Black & Veatch Corporation v. Aspen Insurance (UK) LTD et al

Filing 350

MEMORANDUM AND ORDER granting in part and denying in part 337 Motion for Partial Summary Judgment; denying 339 Motion to Amend Scheduling Order and denying 340 Motion for Summary Judgment. See order for details. Signed by U.S. District Senior Judge Sam A. Crow on 3/29/19. (msb)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF KANSAS
BLACK & VEATCH CORPORATION,
Plaintiff,
v.

No. 12-2350-SAC

ASPEN INSURANCE (UK) LTD., et al.,
Defendants.
MEMORANDUM AND ORDER
This insurance dispute over coverage and amount of recovery
comes before the court on a second wave of summary judgment motions
following the Tenth Circuit’s order (ECF# 329) vacating and remanding this
court’s prior summary judgment order and the United States Supreme
Court’s denial of the defendants’ petition for certiorari (ECF# 349), Black &
Veatch Corp. v. Aspen Insurance (Uk) Ltd, 882 F.3d 952 (10th Cir.), cert.
denied, 139 S.Ct. 151 (2018). The plaintiff Black & Veatch Corporation
(“B&V”) has filed a motion for partial summary judgment (ECF# 337) and a
motion to amend the pretrial order (ECF# 339). The defendants Aspen
Insurance (UK) Ltd. and Lloyd’s Syndicate 2003 (collectively “Aspen” or
“Excess Insurers”) have filed a motion for summary judgment. ECF# 340.
The motions are fully briefed and ripe for decision. For the sake of brevity
and convenience, the court will incorporate by reference from its prior order
the summary judgment standards (ECF# 230, pp. 2-3) and general New
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York law governing interpretation of insurance contracts and the respective
burdens of establishing coverage, exclusions and exceptions (ECF# 230, pp.
11-17).
FACTUAL BACKGROUND
The plaintiff B&V is suing the defendants who are first layer
excess umbrella liability insurers under a manuscript commercial general
liability (“CGL”) policy for coverage of B&V’s claimed liability for damages to
seven Jet Bubble Reactors (“JBRs”). B&V contracted with American Electric
Power (“AEP”) “to engineer, procure and construct [“EPC”] wet flue gas
desulfurization systems (JBRs) for eight installations.” ECF# 294, ¶ 1, PTO).
“Under an EPC contract, B&V delivers services under a single contract. It
supervises the project and typically subcontracts most—if not all—of the
actual procurement and construction work.” 882 F.3d at 954.
B&V procured CGL policies to cover its JBR work. Zurich
American Insurance Company (“Zurich”) provided the primary layer of
coverage having the following limits: $2,000,000 per occurrence and
$4,000,000 for general and products-completed operations aggregate limits.
Aspen provided the first layer of excess/umbrella liability coverage with per
occurrence and aggregate limits of $25,000,000.
As for the property damage claim made against B&V, the Tenth
Circuit summarizes it in these terms:
For at least seven of these JBRs, which were located at four different
power plants in Ohio and Indiana, B&V subcontracted the engineering
2

and construction of the internal components to Midwest Towers, Inc.
(“MTI”). Deficiencies in the components procured by MTI and
constructed by MTI's subcontractors caused internal components of
the JBRs to deform, crack, and sometimes collapse.
After work on three of the JBRs was completed, and while
construction of four others was ongoing, AEP alerted B&V to the
property damage arising from MTI's negligent construction. AEP and
B&V entered into settlement agreements resolving their disputes
relating to the JBRs at issue here. Under the agreements, B&V was
obligated to pay more than $225 million in costs associated with
repairing and replacing the internal components of the seven JBRs.
882 F.3d at 954. The parties also stipulate in the pretrial order to the
following facts that are relevant to these motion proceedings:
11. After Black & Veatch completed construction of the Cardinal 1 and
2 and Conesville JBRs, the Owners alleged deficiencies in the work.
12. Cardinal 1 was completed and began operating in March 2008.
Deficiencies in the JBR components were discovered as early as August
2008, and Cardinal 1 had to be shut down and repaired.
13. Cardinal 2 was completed and began operating in December 2007.
Deficiencies in the JBR components were discovered as early as May
2008, and Cardinal 2 had to be shut down and repaired.
14. Conesville was completed and began operating in January 2009. In
the fall of 2009, it was determined that the gas risers installed at
Conesville, as well as the gas risers installed at each of the other six
JBRs, were deficient and required removal.
15. Because of defective gas risers and other deficiencies in the JBRs,
the Owners demanded that Black & Veatch make repairs.
16. At the time the Owners made their demands on Black & Veatch,
the Cardinal 1 and 2 projects, and the Conesville project were
completed operations.
17. During the summer of 2010, Black & Veatch and the Owners of the
JBRs, entered into settlement agreements resolving their disputes
relating to eight JBRs, including the seven at issue here.
18. As part of the settlements, Black & Veatch agreed, among other
things, to replace most internal components of the JBRs.
19. In replacing the internal components, Black & Veatch has obtained
contribution from various parties responsible for the costs incurred.
(Dk. 294, pp. 4-5).

3

As it did in the prior summary judgment order, the court sets out
the general nature of the plaintiff’s claims deferring to its characterization.
The plaintiff is claiming coverage for property damage resulting directly from
the work of the subcontractors on behalf of B&V and from B&V’s failure to
deliver professional services both of which resulted in the installation of
defective risers. For the three completed and operating JBRs, Cardinal 1 and
2 and Conesville, B&V’s claim is for the property damage resulting from
alleged deficiencies with the installation and errors with the design and
supervision of the risers that “resulted in excessive mineral deposits
accumulating on the decks and other internal components of the JBRs, the
weight of which in turn caused those components to deform, crack, and, in
some cases, collapse entirely.” ECF# 294, Pretrial Order, p. 7. Cardinal 1
and 2 JBRs were so badly damaged that the owners no longer considered
them viable. Id. at p. 8. The owners demanded complete replacement of the
badly damaged internal components. Id. Thus, B&V is making a coverage
claim for its liability incurred to repair or replace the property damaged from
the occurrence of the continual, ongoing and unforeseen buildup of deposits
in the JBRs. ECF #297-3, Wood Dep. pp. 14-17. For the uncompleted JBRs,
B&V’s claim is for property damage to other non-defective internal
components that resulted from work done to access, remove and replace the
installed defective gas risers. Thus, B&V is making a coverage claim for its
liability for the damage done to non-defective internal components from
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being removed based on the occurrence of the defective gas risers being
installed and then needing to be torn out. Id. at 297-3, pp. 29-30; ECF#
297-8, Miller Dep. p. 157-158.
ASPEN’S MOTION FOR SUMMARY JUDGMENT (ECF# 340)
Aspen advances numerous arguments, and the court will follow
the order used by Aspen in its original memorandum. At the outset, some of
Aspen’s arguments trigger deciding whether these matters were resolved by
the Tenth Circuit on appeal and are subject to the law of the case doctrine or
the mandate rule. The law of the case doctrine recognizes that, “‘[w]hen a
court decides upon a rule of law, that decision should continue to govern the
same issues in subsequent stages in the same case.’” Mason v. Texaco, Inc.,
948 F.2d 1546, 1553 (10th Cir.1991) (quoting Arizona v. California, 460
U.S. 605, 618, 103 S.Ct. 1382, 1391, 75 L.Ed.2d 318 (1983)), cert. denied,
504 U.S. 910 (1992). “[W]hen a case is appealed and remanded, the
decision of the appellate court establishes the law of the case and ordinarily
will be followed by both the trial court on remand and the appellate court in
any subsequent appeal.” Rohrbaugh v. Celotex Corp., 53 F.3d 1181, 1183
(10th Cir. 1995) (citation omitted). The doctrine “applies to all issues
previously decided, either explicitly or by necessary implication.” Rohrbaugh,
53 F.3d at 1183 (internal quotation marks and citation omitted). “The law of
the case doctrine is intended to prevent ‘continued re-argument of issues
already decided,’ Gage v. Gen. Motors Corp., 796 F.2d 345, 349 (10th Cir.
5

1986), and to preserve scarce court resources—to avoid ‘in short, Dickens's
Jarndyce v. Jarndyce syndrome,’ McIlravy v. Kerr–McGee Coal Corp., 204
F.3d 1031, 1035 (10th Cir. 2000).” Huffman v. Saul Holdings Ltd. Partn.,
262 F.3d 1128, 1132 (10th Cir. 2001).
“An ‘important corollary’ to the law of the case doctrine, ‘known
as the “mandate rule,” provides that a district court must comply strictly
with the mandate rendered by the reviewing court.’” Id. (quoting Ute Indian
Tribe v. Utah, 114 F.3d 1513, 1520–21 (10th Cir. 1997)). Put another way,
the law of the case doctrine “requires a trial court to follow an appellate
court's previous ruling on an issue in the same case . . . . This is the socalled ‘mandate rule.’” United States v. Quintieri, 306 F.3d 1217, 1225 (2d
Cir. 2002) (footnote omitted), cert. denied, 539 U.S. 902 (2003). Thus, an
issue decided on appeal may not be relitigated in the same case and “there
must be compliance with the reviewing court's mandate.” Grigsby v.
Barnhart, 294 F.3d 1215, 1218 (10th Cir. 2002). In this circuit, “[t]he
mandate consists of our instructions to the district court at the conclusion of
the opinion, and the entire opinion that preceded those instructions.” Procter
& Gamble Co. v. Haugen, 317 F.3d 1121, 1126 (10th Cir. 2003); cf.
Quintieri, 306 F.3d at 1225 n.5 (“Technically, the ‘mandate’ of this Court
consists of a ‘certified copy of [our] judgment, a copy of the opinion, and
any direction as to costs.’“ (quoting United States v. Reyes, 49 F.3d 63, 66
(2d Cir.1995)).
6

Tenth Circuit’s Holding on the Meaning of the CGL Policy
On pages two and three above, the court has already the Tenth
Circuit’s summary of B&V’s claim for property damages under the CGL
policy. see Black & Veatch Corp. v. Aspen Ins. (Uk) Ltd, 882 F.3d at 954. As
far as the terms of the basic insuring agreement, the panel noted that the
CGL policy obligated Aspen to pay on behalf of B&V its legal obligation for
“’Property Damage’ . . . caused by an ‘Occurrence.’” 882 F.3d at 955. The
Policy defines “Occurrence” to be an “accident, including continuous or
repeated exposure to substantially the same general harmful conditions, that
results in . . . ‘Property Damage’ that is not expected or intended by the
‘Insured.’” Id. The Policy defines “Property Damage” as “physical injury to
tangible property of a ‘Third Party.’” Id. “Third Party” is defined as “any
company, entity, or human being other than an ‘Insured.’” Id.
On the issue of whether the damage done to the JBRs was an
occurrence, the Tenth Circuit analyzed it as follows, in relevant part:
We start with the Policy terms and definitions, which are materially
identical to the ISO's standard-form CGL policy. Under the Policy, an
“occurrence” is an “accident ... that results in ‘Bodily Injury’ or
‘Property Damage’ that is not expected or not intended by the
‘Insured.’” An occurrence triggers coverage. We examine each part of
this definition.
a. Accidental damages
The Policy does not define “accident,” but the New York Court of
Appeals has explained that a CGL policy covers damages only when
they were “unexpected and unintentional.” Cont'l Cas. Co., 593
N.Y.S.2d 966, 609 N.E.2d at 510 (holding that these terms are to be
construed narrowly as barring coverage “only when the insured
intended the damages”); see also Consol. Edison Co. of N.Y. v. Allstate
Ins. Co., 98 N.Y.2d 208, 746 N.Y.S.2d 622, 774 N.E.2d 687, 692
7

(2002) (“Insurance policies generally require ‘fortuity’ and thus
implicitly exclude coverage for intended or expected harms.”). A
policyholder might take a “calculated risk”—such as hiring a
subcontractor—without “expecting” damages to occur. See Cont'l Cas.
Co., 593 N.Y.S.2d 966, 609 N.E.2d at 510. “[I]n fact, people often
seek insurance for just such circumstances.” Id.
Whether or not B&V took a “calculated risk” by delegating work
on the JBRs to a subcontractor, Aspen does not argue—nor does the
record support—that B&V “expected or intended” MTI or any other
subcontractor to cause damage. Nor is there evidence that B&V
increased the likelihood of such damages through reckless cost-saving
or other measures. See Fuller, 613 N.Y.S.2d at 155 (finding no
“occurrence” where damages arose from “intentional cost-saving or
negligent acts”). Thus, the damages at issue here satisfy the Policy's
accidental requirement.
b. Property damage to a third party
The Policy covers costs arising from property damage. “Property
Damage” is defined as “physical injury to tangible property of a ‘Third
Party.’” ROA, Vol. 1 at 72. A “Third Party” is defined as “any company,
entity, or human being other than an ‘Insured.’ ” Id. The damage to
the JBRs was physical injury to tangible property. Aspen argues,
however, that the Policy designates AEP—the energy company that
hired B&V to construct the JBRs—as an “Additional Insured,” and thus
AEP cannot be a third party. See Aplee. Br. at 45 (citing ROA, Vol. 7 at
1311). This argument fails.
Under the Policy, an “Insured” is defined as any entity listed as a
“Named Insured” or designated as an “Additional Insured.” The Policy
lists B&V as the “Named Insured.” ROA, Vol. 1 at 63. Under
Endorsement 33, AEP is designated as an “Additional Insured,” thereby
adding AEP to B&V's existing insurance policy. See id. at 114. Granting
one party additional insured status on another's CGL policy is a
“common risk-shifting technique” used in construction contracts. Samir
Mehta, Additional Insured Status in Construction Contracts and Moral
Hazard, 3 Conn. Ins. L.J. 169, 170 (1997). But it does not mean the
Policy precludes coverage of the damages at issue here.
First, AEP is an “Additional Insured” only with respect to liability
for property damage “arising out of operations performed by the
Named Insured.” ROA, Vol. 1 at 114 (emphasis added). But here the
work performed by a subcontractor (MTI), not by the “Named Insured”
(B&V), caused the damages.
Second, Endorsement 33 contains a “separation of insureds”
condition, which provides that the Policy “applies separately to each
Insured against whom claim is made or suit is brought.” Id. Its
purpose is to preserve coverage for damage claims made by one
8

insured (here, AEP) against another (B&V). See West Am. Ins. Co. v.
AV&S, 145 F.3d 1224, 1227 (10th Cir. 1998) (providing that under a
“separation of insureds” condition, each insured is “entitled to have the
[p]olicy construed as to it as if the [p]olicy were issued only as to it
alone”); see also Greaves v. Pub. Serv. Mut. Ins. Co., 5 N.Y.2d 120,
181 N.Y.S.2d 489, 155 N.E.2d 390, 392 (1959) (same). In other
words, when AEP claimed damages against B&V, the separation of
insureds clause rendered AEP a third party with respect to its claims
for property damage against B&V. This understanding of the Policy
aligns with common sense: The principle risk B&V faced as an EPC
contractor, and thus a main reason for obtaining CGL insurance, was
the potential for claims alleging damages made by the property
owner—AEP.
Black & Veatch Corp. v. Aspen Ins. (Uk) Ltd, 882 F.3d at 962–64 (footnotes
omitted). The majority plainly intended its analysis and conclusion to be the
rule of law on the meaning of “Occurrence” with its composite elements as
applied to B&V’s claim of property damages. See id. at p. 957 n. 6 (“The
district court held only that the damages at issue here could not constitute a
coverage-triggering ‘occurrence’ under the Policy, so it did not proceed to
the next step of determining the effect of any Policy exclusions or exceptions
to the exclusions. It should do so on remand.”).1
In sum, the Tenth Circuit has held as a matter of law the
following. B&V’s property damage claims “satisfy the Policy’s accidental

“The scope of the mandate on remand in the Tenth Circuit is carved out by exclusion:
unless the district court's discretion is specifically cabined, it may exercise discretion on
what may be heard.” Dish Network Corp. v. Arrowood Indem. Co., 772 F.3d 856, 864 (10th
Cir. 2014) (quotation marks and citation omitted). The Tenth Circuit’s footnote suggest this
court’s discretion on remand was cabined on the first two issues, “(1) Were the damages
caused by an occurrence? and (2) Were the damages the result of property damage
resulting from the occurrence?” (ECF# 320, p. 17), but was allowed in deciding the third
issue, “(3) Are the damages excluded under one or more of the policy exclusions?” id.
1

9

requirement.” Id. at 963. “[T]he separation of insureds clause rendered AEP
a third party with respect to its claims for property damage against B&V.” Id.
at 964. The subcontractor exception and Endorsement 4 would be rendered
surplusage under Aspen’s proposed meaning of occurrence. Id. at 964-65.
The majority summarized its holding in this way:
In sum, the property damages at issue were caused by an
“occurrence,” as that term is defined in the Policy, because (1) B&V
neither intended nor expected that its subcontractor would perform
faulty work, so the damages were accidental, (2) the damages
involved physical harm to the property of a third party, and (3) a
contrary conclusion would render various Policy provisions meaningless
in violation of New York's rule against surplusage.
Black & Veatch Corp. v. Aspen Ins. (Uk) Ltd, 882 F.3d at 965. The majority
concluded its opinion making it unmistakably clear that it considered the
following to be the settled law of the case:
Under the Policy, the damages at issue here were caused by a
coverage-triggering “occurrence.” First, the damages were accidental
and resulted in harm to a third-party's property, thus meeting the
Policy's definition of an “occurrence.” Second, the district court's
interpretation would violate New York's rule against surplusage by
rendering the “subcontractor exception” meaningless. Third, the
changes ISO has made to standard-form CGL policies demonstrate
that the policies can cover the damages at issue here. Fourth, the
overwhelming trend among state supreme courts has been to
recognize such damages as “occurrences.” Fifth, New York
intermediate appellate decisions are distinguishable, outdated, or
otherwise inapplicable. We predict the New York Court of Appeals
would decline to follow these decisions and instead would join the clear
trend among state supreme courts holding that damage from faulty
subcontractor work constitutes an “occurrence” under the Policy. For
the foregoing reasons, we vacate the district court's summary
judgment decision and remand for reconsideration in light of this
opinion.

10

Black & Veatch Corp. v. Aspen Ins. (Uk) Ltd, 882 F.3d at 971 (footnote
omitted).
The court will apply the law of the case doctrine to all issues
explicitly ruled upon in the majority’s opinion as well as those issues
necessarily decided by implication. Pursuant to the mandate rule, the court
appreciates that the panel’s opinion regards the coverage issues under the
basic insuring agreement to be decided and for the district court on remand
to move onto the next step of determining the Policy’s exclusions and
exceptions. see 882 F.3d at 957 n. 6; Procter & Gamble Co., 317 F.3d at
1126 (the mandate includes the panel’s entire opinion preceding its final
instructions).
Physical Harm to Uncompleted Plants
Aspen first argues against coverage under the basic insuring
agreement because the components later replaced in the four uncompleted
JBRs were not damaged or physically injured. “Removal and replacement of
the new components is not physical injury or property damage.” ECF# 342,
p. 37. Aspen asks this court to find that property damage “occurs” only if the
defective work physically injures other parts of the project.
To take up this issue now would first require this court to limit
the Tenth Circuit’s ruling on appeal that, “The damage to the JBRs was
physical injury to tangible property.” 882 F.3d at 963. Indeed, the panel in
holding that the “damages were caused by a coverage-triggering
11

‘occurrence’” had to conclude that “the damages were accidental and
resulted in harm to a third-party's property.” Id. at 971. The law of case
doctrine extends to issues decided explicitly or by necessary implication.
Dobbs v. Anthem Blue Cross and Blue Shield, 600 F.3d 1275, 1280 (10th
Cir. 2010). For a prior appeal to have implicitly resolved an issue, this Circuit
looks to three circumstances:
“(1) resolution of the issue was a necessary step in resolving the
earlier appeal; (2) resolution of the issue would abrogate the prior
decision and so must have been considered in the prior appeal; and
(3) the issue is so closely related to the earlier appeal its resolution
involves no additional consideration and so might have been resolved
but unstated.”
Id. (quoting McIllravy v. Kerr-McGee Coal Corp., 204 F.3d 1031, 1036 (10th
Cir. 2000)). There is no plain statement or any clear indication that the
Tenth Circuit was limiting its “occurrence” analysis to the completed JBRs or
was excepting or reserving the uncompleted JBRs from its “occurrence”
analysis. Without such a statement or indication, the court regards the
appellate panel’s “occurrence” findings as necessarily incorporating by
implication all seven plants, completed and uncompleted.
Aspen asks the court to limit the panel’s occurrence finding to
the completed plants based on this language in the panel’s opinion:
Deficiencies in the components procured by MTI and constructed by
MTI's subcontractors caused internal components of the JBRs to
deform, crack, and sometimes collapse.
After work on three of the JBRs was completed, and while
construction of four others was ongoing, AEP alerted B&V to the
property damage arising from MTI's negligent construction. AEP and
B&V entered into settlement agreements resolving their disputes
12

relating to the JBRs at issue here. Under the agreements, B&V was
obligated to pay more than $225 million in costs associated with
repairing and replacing the internal components of the seven JBRs.
882 F.3d at 954 (bolding added). The above bolded terms are certainly
active verbs that describe the damage done to the three completed plants.
But, it is immediately followed by the description of AEP alerting B&V to
property damage that involved all seven JBRs and resulted from the
subcontractor’s negligent construction. The Tenth Circuit concludes its
discussion of B&V’s property damage claim by noting that in the settlement
with AEP, B&V “was obligated to pay more than $225 million in costs
associated with repairing and replacing the internal components of the
seven JBRs.” Id. (bolding added). As fairly understood on its face, the
Tenth Circuit’s opinion addresses B&V’s claim for property damages to
include all seven JBRs without distinguishing between completed and
uncompleted plants. Thus, the Tenth Circuit’s ruling that property damages
occurred here is subject to the law of the case doctrine, and the mandate
rule requires this court is follow it.
In the alternative, the court is persuaded that New York follows
the incorporation theory in holding that an injury occurs when a defective
component is integrated into a larger product. See, e.g., Sturges Mfg. Co. v.
Utica Mut. Ins. Co., 37 N.Y.2d 69, 72-73, 332 N.E.2d 319 (1975) (“When
one product is integrated into a larger entity, and the component product
proves defective, the harm is considered harm to the entity to the extent
13

that the market value of the entity is reduced in excess of the value of the
defective component.” (citation omitted)); see, e.g., Adler & Neilson Co. v.
Insurance Co. of N. Am., 56 N.Y.2d 540, 542-543, 434 N.E.2d 1335 (1982)
(repair and replacement costs incurred for non-defective components were
property damage as they resulted from repairing the defective parts);
Franco Belli Plumbing & Heating and Sons, Inc. v. Liberty Mut. Ins. Co.,
2012 WL 2830247 at *8 (E.D.N.Y. Apr. 19, 2012) (citing in part, Chubb Ins.
Co. of N.J. v. Hartford Fire Ins. Co., No. 97 Civ. 6935, 1999 SL 760206, at
*8 (S.D.N.Y. 1999)(“Under New York case law, when an insured is unaware,
as here, of a defect in its component of a product, which defect diminishes
the value of the product into which it is incorporated, resulting in damage,
such damage is considered to arise out of an ‘occurrence.’”), aff’d, 229 F.3d
1135 (2d Cir. 2000).”)). The court’s interpretation and application of the
Tenth Circuit’s ruling on property damage is consistent with New York law.
Damage to Third Party Property and “Particular Part” in Endorsement 4
Aspen contends the replaced components were B&V’s property,
not the property of a third party, by reading the construction contract to say
that B&V “owns” the components until completion of the plant. Aspen
extends this argument relying on Exclusion D that carves out property
damage to property “owned” by the “Insured” and on Endorsement 8 that
makes the policy inapplicable to property damage “to real property leased
to, rented to, occupied or managed by any Insured except as respects
14

coverage provided by . . . Endorsement 4.” ECF# 342, pp. 40-41. Aspen also
points to subparagraph (3) of Exclusion D as reaching “that particular part of
real property on which the ‘insured’ or any contractors or subcontractors
working directly or indirectly on the ‘insured’s’ behalf are performing ‘your
work’, if the ‘property damage’ arises out of ‘your work.’” ECF# 284-1, p.
23. Aspen reads this subparagraph to exclude coverage not just for the
defective work but for the “entire scope of B&V’s work.” Aspen says New
York law supports its reading. ECF# 342, p. 41.
To take up these issues now, the district court again would be
forced to limit an express ruling made by the Tenth Circuit on appeal and
again would have no grounds in that opinion for doing so. In finding there
was an “occurrence” under the policy, the Tenth Circuit also had to find
there was “property damage” which the policy defined as “physical injury to
tangible property of a third party.” 882 F.3d at 962-63. On the third-party
question, the Tenth Circuit explicitly addressed one of Aspen’s arguments
that AEP was an insured under the policy, not a third party. The Circuit panel
concluded:
In other words, when AEP claimed damages against B&V, the
separation of insureds clause rendered AEP a third party with respect
to its claims for property damage against B&V. This understanding of
the Policy aligns with common sense: The principle risk B&V faced as
an EPC contractor, and thus a main reason for obtaining CGL
insurance, was the potential for claims alleging damages made by the
property owner—AEP.

15

Id. at 964. The Tenth Circuit expressly found above that AEP was the owner
and third party with respect to its claims for property damage against B&V.
Aspen does not reply to B&V’s arguments that the Tenth Circuit’s
rulings are the law of the case doctrine on the issue of third-party damages.
This court is required to follow the Tenth Circuit’s ruling on this issue. And
even if this issue had not been decided on appeal, this court would have
decided that AEP owned the JBRs at the time of property damage based on
the “31.0 Title and Risk of Loss” provision in the AEP contract.
As for the “particular part” in Endorsement 4, the Tenth Circuit
discussed it in these terms:
The second exclusion, known as “Endorsement 4,” excludes
coverage for property damage to the “particular part of real property”
that B&V or its subcontractors were working on when the damage
occurred. Id. at 83. This exclusion pertains only to ongoing, rather
than completed, work.
....
In the context of ongoing work, the standard-form CGL policy excludes
coverage for property damage to “[t]hat particular part of real
property on which you or any contractors or subcontractors working ...
on your behalf are performing operations, if the ‘property damage’
arises out of those operations.” CGL Coverage Guide, App. B: 1986
Occurrence Form, at 298; see also ISO 1986 Circular (explaining that
the policy covers “damage caused by faulty workmanship to ... parts of
work in progress” other than what the contractor or subcontractors
were working on). In other words, the policy excludes damage to “that
particular part” of the project upon which the insured's operations
were being performed at the time the damage occurred, but it covers
damage to property other than “that particular part.” This is the
current understanding of the phrase “that particular part” in the
insurance industry today. Scott C. Turner, “That particular part”
limitation, Insurance Coverage of Construction Disputes § 29:7 (2d ed.
2017).
....
16

Aspen's interpretation of an “occurrence” would also render
“Endorsement 4” surplusage. As described above, “Endorsement 4”
pertains to ongoing work and excludes coverage for property damage
to “that particular part of real property” on which B&V or its
subcontractors were actively working. See ROA, Vol. 1 at 83 (emphasis
added). If faulty workmanship resulting in damage to B&V's own work
could never trigger coverage as an “occurrence,” this part of
“Endorsement 4” would be meaningless. In other words, there would
be no reason for “Endorsement 4” to exclude coverage only for
damage to a “particular part” of the JBRs if the Policy could never
cover damage to the insured's work in the first instance.
Black & Veatch Corp., 882 F.3d 955–56, 960, 965. In discussing
Endorsement 4, the Tenth Circuit interpreted it to exclude coverage “for
damage to a ’particular part’ of the JBRs.” Id. at 965. This interpretation
necessarily precludes Aspen’s interpretation that the exclusion covers the
“entire scope of B&V’s work,” that is, the entire plant.
Aspen does reply to B&V’s argument that the Tenth Circuit has
interpreted the “particular part” language of Endorsement 4. Aspen singles
out the Tenth Circuit’s opinion at page 960 as no more than a comment on
one treatise writer’s opinion about this exclusionary language in CGL
policies. Aspen also argues the Tenth Circuit’s discussion of Endorsement 4
was not a final ruling but was only to show how this provision would be
rendered superfluous if the insuring agreement could not “cover damage to
the insured’s work in the first instance.” 882 F.3d at 965. The above quote
from the Tenth Circuit’s opinion plainly shows the majority did interpret “that
particular part” in Endorsement 4 as applying only to ongoing work and only
“to a ‘particular part’ of the JBRs,” not the entire JBRs plant. For the
17

court to rule in favor of Aspen on this argument, the district court would
have to interpret “particular part” contrary to the appellate court’s opinion.
The Tenth Circuit’s narrow reading of “particular part” was important in
drawing its conclusion on surplusage. A broader reading of “particular part”
would have certainly weakened the surplusage rationale behind its ruling.
The law of the case doctrine forecloses the court’s consideration of Aspen’s
argument on this issue.
Property Damage to Cardinal 3 Occurring During Policy Period
Under the basic insuring agreement, Aspen is to pay B&V for its
legal obligations to pay “’Property Damage’ occurring during the
Policy Period stated in Item 4 of the Declarations.” ECF# 284-1, p. 7.
Declaration Item 4 specifies a policy period from November 1, 2007, to
November 1, 2008. Citing the testimony of B&V’s corporative representative,
Sheldon Wood, Aspen argues that the “property damage” for the Cardinal 3
plant was the removal and replacement of JBR internal components and that
the rebuilding of Cardinal 3 did not begin until 2010 or after the policy
expired. The issue here is whether property damage occurred during the
policy period as to trigger coverage.
Applying New York’s “injury in fact” test for determining the
trigger date of CGL coverage, B&V argues the injury here occurred when the
defective gas risers were installed or when B&V was negligent in providing
proper professional services related to gas risers. B&V also points to New
18

York case law finding property damage as occurring when a defective part
was installed. B&V believes there are genuine issues of material fact here
that preclude summary judgment.
In reply, Aspen comes forward with the following new argument:
B&V argues that there is a question of fact on when the installation of
the defective risers occurred at Cardinal 3: thus this Court should deny
Aspen/Catlin’s Motion for Summary Judgment as to this plant. . . .
However, Paragraph 38 of the Consent Decree in the MTI
Litigation recited that “Construction at Cardinal 3 did not begin until
2008. There, gas risers were installed without proper inspection by
MTI from January 2009 through March 2009, in breach of its duties as
construction and project manager.” (Dkt. # 311-1, Ex. B). This is
outside Defendants’ policy period and, therefore, summary judgment
for Defendants as to Cardinal 3 is appropriate.
ECF# 348, p. 17. Because these installation dates are outside the policy
period, Aspen argues it is entitled to summary judgment on Cardinal 3.
Aspen waited until its reply brief to make this argument and
present these additional facts. Generally, issues raised for the first time in a
reply brief are not considered with an exception for new issues raised in
reply to the respondent’s arguments. In re Gold Resource Corporation
Securities Litigation, 776 F.3d 1103, 1118 (10th Cir. 2015). Aspen’s new
argument replies to B&V’s position on the “injury-in-fact” occurring when
defective risers were installed or when B&V negligently performed its
professional services. “The Court will not consider arguments raised for the
first time in a reply brief, particularly where the arguments could have been
made in the first instance.” Swimwear Solution, Inc. v. Orlando Bathing Suit,
LLC, 309 F. Supp. 3d 1022, 1044 (D. Kan. 2018) (internal quotation marks
19

and citation omitted). As the following discussion of New York’s law on
triggering events makes clear, Aspen could have made this argument in its
opening memorandum. Therefore, the court will not consider Aspen’s new
factual arguments first made in its reply brief.
“New York law follows the ‘injury-in-fact’ test which ‘rests on
when the injury, sickness, disease or disability actually began.” Maxum
Indemn. Co. v. A One Testing Laboratories, Inc., 150 F. Supp. 3d 278, 285
(S.D.N.Y. 2015) (quoting Downey v. 10 Realty Co., LLC, 78 A.D.3d 575, 911
N.Y.S.2d 67, 67 (2010)(internal quotation omitted)). The New York Court of
Appeals has held:
In Maryland Cas. Co. v Grace & Co. (23 F3d 617) the Second Circuit,
applying New York law, held that, in an asbestos property damage
claim, the “trigger date” for insurance coverage purposes is the date of
installation, for it is at that point that the building owner sustains an
injury in fact. This Court reached a similar conclusion in Sturges Mfg.
Co. v Utica Mut. Ins. Co. (37 NY2d 69, 72-73), holding that “[w]hen
one product is integrated into a larger entity, and the component
product proves defective” the larger entity has sustained an injury in
fact.
MRI Broadway Rental, Inc. v. U.S. Mineral Products Co., 92 N.Y.2d 421, 42728, 704 N.E.2d 550 (1998). “When one product is integrated into a larger
entity, and the component product proves defective, the harm is considered
harm to the entity to the extent that the market value of the entity is
reduced in excess of the value of the defective component.” Sturges Mfg.
Co. v. Utica Mut. Ins. Co., 37 N.Y.2d 69, 72-73, 332 N.E.2d 319, 322
(1975). “When faulty workmanship in building materials is the gravamen of
20

an allegation of property damage, ‘under an injury-in-fact analysis, the
injury may be said to occur at the time of installation.’” Maxum Indemn. Co.,
150 F. Supp. 3d at 285 (quoting Stonewall Ins. Co. v. Nat'l Gypsum Co., No.
86 Civ. 9671 (JSM), 1992 WL 123144, at *14 (S.D.N.Y. May 27, 1992), aff'd
in part and rev'd in part on other grounds, 73 F.3d 1178 (2d Cir. 1995)); see
Hoechst Celanese Corp. v. Certain Underwriters at Lloyd’s London, 673 A.2d
164, 169 (Del. 1996) (“[U]nder New York law, an injury-in-fact or property
damage may occur at different points in time along the continuum from
initial exposure or installation to actual manifestation. (citations omitted).
Accordingly, . . ., property damage sufficient to trigger insurance coverage
may occur as early as installation of the plumbing systems into housing
units.”).
New York law recognizes the triggering event of coverage for
property damage from a component part, like the defective risers, can occur
as early as the part’s installation. Therefore, Aspen is not entitled to
summary judgment on its argument that coverage was not timely triggered
because the removal and replacement of Cardinal 3’s non-defective internal
parts occurred after the policy period.
Coverage for Replacing Non-Damaged Parts in Completed Plants
Aspen argues that B&V cannot recover as property damage a
claim for physical injury to property caused by its “intentional act of
removing perfectly good components to access ‘defective’ components.”
21

ECF# 342, p. 44. “Under New York law, insurance policies require fortuity
and exclude coverage for expected or intended property damage.” Id. (citing
Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208, 220, 774
N.E.2d 687 (2002). Aspen argues B&V’s intentional demolition of the JBRs is
not a fortuitous loss and is not property damage.
The court again believes it must find that this issue has been
decided by the Tenth Circuit. The majority concluded that “the damages at
issue here satisfy the Policy’s accidental requirement.” 882 F.3d at 962. To
reach that conclusion, the panel squarely addressed the requirements of
“unexpected and unintentional” damages and “fortuity,” and it even cited
Consolidated Edison:
The Policy does not define “accident,” but the New York Court of
Appeals has explained that a CGL policy covers damages only when
they were “unexpected and unintentional.” Cont'l Cas. Co., 593
N.Y.S.2d 966, 609 N.E.2d at 510 (holding that these terms are to be
construed narrowly as barring coverage “only when the insured
intended the damages”); see also Consol. Edison Co. of N.Y. v. Allstate
Ins. Co., 98 N.Y.2d 208, 746 N.Y.S.2d 622, 774 N.E.2d 687, 692
(2002) (“Insurance policies generally require ‘fortuity’ and thus
implicitly exclude coverage for intended or expected harms.”). A
policyholder might take a “calculated risk”—such as hiring a
subcontractor—without “expecting” damages to occur. See Cont'l Cas.
Co., 593 N.Y.S.2d 966, 609 N.E.2d at 510. “[I]n fact, people often
seek insurance for just such circumstances.” Id.
Whether or not B&V took a “calculated risk” by delegating work
on the JBRs to a subcontractor, Aspen does not argue—nor does the
record support—that B&V “expected or intended” MTI or any other
subcontractor to cause damage. Nor is there evidence that B&V
increased the likelihood of such damages through reckless cost-saving
or other measures. See Fuller, 613 N.Y.S.2d at 155 (finding no
“occurrence” where damages arose from “intentional cost-saving or
negligent acts”). Thus, the damages at issue here satisfy the Policy's
accidental requirement.
22

882 F.3d at 962-63. The law of the case doctrine forecloses this court from
deciding this issue on remand.
Replacing Good Products to “Get to” Damaged Products is not Physical Injury
Aspen denies there is coverage “for costs to remove nondefective products to access defective products and/or the ‘property
damage’ resulting from the replacement of defective product.” ECF# 342, p.
45. Aspen notes these are called “get to” or “access” damages but denies
that they constitute “physical injury” or “property damage.” Id. After citing
and discussing case law from other jurisdictions, Aspen asks the court to find
“that the removal of the conforming components is not covered, and the
replacement materials and rebuild costs are not covered either.” Id. at p.
46-47.
Again, the Tenth Circuit’s ruling on “property damage” is the law
of the case, and it prevents this court from considering yet another attempt
by Aspen to get around the majority’s conclusions. The court also refers to
its prior discussion of New York law on the incorporation theory which holds
that an injury occurs when a defective component is integrated into a larger
product and which allows for the recovery of various damages.
Warranty Claims are not Covered “Property Damages”
Aspen argues that B&V is making a claim “for the expense of
making warranty repairs” and that this expense is not “any ‘physical injury’”
to be covered as “property damage” under this policy. ECF# 343, p. 47. B&V
23

responds that Aspen’s labels and characterizations do not change that they
were for costs which B&V was legally obligated to pay as repairs for property
damage.
The Tenth Circuit’s ruling on “property damage” is the law of the
case. This court is not at liberty to entertain yet another attempt to argue
the case law from lower New York courts which the Tenth Circuit has already
distinguished and rejected in predicting what the New York Court of Appeals
would hold to be an occurrence under this CGL policy. The Tenth Circuit
unquestionably concluded that, “Under the Policy, the damages at issue here
were caused by a coverage-triggering ‘occurrence.’” 882 F.3d at 971.
Under this heading, Aspen also makes an argument legally
unrelated to the issue of “property damage.” Specifically, Aspen contends
that B&V settled with AEP through a credit of $14.3 million in “backcharges”
on Cardinal 1 and 2 before Aspen received notice of B&V’s claim from B&V’s
London broker. According to Aspen, these circumstances make B&V’s
settlement a voluntary payment under New York law and subject to
coverage denial in that the payment was made before the insurer was
notified. B&V denies accepting liability without first providing notice to Aspen
and further shows there are genuine issues of material fact concerning this
issue. While there may be evidence that AEP had charges for work done on
Cardinal 1 and 2 as of July 30, 2009, the parties’ submissions show a
genuine issue of material fact remains over whether B&V voluntarily paid or
24

assumed those charges without first notifying or obtaining Aspen’s consent.
Aspen is not entitled to summary judgment on these issues.
EXCLUSIONS
Aspen’s motion puts forward four exclusions as barring coverage
for all or part of the claim presented for the completed and uncompleted
plants. Aspen notes the Tenth Circuit remanded the case with instructions
for this court to determine “the effect of any Policy exclusions or exceptions
to the exclusions.” 882 F.3d at 957 n.6.
Intentional Acts
Exclusion A provides that the policy does not apply to “’Property
Damage’ expected or intended from the standpoint of the ‘Insured.’” ECF#
284-1, p. 14. Aspen argues that B&V cannot recover for the costs associated
with purposefully demolishing and harming other non-defective internal
components to gain access, remove and replace the defective risers.
Because B&V acted intentionally to cause these damages, Aspen argues they
are excluded in the same way that “get to” damages are excluded.
B&V argues this exclusion is foreclosed by the Tenth Circuit’s
following finding of accidental damages. Specifically, the appellate panel
found:
Whether or not B&V took a “calculated risk” by delegating work on the
JBRs to a subcontractor, Aspen does not argue—nor does the record
support—that B&V “expected or intended” MTI or any other
subcontractor to cause damage. Nor is there evidence that B&V
increased the likelihood of such damages through reckless cost-saving
25

or other measures. See Fuller, 613 N.Y.S.2d at 155 (finding no
“occurrence” where damages arose from “intentional cost-saving or
negligent acts”). Thus, the damages at issue here satisfy the Policy's
accidental requirement.
882 F.3d at 962-963 (footnote omitted). B&V argues the Tenth Circuit’s
ruling by necessary implication forecloses the possibility of this exclusion. In
reply, Aspen argues the Tenth Circuit’s ruling does not address B&V’s
deliberate decisions to “rip out and replace” the non-defective components.
Because B&V, as the insured, expected or intended these resulting damages
from its deliberate actions, Aspen insists this exclusion bars all recovery of
the “get to” damages.
The court has discussed when an appellate court’s ruling by
necessary implication constitutes a decision of an issue on remand. The
Tenth Circuit here did reserve for remand the trial court’s consideration of
exclusions and exceptions. Still, the question is whether the panel’s findings
of an occurrence and accidental damages, as not “expected or intended” by
B&V, are so closely related to the intentional act exclusion as to involve no
additional consideration and as to be a matter that could have been resolved
on appeal. See Dobbs, 600 F.3d at 1280.
The Policy’s definition of “occurrence” is “an accident, . . ., that
results in ‘Bodily Injury’ or ‘Property Damage’ that is not expected or not
intended by the ‘Insured.’” ECF# 284-1, p. 10 (italics added). The italicized
language is indistinguishable from Exclusion A’s terms excluding coverage
for “’Property Damage’ expected or intended from the standpoint of the
26

‘Insured’.” ECF# 284-1, p. 14. Both require the same determination: what
damages did the insured expect or intend? The Tenth Circuit expressly found
that the property damages here “were caused by an ‘occurrence,’ as that
term is defined in the Policy, because (1) B&V neither intended nor expected
that its subcontractor would perform faulty work, so the damages were
accidental.” 882 F.3d at 965. The operation of Exclusion A is
indistinguishable from the Policy’s definition of occurrence. New York case
law applies the same analysis to the accidental character issue and the
intentional exclusion issue and considers the ruling on one issue as
determinative of the other:
But courts construing similar policy exclusions have concluded that the
analysis applicable to the question whether a loss was accidental is the
same as that conducted in analyzing the effect of the exclusion. See,
e.g., O'Connell v. State Farm Fire & Cas. Co., No. 03-CV-880, 2005 WL
1576793, at *4 (W.D.N.Y. July 1, 2005) (“Although the first disclaimer
denies the existence of coverage in the first instance, while the second
relies upon an [intentional act] exclusion [disclaiming coverage for
injury expected or intended by the insured], the analysis is the same
because the exclusion is ‘nothing more than a restatement of the
requirement that the harm be the result of an accident for there to be
coverage.’” (quoting Jubin [v. St. Paul Fire and Marine Ins. Co.,] 653
N.Y.S.2d [454] at 455 [(N.Y. App. Div. 1997)]), adopted by 2005 WL
2133600 (W.D.N.Y. Aug. 31, 2005); see also 1 M. Jane Goode, Law &
Practice of Insurance Coverage Litigation § 6:20 (2017) (“Many
liability policy forms contain exclusions for bodily injury ‘which is
expected or intended by the insured.’ ... Not surprisingly, the courts
tend to use substantially the same approach in interpreting the
exclusion as they have in interpreting the same or similar terms
contained in the definition of occurrence. Indeed, it is sometimes
impossible to determine whether a court has based its decision
concerning coverage on the existence or nonexistence of an
occurrence or on application of an intentional injury exclusion.”
(footnotes omitted)).
27

Since the Court holds that the Schillaci Complaint alleged an
occurrence under the Homeowners Policy, Met P&C cannot rely on the
intentional act exclusion to disclaim coverage. See 670 Apartments
Corp. [v. Agricultural Ins. Co.,] 1996 WL 559942, at *5 n.3 [S.D.N.Y.
Oct. 2, 19960] (concluding that, because the underlying complaint
alleged a covered occurrence even though the insured received
warnings about potential harms resulting from its conduct before
commencement of the underlying lawsuit, the policy’s intentional loss
exclusion did not bar coverage).
Metro. Prop. and Cas. Ins. Co. v. Sarris, 2017 WL 3252812, at *10–*11
(N.D.N.Y. July 28, 2017), appeal withdrawn, 2017 WL 5714502 (2d Cir.
Sept. 19, 2017). Thus, the court finds itself again applying the law of the
case doctrine, but this time by necessary implication. Aspen’s Exclusion A is
foreclosed by the Tenth Circuit’s finding of an “occurrence.”
Your Product
Exclusion E states that the policy does not apply to, “’Property
Damage’ to ‘Your Product’, arising out of it or any part of it.” ECF# 284-1, p.
14. Aspen argues this exclusion prevents coverage because B&V’s claim is
seeks damages for having supplied an insufficient product and for having
replaced “components at any uncompleted plants.” ECF# 342, p. 50. Aspen
cites the unpublished and brief decision of Tradin Organics USA, Inc. v.
Maryland Cas. Co., 325 Fed. Appx. 10 (2nd Cir. Apr. 16, 2009). In a single
paragraph which does not describe the defect or the product, the court
applies the “Your product” exclusion summarily concluding that “Tradin’s
claim was based on damage to Tradin’s product—a risk specifically excluded
by the “Your Product” provision.” 325 Fed. Appx. at 11.
28

The Second Circuit panel in Tradin Organics, however, cited and
relied upon Lowville Producer’s Dairy Co-op., Inc. v. American Motorist Ins.
Co., 198 A.D.2d 851, 604 N.Y.S.2d 421, 422-23 (N.Y. App. Div. 1993). In
that decision, the court applied the product exclusion and denied coverage
for the loss of contaminated milk that the plaintiff insured, a cooperative
association of dairy farmers, had supplied to a cheese manufacturing plant,
but it allowed coverage for the cost of removing and disposing the
contaminated milk from the purchaser’s silo. “The policy was clearly
intended to cover the possibility that the insured’s product, once sold, would
cause bodily injury or damage to property other than the product itself.” Id.
at 423 (citations omitted). See Hartog Rahal Partnership v. American
Motorists Ins. Co., 359 F. Supp. 2d 331, 332-22 (S.D.N.Y. 2005); Federal
Ins. Co. v. Marlyn Nutraceuticals, Inc., 2013 WL 6796162, at *8 (E.D.N.Y.
Dec. 19, 2013)(“Where, as here, the damage is to the insured's property,
which was not incorporated into any larger entity, courts have found that
exclusions such as the ‘your product’ exclusion in the Policy defeat any duty
to defend.” (citations omitted)).
B&V denies its claim is based on a defective product but rather
is based on its construction project which constitutes real property. B&V
refers to the policy’s definition of “Your Product” as “any goods or products,
other than real property, manufactured, sold, handled, distributed or
disposed of by” insured. ECF# 284-1, p. 11. The JBRs are “massive,
29

permanent fixtures that constitute ‘real property.’” ECF# 345, p. 77 (citing
Scott C. Turner, Insurance Coverage of Construction Disputes, § 27:8 (2d
ed. 2015). B&V contends that if this exclusion covered all property damage
arising out of its construction project, then the Policy would be ineffective in
meeting what the Tenth Circuit said was B&V’s “main reason for obtaining
CGL insurance . . . the potential for claims alleging damages made by the
property owner—AEP.” 882 F.3d at 964. B&V argues a “common sense
reading” of the exclusion makes it inapplicable. In reply, Aspen argues for
this being a product claim because the risers were insufficient as
manufactured. Aspen adds that because the risers’ insufficiency did not
change with their installation, so B&V’s claim should not change in nature
either.
“To negate coverage by virtue of an exclusion, an insurer must
establish that the exclusion is stated in clear and unmistakable language, is
subject to no other reasonable interpretation, and applies in the particular
case.” Continental Cas. C. v. Rapid-American Corp., 80 N.Y.2d 640, 652, 609
N.E.2d 506 (1993). Aspen has not carried its burden. The definition of “Your
Product” excludes real property. The general rule for this exclusion is that,
“[t]he work performed by contractors on dwellings, buildings, structures,
and any other form of realty is therefore not considered to be the product of
the insured.” 9A Steven Plitt, et al., Couch on Ins. § 129:20 (3rd ed. 2018
update). Aspen has not shown that B&V’s work in managing and directing
30

the construction of the JBRs results in a product rather than services related
to real property. It seems this exclusion “was always intended by the
insurers and brokers to apply to manufacturing that produces ‘products’
rather than companies like contractors, subcontractors, and construction
managers that perform services.” Scott C. Turner Insurance Coverage of
Construction Disputes § 27:8 (2d ed. Nov. 2018 update) (citations and
authorities omitted). By excepting “real property” from the definition of
“your product,” “construction work of a contractor is not ‘your product’.” Id.
As for a product that is built into a structure, the general rule is:
What would otherwise be an insured manufacturer's product, or an
insured material supplier's product, may lose that designation once it
is incorporated into a building project if it thereby becomes real
property under that jurisdiction's law of fixtures. In such cases, if
property damage to it occurs after being built into the project, it no
longer fits within the definition of “your product,” so the exclusion
should not apply.
Id. at § 27:10. Case law supporting this rule includes, Travelers Property
Casualty Company of America v. Northwest Pipe Company, 2017 WL
2687652, at *1 (W.D. Wash. Jun. 22, 2017), which involved a claim of
damages suffered “in the construction of a large water pipeline” and caused
by “the alleged failure of circumferential welds that were being used to
attach grout plugs to a large steel pipe liner.” The court similarly quoted this
treatise and noted:
The Ninth Circuit has relied upon this rule, albeit in an unpublished
decision. Mid-Continent Cas. Co. v. Titan Const. Corp., 281 Fed.Appx.
766, 768–69 (9th Cir. 2008) (quoting Black’s Law Dictionary, 1254
(8th ed. 2004)) (“Since ‘real property’ is not defined in the CGL, we
31

adopt the common meaning of the term, ‘land and anything growing
on, attached to, or erected on it, excluding anything that may be
severed without injury to the land.’”). Other courts have likewise
reached the same conclusion. See Scottsdale Ins. Co. v. Tri-State Ins.
Co. of MN., 302 F. Supp. 2d 1100, 1104–08 (D.N.D. 2004).
Travelers Prop. Cas. Co. of Am., 2017 WL 2687652, at *7. The court then
looked to whether the steel liner met the criteria for a fixture under state
law:
Upon installation of the grout plugs, the steel liner was cemented into
the underground Twin Tunnels project. Dkt. 30 at 2. This establishes
that the steel liner was sufficiently annexed to the realty to satisfy the
first prong of the fixture criteria. Additionally, there is no dispute that
the steel liner was applied to the purpose of the Twin Tunnels project
for which the portion of realty is appropriated. See Dkt. 30; Dkt. 18-12
at 5. Finally, the underlying complaint by the Water District states that
the steel liner was “installed at the ends of each of the tunnels as a
permanent lining ... that prevents water from travelling into or out of
the tunnels,” thereby establishing the third prong of the fixture
criteria. Dkt. 18-12 at 5 (emphasis added). Pursuant to this analysis,
the steel liner is real property, or at least it was real property at the
time that the alleged defects resulted in the failure of the
circumferential welds.
Travelers Prop. Cas. Co. of Am. v. N.W. Pipe Co., 2017 WL 2687652, at *7.
This approach certainly seems consonant with the CGL policy at issue here,
with the allegation here of injury occurring with the risers’ installation, and
with New York law.
New York law on the criteria of a fixture matches the law applied
in Travelers Prop.: “To meet the common-law definition of fixture, the
personalty in question must: (1) be actually annexed to real property or
something appurtenant thereto; (2) be applied to the use or purpose to
which that part of the realty with which it is connected is appropriated; and,
32

(3) be intended by the parties as a permanent accession to the freehold.”
Matter of Metromedia, Inc. (Foster & Kleiser Div.) v. Tax Commn. of City of
N.Y., 60 N.Y.2d 85, 90, 455 N.E.2d 1252 (1983) (citations omitted). The
parties have not employed this test, identified these fixture criteria, or
presented the facts necessary for determining this exclusion. Based on the
summary judgment record to date, the risers would appear to meet this
fixture definition. Because “real property” is expressly eliminated from the
definition of “Your Product,” the defendant Aspen is not entitled to summary
judgment on this exclusion as argued in its original memorandum, ECF#
342.
Impaired Property
Exclusion G states that the policy does not apply to:
“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
Product’ or ‘Your Work’; or
(2) a delay or failure by you or anyone acting on your behalf to
perform a contract or agreement in accordance with its terms.”
This Exclusion G does not apply to the loss of use of other property
arising out of sudden and accidental physical injury to “Your Product”
or “Your Work after it has been put to its intended use.
ECF# 284-1, p. 14. The Policy defines “Impaired Property” in this way:
“Impaired Property” means tangible property, other than “Your
Product”, or “Your Work”, that
(1) cannot be used or is less useful because:
(a) it incorporates “Your Product” or “Your Work” that is known
or thought to be defective, deficient, inadequate, or dangerous;
or
(b) you have failed to fulfill the terms of a contract or
agreement; and
33

(2) can be restored to use by:
(a) the repair, replacement, adjustment, or removal of “Your
Product” or “Your Work”; or
(b) your fulfillment of the terms of such contract or agreement.
ECF# 284-1, p. 9.
Aspen argues that, “[a]ny non-damaged product is either
‘Impaired Property’ (as defined above) or ‘property which has not been
physically injured’ and is therefore excluded under the ‘Impaired Property’
exclusion.” ECF# 342, p. 52. Aspen also notes that the exclusion’s exception
for property put to its intended use “does not apply to the four uncompleted
plants” because they were not used. Id. Aspen wants this exclusion to bar all
coverage for replacement damages, “because the removal of undamaged
product was caused by a defect in the risers.” Id. Aspen emphasizes that
this exclusion operates whether the defective work was done by a
subcontractor or not, citing Pavarini Constr. Co., Inc. v. Continental Ins. Co.,
304 App. Div. 2d 501, 759 N.Y.S.2d 56 (2003). As authority for this
exclusion’s applicability, Aspen relies on two unpublished decisions: Big-D
Constr. Midwest, LLC v. Zurich Am. Ins. Co., 2018 WL 3025066 (D. Utah
Jun. 18, 2018), corrected and superseded by, 2018 WL 3849923 (D. Utah
Aug. 13, 2018); and Acceptance Ins. Co. v. Ross Contractors, Inc., 2008 WL
2796593 (Minn. App. Jul. 22, 2008), rev. denied, (Oct. 1, 2008).
B&V first summarily argues the exclusion does not apply because
the property damaged was the JBRs which is B&V’s work, and “Impaired
Property” is defined above as “tangible property, other than . . . ‘Your
34

Work.’” ECF# 284-1, p. 9. B&V string cites authorities showing the
agreement between commentators and courts, “that where non-defective
work or property must be damaged to remove defective property, the
impaired property exclusion does not apply.” ECF# 345, p. 78. B&V
distinguishes Pavarini as involving a different policy with an unknown
definition of “Impaired Property.” Finally, B&V points out that the broad
application of this exclusion means, “several policy provisions would be
rendered superfluous—a prohibited result under the Tenth Circuit’s
reasoning.” Id. at p. 79.
In reply, Aspen goes through several of the B&V’s citations
denying they discussed the “impaired property” exclusion and distinguishing
another on the facts. Aspen argues for following Travelers Cas. & Surety Co.
v. Dormitory Authority State of N.Y., 732 F. Supp. 2d 347, 366 (S.D.N.Y.
2010); Island Lathing & Plastering v. Travelers Indem. Co., 161 F. Supp. 2d
278 (S.D.N.Y. 2001). Aspen maintains, “New York cases apply the ‘impaired
property’ exclusion to the non-damaged parts of all JBRs which were
required to be removed and replaced because of the defective components.”
ECF# 348, p. 23.
Looking first at Aspen’s citations, the court agrees that the
Pavarini lacks sufficient details for it to be applied here correctly. The
unpublished decision in Big-D Construction involved Utah and Minnesota law,
and its analysis does not address how these provisions are typically read and
35

applied. The Minnesota Court of Appeals in Acceptance addresses the
“impaired property” exclusion noting first:
The reach of exclusion m is difficult to determine. Because it is part of
a standard, insurance-industry-wide policy provision, there is caselaw
from other jurisdictions and secondary commentary summarizing that
caselaw and analyzing the exclusion. See, e g., 4 Philip L. Bruner &
Patrick J. O'Connor, Bruner and O'Connor on Construction Law §
11.49, at 166-74 (2002); 2 Allan Windt, Insurance Claims and
Disputes: Representation of Insurance Companies and Insureds §
11.21, at 530-31 (4th ed.2001); 3 Robert J. Franco, Insurance
Coverage for Faulty Workmanship Claims under Commercial General
Liability Policies, 30 Tort & Ins. Law J. 785, 800-02 (1995). Bruner and
O'Connor cite other commentators and courts expressing frustration
with the complexity of exclusion m, its untoward reach, and its limited
actual application. See 4 Bruner & O'Connor, supra, § 11.49, at 16975. We recognize this confusion. We note that “[i]f policy language is
ambiguous, it must be interpreted in favor of coverage [and that
policy] exclusions are read narrowly against the insurer.” . . . .
. . . The potential scope of exclusion m is breathtaking; it could
vitiate the insuring clause of the policy and eliminate all coverage. This
clash between the possible broad scope of the exclusion and the
intended coverage creates an ambiguity in the meaning of the
exclusion.
Acceptance does not argue for this broad effect of exclusion m.
Instead, Acceptance asserts that because the loss-of-profit damages
are tied to contract claims, exclusion m only eliminates loss of profits
as an element of damages. However, coverage here was based on the
negligence, not the breach of contract.
. . . We adopt the same reasoning to conclude that exclusion m
does not preclude coverage and recovery by Nolan for lost profits.
Acceptance Ins. Co. v. Ross Contractors, Inc., 2008 WL 2796593, at *11-12.
(Minn. App. July 22, 2008). Interestingly, Acceptance supports reading this
complex and ambiguous exclusion in favor of the insured, in keeping with
the exclusion’s narrow purpose, and in furtherance of preserving the policy’s
basic coverage terms. Aspen’s reply also overstates its position in arguing
that its two “New York cases” show that New York law reads this exclusion
36

more broadly than argued by B&V. First, Travelers Cas. and Surety Co.,
applied New Jersey law. Second, Island Lathing & Plastering, reads and
applies the exclusion summarily as an alternative ground for finding the
insurer had no duty to defend, 161 F. Supp. 2d at 288-89.
The “impaired property” exclusion, as the Minnesota Court of
Appeals noted above, is complex and vulnerable to expansive readings that
“could vitiate the insuring clause.” 2008 WL 2796593, at *11. “To negate
coverage by virtue of an exclusion, an insurer must establish that the
exclusion is stated in clear and unmistakable language, is subject to no other
reasonable interpretation, and applies in the particular case.” Village of
Sylvan Beach, N.Y. v. Travelers Indem. Co., 55 F.3d 114, 115-16 (2nd Cir.
1995)(internal quotation marks and citation omitted). Not only has Aspen
not carried this burden, but it seeks to apply this exclusion against the
removal and replacement costs for non-damaged parts which is beyond the
intended purpose of this exclusion.
The court’s application of this exclusion is instructed by the
history and purpose of this exclusion and by how most courts have
construed and applied it:
The concept of “impaired property” first surfaced in 1986. Before
that time, however, the standard CGL policy contained an exclusion
intended to address claims that losses were incurred as a result of the
insured’s failure to perform its obligations. Exclusion m of the 1973
CGL form, known as the “failure to perform” exclusion, precluded
coverage for loss of use damages where no physical injury was present
resulting from: (1) a delay in or lack of performance by the insured or
(2) the failure of the insured’s products or work to meet a level of
37

performance, quality, fitness or durability warranted or represented by
the insured.
The 1973 “failure to perform” exclusion addresses the “loss of
use” aspect of “property damage.” . . . .
....
Given the interpretation challenges posed by the 1973 form
exclusion, many hoped that the revisions to the exclusion would
provide a clearer picture. Unfortunately, the exclusion has not become
simpler. The introduction of the concept of “impaired property” has
created a new set of challenges. Commentators have opined that the
new exclusion is “too complex to receive a uniform interpretation.”
Others have found the new exclusion to be “tricky.” One commentator
has gone so far as to conclude that the exclusion is subject to attack
as “unintelligible or at least ineffective to overcome the insured’s
reasonable expectations of coverage.”
....
The “impaired property” exclusion applies to two classes of
property. The first, “impaired property” means tangible property, other
than “your product” or “your work,” that cannot be used or is less
useful because your defective work has been incorporated into it
where such property can be restored through the repair or
replacement of your work. The second class of property is “that
[which] has not been physically injured. Therefore, if there is physical
injury to tangible property, the second class of property implicated by
the impaired property exclusion does not come into play.
“Impaired property” denotes property that is different from the
insured’s work. In the normal case, the exclusion would have no
application where the damage, including the loss of use, occurs to the
construction performed by the insured or its subcontractors. In
addition to not applying where usefulness may not be restored by the
repair of the insured’s work, courts have held the exclusion
inapplicable where the repair or replacement of the insured’s work
would cause physical injury to other property.
4 Pt. 2 Philip L. Bruner and Patrick J. O’Connor, Jr., Bruner and O’Connor on
Construction Law § 11:264 (2018) (footnotes and citations omitted); see
also 9 No. 2 Lee H. Shidlofsky, Journal of the American College of
Construction Lawyers (Aug. 2015); see generally 9A Steven Plitt, et al.,
Couch on Insurance Third Edition § 129.23 (2018) (footnotes and citations
38

omitted); see, e.g., Maryland Casualty Co. v. Mid-Continent Casualty Co.,
725 Fed. Appx. 699, 711 (10th Cir. Mar. 20, 2016) (exclusion did not reach
damage claims other than loss of use of personal property); Standard Fire
Ins. Co. v. Chester O’Donley & Associates, Inc., 972 S.W.2d 1, 10 (Tenn. Ct.
App. 1998) (“The effect of the ‘impaired property’ exclusion is to bar
coverage for loss of use claims . . . when there has been no physical injury
to property other than the insured’s work itself. The exclusion does not apply
. . . if the insured’s work cannot be repaired or replaced without causing
physical injury to other property.” (citations omitted)), appeal denied, (Jul.
6, 1998).
Owing in large part to the complex and ambiguous terms
employed in this exclusion, Aspen’s application of it here lacks clarity. Aspen
takes the general position that, “[a]ny non-damaged product is either
‘Impaired Property’ (as defined above) or ‘property which has not been
physically injured’ and is therefore excluded under the ‘Impaired Property’
exclusion (assuming that the replacement of such non-damaged product
even involves ‘physical harm’ to the property of a third party).” ECF# 342,
p. 52. Aspen, however, fails to show how any of the JBRs’ “non-damaged
property” is “tangible property other than . . . [B&V’s] ‘Your Work’ . . . .”
ECF# 284-1, p. 9 (Definition of “Impaired Property”). The policy defines
“Your Work,” to be B&V’s “work or operations performed by” B&V or on
behalf of B&V. ECF# 284-1, p. 12. Thus, Aspen fails to show that the first
39

class of property covered by this exclusion, “Impaired Property,” meaning
tangible property other than “Your Work,” is involved here. See Scott C.
Turner, Insurance Coverage of Construction Disputes § 26.7 (2018) (“The
work of a general contractor qualifies as its ‘your work’ such that it cannot
be ‘impaired property,’ so the exclusion cannot apply.”); see, e.g., Archer W.
Contractors, LTD v. Liberty Mutual Fire Ins. Co., 2015 WL 11004493, at *7
(C.D. Cal. Mar. 31, 2015), (“Because all of the damages alleged were to
materials, parts, or equipment built or furnished by AWC, and AWC had
expansive responsibility for the Project, the damages are therefore
encompassed by the ‘Your Product or Your Work’ exception to the Impaired
Property definition, and do not constitute Impaired Property under the
meaning of the National Union Policy.”), aff'd sub nom., Archer W.
Contractors, Ltd. v. National Union Fire Ins. Co. of Pittsburgh, Pennsylvania,
680 Fed. Appx. 604 (9th Cir. 2017)(unpub.); Durbrow v. Mike Check
Builders, Inc., 442 F. Supp. 2d 676, 684 (E.D. Wis. 2006) (Insured’s
construction of the whole house was its work, so exclusion does not apply).
Aspen also argues the exclusion applies here to the second class
of property, that is, “property that has not been physically injured arising
out of: (1) a defect, deficiency, inadequacy or dangerous condition in ‘Your
Product’ or ‘Your Work.’” ECF# 284-1, p. 14. Aspen applies the exclusion
saying, “the JBR replacement claim is excluded in its entirety because the
removal of undamaged product was caused by a defect in the risers. That is
40

exactly the nature of the claim being made here.” ECF# 342, p. 52. Again,
Aspen’s argument runs up against the actual wording and the general
meaning of this exclusion. First, the wording of the exclusion actually says
there is no coverage for property damage to property “that has not been
physically injured arising out of” a defect in “Your Work.” ECF# 284-1, p. 14.
In arguing the removal (the damage) of the undamaged product was caused
by a defect in the risers, Aspen appears to be showing the physical injury
here did arise out of a defect in B&V’s “work or operations by . . . [it] or on
[its] . . . behalf.” ECF# 284-1, p. 12 (Definition of “Your Work”). Aspen’s
application does not match the meaning of this exclusion which is to bar
“coverage for loss of us of tangible property of others that is not physically
damaged by the insured’s defective product.” America Online, Inc. v. St.
Paul Mercury Ins. Co., 347 F.3d 89, 98 (4th Cir. 2003)(“This exclusion places
a limitation on the coverage of consequential damages, restricting coverage
to loss of use of other persons’ properties that are physically damaged.”).
Second, this exclusion does not apply “if the insured’s work cannot be
repaired or replaced without causing physical injury to the other property.”
9A Steven Plitt, Couch on Insurance Third Edition § 129.23 (2018). When
the fixing of faulty components results in the destruction and replacement of
other components, the fix itself “necessitated injury to tangible property,
and the injury was unquestionably physical.” U.S. Metal, Inc. v. Liberty
Mutual Group, Inc., 490 S.W.3d 20, 28 (Tex. 2015), reh’g denied, (Jun. 17,
41

2016). “This exclusion should not apply to eliminate coverage where the
incorporation of the defective work or product does no actual physical
damage to tangible property but the removal or repair of that work or
product has or will physically injury other property.” Scott C. Turner,
Insurance Coverage of Construction Disputes § 26:19 (2019) (citing in part,
DeWitt Constr. Inc. v. Charter Oak Fire Ins. Co., 307 F.3d 1127, 1135 (9th
Cir. 2002), as amended on denial of reh’g and reh’g en banc (Dec. 4, 2002);
North Star Mut. Ins. Co. v. Rose, 27 F. Supp. 3d 1250, 1254 (E.D. Okla.
2014)). Aspen has not carried its burden in showing this exclusion bars
coverage for B&V’s property damages incurred in removing, injuring or
destroying other parts to repair or replace the defective components.
Replacement
Exclusion H reads that the policy is inapplicable for:
Damages claimed for any loss, cost or expense incurred by you or
others for the loss of use, withdrawal, recall, inspection, repair,
replacement adjustment, removal or disposal of:
(1) “Your Product”;
(2) “Your Work”; or
(3) “Impaired Property”;
if such product, work or property is withdrawn or recalled from the
market or from use by any person or organization because of a known
or suspected defect, deficiency, inadequacy, or dangerous condition in
it.
ECF# 284-1, p. 14. Aspen reads this exclusion to extinguish coverage for
B&V’s claim for damages from “’repair, replacement, adjustment, removal or
disposal’ of the JBR internals due to a ‘defect, deficiency, inadequacy, or
dangerous condition.’” ECF# 342, p. 53. Aspen contends this exclusion is
42

intended to deny coverage for the mere discovery of a defective product
when the product has yet to fail in use. As examples of this exclusion’s
application, Aspen cites Big-D Construction Midwest, LLC v. Zurich American
Insurance Co., 2018 WL 3849923 (D. Utah Aug. 13, 2018), as barring
coverage of a general contractor’s costs in removing other building parts so
it could replace the non-conforming lumber, and Nash v. Baumblit Const.
Corp., 72 App. Div. 3d 1037, 1040, 902 N.Y.S.2d 99, 102 (2010), as barring
a general contractor’s recovery for restoration and repair work performed
due to a defective renovation of a home. See also Flynn v. Timms, 199 App.
Div. 2d 873, 606 N.Y.S.2d 352 (1993).
In response, B&V reads this Exclusion H to exclude “coverage for
costs incurred to recall products from the market or remove work from use
where there has been no resulting ‘Property Damage,’ but the work is
recalled or withdrawn from use to repair a known or suspected deficiency.”
ECF# 345, p. 79. B&V argues the exclusion does not apply when the defect
has already caused resulting property damage and cites Thruway Produce,
Inc. v. Mass. Bay Ins. Co., 114 F. Supp. 3d 81 (W.D.N.Y. 2015). Aspen’s
expansive application of this exclusion, according to B&V, would vitiate key
coverage and would render meaningless the coverage provided in the
subcontractor exception. B&V distinguishes Nash as not involving a
subcontractor’s defective work and damages to other work.

43

In reply, Aspen counters that the wording of this exclusion is not
restricted to product recalls but includes “withdrawals.” Aspen argues:
Parsing the language of the exclusion, the JBRs were ‘withdrawn . . .
from use’ by B&V because of ‘a known or suspected defect. . . . Even
B&V admits as much. (See, Dkt. #345, at 64). B&V contends that the
JBRs “were damaged by the incorporation and required replacement of
defective gas risers.” (Id). Even before the phrase “any person or
organization” was added to the exclusion by ISO in 1986, broadening
the exclusion to limit coverage, New York Courts explained that this
exclusion applied to a named insured’s withdrawal of its products, but
not to a third party claimant’s withdrawal of them. Thomas J. Lipton,
Inc. v. Liberty Mut’l. Ins. Co., 34 N.Y.2d 356, 314 N.E.2d 37 (1974).
ECF# 348, p. 24. Aspen maintains this exclusion applies to the general
contractor’s costs in repairing a subcontractor’s defective work and cites,
Hathaway Development Co., Inc. v. Illinois Union Ins. Co., 274 Fed. Appx.
787 (11th Cir. 2008); Kay Bee Builders, Inc. v. Merchant’s Mut. Ins. Co., 10
App. Div. 3d 631, 632, 781 N.Y.S.2d 692 (2004).
This exclusion presents another example where the wording is
susceptible to being stretched beyond the exclusion’s apparent purpose. The
Tenth Circuit has already said in this case, “Allowing CGL policies to cover
construction defects caused by a subcontractor comports with the purpose of
liability insurance—to protect the contractor not the property owner.” 882
F.3d at 968. This finding certainly impacts how this court must read and
apply this exclusion. The New York Court of Appeals has interpreted this socalled sistership exclusion mindful of the foreseeable coverage under the
policy and against the insurer due to the exclusion’s ambiguity:

44

To say that the categories of damage claimed here by Lipton do not
fall within such coverage would appear to exclude what, as a practical
matter, would usually be some of the largest foreseeable elements of
such damage. Such an interpretation, . . . , would render the coverage
nearly illusory.
It is fundamental that ambiguities in an insurance policy must be
construed against the insurer (Greaves v. Public Serv. Mut. Ins. Co., 5
NY2d 120, 125; see 29 N. Y. Jur., Insurance, §§ 617, 619, pp. 607,
609). This is particularly so as to ambiguities found in an exclusionary
clause (Sincoff v. Liberty Mut. Fire Ins. Co., 11 NY2d 386, 390-391;
see 29 N. Y. Jur., Insurance, § 623, p. 615). We cannot think that,
given the economic and factual setting in which these policies were
written, an ordinary business man in applying for insurance and
reading the language of these policies when submitted, would not have
thought himself covered against precisely the damage claims now
asserted by Lipton. (Cf. 29 N. Y. Jur., Insurance, § 608, p. 597.)
Thomas J. Lipton, Inc. v. Liberty Mut. Ins. Co., 34 N.Y.2d 356, 361, 314
N.E.2d 37 (1974). Thus, the court will follow that precedent which construes
this exclusion against the insurer and which reconciles the policy’s intended
and foreseeable coverage against the exclusion’s limited purpose. It should
be noted that Aspen’s cited case law does not follow this approach in
applying the replacement or sistership exclusion.
From its own review of commentaries on insurance law, the
court finds the following summary of the exclusion’s purpose and function to
be meaningful, correct, and consistent with New York law:
Exclusion n is called the “sistership exclusion” and it applies to any
“recall of products, work or impaired property.” CGL Policy, Section
I.2(n). Exclusion n protects insurance companies against liability for
the costs of recalls. See, e.g., Forest City Dillon, Inc. v. Aetna Cas. &
Sur. Co., 852 F.2d 168, 173 (6th Cir. 1988). The clause excludes
“damages claimed for any loss” if a “product ... is withdrawn or
recalled from the market or from use by any person or organization
because of a known or suspected defect, deficiency, inadequacy or
dangerous condition in it.” CGL Policy, Section I.2(n); Travelers
45

Indem. Co. v. Acadia Ins. Co., No. 1:08–CV–92, 2009 WL 1320965, at
*8 n. 7 (D.Vt. May 8, 2009) (“The ‘sistership exclusion’ deals with
withdrawing or recalling damaged property from the market....”).
“Insurance companies ... developed the ‘sistership’ clause to make
clear that, while they intended to pay for damages caused by a
product that failed, they did not intend to pay for the costs of recalling
products containing a similar defect that had not yet failed.” Forest
City Dillon, 852 F.2d at 173.
Harleysville asserts that R.I Pools has effectively “recalled” its
shotcrete from the market. But this argument fails, because no “recall”
occurred in this case. “[T]he sistership exclusion does not apply to a
product that has failed, but only to a ‘sister’ product withdrawn after
failure of the first product.” Am. Home Assurance v. Libbey–Owens–
Ford Co., 786 F.2d 22, 25 (1st Cir. 1986); Forest City Dillon, 852 F.2d
at 173; Gulf Miss. Marine Corp. v. George Engine Co., Inc., 697 F.2d
668, 674 (5th Cir. 1983); Imperial Cas. & Indem. Co. v. High Concrete
Structures, Inc., 858 F.2d 128, 136 n. 9 (3d Cir. 1988) (“Sistership
provisions ... do not exclude coverage of damages arising from a
defective product when no sister products are involved.”); Todd
Shipyards Corp. v. Turbine Serv., Inc., 674 F.2d 401, 419 (5th Cir.
1982); Fireman's Fund, 2008 WL 4066096, at *12 (finding Seventh
Circuit's conclusion in Sokol that Exclusion n barred coverage
inapplicable because that case involved preventative measures,
whereas in the case before the court, the product had already caused
damage).
Here, no “sister” product was recalled. Paramount seeks
coverage for the damage actually caused by its defective product; it
does not seek coverage for the removal of its defective shotcrete from
the market. Therefore, Exclusion n does not bar coverage in this case.
Harleysville Worcester Ins. Co. v. Paramount Concrete, Inc., 10 F. Supp. 3d
252, 270–71 (D. Conn. 2014); see, North Star Mut. Ins. Co. v. Rose, 27 F.
Supp. 3d 1250, 1254 (E.D. Okla. 2014); Scott C. Turner, Insurance
Coverage of Construction Disputes §§ 34:1-3 (2d ed. 2018); 9A Steven Plitt,
et al., Couch on Insurance § 129:24 (3rd ed. 2018); 3 Allan D. Windt,
Insurance Claims and Disputes § 11.13 (6th ed. 2018). Turner’s
commentary observes:
46

Many cases and commentators, looking to the insurer’s original intent,
have concluded that “withdrawal” is limited to product recall situation.
Insurance companies . . . developed [this exclusion] to make clear
that, while they intended to pay for damages caused by a product that
failed, they did not intend to pay for the costs of recalling products
containing a similar defect that had not yet failed. . . . The exclusion
is designed to limit the insurer’s exposure in cases where because of
the actual failure of the insured’s product, similar products are
withdrawn from use to prevent the failure of those other products,
which have not yet failed but are suspected of containing the same
defect. Thus, the exclusion is limited to the costs of withdrawing sister
products of work for precautionary purposes and does not apply to
claims involving property damage to product or work that has already
failed.
This is a terribly significant distinction for construction claims,
where very little work has a sister piece of work. Thus, the vast
majority of construction claims are unaffected by the exclusion on this
ground alone. Thus, one insurance industry commentary concludes,
although many insurers cite this exclusion in response to a defective
work claim on a construction project, it usually does not apply because
a construction product is regarded as unique completed operation and
not a mass-produced product subject to a recall.
Scott C. Turner, Insurance Coverage of Construction Disputes § 34:3 (2d ed.
2018) (internal quotation marks, footnotes and citations omitted). Windt’s
commentary adds:
The most significant restriction on the applicability of the sistership
exclusion is that although, according to its terms, the exclusion applies
whether the insured’s product is withdrawn from the “market or from
use,” the courts have, in general, not applied the exclusion if the
insured’s product has already been put to use. In fact, there are a few
cases that have explained that the exclusion applies only to recalls.
The theory behind the incorporation cases is that (a) the sistership
exclusion applies only to preventative or curative actions, and (b) once
incorporation has taken place, the damage has already taken place, so
the withdrawal is not merely a preventative measure.
3 Allan D. Windt, Insurance Claims and Disputes § 11.13 (6th ed. 2018).
In light of these authorities and New York case law, the court
47

finds the sistership exclusion inapplicable as B&V is not seeking preventative
damages to sister pieces associated with the withdrawing or removing a
product from the market. See Stonewall Ins. Co. v. Asbestos Claims Mgt.
Corp., 73 F.3d 1178, 1211 (2d Cir. 1995), opinion modified on denial of
reh’g, 85 F.3d 49 (2d Cir. 1996) (applying New York law and acknowledging
“the case law narrowly construing the sistership exclusion and the ambiguity
in the relevant policy language”); Truax v. Hovey, Ltd. v. Aetna Cas. & Sur.
Co., 122 A.D.2d 563, 504 N.Y.S.2d 934, 935 (N.Y. App. Div. 1986) (“Since
the claim in this case did not involve withdrawal of the insulation from the
market,” the exclusion as designed does not apply.). And, even if the
defective gas risers resulted in the non-use of some of the JBRs, this
exclusion does “not preclude coverage for damage” caused by the defective
product or work to other property that occurred with its incorporation. See
Stonewall, 73 F.3d at 1211; see generally 3 Allan D. Windt, Insurance
Claims and Disputes § 11.13 n. 8 (Truax, despite its broad holding, “could
be explained on the basis that the sistership exclusion was inapplicable
because the insured’s defective product had already, by virtue of its
incorporation, damaged the product into which it had been incorporated.”).
Consistent with its holdings above and the Tenth Circuit’s findings on
damages, the court finds that the incorporation of the subcontractors’
defective work into the JBRs already damaged them making the sistership
exclusion inapplicable.
48

Finally, the court agrees that applying the sistership exclusion
broadly would render subcontractor coverage illusory and would conflict with
the Tenth Circuit’s reading of this policy. Support for this conclusion comes
from Lipton and from the following analysis by the West Virginia Supreme
Court:
First, as we previously observed with respect to Exclusion M, applying
Exclusion N [sistership exclusion] to preclude coverage for Ms.
Cherrington's loss of use of her property would produce an absurd and
inconsistent result with the policy's coverage provisions. See Syl. pt. 2,
D'Annunzio, 186 W.Va. 39, 410 S.E.2d 275. The policy at issue in this
case specifically provides coverage for the work of subcontractors. A
natural consequence of damages occasioned by defective work would
be loss of use of that defective structure or portion thereof. To apply
this exclusion to preclude coverage for the damages occasioned by the
very same work that the policy expressly covers would render such
coverage illusory and would be contrary to the policy's stated intention
to provide indemnity for this specific loss. See Syl. pt. 5, in part,
McMahon, 177 W.Va. 734, 356 S.E.2d 488 (holding that insurance
policy exclusions “will be strictly construed ... in order that the purpose
of providing indemnity not be defeated”). Thus, we find that Exclusion
N does not apply to preclude coverage in this case.
Cherrington v. Erie Ins. Property and Cas. Co., 231 W.Va. 470, 745 S.E.2d
508, 528 (2013). For all these reasons, the court finds that B&V has not
carried its burden of showing this exclusion extinguishes coverage for B&V’s
claim for damages based on the repair, replacement, adjustment, removal or
disposal of the JBR internals due to a defect, deficiency, inadequacy, or
dangerous condition.
Exhaustion of Underlying Coverage to Trigger Aspen Excess Policy
As an excess insurer, Aspen argues establishing the attachment
point of its policy and any attachment credits from B&V’s settlements are
49

critical. It is uncontroverted that “B&V is not seeking coverage from
Aspen/Catlin for any design changes or betterments to the JBRs upon
rebuilding.” ECF# 345, p. 36, ¶ 284. Aspen recognizes the amount of rebuild
expenses covered is a question of material fact but argues the issues of
attachment could reduce or even moot B&V’s claim.
The Policy’s insuring agreement provides in pertinent part:
We will pay on behalf of the “Insured” those sums in excess of the
“Retained Limit” which the “Insured” by reason of liability imposed by
law or assumed by the “Insured” under contract prior to the
“Occurrence”, shall become legally obligated to pay as damages for:
(a) “Bodily injury” or “Property Damage” occurring during the
Policy Period stated in Item 4 of the Declarations (Policy Period) and
caused by an “Occurrence”: . . . .
ECF# 284-1, p. 7. The Policy defines “Retained Limit” as follows:
“Retained Limit” means whichever of the following is applicable:
(1) with respect to any “Occurrence” that is covered by “Underlying
Insurance” or any other insurance, the total of the applicable limits of
the “Underlying Insurance” plus the applicable limits of any other
insurance; or
(2) with respect to any “Occurrence” that is not covered by
“Underlying Insurance” or any other insurance, the amount of the SelfInsured Retention stated in Item 5(c) of the Declarations (the “SelfInsured Retention”).
ECF# 284-1, p. 11. Aspen sweepingly argues the definition of “Retained
Limit” makes its policy excess to all underlying insurance and all other
insurance, including “property, professional liability, MTI
subcontractor/liability policies.” ECF# 342, p. 55.
Aspen seeks summary judgment on the following two
attachment issues: (1) whether the Aspen policy is triggered if there is
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coverage remaining in the underlying policy, and (2) if triggered, what is the
Aspen policy’s attachment point? ECF# 342, p. 56. B&V also moves for
summary judgment that the retained limit requirement under the Aspen
policy “has been satisfied by payment or credit for the applicable limits of
the Zurich primary policy; and, that the ‘other insurance’ component of
Retained Limit has been met by crediting either the actual net settlement
amounts obtained from the MTI general liability policies or, with respect to
the Endorsement 35 Named Projects by application of the ‘Subcontractors’
own limits of USD 5,000,000.’” ECF# 338, pp. 1-2. Because the issues are
overlapping, the court addresses both motions at the same time.
Actual Payment and/or Credit for Underlying Coverage
According to Aspen, New York law requires exhaustion by actual
payment of underlying coverage when the excess policy requires the same.
The court finds that Aspen’s cited decisions have policies that clearly
conditioned attachment of excess coverage upon the “payment of losses
thereunder.” See, e.g., Federal Ins. Co. v. Estate of Gould, 2011 WL
4552381, at *7 (S.D.N.Y. Sep. 28, 2011), aff’d, 719 F.3d 83 (2nd Cir.
2013); Forest Laboratories, Inc. v. Arch Ins. Co., 116 A.D.3d 628, 984
N.Y.S.2d 361, 362 (N.Y. App. Div. 2014) (excess policy required exhaustion
through “actual payment” of underlying policy’s limit), appeal den., 24
N.Y.3d 901 (2014); Cooper v. Certain Underwriters at Lloyd’s, London, 716
Fed. Appx. 735, 736 (9th Cir. Mar. 30, 2018)(“excess policy unambiguously
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required exhaustion of underlying limits through payment by the insurers
rather than payment by the insured”). Believing these authorities support
the blanket application of this rule here, Aspen argues its excess policy has
not been triggered because the underlying Zurich policies were not
exhausted by actual payment.
Conceding there is not exhaustion by actual payment here, B&V
contends the excess policy here allows it to use “gap filling” between the
Zurich settlement and the underlying insurance limits found in Schedule A to
calculate the triggering point for coverage. B&V argues this is not contrary to
New York law. Unlike the case law cited by Aspen, the excess policy here
does not expressly require actual payment by the underlying insurer for
exhaustion.
Specifically, the policy provides that Aspen will pay “those sums
in excess of the ‘Retained Limit,’” ECF# 284-1, p. 7, that is defined, in part,
to mean “with respect to any ‘Occurrence’ that is covered by ‘Underlying
Insurance’ or any other insurance, the total of the applicable limits of the
‘Underlying Insurance’ plus the applicable limits of any other insurance,”
ECF# 284-1, p. 11. Noticeably absent from these terms is any language
requiring full payment of applicable limits. Instead, the policy refers
generally to “applicable limits” and does not expressly require the insurer’s
payment of those limits. B&V points to a line of relevant New York precedent
in this regard:
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Plaintiff cites a single case in support of its contention that the policies
permit the insured to fill the gap. In Zeig v. Massachusetts Bonding &
Insurance Co., 23 F.2d 665 (2d Cir. 1928), the court interpreted an
excess policy that required the primary insurance to be “exhausted in
the payment of claims to the full amount of the expressed limit.” Id. at
666. The court found that this language was ambiguous and did not
require the underlying insurer to make full payment in cash on its
policies, holding that the “claims are paid to the full amount of the
policies, if they are settled and discharged, and the primary insurance
is thereby exhausted.” Id. The court noted that the parties could have
made full payment in cash a condition precedent for the excess
insurance, but that the defendant had “no rational interest in whether
the insured collected the full amount of the primary policies, so long as
it was only called upon to pay such a portion of the loss as was in
excess of the limits of the policies.” Id. Zeig, which remains a “seminal
decision interpreting New York insurance law” in the Second Circuit,
Lexington Ins. Co. v. Tokio Marine & Nichido Fire Ins. Co., No. 11 CIV.
391 DAB, 2012 WL 1278005, at *3 (S.D.N.Y. Mar. 28, 2012)
(collecting cases relying on Zeig), stands for the proposition that New
York law permits an insured to fill the gap left by below-limits
settlement with an underlying insurer where the policy leaves the
terms “payment” or “exhaustion” ambiguous.
Hopeman Brothers, Inc. v. Contl. Cas. Co., 307 F. Supp. 3d 433, 472 (E.D.
Va. 2018)(applying New York law). Based on New York precedent referenced
here, Aspen’s coverage language lacks an express requirement of the
underlying insurer’s actual payment and can be read as ambiguous over
whether B&V can fill the gap. See Hopeman, 307 F. Supp. 2d at 476. There
is more here. Condition G of Aspen’s policy not only confirms there is no
triggering requirement of actual payment by the underlying insurer, but it
can be read even to allow the insured’s gap filling: “(1) We will have liability
for any one ‘Occurrence’ only when the amount of the ‘Retained Limit’ with
respect to such ‘Occurrence’ has been paid by: (a) the ‘Insured’; (b) us on
behalf of the “insured’ (other than under this policy); or (c) the ‘Insured’s’
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underlying insurer.” ECF# 284-1, p. 18. Thus, the court grants partial
summary judgment for B&V on the issue of the Aspen policy permitting a
below-limits settlement with the underlying insurer and the insured filling
the gap for exhaustion.
Amount of Coverage Credited under the Zurich Policies
Aspen argues that should the court rule against the actual
payment requirement then the court alternatively should find that Aspen is
“entitled to the following” credits under the Zurich policies:
(1) an attachment credit of $16 million in underlying insurance for the
course of construction claims per the Zurich policies; (2) an
attachment credit of $4 million in completed operations claims relating
to the Zurich policies; (3) a credit equal to the $15 million received
from the MTI insurers which is allocated across all covered plants; and
(4) a minimum attachment credit of $5 million for the Clifty Creek and
Kyger Creek plants.
ECF# 342, p. 62. Besides addressing Aspen’s arguments in support of these
amounts alleged to be credits, the court also will decide Aspen’s other
arguments for additional credits.
$16 Million Credit for Course of Construction Claims and $4 Million
Completed Operations Credit for both policies
Schedule A of Aspen’s policy sets out the schedule of Zurich’s
underlying commercial general liability (“CGL”) coverage as $2 million for
each occurrence, $4 million general aggregate per location/project, and $4
million for products-completed operations period aggregate. Aspen observes
that Zurich issued two CGL policies, one for 2007/2008 and one for
2008/2009, and each has the same schedule of limits. Aspen summarily
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proposes first that the limits for both Zurich policies must be exhausted
before coverage under its policy is triggered. Aspen then wants the
aggregate limit of $4 million applied to each of the four uncompleted plants
resulting in a $16 million credit.
B&V articulates its position both in opposing Aspen’s motion and
in seeking its own partial summary judgment on this issue. To Aspen’s
argument that multiple years of Zurich policies are applicable, B&V counters
that “its claim is limited to one Policy period for Occurrences at each JBR,
which are subject to a single policy period.” ECF# 345, p. 84. B&V calls
Aspen’s argument as being “simply wrong,” made “without analysis,” and
unsupported by “any Policy term that requires (or even suggests) that
multiple policy years’ of Underlying Insurance should be included in the
Retained Limit calculation.” Id. B&V explains that its settlement with Zurich
was “to fully resolve its obligations for the AEP Internals Claims under the
2007-2008 Policy.” ECF# 311-4, p. 3. From the Zurich policy, B&V first notes
that the insuring agreement fixes Zurich’s liability to property damage
occurring during the policy period and “includes any continuation, change or
resumption of that . . . ‘property damage’ after the end of the policy period.”
ECF# 338-2, p. 20. Zurich’s policy defines “occurrence” as meaning “an
accident, including continuous or repeated exposure to substantially the
same general harmful conditions.” ECF# 338-2, p. 33. B&V maintains “the
triggering events for B&V’s general liability are in one policy.” ECF# 345, p.
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86. Finally, B&V further points to what it calls the “anti-stacking” provision in
the Zurich policy:
If this Coverage Form and any other Coverage Form or policy issued to
you by us or any company affiliated with us apply to the same
“occurrence,” the maximum Limit of Insurance under all the Coverage
Forms or policies shall not exceed the highest applicable Limit of
Insurance under any one Coverage Form or policy.
ECF# 338-2, p. 16, ¶ 14. B&V’s position is that Zurich’s coverage was
limited to the one policy period because B&V’s liability was triggered by one
occurrence, and while the damages may have continued, Zurich’s coverage
could not be stacked and cannot “exceed the highest applicable Limit of
Insurance under any one Coverage Form or policy.” Id.
Hoping to evade these plain terms in Zurich’s policy, Aspen also
argues that B&V’s claim really asserts two occurrences. Not only does the
record not support this argument but it runs counter to the Tenth Circuit’s
holding in this case. Black & Veatch Corp. v. Aspen Ins. (UK) Ltd, 882 F.3d
at 965 (“In sum, the property damages at issue were caused by an
“occurrence,” as that term is defined in the Policy.”); Id. at 971 (“Under the
Policy, the damages at issue here were caused by a coverage-triggering
‘occurrence.’”). 882 F.3d at 965. It is uncontroverted that B&V is contending
“that the covered ‘occurrence’ was the installation of defective gas risers.”
ECF# 345, p. 23, ¶ 251. The court finds no support for Aspen’s argument for
multiple occurrences at each plant. As Aspen points out in its reply, ECF#
348, p. 30, there remains an open coverage question because B&V
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recognizes a question of material fact as to “the date of the Occurrence at
Cardinal 3.” ECF# 345, p. 70. This does not impact the court’s ruling that
Zurich’s anti-stacking provisions preclude involving two policies for the same
occurrence here.
As for Aspen wanting an aggregate limit credit of $4 million
applied to each of the four uncompleted plants, B&V argues this is contrary
to the Zurich policy’s terms which set an aggregate limit as the most to be
paid for damages per location/project while, in contrast, the occurrence limit
is the most the insurer will pay for damages arising out of any one
occurrence. See Zurich policy, Section III-Limits of Insurance, ECF# 338-2,
pp. 28-29. New York law certainly recognizes this common understanding as
to the difference between the two limits:
Aggregate Limit
The maximum sum the insurer can be called upon to pay, regardless
of the number of occurrences. Insurance policies typically include a
“per occurrence” limit, which is the maximum sum the insurer can be
called upon pay, regardless of the number of persons injured in a
given accident. Absent an ‘aggregate limit,’ there is no limit on the
number of times the insurer can be called upon to pay the ‘per
occurrence’ limit for different accidents.
See 33 Sarah B. Biser, et al., N.Y. Prac., New York Construction Law Manual
Appendix 10A (2d ed.) (Dec. 2017); see Unigard Sec. Ins. Co., Inc. v. N.
River Ins. Co., 762 F. Supp. 566, 595 (S.D.N.Y. 1991), aff'd in part, rev'd in
part, 4 F.3d 1049 (2d Cir. 1993)(“The purpose of having an aggregate limit
in addition to an occurrence limit is to cap the indemnity payments made in
a given policy period regardless of the number of occurrences.”). Because
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B&V’s claim is for one occurrence per plant (location/project), the court
agrees with B&V that the occurrence limit credit of $2 million per
location/project for the 4 uncompleted JBRs or $8 million fulfills the
underlying insurance part of the Retained Limit.
$15 Million Credit from “Other Insurance” MTI’s Insurers and $5 million
attachment credit for the Clifty Creek and Kyger Creek plants
MTI was B&V’s primary subcontractor for the internal
components at each JBR project. B&V was a named additional insured on
MTI’s general liability policies. The court’s holding above that actual
exhaustion is not required but that the insured can fill the gap on any
retained limits applies with equal force here for “Other Insurance.” The
parties advance several related arguments as to what is the retained limit,
“the applicable limits of any other insurance.” ECF# 284-1, p. 11. The
parties’ briefing reveals that some of the issues are not ripe for summary
judgment.
Aspen’s motion summarily requests the full $15 million credit for
B&V’s settlement with MTI’s insurers and an additional $5 million credit
under Endorsement 35 as underlying insurance for the two plants having a
contract value exceeding $50 million. For the “other insurance,” B&V asserts
it has properly credited Aspen for its $14.5 million settlement with MTI’s
insurers representing “the exhaustion of two full aggregate limits under both
MTI’s primary and excess policies for two policy periods, plus an additional
$500,000 contribution from MTI’s primary insurer.” ECF# 338, p. 15; ECF#
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307-1. B&V states these settlement amounts “were first allocated to cover
legal fees and costs in the amount of $5,278.567 and the remaining amount
credited to Retained Limit.” ECF# 338, p. 16. B&V moves for summary
judgment arguing that the actual amounts recovered from the MTI’s insurers
constitutes “the full amount of ‘other collectible insurances available” as to
meet the “Retained Limit” requirement or that Endorsement 35 sets the bar
for other insurance to meet the “Retained Limit.” ECF# 338, pp. 17-18.
In its summary judgment motion, B&V explains that the
subcontractor MTI’s primary and excess liability policies gave coverage with
limits of $6 million per occurrence and $7 million general aggregate.
Because it aggressively pursued coverage under three policy periods with
multiple occurrences, B&V made a claim for $22 million coverage against
MTI’s insurers, asserting coverage under a third policy period (2009-2010)
for damages at Cardinal 1. ECF# 338, p. 16. B&V ultimately settled for two
full general aggregate limits, plus $500,000, or $14.5 million. B&V also
discusses having kept Aspen informed of all settlement efforts, having asked
Aspen to participate and assist in these recovery efforts, and having received
from Aspen only a reservation of rights and a refusal to participate. B&V
explains that its likelihood of recovery under the MTI’s third policy was
remote and so it accepted the settlement for the two policies. Since Aspen
refused to participate in those settlement negotiations, B&V argues Aspen
cannot now argue for a different outcome and for benefits from its own
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refusal to engage. “Insurers that refuse to participate in settlement should
not receive a windfall for their intransigence.” ECF# 338, p. 17. B&V’s only
cited authority is E.R. Squibbs & Sons, Inc. v. Accident and Cas. Ins. Co.,
1997 WL 251548 (S.D.N.Y. May 13, 1997).
Aspen responds arguing that B&V’s claim for $22 million in
coverage against MTI’s insurers judicially estops it from now arguing that the
actual recovery from MTI’s insurers is the recovery of collectible “other
insurance” for purposes of its policy. B&V rightly responds this rule of judicial
estoppel only applies if the asserting party “succeeds in maintaining that
position.” New Hampshire v. Maine, 532 U.S. 742, 749 (2001). The court
agrees that Aspen’s argument for judicial estoppel cannot prevail here.
Aspen argues that E.R. Squibbs applies only when the
settlements are reached while the insured is still facing contingent liabilities
that could reduce the risk of the insured receiving a double recovery or
windfall. While Aspen’s reading of E.R. Squibbs is too narrow, the court
agrees that the decision involves circumstances which are certainly different
from the question here of calculating retained limits in the absence of any
outstanding contingent liabilities. Aspen also argues the Policy releases it
from the obligation to negotiate, settle, or defend when the insured has
collectible underlying insurance or other insurance. The decision in E.R.
Squibbs does not factor in such a policy provision in its rule of equity. The
parties have not presented the court with the facts or analysis for evaluating
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the possibility of coverage under the third policy or for concluding that the
settlement with MTI’s insurers was reasonable. The summary judgment
record is insufficient to find and apply the rule from E.R. Squibbs here. Thus,
there are questions of material fact precluding summary judgment on the
applicable limits of the “other insurance” involving MTI’s insurers.
B&V also looks to Endorsement 35 as providing some guidance
for determining the “applicable limits” of “other insurance.” On its face,
Endorsement 35 provides coverage for certain named projects including,
Kyger Creek, Clifty Creek, and Conesville, subject to certain conditions. It
expressly provides coverage subject to an additional premium based on the
projects’ “Full Contract Value.” It further states: “The following projects sit
in excess of: Sub Contractors’ own limits of USD5,000,000 on which Black
and Veatch are an additional insured, when Black and Veatch self perform
Engineering, Procurement and Construction contracts where Full Contract
Values are greater than USD50,000,000.” ECF# 338-1, p. 59. B&V argues
this Endorsement “requires only one $5 million limit applicable to all Named
Projects to meet the defined “other insurance requirement for such
projects.” ECF# 338, p. 19, n. 7. Aspen responds that it is “entitled to a
minimum underlying limit of subcontract insurance of $5 million, in addition
to the underlying coverage required by the Policy.” ECF# 343, p. 25. The
court reads Endorsement 35 as separately creating a $5 million limit
applicable as one limit for all named projects together. B&V also argues this
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Endorsement sets the bar for the “other insurance to be collected in order to
meet that component of Retained Limit under the Policy” which was cleared
either by MTI’s insurers having coverage in excess of $5 million or by B&V’s
settlement with MTI’s insurers exceeding $5 million. ECF# 338 at p. 18.
Neither the wording of this endorsement nor any argument offered by B&V
would support an interpretation that this endorsement operates as a bar on
the applicable “other insurance” limits for JBR units not subject to this
Endorsement. The Endorsement expressly recognizes insurance “specifically
purchased to apply in excess” of Aspen’s policy which under New York law is
construed as designating the subcontractors’ insurance as “underlying
insurance.” See Bovis Lend Lease LMB, Inc. v. Great American Ins. Co., 53
A.D.3d 140, 855 N.Y.S.2d 459, 469 (N.Y. App. 2008); see Condition H of
Aspen Policy, ECF# 284-1, p. 18. As for the subcontractors’ liability coverage
in excess of $5 million for the named projects and for all other plants, there
remains the determination of the applicable limits of this “other insurance”
which this court finds, for the reasons already stated above, cannot be
decided on this summary judgment record. Consequently, a summary
judgment ruling on the retained limit of “other insurance” is not possible.
Invoices Paid by B&V’s Professional Liability Insurers
Citing the “one-satisfaction” rule and relying on the deposition
testimony of Dennis Frostic, the claims reviewer for B&V’s Professional
Liability Insurers, Aspen asserts that these liability insurers already
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reimbursed B&V on specific subcontractors’ invoices for which B&V now
seeks payment again from Aspen. Consequently, Aspen wants a summary
judgment order that subcontractors’ invoices already paid by others cannot
be included as part of B&V’s claim against Aspen. B&V does not controvert
that it periodically submitted invoices to Frostic who reviewed them and
advised the insurers on what reimbursements to make. Nor does B&V
controvert that its $98 million claim to the Professional Liability Insurers was
supported by invoices and was paid to the limit of the professional liability
tower. ECF# 345, pp. 39-40. B&V, however, denies that the Professional
Liability Insurers “paid on specific invoices submitted by B&V for
subcontractor work.” Id. at p. 40, ¶ 300. B&V understands Frostic to testify
that the submitted invoices were paid upon but that the payments were not
directed to specific invoices. In support of this reading, B&V submits a
declaration from Frostic which is dated after his deposition and states in
relevant part:
3. . . . On behalf of the Professional Liability Insurers providing
coverage to Black & Veatch, I negotiated a settlement of the JBR
Internals claim with Black & Veatch.
4. Pursuant to the settlement, the Professional Liability Insurers
agreed to pay a percentage of all costs incurred in connection with the
rebuild of the JBR internals as they were incurred by Black & Veatch.
5. Recognizing that a portion of the costs as incurred may not be
covered by the professional liability policies, the Professional Liability
Insurers agreed to reimburse Black & Veatch 75% of rebuild costs
submitted—on an as incurred basis—up to the remaining limits of
liability for the professional liability tower of approximately $59 million.
6. At my deposition in this matter, Exhibit 116 was identified as
documents produced by my law firm pursuant to a subpoena issued by
attorneys representing Aspen . . . . That exhibit contains numerous
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references to and documents concerning the settlement of the claim
made to the Professional Liability Insurers, including invoices Black &
Veatch submitted to the Professional Liability Insurers to support its
claim for reimbursement as costs were incurred.
7. In issuing reimbursements, the Professional Liability Insurers
reviewed a subset of the invoices submitted by Black & Veatch to
confirm they related to the rebuild of the JBRs at issue.
8. In issuing reimbursements, the Professional Liability Insurers did
not designate or determine specific invoices or portions of invoices for
rebuild costs that were being reimbursed, but simply paid 75% of the
total submission. The Professional Liability Insurers did pay specific
invoices for covered attorney fees and costs of consultants. The
attached summary taken from Exhibit 116 reflects the general and not
specific invoice by invoice payments made.
ECF# 299-2, pp. 2-3. B&V also looks to the testimony of Stuart Shaw, B&V’s
vice-president of risk management and dispute resolution, who testified to
an agreement with Mr. Frostic whereby the insurers would pay 75% of what
was submitted without payments being allocated among specific invoices.
ECF# 310-3, pp. 182-185. With this evidence, B&V controverts Aspen’s
proposed statement of facts over whether the insurers actually reimbursed
B&V for specific subcontractors’ invoices. See ECF# 345, pp, 40-54.
The court agrees with B&V’s position that there are genuine
issues of material fact here over which, if any, specific invoices were actually
paid by the insurers. The evidence certainly indicates invoices were
submitted and reviewed, but to say that the record is uncontroverted that
B&V’s claim for some of those same invoices is necessarily double-dipping
assumes facts disputed by those who negotiated and executed the
settlement agreement between B&V and its Professional Liability Insurers.
The court disagrees with Aspen that Frostic’s subsequent declaration plainly
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contradicts answers given in his earlier deposition. Aspen is denied summary
judgment on this issue. Having found a question of material fact, the court
will not take up B&V’s alternative arguments for applying the “made whole”
doctrine outside of a subrogation context under New York law.
B&V Claim is Moot
Aspen’s last issue assumes it has prevailed on all arguments for
credits (actual and settlement) from other and underlying insurance and
then calculates the total of these to exceed B&V’s claim against Aspen, which
would moot B&V’s claim. Because Aspen has not prevailed on all its
positions, including those that follow, and because questions of material fact
remain as to some of these issues, the court summarily denies this
argument for summary judgment.
B&V’S MOTION FOR PARTIAL SUMMARY JUDGMENT ECF# 337
The court has already addressed most of B&V’s arguments above
in ruling on the issues common to the parties’ respective motions. Thus, the
court has granted B&V’s motion for partial summary judgment that the
retained limit for the underlying Zurich insurance has been met by payment
or credit for the applicable limits as determined above. Finding there to be
genuine issues of material fact and an insufficient record, the court denied
summary judgment that the retained limit for the other insurance
component has been met by crediting the actual net settlement with MTI’s
general liability insurers or by application of Endorsement 35. B&V’s motion
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raises a related issue not decided earlier, that is, what constitutes “other
insurance” under the Policy. The court also will take up B&V’s remaining
summary judgment request that Endorsement 27 requires Aspen to
indemnify B&V for property damage arising from professional service errors
and exceeding $2 million per occurrence but not more than the $8 million
sublimit of each $25 million general aggregate limit.
“Other Insurance”
Noting that the Policy does not define this term of art, B&V
argues it is “[i]nsurance that covers the same property against the same risk
and in favor of the same party,” citing Western Heritage Ins. Co. v. Century
Surety Co., 32 F. Supp. 3d 443, 450-51 (S.D.N.Y. 2014). In Western
Heritage, the court noted the New York Court of Appeals holding, “that the
Other Insurance provisions apply only ‘where two or more insurance policies
cover the same risk in the name of, or for the benefit of, the same person.’”
32 F. Supp. 3d at 451 (citing Great N. Ins. Co. v. Mount Vernon Fire Ins.
Co., 92 N.Y.2d 682, 686-87 (1999)); see Hartford Underwriters Ins. Co. v.
Hanover Ins. Co., 122 F. Supp. 3d 143, 146 n.2 (S.D.N.Y. 2015), aff’d, 653
Fed. Appx. 66 (2nd Cir. Jun. 29, 2016). Under this rule, B&V argues the only
“other insurance” applicable here is MTI’s general liability policies which
listed B&V as an additional insured. B&V argues the following insurance is
not “other insurance”--its Professional Liability coverage for errors and
omissions by its own professions and the first-party property damage
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policies issued to the JBR owners on which B&V was an additional insured—
because they insure “different risks and provide recovery for a different
range of damages.” ECF# 338, p. 8. According to B&V, only subcontractor
MTI’s general liability insurers insured the same risk as Aspen’s liability
policy. B&V distinguishes its Professional Liability Policy as insuring “against
any economic loss arising from negligent acts, errors or omissions in design,
supervision or other professional activities, and does not require bodily
injury or property damage caused by an occurrence to be triggered.” ECF#
338, p. 12. As for the JBR owners’ property insurance, it provided “firstparty, no fault coverage.” Id. at 12-13. Thus, neither of these policies
qualifies as “other insurance.”
B&V clarifies that its argument as to “other insurance” and
exhausting the “retained limits” of “collectible other insurance” does not
address the allocation of recoveries from different lines of insurance and the
rule against “double-dipping.” For allocation, B&V stands on its Exhibit 338-6
which shows unrecovered costs of remediation exceeding $53 million, a sum
greater than B&V’s property damage claim submitted to the defendants.
ECF# 338, p. 14.
Aspen responds that if the court accepts B&V’s argument that
Endorsement 27 provides some form of professional liability coverage then
B&V’s Professional Liability insurance is “other insurance” under the retained
limits provision. Absent that holding, Aspen apparently concedes B&V’s
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argument on the meaning of “other insurance” under the retained limits.
Aspen certainly challenges B&V’s Exhibit 338-6 as including unrecoverable
costs and double-dipping.
The court agrees, as Aspen apparently concedes, that “other
insurance” does not include the property damage policies issued to the JBR
owners on which B&V was an additional insured. B&V also asks the court to
restrict any determination of “excess” coverage to the express terms of
Endorsement 27 and to conclude that it “does not refer to any other
insurance or to any underlying insurance or to the definition of Retained
Limit.” ECF# 346, p. 18. In short, the court is being asked to determine if
the scope of the “other insurance” provisions in the main policy necessarily
include consideration of that coverage provided in the policy’s endorsement.
B&V argues for reading only the express terms of Endorsement 27, while
Aspen argues for reading Endorsement 27 as part of the whole policy.
Neither side cites any authority for their respective positions. The parties’
positions beg the question whether the coverage in Endorsement 27 is
distinct as to require its own “other insurance” clause. See Contract Marine
Carriers, Inc. v. Abbott Laboratories, Int’l, 1993 WL 106374, at *6-*7
(S.D.N.Y. Apr. 6, 1993). This endorsement does not require a separate or
additional premium but does have its own limits of liability. The endorsement
coverage is of a unique and distinct character in covering professional
services specific to B&V’s capacity as an Engineering/Procurement
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/Construction Contractor (“EPC”). The endorsement, however, expresses this
coverage in being an exception to an exclusion under the CGL. In effect, the
endorsement makes this loss coverable under the main policy. The court
cannot find in the policy any justification for reading the coverage provided
in Endorsement 27 in isolation of the other coverage provided by the CGL in
determining what is “other insurance.” The court will follow the general rule
of construing the policy as a whole, giving meaning to all related provisions,
and thereby reaching a reasonable conclusion that Endorsement 27’s
coverage is part of the main policy. Thus, the court denies B&V’s request for
summary judgment that its Professional Liability insurance necessarily
covered a different risk as to not qualify as “other insurance.” The court will
limit its summary judgment decision to the arguments specifically advanced.
Endorsement 27
B&V asserts it acted as an EPC on each JBR project and contends
this endorsement affords coverage for property damage resulting from
professional services performed by or on behalf of B&V subject to a sublimit
of $8 million per occurrence in excess of $2 million. This endorsement reads:
PROFESSIONAL LIABILITY EXCLUSION
This policy does not apply to any act, negligence, error or omission,
malpractice or mistake arising out of “Professional Services”,
committed or alleged to have been committed by or on your behalf in
the conduct of any of your business activities.
This exclusion shall not apply to “Bodily Injury” or “Property Damage”
that results from such “Professional Services” in connection with your
capacity as an Engineering/Procurement/Contractor (EPC).
A sub limit of USD 8,000,000 will apply in excess of USD 2,000,000
each and every “Occurrence” in respect of such “Bodily Injury” or
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“Property Damage” except where coverage is provided under policy
number LB0710358. The sub limit of USD 8,000,000 will form part of
the USD 25,000,000 General Aggregate referred to in Item 6b) of the
Declarations.
“Professional Services” wherever used in this endorsement means the
preparation or approval of audits, accounts, maps plans, opinions,
reports, surveys, designs or specifications and supervisory, inspection,
engineering or data processing services.
ECF# 338-1, p. 48. B&V also submits AEP’s 2009 letters to B&V alleging
B&V’s errors in design and material selection resulted in defective internal
JBR components. ECF## 338-8 and 338-9. B&V contends these allegations
trigger the basic insuring agreement for a claim under Endorsement 27 for
EPC projects. In its reply, B&V recognizes that “aspects of its Endorsement
27 claim present fact issues about which the parties disagree” and clarifies
that its motion is not seeking a judgment on coverage of its professional
services claim. ECF# 346, p. 17. Instead, B&V wants the court only to
determine now, “based on the undisputed Policy language, that the
Endorsement 27 sublimit of coverage is not limited to one general aggregate
(as argued by Aspen) but that the sublimit applies to each ‘separate and
distinct’ aggregate for each Named Project in accordance with Endorsement
36.” Id. at p. 17. Based on this “clarification” in B&V’s reply, the court will
address only this issue over interpreting the policy language on the
applicability of the sublimit to one general aggregate or also to each general
aggregate for the named projects in Endorsement 36.
B&V asks the court to read Endorsement 27’s provision of the
sublimit “form[ing] part of the USD 25,000,000 General Aggregate referred
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to in Item 6b) of the Declarations” as subject to Endorsement 36 which
amends item 6 of the Declarations. Specifically, Endorsement 36 provides
for “a separate and distinct aggregate for each project” named in
Endorsement 35. ECF# 284-1, p. 60. It also expressly amends “Items (4)
and (6) of the Declaration Page.” Id. The Declarations Page accordingly
reflects a “General Aggregate Limit” of $25 million and a “Per Project
Aggregate, in respect of the 13 Named Projects Only, for the project period
(see endorsements no. 35 and 36)” of $25 million. ECF# 284-1, p. 2. B&V
further points to Section V of the Policy discussing Limits which includes the
following:
If there is a limit stated in Item 6(b) of the Declarations for the
General Aggregate Limit (other than the per Project Aggregate in
respect of the 13 named Projects and the Products/Completed
Operations) that amount is the most we will pay for all damages under
INSURING AGREEMENT 1 except for: . . . (2) injury or damage
included in the “Products/Completed Operations Hazard” (3) injury or
damage in respect of the 13 named Projects and (4) coverages
included in the “underlying Insurance” to which no underlying
aggregate limit applies.
ECF# 338-1, p. 12. So that each of these provisions have meaning, B&V
argues that, “a separate $8 million sublimit for damages in excess of $2
million is available for each Occurrence at each Named Project as well as for
each Occurrence at each remaining project.” ECF# 338, p. 22. In effect, this
interpretation would mean “$8 million of coverage (in excess of $2million)
per occurrence but not to exceed the $25 million General Aggregate at each
JBR listed in Endorsement 36, and separate sub limited coverage for the
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Cardinal projects (under the base Policy as such projects are not listed in
Endorsement 36).” Id.
Aspen argues that the “Per Project Aggregate Limit” specified in
Item 6(c) of the Policy as amended by Endorsement 36 is distinct from the
“General Aggregate Limit” specified in Item 6(b) and that Endorsement 27
says it is only a “sublimit” or “part of” the “General Aggregate Limit” in Item
6(b) and is not stacked. Aspen argues that Endorsement 27 does not use or
refer to “Project” but only the “General” aggregate limit. Aspen concludes
the $8 million is a sublimit per occurrence and is subject to the policy’s
General Aggregate Limit. Aspen reads, “[t]he effect of Endorsement 27 is to
cap the professional liability exposure to the General Aggregate limit of $25
million, depending on the number of occurrences.” ECF# 343, p. 35. Aspen
does not address the Section V provision that explicitly addresses the limits
in Item 6(b).
Section V is significant here, because this provision essentially
makes the “General Aggregate Limits” in Item 6(b) subject to “Per Project
Aggregate Limit” in 6(c). For the projects named in Endorsement 36, there is
stated a separate and distinct aggregate limit along with an exemption from
the general aggregate limits in Item 6(b). The court agrees with B&V that
the reasonable conclusion giving effect to all relevant provisions is that the
professional services sublimit applies to each “separate and distinct

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aggregate for each project” named in Endorsement 36. B&V is entitled to
partial summary judgment on this issue.
MOTION TO AMEND PRETRIAL ORDER (ECF# 339)
In its order of May 1, 2018, the district court stated, “Should a
party believe administration of this case would be enhanced by amendment
of the pretrial order based on the Tenth Circuit’s ruling, any motions to
amend should follow the same briefing schedule above.” ECF# 335, pp. 5-6.
The court’s suggestion was intended to assist the parties in framing their
motions consistent with what they had already outlined as the issues in this
case. The court did so because of its familiarity with the parties’ tendency in
prior motion proceedings.
At this juncture, the court’s partial summary judgment ruling has
mooted much of the parties’ briefing on this motion. The court will not ask
for the parties to brief this motion again, as the case will be transferred for
trial. Whether a new pretrial order has administrative value is a
determination to be made after transfer.
IT IS THEREFORE ORDERED that Aspen or Excess Insurers’
motion for summary judgment (ECF# 340) is denied;
IT IS FURTHER ORDERED that B&V’s motion for partial summary
judgment (ECF# 337) is granted in part, that the retained limit for the
underlying Zurich insurance has been met by payment or credit for the
applicable limits as determined herein, that “other insurance” as used in
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“Retained Limit” does not include the property damage policies issued to the
JBR owners on which B&V was an additional insured, and that Endorsement
27’s $8 million sublimit for damages in excess of $2 million applies to each
separate and distinct $25 million aggregate for each Named Project in
Endorsement 36, but B&V’s motion is denied in all other respects as stated
above;
IT IS FURTHER ORDERED that B&V’s motion to amend the
pretrial order (ECF# 339) is denied without prejudice.
Dated this 29th Day of March, 2019.
s/ Sam A. Crow____________________
Sam A. Crow, U.S. District Senior Judge

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