Continental Materials Corporation v. Affiliated FM Insurance Company
Filing
109
ORDER Denying Plaintiff's Motion 49 for Summary Judgment, by Judge John L. Kane on 9/25/12.(sgrim)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge John L. Kane
Civil Action No. 10-cv-02900-JLK-KLM
CONTINENTAL MATERIALS CORPORATION,
Plaintiff,
v.
AFFILIATED FM INSURANCE COMPANY,
Defendant.
ORDER DENYING PLAINTIFF’S MOTION (DOC. 49)
FOR PARTIAL SUMMARY JUDGMENT
Kane, J.
This insurance coverage dispute arose after a landslide damaged a limestone
quarry owned by Plaintiff Continental Material Corporation (“Continental”). While it
appears the landslide affected an area of the quarry that was no longer being mined, the
entire quarry was declared geologically unstable and the Mine Safety and Health
Administration (MSHA) ordered it closed. It remains closed to date.
At the time of the landslide, Continental was insured under an “all-risks” insurance
policy underwritten by Affiliated FM Insurance Company (“Affiliated”), which included
coverage – subject to certain limitations and exclusions – for property damage related to
“earth movement.” One of those exclusions was for damage to “land, water, or any
substance in or on land.” Deeming the damage reported as damage to “land,” Affiliated
initially denied the entirety of Continental’s $2.5M claim for business interruption and
extra expenses related to the landslide. Affiliated later agreed to a small payment for
20,000 tons of previously-extracted limestone that had been sitting on pallets at the site
and buried by the landslide, deeming it personal property in the form of “stock in
process” at the time of the incident. Affiliated also offered to pay for any business
interruption costs associated with Continental’s inability to use or sell that stock while its
cement operations were on hold in the wake of the slide. Continental’s claim that
“millions of tons” of rock that remained in the ground at the quarry was lost personal
property in the form of “raw materials” under the Policy – and compensable at
replacement cost – was, predictably, denied. According to Continental, Affiliated also
denied clean up and remediation costs associated with restoring the quarry to operable
condition. Continental originally estimated the latter at a minimum of $6 million, but the
number has gone up significantly based on input from state and federal mine safety
regulators.
Continental filed suit, seeking declaratory judgment as to the scope of Affiliated’s
coverage obligations under the policy, damages for breach of the insurance contract, and
statutory damages for unreasonable delay and bad faith under C.R.S. §§ 10-3-1115 and
1115. Continental moved for partial summary judgment before the discovery cut-off
date, seeking a legal determination that (1) the Pikeview Quarry is an engineered
improvement to real property and not “land” within the meaning of that term in the
Policy; (2) the unextractable limestone is “Personal property,” and specifically “Raw
materials,” as that therm is used in the Policy; and (3) the measure of damages for loss of
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the unextractable limestone is the replacement cost of the limestone. While Affiliated has
since filed its own Motion for Summary Judgment,1 the instant Order is limited to
Plaintiff’s Motion, which is DENIED.
Discussion.
The case is at a critical juncture. A coverage dispute that was originally in the
$2.5M range has mushroomed into claims for more than $17M in losses. Both sides face
downsides in terms of risk and few of the issues raised by either party appear amenable to
resolution on summary judgment. The issues unamenable to summary disposition include
the 7250 Allegheny Drive question (i.e., whether the quarry is a “Named” or “Unnamed”
Location under the Policy)2 and the question of whether the landslide or Continental’s
negligent maintenance at the site caused the instability. Both are fact-driven, and genuine
disputes are apparent on the record. Further, Affiliated’s attempt in its Motion for
Summary Judgment to parse the physical damage caused by the slide from the “damage”
caused by regulatory entities’ decision to shut the Quarry down and to blame the
instability, and the landslide itself, on Continental’s poor management and safety
1
In its Motion for Summary Judgment, Affiliated argues that (1) the Quarry is an
“Unnamed Location” as that term is defined in the Policy, excluding coverage for earth
movement; (2) the Quarry is “land” under the Policy such that damage to it is not covered
regardless of whether the Quarry is a named location or not; (3) the un-mined limestone in the
Quarry is also “land . . . or a substance in or on land” and not covered under the Policy or, in the
alternative, that there is no coverage under the Policy for un-mined limestone because it has not
been physically damaged; and (4) Plaintiff’s claim for bad faith fails as a matter of law because
Affiliated’s interpretation of the Policy is reasonable.
2
Coverage for earth movement does not extend to “Unnamed Locations” or locations
unnamed through “Errors and Omissions.” See Policy § C.1.b (Doc. 55-6, p. 13 of 39).
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operations appear similarly ill-suited for resolution on summary judgment. The former
relies on a hypertechnical reading of Policy language that will be construed against the
insurer as a matter of law and the latter is rife with factual disputes likely resolvable only
by a battle of the experts.
That said, the questions that may be answered at this juncture are Continental’s
rather novel assertion that the “millions of tons” of unextracted Pikeview Quarry
limestone are “personal” rather than “real” property under the Policy, and that their loss
should be compensated at “replacement cost” under the General Conditions section of the
Policy (Policy § G). The assertion requires an exceedingly strained reading of the
Policy,3 and one that ultimately begs the land exclusion question of whether unextracted
limestone, even if “personal property” or “raw materials” under the Policy, is nevertheless
excludable “land . . . or substance in land.” Even assuming for the sake of argument that
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Specifically, Continental reasons as follows:
the Policy defines “Personal property” to include “Raw materials and Stock”
(Policy, § B.2);
“Stock in Process” is “raw materials or stock” that has “undergone any aging,
seasoning, mechanical or other process or manufacture, but which is not finished
goods” (§ H);
Affiliated covered blasted limestone as “Stock in Process”;
therefore unblasted limestone is “Raw Materials.”
Continental makes this argument notwithstanding the fact that the Policy defines “Raw
Materials” to mean materials “in the state in which the Insured receives them for
conversion by the Insured into finished goods.” (Emphasis mine). While it seems clear
that Continental owns the unextracted Pikeview Quarry limestone and does not “receive”
it from anywhere, Continental elides the distinction by asserting it “received” the
unextracted limestone for conversion into finished goods in 1974, when it purchased the
Quarry.
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unextracted Pikeview Quarry limeston is “personal property” under the Policy not subject
to the land exclusion, Continental’s assertion that it must be covered at the open-market
“replacement cost” value for limestone that has already been extracted and converted for
use in final product is untenable. The Policy values raw materials at replacement cost
only to the extent they are “raw materials, supplies, and other merchandise not
manufactured by the Insured.” The Pikeview Quarry limestone, even under Continental’s
own view of the facts, is “raw material” owned and supplied/manufactured “by the
Insured,” not by anyone else, so it does not fall within the “replacement cost” valuation
provision of the Policy. The “replacement” value for Continental’s unextracted
limestone, if anything, would be the value of another quarry, or, at a minimum, the value
of open-market extracted limestone less the costs of extracting it, “seasoning” or
“manufacturing” it for conversion into finished goods, and delivering it to Contintental.
Continental’s construction of the Policy’s “personal property”/”raw
materials”/”replacement value” provisions are unavailing and its request that I enter
partial summary judgment in its favor on those issues is denied.
Finally, and while I leave consideration of whether the Quarry is “land” within the
meaning of the Policy’s land exclusion for determination in the context of Affiliated’s
Motion for Summary Judgment, I offer the following observations. Continental is likely
correct that the quarry and quarry benches are engineered improvements on land rather
than “land” within the meaning of the Policy’s land exclusion. The distinction is
irrelevant to Continental’s claim for the replacement value of the unextracted limestone
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however and I therefore decline to answer the “land” or “improvements on land” question
posed by Plaintiffs in their Motion for Partial Summary Judgment. To the extent
Affiliated is denying claims for costs related to repairs or stabilization of the benches
under the land exclusion, Continental has the better side of that argument.
Based on the foregoing, Plaintiff’s Motion for Partial Summary Judgment (Doc.
49) is DENIED. Specifically, Plaintiff’s request that I enter partial summary judgment in
its favor on the question of whether the Pikeview Quarry is an engineered improvement to
real property and not “land” within the meaning of that term in the Policy is DENIED,
with the understanding that the question will be analyzed in greater context in conjunction
with Affiliated’s pending Motion for Summary Judgment. Plaintiff’s request for partial
summary judgment and a ruling that unextracted Quarry limestone is “Personal Property,”
and specifically “Raw Materials,” as that term is used in the Policy is DENIED on its
merits, as is Plaintiff’s request for a determination that the measure of damages for the
loss of unextractable limestone is the replacement value of the limestone.
Dated September 25, 2012.
s/John L. Kane
SENIOR U.S. DISTRICT JUDGE
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