Evanston Insurance Company v. Bryan Construction Incorporated
ORDER granting 22 Plaintiff's Motion for Summary Judgment by Judge Christine M. Arguello on 4/12/2018. (swest)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Christine M. Arguello
Civil Action No. 17-cv-00720-CMA-MJW
EVANSTON INSURANCE COMPANY, an Illinois corporation, as successor by merger
to Essex Insurance Company,
BRYAN CONSTRUCTION, INCORPORATED, a/k/a Federal Contracting, Inc., a
ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
This matter is before the Court on Plaintiff Evanston Insurance Company’s
Motion for Summary Judgment, wherein Plaintiff argues that it is entitled to a
declaratory judgment that its commercial property insurance policy for Defendant Bryant
Construction, Inc. did not cover Defendant’s claimed losses as a matter of law. (Doc.
# 22.) For the reasons discussed below, the Court grants Plaintiff’s Motion for
Defendant, a commercial general contractor, constructed the Cherry Hills
Assisted Living Facility (“CHAL”) in Centennial, Colorado, in 2016. (Doc. # 1 at 3.)
Defendant purchased a commercial property insurance policy (the “Policy”) for the
project from Plaintiff in March 2016. 1 (Id. at 2.) The Policy, bearing number
MKLX14PP006149, was in effect from January 15, 2016, through January 15, 2017.
(Id.); see (Doc. # 22-1 at 12–29.)
Plaintiff was bound by the Policy to “pay for direct physical loss of or damage to
Covered Property at the premises described in the Declarations caused by or resulting
from a Covered Cause of Loss.” (Doc. # 22-1 at 17) (emphases added). The Policy
specifically defined “Covered Property” at Section I.A. as including “Building, meaning
the building or structure described in the Declarations.” (Id.) The Declarations in turn
stated that “Covered Property” included “Building” and “Real Property in the Course of
Construction.” 2 (Id. at 12.) The Policy also contained a coverage extension for debris
removal, but the coverage extension explicitly did not apply to the “cost or expense of
. . . removal of water, soil or any other uninsured substance on or under any Covered
Property.” (Id. at 19–20.) Relevant here, the Policy covered “Flood” as a “Covered
Cause of Loss,” with a limit of $500,000 per occurrence and $500,000 in aggregate and
subject to a $25,000 deductible per occurrence. (Id. at 14–15, 29.)
The Policy specifically did not include and eliminated from coverage “Property
Not Covered,” defined at Section I.B. (Id. at 18–19.) It excluded from coverage, among
other things: “[b]ridges, tunnels, dams, trestles, culverts;” “[b]ulkheads, pilings that are
not part of a building, piers, wharves, docks, seawall, dams or canals;” “[t]he cost of
excavations, grading, backfilling or filling;” “[l]and (including land on which the Covered
Plaintiff Evanston Insurance Company is the successor by merger to Essex Insurance
Company, which issued the Policy. (Doc. # 1 at 2.)
The Policy did not define “Real Property in the Course of Construction.” (Doc. # 22-1 at 12.)
Property is located), air or water;” “[l]iving organisms of any kind . . . including plants,
trees, lawns or shrubs;” “[r]etaining walls that are not part of a building;” and
“[u]nderground pipes, flues or drains.” (Id.)
Defendant’s CHAL project was in a flood zone and adjacent to Big Dry Creek.
(Doc. # 22 at 5.) The project therefore required Defendant to build a temporary dam,
called a “cofferdam,” with riprap material (large rocks) and a plastic membrane, and to
re-route the creek channel. (Id. at 6; Doc. # 23 at 2.) Defendant also graded the creek
channel, made erosion and sediment control improvements, and planted native willow
bundles, cottonwoods, and native grasses in the course of re-routing Big Dry Creek.
(Doc. # 22 at 6.)
In March and April 2016, the location of CHAL experienced severe snowstorms
and resultant snowmelt. (Id. at 7.) Snowmelt produced significant runoffs on March 23–
24, 2016, and on April 16–21, 2016. (Id.) The runoffs flooded the creek, destroyed
Defendant’s cofferdam, and eroded the creek channel and embankment. (Id.)
According to Defendant, necessary repairs to the creek channel included clearing out
sediment in the stream stabilization area; repairing the cofferdam; repairing the final
stream stabilization area, including reseeding; and repairing the eroded area adjacent to
the cofferdam. (Id. at 7–8.) The flooding did not damage the CHAL building or the
building structure. (Id. at 8.)
Defendant asserts that the cost to repair the flood damage was $147.579.00.
(Doc. # 23 at 2.) It also states that it incurred “additional costs . . . during the time
required to repair the flood damage” of $118,545.00. (Id.) Defendant submitted a claim
for these losses to Plaintiff on June 10, 2016. (Id.)
Plaintiff disclaimed coverage for Defendant’s losses in a letter dated December
6, 2016. (Doc. # 22-1 at 276–78.) Plaintiff summarized therein the factual findings of its
retained inspector and adjustor: first, Defendant “had damage to the temporary dam as
well as the retaining wall . . . This required rebuilding the damage, repairs to the wall as
well as fixing the damage to the modified flood plain,” and second, Defendant’s claim for
“additional costs” and delay costs “appear to be cost and schedule impacts from the
additional repair work, apparently for the two-month delay in the project. This appears
to be associated with business income.” (Id. at 276.) Plaintiff cited the “Property Not
Covered” section of the Policy and explained to Defendant:
[A]ll of the property which you claimed as damaged is specifically
excluded, and therefore, there is no coverage provided for this claim. You
[sic] claim for Additional General Conditions & Delay Costs is also not
covered because, per the above, this is not direct physical loss or damage
to Covered Property. In addition, your policy does not provide Business
(Id. at 277.) Accordingly, Plaintiff informed Defendant that “no payment [would] be
made under the [P]olicy for this loss.” (Id. at 278.)
Defendant disputed Plaintiff’s denial of coverage in a letter dated January 25,
2017. (Doc. # 1-9.) Defendant characterized the Policy as “ambiguous” and stated that
it therefore “must be interpreted and construed against [Plaintiff] and for a finding of
coverage.” (Id. at 2.) According to Defendant, the Policy was ambiguous because it
purported to cover “Real Property in the Course of Construction” but excluded “land,”
“dams,” and other things from its definition of “Covered Property.” (Id.) Defendant
asked rhetorically, “if coverage exists for flood damage to ‘Real Property in the Course
of Construction,’ how can no coverage exist for flood damage to ‘Land’ under [the
Policy]? It cannot.” (Id.) Defendant also clarified that it was not seeking “‘general
conditions and delay costs’ which may be excluded from the Policy because they are
not direct physical loss of or damage to Covered Property. [Defendant] is seeking the
direct costs it incurred repairing the ‘Real Property in the Course of Construction’
damaged due to the covered flood events.” (Id. at 3.)
On March 21, 2017, Plaintiff filed its Complaint for Declaratory Judgment against
Defendant. (Doc. # 1.) Plaintiff seeks a declaratory judgment in its favor “declaring and
concluding that: (1) [Defendant’s] claimed flood loss at [CHAL] construction project is
not covered by the Policy, and (2) Defendant . . . is not entitled to any payment from
[Plaintiff] for its claimed loss.” (Id. at 11.) Defendant submitted its Answer on April 28,
2017. (Doc. # 12.)
Plaintiff filed the Motion for Summary Judgment now before the Court on October
26, 2017. (Doc. # 22.) Defendant timely responded on November 16, 2017 (Doc. # 23),
to which Plaintiff replied on November 29, 2017 (Doc. # 24). The case has been stayed
pending the Court’s resolution of Plaintiff’s Motion for Summary Judgment. See (Doc.
STANDARD OF REVIEW
Summary judgment is warranted when “the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). A fact is “material” if it is essential to the proper
disposition of the claim under the relevant substantive law. Wright v. Abbott Labs., Inc.,
259 F.3d 1226, 1231–32 (10th Cir. 2001). A dispute is “genuine” if the evidence is such
that it might lead a reasonable jury to return a verdict for the nonmoving party. Allen v.
Muskogee, Okl., 119 F.3d 837, 839 (10th Cir. 1997). When reviewing motions for
summary judgment, a court must view the evidence in the light most favorable to the
non-moving party. Id. However, conclusory statements based merely on conjecture,
speculation, or subjective belief do not constitute competent summary judgment
evidence. Bones v. Honeywell Int’l, Inc., 366 F.3d 869, 875 (10th Cir. 2004).
The moving party bears the initial burden of demonstrating the absence of a
genuine dispute of material fact and entitlement to judgment as a matter of law. Id. In
attempting to meet this standard, a movant who does not bear the ultimate burden of
persuasion at trial does not need to disprove the other party’s claim; rather, the movant
need simply point out to the Court a lack of evidence for the other party on an essential
element of that party’s claim. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th
Cir. 1998) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)).
Once the movant has met its initial burden, the burden then shifts to the
nonmoving party to “set forth specific facts showing that there is a genuine issue for
trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). The nonmoving party
may not simply rest upon its pleadings to satisfy its burden. Id. Rather, the nonmoving
party must “set forth specific facts that would be admissible in evidence in the event of
trial from which a rational trier of fact could find for the nonmovant.” Adler, 144 F.3d at
671. Stated differently, the party must provide “significantly probative evidence” that
would support a verdict in her favor. Jaramillo v. Adams Cty. Sch. Dist. 14, 680 F.3d
1267, 1269 (10th Cir. 2012). “To accomplish this, the facts must be identified by
reference to affidavits, deposition transcripts, or specific exhibits incorporated therein.”
PRINCIPLES OF CONTRACT INTERPRETATION
Under Colorado law, a court construes an insurance policy’s terms according to
traditional principles of contract interpretation. 3 Hecla Mining Co. v. New Hampshire
Ins. Co., 811 P.2d 1083, 1090 (Colo. 1991). When interpreting a contract, the court
seeks to give effect to the intent and reasonable expectations of the parties. Allen v.
Pacheco, 71 P.3d 375, 378 (Colo. 2003). Terms should therefore be assigned their
“plain and ordinary meaning,” unless the parties intend otherwise. Compass Ins. Co. v.
City of Littleton, 984 P.2d 606, 613 (Colo. 2004).
Colorado law also recognizes that “unlike a negotiated contract, an insurance
policy is often imposed on a ‘take-it-or-leave-it’ basis.” Huizar v. Allstate Ins. Co., 952
P.2d 342, 344 (Colo. 1998). A court therefore “assume[s] a ‘heightened responsibility’
in reviewing insurance policy terms to ensure that they comply with ‘public policy and
principles of fairness.’” Thompson v. Maryland Cas. Co., 84 P.3d 496, 501–02 (Colo.
2004) (quoting Huizar, 952 P.2d at 244). Accordingly, ambiguous terms in an insurance
policy are construed against the insurer. State Farm Mut. Auto. Ins. Co. v. Nissen, 851
P.2d 165, 166 (Colo. 1993).
A federal court, sitting in diversity, must apply the substantive law of the forum state. Berry &
Murphy, P.C. v. Carolina Cas. Ins. Co., 586 F.3d 803, 808 (10th Cir. 2009).
Finally, exclusionary clauses “designed to insulate particular conduct from
general liability coverage provisions must be drafted in clear and specific language.”
American Family Mut. Ins. Co. v. Johnson, 816 P.2d 952, 953 (Colo. 1991) (citing Ryder
Truck Rental, Inc. v. Guaranty Nat’l Ins. Co., 770 P.2d 1380 (Colo. App. 1989)). In
order to benefit from an exclusion in an insurance contract, the insurer must establish
that the exemption claimed applies in the particular case and that the exclusions are not
subject to any other reasonable interpretations. Id. (citing Hecla, 811 P.2d at 1090).
The Policy Is Not Ambiguous
Defendant asserts that the Policy is ambiguous and therefore “must be construed
in favor of coverage.” (Doc. # 23 at 14) (citing Worsham Const. Co., Inc. v. Reliance
Ins. Co., 687 P.2d 988, 990 (Colo. App. 1984), cert. denied). The Policy is ambiguous,
according to Defendant, “because the provisions are inconsistent. If ‘land,’ ‘dams,’ etc.
are excluded under the Policy, it is unclear what ‘Real Property in the Course of
Construction’ covers besides what is already covered by ‘Building.’” (Id.) Defendant
reasons that “Real Property in the Course of Construction” must cover something
different than “Building,” or it would otherwise be superfluous and the Policy would be
illusory. (Id. at 14–15.)
The Policy is unambiguous. First, it is undisputed that the plain language of the
Policy is not ambiguous. See (id. at 16.) Second, Defendant’s argument that ambiguity
arises from a conflict between the Policy’s provisions fails to persuade the Court.
Although Defendant characterizes its argument as being about ambiguity, the Court
thinks the more correct label for Defendant’s argument is that the Policy is an illusory
contract. See (Doc. # 24 at 5.) “If an insurance contract covers some risk that the
parties can reasonably anticipate, it is not illusory.” Colo. Intergovernmental Risk
Sharing Agency v. Northfield Ins. Co., 207 P.3d 839, 844 (Colo. App. 2008) (citing
Schwartz v. State Farm Mut. Auto. Ins. Co., 14 F.3d 875, 879 (7th Cir. 1999)). A
coverage exclusion is illusory only when it “in effect allow[s] the insurer to receive
premiums when realistically it is not incurring any risk of liability.” Id. at 843 (quoting
O’Connor v. Proprietors Ins. Co., 696 P.2d 282, 285 (Colo. 1985)). Colorado law
requires that courts “be cautious in applying this rule, however, to avoid frustrating the
purposes for coverage.” Id. at 843–44 (citing Horace Mann Ins. Co. v. Peters, 948 P.2d
80, 86 (Colo. App. 1997)).
The Policy is not an illusory contract. The coverage for “Real Property in the
Course of Construction” provided coverage for some realistic risks, even though “land”
was excluded from coverage as “Property Not Covered.” See (Doc. # 24 at 6.) “Real
Property in the Course of Construction” obviously contemplates an incomplete
building—e.g., a newly-poured foundation or framing. Risk to an incomplete, beingconstructed building segment is a realistic one, and it is distinct from risk to “Building.”
The Policy’s definition of “Building” bolsters this clear understanding, as it defines
“Building” as including “[c]ompleted additions,” among other things. (Doc. # 22-1 at 17)
Because the Policy is neither ambiguous nor illusory, the Court need not
construe it in Defendant’s favor.
The Policy Did Not Cover Defendant’s Claimed Property Damage
The Policy simply did not provide coverage for Defendant’s temporary damn,
creek channel embankment, and the surrounding areas. As Plaintiff explains in its
Motion for Summary Judgment, the only “direct physical loss of or damage to” property
from the flooding was to property specifically identified as “Property Not Covered” in the
Policy. See (Doc. # 22 at 14.) The flooding damaged the creek and its channel, the
cofferdam, the floodplain, and the surrounding soil and plants. (Doc. # 23 at 2.) Each
of these is either “land”, “dams” “grading, backfilling or filling” or “living organisms”—and
each of these categories is expressly listed in the Policy as “Property Not Covered.”
See (Doc. # 22-1 at 18–19.) Defendant’s claim for $147,579.00 for the cost to repair the
flood damage, see (Doc. # 23 at 2), therefore fails.
The Policy Did Not Cover Defendant’s Claimed “General Conditions” or
Defendant’s claim for $118,545.00 in “additional costs incurred . . . during the
time to repair the flood damage” also fails. This claim represents costs to Defendant
from having construction delayed for two months, including supervision costs (e.g.,
additional labor costs), management costs (e.g., additional months of equipment rental),
and other schedule impacts. See (Doc. # 22 at 16–17.) The Court agrees with Plaintiff
that these costs arose because the flood damage of the dam and creek bed delayed
completion of the CHAL building project. (Id. at 17.) Nothing in the Policy provided for
coverage of consequential economic losses from delays in construction.
Defendant’s argument that these delay costs were covered by the Policy
because they were directly related to repairing damage to insured property damaged by
the floods does not move the Court. First, this argument assumes that the damn and
creek bed were covered by the Policy. The Court has already rejected this assumption
for the reason described above. Second, the Policy is clear that Plaintiff was obligated
to pay “for direct physical loss of or damage to Covered Property . . . caused by or
resulting from a Covered Cause of Loss.” (Doc. # 22-1 at 17.) The delay costs are not
a direct physical loss from the flooding. Defendant’s argument depends on multiple
leaps of causation that the Policy does not provide for.
For these reasons, the Court concludes that Defendant’s claimed losses at CHAL
were not covered by the Policy.
Accordingly, Plaintiff’s Motion for Summary Judgment (Doc. # 22) is GRANTED.
FURTHER ORDERED that this case is DISMISSED WITH PREJUDICE.
DATED: April 12, 2018
BY THE COURT:
CHRISTINE M. ARGUELLO
United States District Judge
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