at The
Indigo including damage to both residential and commercial
units. Id. ¶ 15. After investigating,
Plaintiffs concluded that the only viable repair option was
to entirely replace The Indigo's plumbing system.
Id. ¶ 20. As a result, Plaintiffs have incurred
total repair costs of not less than $4, 826, 584.
Id. ¶ 21. On or about June 18, 2015, Plaintiffs
submitted the EPDM claim to Defendant and requested coverage.
Id. ¶ 27. On or about December 22, 2016,
Defendant denied the claim. Id.
the spandrel window glass, Plaintiffs allege that
"opacifier film," which was adhered to spandrel
glass units installed at The Indigo, is separating and
peeling away from the spandrel glass units, resulting in
property damage. Id. ¶ 40. At the time the
First Amended Complaint was filed in November 2017, the
investigation into the spandrel glass issue was ongoing, with
estimated repair costs to exceed $6 million. Id.
¶¶ 40-42. On or about June 18, 2015, Plaintiffs
submitted a separate claim to Defendant regarding The
Indigo's spandrel glass units and opacifier film,
requesting coverage. Id. ¶ 38. On or about July
20, 2015, Defendant denied coverage. Id. ¶ 39.
judgment is appropriate if there is no genuine dispute as to
any material fact and the moving party is entitled to
judgment as a matter of law. Fed.R.Civ.P. 56(a). The moving
party bears the initial responsibility of informing the court
of the basis of its motion, and identifying those portions of
"'the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any,' which it believes demonstrate the
absence of a genuine issue of material fact."
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)
(quoting former Fed.R.Civ.P. 56(c)).
the moving party meets its initial burden of demonstrating
the absence of a genuine issue of material fact, the burden
then shifts to the nonmoving party to present "specific
facts" showing a "genuine issue for trial."
Fed. Trade Comm'n v. Stefanchik, 559 F.3d 924,
927-28 (9th Cir. 2009) (internal quotation marks omitted).
The nonmoving party must go beyond the pleadings and
designate facts showing an issue for trial. Bias v.
Moynihan, 508 F.3d 1212, 1218 (9th Cir. 2007) (citing
Celotex, 477 U.S. at 324).
substantive law governing a claim determines whether a fact
is material. Suever v. Connell, 579 F.3d 1047, 1056
(9th Cir. 2009). The court draws inferences from the facts in
the light most favorable to the nonmoving party. Earl v.
Nielsen Media Research, Inc., 658 F.3d 1108, 1112 (9th
factual context makes the nonmoving party's claim as to
the existence of a material issue of fact implausible, that
party must come forward with more persuasive evidence to
support his claim than would otherwise be necessary.
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986).
Insurance Contract Interpretation
diversity action, Oregon law governs the construction of the
policies at issue. Allstate Ins. Co. v. Morgan, 123
F.Supp.3d 1266, 1272-73 (D. Or. 2015). The burden of proving
coverage is on the insured, while the insurer bears the
burden of proving exclusion from coverage. Id. at
1273 (citing ZRZ Realty Co. v. Beneficial Fire & Cas.
Ins. Co., 349 Or. 117, 127, 241 P.3d 710 (2010)).
"question of [insurance] policy interpretation is one of
law, and [the court's] task is to determine the intent of
the parties[.]" Groshong v. Mut. of Enumclaw Ins.
Co., 329 Or. 303, 307, 985 P.2d 1284, 1287 (1999)
(citation omitted); see also Hoffman Constr. Co. of
Alaska v. Fred S. James & Co. of Or., 313 Or. 464,
469, 836 P.2d 703, 706 (1992) ("[T]he primary and
governing rule of the construction of insurance contracts is
to ascertain the intention of the parties.") (internal
quotation marks and brackets omitted). The court determines
the parties' intent "from the terms and conditions
of the policy." Groshong, 329 Or. at 307, 985
P.2d at 1287.
first examine the wording of the policy, "applying any
definitions supplied by the policy itself and otherwise
presuming that words have their plain, ordinary
meanings." Tualatin Valley Hous. Partners v. Truck
Ins. Exch., 208 Or.App. 155, 159-60, 144 P.3d 991, 993
(2006) (citing Hoffman, 313 Or. at 469-70, 836 P.2d
703). When the policy does not define the terms at issue, the
court "resort[s] to various aids of interpretation to
discern the parties' intended meaning."
Groshong, 329 Or. at 307-08, 985 P.2d at 1287. The
court first examines the plain meaning of the term at issue.
Id. at 308, 985 P.2d at 1287. If at that point the
court determines there is only one plausible interpretation
of the disputed terms, the analysis ends there. Id.
meaning of the term or phrase at issue "is not, on its
face, plain, [the court] proceed[s] to [its] second aid to
interpretation[-] . . . examin[ing] the phrase in light of
the particular context in which [it] is used in the policy
and the broader context of the policy as a whole."
Id. at 312, 985 P.2d at 1289 (internal quotation
marks omitted). A term is ambiguous if "two or more
plausible interpretations of that term withstand scrutiny,
i.e., continues to be reasonable, after the
interpretations are examined in the light of, among other
things, the particular context in which that term is used in
the policy and the broader context of the policy as a
whole." Hoffman Constr., 313 Or. at 470, 836
P.2d at 706. If, after the court analyzes the terms in the
broader context of the policy, the court determines that the
term remains ambiguous, the term is to be construed against
the insurer, the party which drafted the policy.
Hoffman, 313 Or. at 470-71, 836 P.2d at 706-07. The
Hoffman court explained:
[W]hen two or more competing, plausible interpretations prove
to be reasonable after all other methods for resolving the
dispute over the meaning of particular words fail,
then the rule of interpretation against the drafter
of the language becomes applicable, because the ambiguity
cannot be permitted to survive. It must be resolved.
other hand, where the contract unambiguously expresses the
intent to provide coverage or to not provide coverage, the
contract language is controlling. See Allstate Ins. Co.
v. State Farm Mut. Auto. Ins. Co., 67 Or.App. 623, 627,
679 P.2d 879, 881 (1984) (where contract language is
unambiguous, courts will "apply those terms and will not
create coverage where none was intended by the
argues that for both the EPDM and spandrel glass claims,
policy exclusions preclude coverage and preclude application
of the "ensuing" or "resulting" loss
provision as an exception to any exclusion. Further,
Defendant argues that the EPDM and the spandrel glass claims
are untimely because (1) the damage commenced before
Defendant issued its first policy to Plaintiffs; and (2) the
damage commenced more than two years before Plaintiffs filed
suit and the untimely claims are not saved by the
parties' tolling agreements.
response to Defendant's motion as to the EPDM claim,
Plaintiffs argue that the plumbing system was damaged by
concurrent, multiple causes and because one of those is a
covered loss, the loss is not excluded. Plaintiffs further
argue that even if the loss is excluded, it is nonetheless
covered under the ensuing/resulting loss provision.
Plaintiffs contend that the loss did not commence as to the
EPDM material until the entire plumbing system failed which
was within a policy period and that at a minimum, certain
replacement plumbing parts were damaged within the two-year
suit limitations period. In response to Defendant's
motion on the spandrel glass claim, as well as in support of
their own motion for partial summary judgment, Plaintiffs
make similar concurrent cause and ensuing loss arguments. As
to the timeliness arguments, they contend that damage to the
spandrel glass units commenced within the policy period and
that each unit of spandrel glass should be treated separately
and thus, the lawsuit was timely filed as to many of the
spandrel glass units, some of which have not yet suffered
setting forth the relevant policy provisions, I discuss the
EPDM coverage arguments, followed by the spandrel glass
coverage arguments. Because I agree with Defendant on the
coverage arguments, I do not discuss the timeliness
in 2009, Defendant and 12W were parties to several successive
one-year insurance contracts. Jones Decl. ¶¶ 23-35,
ECF 58; id., Exs. 22-33 (pages from annual policies
from July 13, 2009 to September 13, 2017). While there appear
to be some differences in the policies as time when on, the
parties do not suggest that these differences are material or
relate to the issues in this case. Thus, I cite to language
from the first policy issued July 13, 2009 and found at
Exhibit 22 to the August 1, 2018 Jones Declaration.
Declarations page of the policy, under "Insurance
Provided," the policy sates: "All risks of direct
physical loss or damage, as defined and limited herein, on
Real Property, Personal Property, Business Interruption,
including the Extensions of Coverage applying at the
following described locations: . . . ." Jones Decl., Ex.
22 at 3. Form PRO AR 3100 (1/07) addresses the coverage.
Id. at 5. It is entitled "All Risk Property
Coverage" and states, under the heading "Perils
Insured," that "[t]his policy insures against all
risks of direct physical loss or damage to insured property
except as excluded under this policy." Id.
section of the policy, under the heading "Group
II," addresses exclusions. Id. at 6. It begins
with the following statement: "This policy does not
insure against loss or damage caused by the following;
however, if direct physical loss or damage insured by this
policy results, then that resulting direct physical loss or
damage is covered." Id. Following that
statement is a list of seven exclusions, some of which are at
issue here. Id. at 6-7.
concedes that under the broad grant of coverage in an
all-risk policy, damage to the EPDM plumbing components is
initially covered. See, e.g.,
Prudential Prop. & Cas. Ins. Co. v.
Lillard-Roberts, No. CV-01-1362-ST, 2002 WL 31495830, at
*7 (D. Or. June 8, 20020 (in an all risk policy,
"'the insured's burden is limited. The insured
need only show that a physical loss occurred to covered
property'") (quoting Columbiaknit, Inc. v.
Affiliated FM Ins. Co., No. Civ. 98-434-HU, 1999 WL
619100, at *4 (D. Or. 1999)). Thus, the issues in
Defendant's motion as to the EPDM claim are whether an
exclusion applies to deny coverage, and if so, whether the
ensuing loss provision creates an exception to the exclusion
so that coverage is ultimately available to Plaintiffs.
Defendant's Asserted Design Defect Exclusions
argues that the following design defect exclusions preclude
coverage: latent defect, faulty design, materials defects,
and faulty workmanship/construction. Jones Decl., Ex. 22 at 6
(Group II, Exclusion Nos. 1, 2). In their Response
Memorandum, Plaintiffs state that the "EPDM plumbing
fittings . . . were defective, a fact Plaintiffs do not . . .
dispute[.]" Pls.' Resp. 9, ECF 63. They also later
note the variety of what they call
"defect-oriented" exclusions asserted by Defendant:
"latent defect, faulty design, defective materials,
faulty workmanship, and deterioration." Id. at
15. Plaintiffs concede that they have pressed "certain
of these theories" against the manufacturer and
contractors. Id. But, they argue that they stand by
those arguments because in the end, their loss is still
covered under a concurrent/multiple loss theory or under the
ensuing loss provision as an exception to the exclusions.
parties' positions establish that there is no dispute
regarding the application of at least the faulty design
exclusion and possibly other design or product defect
exclusions. Thus, at this point, it is undisputed that there
is initial coverage which is then excluded.
Plaintiff's Concurrent/Multiple Loss Theory
contend that when "a force external to the design defect
comes to operate on the material and physically damages it,
the coverage question changes: did a non-excluded peril
contribute to the loss or damage?" Pls.' Resp. 10.
Plaintiffs argue that when a covered cause and excluded cause
of loss converge to cause damage, the loss or damage is
covered in the first instance. They argue that here, for
example, the EPDM would not have decomposed and the plumbing
system would not have been lost but for the
chloramine-treated water. Because chloramine-treated water is
not an excluded cause of loss, Plaintiffs argue that
Defendant's design-defect exclusion arguments are
incomplete. They assert that three non-excluded/covered
perils contributed to the loss: (1) the "unanticipated