United Team Mechanical, LLC v. CNA Insurance Company

Filing 83

ORDER denying 74 Defendant's Motion for Summary Judgment. The parties shall file a combined notice listing all counsels' available dates for trial from May 2014 through October 2014. The noticed shall be filed on or before April 8, 2014. Signed by Judge Ronald E. Bush. (caused to be mailed to non Registered Participants at the addresses listed on the Notice of Electronic Filing (NEF) by (kb)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF IDAHO
BINGHAM MECHANICAL, INC.,
Case No. 4:10-cv-00342-REB
Plaintiff,
v.

ORDER ON MOTION FOR
SUMMARY JUDGMENT

CNA INSURANCE CO., et al.
Defendants.

Pending before the Court is a Motion for Summary Judgment filed by Defendant
Transportation Insurance Company1 (“Transportation”) in this declaratory judgment
action on Transportation’s duty to defend Plaintiff Bingham Mechanical, Inc.
(“Bingham”) under insurance policies Transportation issued to Bingham. (Dkt. 74).
Having considered the record and oral arguments, the Court enters the following order:
BACKGROUND
A.

The Underlying Mountain View Hospital Litigation
This case represents the apparent denouement of a veritable bird’s nest of

construction dispute claims, involving first-party claims, cross-claims, and third-party
claims implicating the owner of the project, multiple contractors, and multiple insurance
companies. The claims have been prosecuted and defended in multiple lawsuits.
1

Transportation Insurance Company is a d/b/a for another named defendant CNA
Insurance Company (“CNA”).
ORDER ON MOTION FOR SUMMARY JUDGMENT - 1

All the claims, including Bingham’s claims in this case, originate from the
construction of Mountain View Hospital (“Hospital”) in Idaho Falls, Idaho, from 2001
through 2003. Pl.’s St. Facts, ¶¶ 1-2. The Hospital hired Sahara, Inc., (“Sahara”) as the
general contractor and Sahara hired subcontractors to perform work on the project.
Relevant here, Sahara hired Encompass Services Corporation (“Encompass”) to install
mechanical systems and Encompass then hired Bingham to install the “wet side” medical
gas piping. Def.’s St. Facts, ¶ 6; . Pl.’s St. Facts, ¶¶ 5-6; 9.
It is not clear from the record in this case when the Hospital first noticed problems
with the construction of the facility, but it sued Sahara in 2007 for breach of contract and
negligence. Mountain View Hospital v. Sahara, Inc., CV07-464-E-BLW (D. Idaho)
(“Mountain View Hospital” litigation/case). Bingham was not named as a defendant at
that time. In September of 2009, an expert report in the Mountain View Hospital case
identified alleged deficiencies in the mechanical work. Def.’s St. Facts, ¶¶ 4-7. Sahara
filed a third-party complaint against its mechanical subcontractors, Encompass and
United Team Mechanical, LLC (“UTM”), as the successor in interest to Encompass2.
Pl.’s St. Facts, ¶¶ 5-6, 9; Mot. Jud. Notice, Ex. C, p. 3 (Dkt. 74-4). On September 29,
2009, UTM filed a Third Party Complaint against Bingham, seeking indemnity and
contribution for any damages they might be ordered to pay Mountain View or Sahara.
Mountain View Hospital, No. 4:07-cv-00464-BLW (Dkt. 100).

2

UTM purchased Encompass’s assets near the end of construction on the
Mountain View Hospital project. Bailey Aff., ¶ 2 (Dkt. 78-3).
ORDER ON MOTION FOR SUMMARY JUDGMENT - 2

During the Hospital construction project, CNA was the liability insurance provider
for Encompass, UTM, and Bingham (Bingham was insured by Transportation as a d/b/a
of CNA). Pl.’s St. Facts, ¶ 10. CNA hired legal counsel to represent Encompass, which
then defended the case, in part, by seeking contribution and/or indemnity from Bingham.
Pl.’s St. Facts, ¶ 10. When Bingham was brought into the Mountain View Hospital case,
it tendered the defense of the claims to its then-current insurer, Travelers Insurance
Company (“Travelers”) and to CNA, which had been its insurer at the time the hospital
was built. Bailey Aff., ¶ 3 (Dkt. 78-3).
Travelers undertook UTM’s defense and, after UTM sued CNA on a duty to
defend claim, CNA agreed to pay one-half of UTM’s defense costs. Id. at ¶ 5.
Cincinnati Insurance Company, Bingham’s insurer at the time UTM brought
Bingham into the Mountain View Hospital case, defended Bingham. Bingham also
tendered defense of the case to Transportation on February 18, 2010. Almost ten months
later, on December 13, 2010, Transportation issued a disclaimer and declined to assist in
the defense. See Def.’s St. Facts, ¶¶ 9-10.
The Mountain View Hospital litigation ended with a Stipulated Motion to Dismiss
All Claims Among the Parties (with one exception not relevant here) after summary
judgment proceedings. Mountain View Hospital, No. 4:07-cv-00464-BLW (Dkt. 470).
On May 22, 2012 the court granted the parties’ stipulated motion to dismiss. Id. (Dkt.
472).

ORDER ON MOTION FOR SUMMARY JUDGMENT - 3

B.

The Instant Case
The case at hand originated with a Complaint filed by UTM on July 8, 2010,

seeking a declaratory judgment stating that CNA was obligated to provide coverage and
defense to UTM in the Mountain View Hospital case. (Dkt. 1). At the request of the
parties, this matter was stayed3 to await the outcome of the Mountain View case. In the
meantime, Bingham was allowed to intervene, filing a Complaint on March 22, 2012.
(Dkt. 58). The Mountain View Hospital case settled in May of 2012. In November of
2012, CNA and UTM filed a Stipulation to Dismiss all of UTM’s claims against CNA.
(Dkt. 60). On November 14, 2012, the Court dismissed UTM’s claims.
All that remains is Bingham’s Complaint for Declaratory Judgment, which seeks
(1) a judgment declaring that Transportation (or CNA) has a duty to provide coverage and
a defense to Bingham for the claims arising in the Mountain View Hospital case and (2) a
judgment in favor of Bingham for breach of contract. Transportation seeks summary
judgment on its Third, Fourth, and Sixth affirmative defenses4 because, it argues,

3

The Court stayed this case for over a year upon the parties’ requests, renewed
several times, to wait for summary judgment proceedings and settlement talks to run their
course in the Mountain View Hospital case. (Dkts. 31, 41, 43, 46).
4

Transportation’s third affirmative defense states that Bingham’s clams are barred
because Bingham has failed to establish it is entitled to coverage under the policies; the
fourth affirmative defense asserts that the claims are barred by the “terms, conditions,
limitations, and/or exclusions in the Transportation policies”; and the seventh affirmative
defense relies on the “business risk” exclusions in the Transportation policies, which it
alleges excludes coverage for Bingham’s work or product. See Answer, pp. 4–5 (Dkt.
63).
ORDER ON MOTION FOR SUMMARY JUDGMENT - 4

Bingham has not sustained damages recoverable under the policies. Def.’s Mot., p. 1
(Dkt. 74). Bingham responds that material disputes of fact exist to preclude summary
judgment.
DISCUSSION
A.

Preliminary Matters
1.

Transportation’s Request for Judicial Notice

Transportation requests the Court take judicial notice of pleadings, briefing, and
exhibits filed in the underlying Mountain View Hospital litigation. (Dkt. 74-3). Bingham
has not objected to the request and the Court may take judicial notice of documents in
court proceedings. See, e.g., BP West Coast Products LLC v. Greene, 318 F. Supp. 2d
987, 994 (E.D. Cal. 2004). See also Fed. R. Evid. 201(b). Accordingly, the Court has
considered the filings in the Mountain View Hospital litigation—those cited by
Transportation as well as others in the public record in that case—in ruling on
Transportation’s motion.
2.

Transportation’s Objections to Bingham’s Supporting Affidavits

Transportation also requests that the Court strike portions of three affidavits and
one exhibit submitted by Bingham in support of its response brief.
(i)

Bailey Affidavit (Dkt. 78-3)

Eric Bailey’s Affidavit describes his representation of UTM in the instant case and
CNA’s decision to partially indemnify and defend UTM in the underlying litigation. The
information the Court has cited to from this Affidavit is based on Bailey’s personal
ORDER ON MOTION FOR SUMMARY JUDGMENT - 5

knowledge. However, the Court has given Bailey’s Affidavit only limited consideration
because the policies under which CNA/Transportation provided insurance to UTM may
contain differing terms than those insuring Bingham and, in any event, exclusions may
apply to Bingham but not UTM, in part because UTM did not perform the same work as
Bingham so any exclusions based on “your work” may apply only to Bingham, even if
the policies are identical. In short, the Court has not relied on this affidavit to any degree
in ruling against Transportation and for Bingham on any matter.
(ii)

Adamson Affidavit (78-2)

Transportation objects to an affidavit from Craig Adamson, counsel for Mountain
View Hospital in the underlying litigation, as “premised on conclusory statements which
are devoid of facts supporting them.” Def.’s Objs., p. 2 (Dkt. 81-1). While the best
evidence of the scope of the underlying litigation and Mountain View’s claims may be the
record in that case, Adamson’s statements about that litigation, if made based on personal
knowledge, are relevant. Testimony of a witness does not need to be supported by other
evidence or documents in the record to be considered as evidence itself. Inconsistencies
in the record may be considered by a factfinder in determining whether a witness’s
testimony is credible, but in this instance it is not a basis for excluding the evidence.
However, the Court has considered that Adamson did not explain in detail some of his
statements, which lessens the weight of such statements, and has relied on other more
specific evidence in the record where appropriate.

ORDER ON MOTION FOR SUMMARY JUDGMENT - 6

(iii)

Hahn Affidavit (78-4)

Frederick Hahn, one of the attorneys representing Bingham, submitted an affidavit
and several exhibits to that affidavit. Transportation argues that any information
submitted about UTM or Encompass is irrelevant to the issues of coverage under
Bingham’s policies. As with Bailey’s Affidavit, the Court has accorded only limited
consideration to the portions of Hahn’s Affidavit discussing CNA’s actions with respect
to UTM and Encompass, because the policies under which CNA provided insurance to
UTM may contain differing terms than those insuring Bingham and exclusions may apply
to Bingham but not UTM or Encompass.
(iv)

Irving Paul Expert Report

Transportation objects to the Court considering the expert report of Irving Paul for
several reasons. The Court has not considered any of Paul’s opinions as to whether
Transportation acted in bad faith, because no bad faith claim has been asserted in this
case. Additionally, the Court has not relied on the report in deciding any issue in the
instant motion even though it may have some relevance to the issues presented.
B.

Standards of Law
1.

Summary Judgment

A principal purpose of summary judgment “is to isolate and dispose of factually
unsupported claims . . . .“ Celotex Corp. v.. Catrett, 477 U.S. 317, 323–24 (1986). It is
“not a disfavored procedural shortcut,” but is instead the “principal tool [ ] by which
factually insufficient claims or defenses [can] be isolated and prevented from going to
ORDER ON MOTION FOR SUMMARY JUDGMENT - 7

trial with the attendant unwarranted consumption of public and private resources.” Id. at
327.
The moving party bears the initial burden of demonstrating the absence of a
genuine dispute of material fact. Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir.
2001); Fed. R. Civ. P. 56. To carry this burden, the moving party need not introduce any
affirmative evidence (such as affidavits or deposition excerpts) but may simply point out
the absence of evidence to support the nonmoving party’s case. See Fairbank v.
Wunderman Cato Johnson, 212 F.3d 528, 532 (9th Cir. 2000). This shifts the burden to
the non-moving party to produce evidence sufficient to support a jury verdict in his favor.
See Anderson, 477 U.S. at 256–57. The non-moving party must go beyond the pleadings
and show “by [his] affidavits, or by the depositions, answers to interrogatories, or
admissions on file” that a genuine issue of material fact exists. See Celotex, 477 U.S. at
324. “[T]he mere existence of some alleged factual dispute between the parties will not
defeat an otherwise properly supported motion for summary judgment; the requirement is
that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 247–48 (1986).
The evidence must be viewed in the light most favorable to the non-moving party,
and the Court must not make credibility findings. Id. at 255. Direct testimony of the
nonmovant must be believed, however implausible. Leslie v. Grupo ICA, 198 F.3d 1152,
1159 (9th Cir. 1999). On the other hand, the Court is not required to adopt unreasonable
inferences from circumstantial evidence. McLaughlin v. Liu, 849 F.2d 1205, 1208 (9th
ORDER ON MOTION FOR SUMMARY JUDGMENT - 8

Cir. 1988). Nor is the Court “required to comb through the record to find some reason to
deny a motion for summary judgment.” Carmen v. San Francisco Unified Sch. Dist., 237
F.3d 1026, 1029 (9th Cir. 2001) (quoting Forsberg v. Pac. Northwest Bell Tel. Co., 840
F.2d 1409, 1418 (9th Cir. 1988)). Instead, the “party opposing summary judgment must
direct [the Court’s] attention to specific triable facts.” Southern California Gas Co. v.
City of Santa Ana, 336 F.3d 885, 889 (9th Cir. 2003).
2.

Duties of Insurers to Defend and Indemnify

Although Bingham’s Complaint appears to raise both a duty to defend and
coverage issues, Transportation’s motion seeks summary judgment on its affirmative
defenses, which focus on its argument that there is no coverage under the policy and,
therefore, no indemnity.
An insurer’s duties to defend and indemnify are separate duties and the duty to
defend is broader than the duty to indemnify. See Deluna v. State Farm Fire and
Casualty Co., 233 P.3d 12, 16 (2008); Nautilus Ins. Co. v. Pro-Set Erectors, Inc., 928
F.Supp.2d 1208, 1223 (D.Idaho 2013). “The duty to defend is triggered if the
third-party’s complaint reveals a potential for liability that would be covered by the
insured’s policy.” Idaho Counties Risk Management Program Underwriters v. Northland
Ins., 205 P.3d 1220, 1224 (Idaho 2009) (citing Hoyle v. Utica Mut. Ins. Co., 48 P.3d
1256, 1264 (2002) (citations omitted and emphasis added)). However, the duty to defend
arises only where an insurance policy provides that the insurer has a duty to defend
against the specific type of claim alleged. Dave’s, Inc. v. Linford, 291 P.3d 427, 431
ORDER ON MOTION FOR SUMMARY JUDGMENT - 9

(2012); Constr. Mgmt. Sys., Inc. v. Assurance Co. of America, 23 P.3d 142, 145 (2001).
Stated another way, “[f]or there to be a duty to defend, the complaint’s allegations, in
whole or in part, when read broadly, must allege a claim to which the duty to defend
applies under the terms of the insurance policy.” Dave’s, 291 P.3d at 431.
Where an insurance policy excludes certain types of claims from coverage, a duty
to defend those claims does not arise. See, e.g., id. at 432–33 (finding no duty to defend a
contractor's action against homeowner brought as a breach of contract claim under a
“because of . . . property damage” provision “to which this coverage applies” because the
policy excluded property damage to the home); County of Boise v. Idaho Counties Risk
Management Program, 265 P.3d 514, 517 (2011) (finding no duty to defend where
lawsuit arose out of or was connected with land use regulation or planning and zoning
activities which were specifically excluded under policy).
“Idaho case law makes it clear that an insurance company must seek a declaratory
judgment where the application of an exclusion involves a fairly debatable question of
law.” Monarch Greenback, LLC v. Monticello Ins. Co., 118 F.Supp.2d 1068, 1078
(D.Idaho 1999) (finding no duty to defend). In such instances:
While it would not be in the best interest of justice to require an
insurance company to seek a declaratory judgment every time a
claim is filed; insurance companies should not be able to deny
coverage if a question of law exists as to the application of the
policy. In deciding whether to cover a claim insurers, at times,
appear to lose sight of the purpose for which insurance serves. The
purpose of insurance is that of indemnity to the insured in case of
loss or the payment of money on the happening of a contingency, to

ORDER ON MOTION FOR SUMMARY JUDGMENT - 10

which end the law makes every reasonable inference, so as to give
the fullest protection possible to the interests of the insured.
Id. at 1079.
C.

Transportation’s Motion for Summary Judgment
Transportation seeks summary judgment on the affirmative defenses raised in its

Answer. Essentially, Transportation asks the Court to rule that there was no coverage
under the policies and, therefore, no duty to defend. The Court first will consider the
coverage defenses raised by Transportation and then consider those issues under the
standards for the duty to defend.
1.

Defining Property Damage Under the Policies

Transportation argues that the damages sought by Mountain View in the
underlying action (and for which UTM and Encompass sought Bingham’s contribution)
“consisted of repairing or replacing Bingham’s work, not for third party property
damage.” Def.’s Mem., p. 2 (Dkt. 74-2). Specifically, Transportation points to Mountain
View’s plan to replace anchoring, gas piping, and joints that Bingham installed differently
from what the project plans required.5 Accordingly, Transportation asserts that “the lack

5

As described by the President of Bingham, Rory Olson, in an affidavit submitted
in the underlying litigation: “[T]he claims against Bingham Mechanical relate solely to
the installation of the medical gas piping . The four medical gas piping issues are: (1) the
installation of type ‘L’ medical gas and vacuum typing rather than type ‘K’ piping
called for in the specifications; (2) the use of soldering rather than brazing to join the
vacuum typing as called for in the specifications; (3) alleged improper anchoring of the
medical gas piping; and (4) alleged improper labeling of the medical gas piping.” Def.’s
St. Facts, ¶ 8. See also Olson Aff (Dkt. 74-4); Bingham’s Motion for S. Jdgmt. in
Mountain View litigation (Dkt. 74-4).
ORDER ON MOTION FOR SUMMARY JUDGMENT - 11

of third-party property damage mandates a finding of no coverage” under the policies; in
short, that replacement of the defective piping does not amount to “property damage”.
Def.’s Mem., p. 4 (Dkt. 74-2). However, replacement of the piping and joints is not the
only damage Mountain View might have incurred, as Bingham’s policies cover, in
relevant part, “property damage”, which is defined in the policies as “[p]hysical injury to
tangible property, including resulting loss of use of that property.” Packard Off., Ex. A,
p. 18, ¶ 17 (Dkt. 74-6). It also can include “loss of use” of property “that is not physically
injured.” Id.
Mountain View’s original Complaint in the underlying action did not specifically
mention the gas piping as a defect, but referred to “several major defects in design and
construction” and “anticipate[d] that it may continue to discover additional defects.”
Mountain View Compl., pp. 3–4 (Dkt. 74-4). Mountain View alleged that the defects
resulted in problems, such as medical imaging equipment malfunctioning and operating
rooms posing health risks to patients, and it sought to recover actual and consequential
damages. Id. at p. 5. It is axiomatic that consequential damages include “losses that do
not flow directly and immediately from an injurious act . . . but that result indirectly from
the act.” Black’s Law Dictionary 394 (7th Ed. 1999). Thus, the damages6 could include

6

The Court recognizes that consequential damages from a tort action may be
limited and, in fact, that the district court in the Mountain View Hospital suit found that
the economic loss rule applied to Mountain View’s negligence claims. See Mountain
View Hospital, Order on S. Jdgmt. Mots. (Dkt. 398). However, Mountain View also
brought a breach of contract claim. The district judge in the underlying litigation found
genuine issues of material fact as to whether damages sought against UTM for breach of
ORDER ON MOTION FOR SUMMARY JUDGMENT - 12

Mountain View Hospital’s inability to use rooms and/or equipment due to the defects or
during the time when the piping alleged to be defective was being replaced. This type of
“loss of use” could amount to property damage as defined in the policies.
The damages also could include the cost of replacing ceiling tiles and drywall, and
repainting, as part of accessing the already-installed piping to replace it with that
specified in the project plans. Indeed, the record contains bids for the replacement piping
work, which include costs for replacing ceiling tile, patching the ceiling, and painting.
See Hahn Aff., Ex. K (Dkt. 78-15).
Thus, there are issues of fact as to whether Bingham’s work caused property
damage covered by the policies.
2.

Knowledge Within the Policy Period

Transportation argues in the alternative that because it stopped insuring Bingham
more than five years before Bingham receive notice of the issue with its work on the
Mountain View hospital project, there was no potential for the Transportation policies to
cover the damage and, concomitantly, no duty to defend.
Transportation issued three insurance policies to Bingham effective from April 1,
2001 through April 1, 2004 (the “policies”), with each policy expiring on April 1st and the
next policy beginning on the same date a year later. Bingham’s work on the project
began around March of 2002 and was completed around June 18, 2002. Olson Aff., ¶ 7

contract were consequential or direct. Id.
ORDER ON MOTION FOR SUMMARY JUDGMENT - 13

(Dkt. 74-4). Bingham received notice of the alleged defects in its work when it was
brought into the Mountain View Hospital litigation in 2009. Id. ¶ 16.
Transportation contends that there is no coverage pursuant to the “Known or
Continuing Injury or Damage” amendment to the insurance policies because Bingham
first learned of the claims five years after its last Transportation policy ended and any
property damage claim that might exist would have continued from the time Bingham
installed the piping. The provision at issue is the “Known or Continuing Injury or
Damage” Amendment to the Insuring Agreements, which in each policy states:
[1]b. This insurance applies to “bodily injury” and “property damage” only if
(1)
The “bodily injury” or “property damage” is caused by an
“occurrence”7 that takes place in the “coverage territory”;
(2)
The “bodily injury” or “property damage” occurs during the policy
period; and
(3)
With respect to “bodily injury” or “property damage” that continues,
changes or resumes so as to occur during more than one policy period, both
of the following conditions are met:
(i)
Prior to the policy period, no Authorized Insured knew that
the “bodily injury” or “property damage” had occurred, in whole or
in part; and
(ii)
During the policy period , an Authorized Insured first knew
that the “bodily injury” or “property damage” had occurred, in whole
or in part.

7

Occurrence is defined as “an accident, including continuous or repeated
exposure to substantially the same general harmful conditions.” See, e.g., Pickard Aff.,
Ex. A, ¶ 13. (Dkt. 76-4, p. 17).
ORDER ON MOTION FOR SUMMARY JUDGMENT - 14

Packard Aff., Ex. B, 4/1/01 to 4/1/02 policy (Dkt. 74-6, p. 31) (footnote added). See also
id., Ex. A, 4/1/02 to 4/1/03 policy (Dkt. 74-6, p. 87); Id., Ex. B, 4/1/03 to 4/1/04 policy
(Dkt. 74-7, p. 48). Bingham argues this was not continuous or resumed damage, but
rather that the property damage happened during construction/installation. If that is
accurate, then another section applies:
For purposes of this Paragraph 1.b(3) only, if (a) . . . “property damage”
that occurs during this policy period does not continue, change or resume
after the termination of this policy period; and (b) no Authorized Insured
first knows of this . . . “property damage” until after the termination of this
policy period, then such first knowledge will be deemed to be during this
policy period.
Packard Aff., Ex. B (Dkt. 74-6, p. 31) (emphasis added).
At the outset, the Court finds that these provisions are unambiguous. If the
property damage occurs during a single policy period and does not continue, change, or
resume, then any notice to the insured that arises after termination of the policy period
will be deemed effective as notice given during the policy period. However, if the
damage does continue, change, or resume, over multiple policy periods (covered by any
insurer), then knowledge of the damage must occur during the coverage period. See
North Pac. Ins. Co. v. Mai, 939 P.2d 570, 572 (Idaho 1997) (an insurance policy
provision is ambiguous only if “it is reasonably subject to conflicting interpretations”).
Additionally, the provisions do not make the coverage illusory. Bingham argues
that the coverage is illusory because “Bingham would not be required to learn of the
damage during the policy period if the damage occurred during only one period; but if the

ORDER ON MOTION FOR SUMMARY JUDGMENT - 15

damage occurred during more than one period, then Bingham would be required to learn
of the damage during the policy period” and that “would make the existence of coverage
(in many cases) entirely dependent upon a third party’s diligence in discovering and
complaining about damages.” Pl.’s Mem., pp.8–9 (Dkt. 78). Transportation describes the
purpose of the knowing and continuous provision is to limit the potential for “stacking” of
multiple policies for coverage, so as to limit coverage to the policies in effect at the time
the damage is discovered. Def.’s Reply, pp. 5–6 (Dkt. 81).
Counsel for Transportation pointed out at the hearing that the knowing and
continuous provision does not limit claims for other kinds of damages covered by the
policies outside of the bodily injury and property damage claims. Thus, coverage does
exist for continuous injuries other than bodily harm and property damage, for parties
insured during the time damage is discovered in a continuing damage case, and, if the
damage is not continuing and is discovered after the policy period ends, for a person
insured at the time the damage occurred. Martinez v. Idaho Counties Reciprocal Mgmt.
Prog., 999 P.2d 902, 907 (Idaho 2000) (explaining that a policy is illusory if it appears
that, if any actual coverage exists, it is extremely minimal and affords no realistic
protection to any group or class of injured persons).
Ultimately, however, as to the parties’ views on how the provisions operate under
the circumstances of this case, there are material disputes of fact that preclude summary
judgment. Bingham contends that any damage occurred at the time the alleged
nonconforming piping was installed. Transportation argues that any damage occurred
ORDER ON MOTION FOR SUMMARY JUDGMENT - 16

over several policy periods and, even if it did not continue over the course of more than
one policy period, it nonetheless occurred after expiration of the final Transportation
policy on April 1, 2004. Def.’s Mem., p. 9 (Dkt. 74-2). It is not clear whether property
damage occurred during a single policy period or over several. Although the ceiling
repair and painting associated with replacing the piping presumably occurred around
20108, which is after the last policy expired in 2004, Bingham’s work was completed in
20029 and property damage associated with loss of use of the facilities or equipment
could have occurred during a single policy period. The record is not clear as to when any
loss of use (which can be a form of property damage as defined by the policies) occurred.
Mountain View obtained a certificate of occupancy in 2003, and could have started using
the facility and experienced a loss of use during a Transportation-covered policy period.
Additionally, Transportation’s February 18, 2010 letter to Bingham lists the “date of loss”
as “11-2002”. Bingham Compl., Ex. (Dkt. 58-1).
Further, although there is information in the record that bids were taken for the
replacement piping that included repairing ceilings and repainting, experts did not include
those type of repairs in their damages calculations for the underlying case. See Locke
Expert Report (Dkt. 74–9) (listing damages from the defective medical gas installation as
the cost of installing the specified piping materials and correcting code violations);

8

See Hahn Aff., Ex. K (Dkt. 78-15) (bids for replacement work; dated in 2010).

9

Bingham began its work in March of 2002 and completed its work on or about
June 18, 2002, during the second policy's coverage period. Olson Aff., ¶ 7 (Dkt. 74-4).
ORDER ON MOTION FOR SUMMARY JUDGMENT - 17

Mountain View Hospital case, Schmitz Aff., Ex. J. (Dkt. 159-12). Additionally, although
the Adamson Affidavit asserts that the piping issues caused loss of use, none of the
experts included any monetary damages from loss of use in their damages calculations.
These disputes of fact as to whether any property damage occurred, and when it occurred,
preclude summary judgment on this coverage issue.10
3.

Business Risk Exclusions

As a further alternative argument, Transportation relies on “business risk
exclusions” in the policies as a basis for denying coverage for Bingham, and reiterates its
argument that the damages “alleged against Bingham were to remediate/replace
Bingham’s own improper work.” Def.’s Mem., p. 10 (Dkt. 74-2). Transportation argues
that the policies’ exclusions generally “exclude coverage for damage to the work or
product of the named insured and cover only damage to the property of others, as general
liability policies are not warranties of the insured’s work.” Def.’s Mem., p. 10 (Dkt. 742). Each of the three exclusions will be considered in turn:
Section J(6) of the policies excludes coverage for property damage to “[t]hat
particular part of any property that must be restored, repaired or replaced because ‘your

10

This issue presents a close call, even in a summary judgment context. There is
evidence in the record that could be construed to conclude that regardless of when loss of
use occurred, it had to have been prior to 2009 when Bingham was brought into the
lawsuit. If so, that fact coupled with any property damage caused by tearing out
walls/ceilings to replace pipes in 2010 or later would indicate that the damage occurred
over more than one policy period, even if one of those policy periods was in 2002 or 2003
when Bingham was covered by Transportation’s policies. However, the array of facts on
this issue allows for reasonable minds to differ.
ORDER ON MOTION FOR SUMMARY JUDGMENT - 18

work’ was incorrectly performed on it.” Def.'s St. Facts, ¶ 3 (Dkt. 74-1); Pickard Aff.,
Exs. A & B. The policies specify that “this exclusion does not apply to ‘property
damage’ included in the products-completed operations hazard.” Pickard Aff., Ex. A,
Dkt. 74-6, p. 9 and 64, Dkt. 74-7, p. 24. The policy defines “products-completed
operations hazard” as “all . . .‘property damage’ occurring away from premises you own
or rent and arising out of ‘your product’ or ‘your work,’” and defines a few exceptions,
not applicable here. Pickard Aff., Ex. A, Dkt. 74-6, p. 17 and 72, Dkt. 74-7, p. 32.
Bingham argues that since the damages alleged by Mountain View occurred away from
Bingham’s premises, and allegedly arose out of Bingham’s product or work, they fall
under the “products completed operations hazard,” and therefore are not affected by
Exclusion J(6). The Court agrees.
Section L provides that coverage is not afforded for property damage to “‘your
work’ arising out of it or any part of it and included in the ‘products-completed operations
hazard’.” Def.’s St. Facts, ¶ 3 (Dkt. 74-1); Pickard Aff., Exs. A & B. Bingham has not
argued that Transportation is responsible for covering the actual piping Bingham
installed, just the resulting damage, such as loss of use and any damage to Mountain
View’s property that occurs during replacement of the piping. Thus, this exclusion does
not apply.
Section M excludes coverage for property damage to “‘impaired property’ or
property that has not been physically injured, arising out of: (1) A defect, deficiency ,
inadequacy or dangerous condition in . . . ‘your work’; or (2) A . . . failure by you . . . to
ORDER ON MOTION FOR SUMMARY JUDGMENT - 19

perform a contract or agreement in accordance with its terms.” “Impaired property” is
defined to include property that
cannot be used or is less useful because . . . it incorporates “your
product” or “your work” that is . . . defective, deficient, inadequate
or dangerous; or . . . you have failed to fulfill the terms of a contract
or agreement; if such property can be restored by: (a) the repair,
replacement, adjustment or removal of “your product” or “your
work”; or (b) your fulfilling the terms of the contract or agreement.
Pickard Aff., Exs. A & B (emphasis added). There is an issue of fact as to whether this
exclusion applies because Bingham argued in the underlying litigation that, although the
project called for type “K” and medical grade copper pipe, Encompass instructed
Bingham’s president to bid the wet side mechanical costs using type “L” pipe.
Bingham’s president averred that he understood both Encompass and Sahara had
accepted the type “L” piping. Olson Aff. (Dkt. 74-4). If that is true then the terms of the
contract may have been amended to allow type “L” piping, in which case this exclusion
would not apply. Thus, disputes of fact remain.
D.

The Duty to Defend
The Court recognizes that “[a]lthough an insured must prove that the damages for

which it seeks indemnification are covered by the policy, it does not need to prove
coverage to invoke the insurer’s duty to defend.” Huntsman Advanced Materials, LLC v.
OneBeacon Am. Ins. Co., No. 1:08–cv–00229–BLW, 2012 WL 480011 * 3 (D.Idaho
Feb.13, 2012); see also Stinker Stores v. Nationwide Agribusiness Ins., No. CV08-370LMB, 2010 WL 1338380, *11-12 (Mar. 31, 2010) (finding no coverage existed under a

ORDER ON MOTION FOR SUMMARY JUDGMENT - 20

policy but also that issues of fact precluded granting summary judgment to defendant on
the issue of whether the insurer nonetheless had a duty to defend on that same policy).
The same issues of fact that exist regarding whether the policies provide coverage to
Bingham preclude summary judgment in Defendant’s favor11 on the duty to defend.
Although the duty to defend is a much broader duty than that to indemnify, the timing of
any “property damage” that might have occurred is significant to the issue of the duty to
defend. Accordingly, to the extent Defendant seeks summary judgment on the duty to
claim, it is denied.
ORDER
NOW THEREFORE IT IS HEREBY ORDERED that Defendant’s Motion for
Summary Judgment (Dkt. 74) is DENIED. The parties shall file a combined notice
listing all counsels’ available dates for trial from May 2014 through October 2014. The
noticed shall be filed on or before April 8, 2014.
DATED: March 31, 2014

Honorable Ronald E. Bush
U. S. Magistrate Judge

11

Only Transportation moved for summary judgment. Bingham suggests the
Court could enter summary judgment in its favor under Rule 56(f); however, that course
is not appropriate in this case with the disputed facts.
ORDER ON MOTION FOR SUMMARY JUDGMENT - 21