Travelers Property Casualty Company of America v. ServerLogic Corporation et al
Filing
44
Opinion and Order - Travelers' Motion for Summary Judgment (Dkt. 24 ) is GRANTED. ServerLogic's Motion for Summary Judgment (Dkt. 26 ) is DENIED. This case is DISMISSED. Signed on 3/3/2015 by Judge Michael H. Simon. (mja)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA, a Connecticut
corporation,
Case No. 3:13-cv-2128-SI
OPINION AND ORDER
Plaintiff,
v.
SERVERLOGIC CORPORATION, an
Oregon corporation; NORTHWEST TIRE
FACTORY, LLC, an Oregon limited liability
company,
Defendants.
Lloyd Bernstein, BULLIVANT HOUSER & BAILEY PC, 888 S.W. Fifth Avenue, Suite 300,
Portland, OR 97204. Of Attorneys for Plaintiffs.
William E. Gaar and Jillian Pollock, BUCKLEY LAW PC, 5300 Meadows Road, Suite 200,
Lake Oswego, OR 97035; Arthur S. Garrett, III, KELLER AND HECKMAN LLP, 1001 G
Street NW, Suite 500 West, Washington, DC 20001. Of Attorneys for Defendant ServerLogic
Corporation.
Michael H. Simon, District Judge.
Plaintiff, Travelers Property Casualty Company of America (“Travelers”), maintains this
action against Defendants ServerLogic Corporation (“ServerLogic”) and Northwest Tire Factory,
LLC (“NWTF”). Travelers seeks a judgment declaring that Travelers is not obligated to
PAGE 1 – OPINION AND ORDER
indemnify ServerLogic for an underlying arbitration award granted in favor of NWTF against
ServerLogic. Before the Court are Travelers’ Motion for Summary Judgment (Dkt. 24) and
ServerLogic’s Cross Motion for Summary Judgment (Dkt. 26) on its counterclaim for breach of
contract. For the reasons that follow, Travelers’ motion is granted and ServerLogic’s motion is
denied.
STANDARDS
A party is entitled to summary judgment if the “movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a). The moving party has the burden of establishing the absence of a genuine
dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The court must view
the evidence in the light most favorable to the non-movant and draw all reasonable inferences in
the non-movant’s favor. Clicks Billiards Inc. v. Sixshooters Inc., 251 F.3d 1252, 1257 (9th
Cir. 2001). Although “[c]redibility determinations, the weighing of the evidence, and the
drawing of legitimate inferences from the facts are jury functions, not those of a judge . . . ruling
on a motion for summary judgment,” the “mere existence of a scintilla of evidence in support of
the plaintiff’s position [is] insufficient . . . .” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252,
255 (1986). “Where the record taken as a whole could not lead a rational trier of fact to find for
the non-moving party, there is no genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986) (citation and quotation marks omitted).
When parties file cross-motions for summary judgment, the court “evaluate[s] each
motion separately, giving the non-moving party in each instance the benefit of all reasonable
inferences.” A.C.L.U. of Nev. v. City of Las Vegas, 466 F.3d 784, 790-91 (9th Cir. 2006)
(quotation marks and citation omitted); see also Pintos v. Pac. Creditors Ass’n, 605 F.3d 665,
674 (9th Cir. 2010) (“Cross-motions for summary judgment are evaluated separately under [the]
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same standard.”). In evaluating the motions, “the court must consider each party’s evidence,
regardless under which motion the evidence is offered.” Las Vegas Sands, LLC v. Nehme, 632
F.3d 526, 532 (9th Cir. 2011). “Where the non-moving party bears the burden of proof at trial,
the moving party need only prove that there is an absence of evidence to support the non-moving
party’s case.” In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 (9th Cir. 2010). Thereafter, the
non-moving party bears the burden of designating “specific facts demonstrating the existence of
genuine issues for trial.” Id. “This burden is not a light one.” Id. The Supreme Court has directed
that in such a situation, the non-moving party must do more than raise a “metaphysical doubt” as
to the material facts at issue. Matsushita, 475 U.S. at 586.
BACKGROUND
This is a case about two competing interpretations of an insurance policy. ServerLogic
argues that the policy requires Travelers to indemnify ServerLogic against an arbitration award
issued against ServerLogic and in favor of co-defendant NWTF. Travelers argues that the Policy
excludes coverage for all damages in the award.
A. Professional Services Contract between ServerLogic and NWTF
On January 22, 2009, NWTF and ServerLogic entered into a Professional Services
Master Agreement (“PSMA”) in which ServerLogic agreed to provide specific services set forth
in a subsequent Statement of Work (“SOW”). In the PSMA and SOW, ServerLogic agreed to
create a custom point-of-sale software system for NWTF. Under the terms of the SOW, the
software system was to be ready for pilot implementation in NWTF stores by the end of
September 2009 at a total cost to NWTF of $462,000 (the “Contract Price”).
Over the next 18 months, NWTF and ServerLogic made multiple amendments to the
scope of the SOW to correct deficiencies in the software system and to respond to NWTF’s
requests for modifications. In October 2010, NWTF informed ServerLogic that NWTF believed
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ServerLogic had breached the contract by failing to deliver a software system within the terms of
the SOW. On October 15, 2010, the CEOs of the two companies met to attempt to resolve the
dispute, and subsequently entered into a Letter Agreement on December 13, 2010 (“the Letter
Agreement”). The Letter Agreement modified the scope of the work to be performed by
ServerLogic and required ServerLogic to correct identified defects in the software and make
additional modifications requested by NWTF.
After NWTF’s unsuccessful attempts to implement the software system over the next
twelve months, on December 28, 2011, NWTF sent written notice to ServerLogic that its
services were terminated. On May 25, 2012, NWTF initiated arbitration (“the Arbitration”)
against ServerLogic under section 18.5 of the PSMA by filing a Statement of Claim with the
Arbitration Services of Portland. Travelers defended ServerLogic under a reservation of rights.
B. Insurance Contract between Travelers and ServerLogic
Travelers issued several forms of liability insurance to ServerLogic, effective December
1, 2009 to December 1, 2010. Under the policy’s CyberFirst Technology Errors and Omissions
Liability Coverage Form (“the Policy”), Traveler’s agreed to “pay those sums that the insured
must pay as ‘damages’ because of loss to which this insurance applies.” Dkt. 25, Ex. A at 26.
Section I, Subsection 1(b) of the Policy provides that “[t]his insurance applies to loss only if . . .
[t]he loss arises out of ‘your product’ or ‘your work’ provided or performed for others. Id.
Section II of the policy defines “damages” as either (a) “[s]ums any insured is legally obligated
to pay as compensatory damages imposed by law”; or (b) “[s]ums any insured must pay as
consequential damages.” Id. at 29.
Additionally, the Policy contains certain exclusions. Id. at 27-29. Relevant to this case,
Section I, Subsection 2(c) of the Policy (“the Warranty Exclusion”) excludes the following:
Any cost or expense incurred by any insured or others:
PAGE 4 – OPINION AND ORDER
(1) To comply with any warranty for “your product” or “your work”;
(2) To repair, replace, upgrade, supplement, or otherwise improve “your product”
or “your work”, or to perform or complete “your work”;
(3) For the recall, removal, or withdrawal of “your product” or “your work” from
the market or from use by any person or organization for any reason; or
(4) For the adjustment, inspection, or disposal of “your product” or ”your work”.
Paragraphs (2), (3), and (4) of this exclusion do not apply to loss of use of “your
product” or “your work.”
Id. at 28.
C. The Underlying Arbitration
In its Arbitration Statement of Claim, NWTF alleged that ServerLogic breached its
contract with NWTF by not performing as agreed in the PSMA and SOW and that ServerLogic
was negligent in failing to deliver a functional software system. NWTF claimed damages in the
amount of $948,000. Additionally, NWTF demanded that ServerLogic pay NWTF’s reasonable
attorney fees and costs under Section 18.10 of the PSMA. NWTF and ServerLogic arbitrated the
claim over nine days between August 28, 2013 and September 30, 2013. On October 4, 2013, the
arbitration panel issued its Interim Award. Dkt. 26, Ex. B.
In the Interim Award, the arbitration panel stated that “[NWTF] seeks recovery of
damages under both breach of contract and negligence for ServerLogic’s failure to deliver a
functional software system as promised.” Id. at 4. The arbitration panel found that ServerLogic
both breached the terms of its contract with NWTF and “was negligent in the performance of its
professional responsibilities to [NWTF].” Id. at 8-9.
In the Arbitration, NWTF requested total damages in the amount of $1,542,136. Id. at 10.
NWTF calculated its damages as follows: (a) the $762,646 paid by NWTF to ServerLogic (the
Contract Price of $462,000 plus about $300,646 paid to ServerLogic for modifications and to
PAGE 5 – OPINION AND ORDER
correct defects); (b) $173,608 paid by NWTF to a third party, D2i2 Consultants, for additional
work; and (c) $600,881 as pre-judgment interest, calculated at an annual rate of 18 percent. Id.
The arbitration panel concluded, however, that “any award of damages in this case must
take into consideration an offset based on some of [NWTF’s] requested enhancements during the
course of the project and [NWTF’s] assumption of some project management responsibilities
following the Letter Agreement.” Id. First, the arbitration panel concluded that NWTF “must
share some of the responsibility for the additional costs incurred over [and] above [the Contract
Price] of $462,000 originally agreed upon.” Id. Next, the arbitration panel “applied Section 11
of the PSMA, which precludes an award of damages in excess of the amounts [NWTF] actually
paid to ServerLogic.”1 Id. Finally, the arbitration panel concluded that the limitation on the
award of damages found in Section 11 of the PSMA applied to both a cause of action for breach
of contract and for negligence. Id.
On November 19, 2013, the arbitration panel entered a Final Award, incorporating the
Interim Award (together, “the Award”). The panel awarded NWTF $550,000 in damages,
prejudgment interest of $86,932, additional pre-judgment interest at a rate of $136.62 per day
from September 30, 2013 until November 19, 2013, and post-judgment interest at a rate of 9
percent per year. Dkt. 26, Ex. C. The panel held that “[t]he damages awarded are not cumulative
but the same under either the breach of contract or negligence claim.” Id. at 2. The panel also
concluded that NWTF, as the prevailing party in the proceeding, was entitled to an award of
attorney fees, expert witness fees, and costs under Section 18.10 of the PSMA in the amount of
$285,000. Id. at 3.
1
The arbitration panel did not specify how it applied Section 11 of the PSMA. The award
of damages in the amount of $550,000 was presumably calculated as the Contract Price of
$462,000 plus $88,000, the latter number presumably calculated as some portion of the
additional $300,646 paid to ServerLogic for modifications and to correct defects.
PAGE 6 – OPINION AND ORDER
DISCUSSION
A. Law Governing Interpretation of Insurance Contracts
The interpretation of an insurance policy is a matter of law. Emp’rs Ins. of Wausau, A
Mut. Co. v. Tektronix, Inc., 211 Or. App. 485, 503 (2007). In interpreting an insurance policy,
the court determines the intent of the parties based on the terms and conditions of the policy.
Hoffman Constr. Co. of Alaska v. Fred S. James & Co. of Oregon, 313 Or. 464, 469 (1992). To
make that determination, the court uses a three-step process. Id. First, if the terms of the policy
are unambiguous, the analysis ends and the unambiguous terms control. Id. at 470. If there are
multiple plausible interpretations of a term, however, the court next examines the term in light of
the “particular context in which that term is used in the policy and the broader context of the
policy as a whole.” Id. Finally, if the term remains ambiguous in light of its context, then the
term will be construed against the insurer. Id. The court determines plain meaning from the
perspective of a reasonable insured. Id. at 469-70.
B. Whether the Damages Awarded to NWTF “Arise Out of” ServerLogic’s Product or
Work
Section I, Subsection b(1) of the Policy provides that the insurance applies to a loss only
if “[t]he loss arises out of ‘your product’ provided to others or ‘your work’ provided or
performed for others.” Dkt. 26, Ex 4 at 26. Travelers argues that the term “arises out of” in the
Policy “requires a causal connection between [NWTF’s] loss and some product or work
ServerLogic provided to [NWTF]” and that the requisite causal connection does not exist here.
Travelers’ argument proceeds by first categorizing the majority of damages awarded to
NWTF in the Award as a “refund” of the Contract Price. NWTF’s Statement of Claim requested,
in part, “a refund of $758,722 paid to ServerLogic,” which included both the Contract Price of
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$462,000 and additional amounts paid to ServerLogic for defects and modifications.2 Next,
Travelers argues that the Contract Price of $462,000 was paid by NWTF to ServerLogic as
“consideration or motivation for ServerLogic to provide software” and was therefore “antecedent
to, not a result of, ServerLogic’s work and product.” Following this reasoning, Travelers
maintains that a “refund” of the Contract Price cannot “arise out of” ServerLogic’s work or
product and therefore that portion of the award is not covered by the Policy.
Insurance policies often employ such language as “arising out of” and “resulting from”
when describing the coverage provided by an insurance policy. 7 Couch on Ins. § 101:52. These
phrases are frequently given a broader and more comprehensive meaning than that encompassed
by “proximate cause” and are generally considered to mean “flowing from” or “having its origin
in.” Id. Oregon courts have frequently addressed the phrase in the context of automobile
insurance policies. See Oakridge Cmty. Ambulance Serv., Inc. v. U. S. Fid. & Guar. Co., 278 Or.
21 (1977); Atlanta Cas. Co. v. Orr, 141 Or. App. 441, 444 (1996); Jordan by Jordan v. Lee, 76
Or. App. 472 (1985); see also Artisan & Truckers Cas. Co. v. John Zaccar Cranley Nw. Pilot
Car Serv., 2014 WL 29350, at *6 (D. Or. Jan. 3, 2014) (discussing Oregon cases).
The only support provided by Travelers for its argument is Oakridge, in which the
Oregon Supreme Court adopted the generally accepted rule for interpreting the phrase “arising
out of the ownership, maintenance or use of the owned automobile.” 278 Or. at 24-25. According
to the court in Oakridge, the words “arising out of” have a broader meaning than that usually
attached to the words “caused by.” Id. at 25. Interpreting Oakridge, the Oregon Court of Appeals
has held that, for there to be coverage under such a provision, the ownership, maintenance, or use
of a vehicle need not be the direct or legal cause of an injury. Jordan, 76 Or. App. at 475. The
2
As explained in more detail above, the Award reduced the $758,722 requested by
NWTF to $550,000.
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injury, however, cannot be unrelated to the use of the vehicle. The injury “must originate from,
be incident to or have a connection with the use of the vehicle.” Id.
Applying the Oregon courts’ analysis to the phrase “arising out of” in the present
insurance contract, the Court finds that the loss at issue, at the very least, has a connection to
ServerLogic’s product or work as required under the Policy. Moreover, even if the term were
ambiguous, any ambiguity is construed in favor of the insured. Blohm v. Glens Falls Ins. Co.,
231 Or. 410, 416 (1962). Accordingly, Travelers cannot conclusively demonstrate that the
damages awarded to NWTF in the Award did not “arise out of” ServerLogic’s product or work
within the meaning of the Policy.
C. Whether the Damages Awarded to NWTF Are “Compensatory Damages” Within the
Meaning of the Policy
The Policy expressly defines “damages” as either “compensatory damages” or
“consequential damages.” Dkt. 26, Ex. 4 at 29. Travelers argues that the damages awarded to
NWTF in the Award cannot properly be characterized as consequential damages because the
arbitration panel applied the damage limitation provisions of the PSMA, which specifically
preclude liability for consequential damages. Moreover, Travelers argues that, because neither
NWTF’s Statement of Claim or the Award make any reference to consequential damages, the
relevant inquiry is whether the damages awarded to NWTF are appropriately characterized as
compensatory damages or some other form of relief. The Court agrees with this analysis. 3
Travelers next argues that the damages awarded to NWTF are not compensatory damages
within the meaning of the Policy because any “refund” of the Contract Price to NWTF must be
3
In its response to Travelers’ Motion for Summary Judgment, ServerLogic concedes that
the PSMA precludes liability for consequential damages, but asserts that the damages awarded to
NWTF in the Award may still be reasonably characterized as consequential damages. In its reply
in support of its own Motion for Summary Judgment, however, ServerLogic argues that the
damages awarded to NWTF may only be characterized as compensatory damages.
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characterized as restitution and that restitution as a remedy is distinct from compensatory
damages. Although the Court agrees that consequential damages are not at issue here, Travelers’
claim that the damages awarded to NWTF are a refund and thus “restitution” rather than
compensatory damages is conceptually flawed.
The flaw in Travelers’ argument arises from Travelers conflating two different meanings
of “restitution.” The Restatement (Third) of Restitution explains that:
It is an accepted part of American contract law that there are
remedies for breach called “restitution,” but the multiple
connotations of the word “restitution” are such that “restitution for
breach of contract” can refer to a number of different things
entirely. The difficulty has been compounded by the conflicting
uses of the word “restitution” in the two Restatements of
Contracts. The original Restatement of Contracts used the word
“restitution” to describe both the remedy that lawyers had always
called “rescission” and the entirely different remedy that consists
of damages measured by the value of the plaintiff's performance.
Restatement (Third) of Restitution and Unjust Enrichment II, Intro. Note (2011). The
Restatement goes on to explain that restitution as a remedy for a performing party with no
contract claim (“unjust enrichment”) is distinct from the alternative remedy for breach of
contract (“rescission and restitution”). Id. See also Douglas Laycock, The Scope and Significance
of Restitution, 67 Tex. L. Rev. 1277, 1279 (1989) (“Lawyers use the word ‘restitution’ in at least
two senses. ‘Restitution’ means recovery based on and measured by unjust enrichment. It also
means restoration in-kind of a specific thing.”). Plaintiff, in fact, cites cases discussing
“restitution” in both the context of rescission of a contract and unjust enrichment without ever
distinguishing between the two or explaining which legal concept it is referring to in its
argument.
The Court need not, however, untangle this issue because Travelers’ characterization of
the Award as a “refund,” and thus “restitution,” is without merit. Although NWTF’s Statement
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of Claim does refer to a “refund,” the term as used in the Statement of Claim simply refers to
NWTF’s own measure of its damages, under both breach of contract and negligence theories, as
all money paid to ServerLogic. Dkt. 26, Ex. 2 at 1. Travelers’ characterization of the Award as
“restitution” is thus inapt, as the Award itself makes no reference to restitution of any kind. The
arbitration panel, in explaining its award of damages, identified the amount of damages
requested by NWTF, and reduced that amount for multiple and separate reasons. Dkt. 26, Ex. 2
at 10-11. First, the arbitration panel concluded that “any award of damages in this case must take
into consideration an offset based on some of [NWTF’s] requested enhancements during the
course of the project and [NWTF’s] assumption of some project management responsibilities
following the Letter Agreement.” Id. at 10. Second, the arbitration panel held that NWTF “must
share some of the responsibility for the additional costs incurred over [and] above the $462,000
originally agreed upon amount.” Id. Third, the arbitration panel “applied Section 11 of the
PSMA, which precludes an award of damages in excess of the amounts [NWTF] actually paid to
ServerLogic.” Id. Finally, the arbitration panel determined that the limitation on the award of
damages found in Section 11 of the PSMA applied to both “a tort action and to a breach of
contract action.” Id. Nowhere in its discussion of damages does the Award characterize the
damages awarded to NWTF as being in any way related to restitution. Accordingly, the damages
at issue are appropriately characterized as compensatory damages within the meaning of the
Policy, rather than what Travelers refers to as “restitution.”
D. Whether the Warranty Exclusion Precludes Coverage of the Damages Awarded to
NWTF
Travelers argues that the Warranty Exclusion (Section I, Subsection 2(c) of the Policy)
excludes all of the damages awarded to NWTF in the underlying arbitration. The Warranty
Exclusion excludes from coverage under the Policy:
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Any cost or expense incurred by any insured or others:
(1) To comply with any warranty for “your product” or “your work”;
(2) To repair, replace, upgrade, supplement, or otherwise improve “your product”
or “your work”, or to perform or complete “your work”;
(3) For the recall, removal, or withdrawal of “your product” or “your work” from
the market or from use by any person or organization for any reason; or
(4) For the adjustment, inspection, or disposal of “your product” or ”your work”.
Paragraphs (2), (3), and (4) of this exclusion do not apply to loss of use of “your
product” or “your work.”
Dkt. 25, Ex. A at 28 (emphasis added). Travelers asserts that the damages at issue in this case fall
into three categories: (a) the Contract Price of $462,000, which Travelers characterizes as a
“refund”; (b) an additional $88,000 awarded to NWTF, which Travelers characterizes as a
“partial refund” of the additional $300,646 paid to ServerLogic over the Contract Price;
and (c) additional amounts paid to D2i2, a third-party consultant. According to Travelers, there
are no other damages at issue and each category of damages is excluded under the Policy’s
Warranty Exclusion. ServerLogic concedes that the Warranty Exclusion applies to amounts paid
to the D2i2, the third-party consultant, but argues that it does not apply to either the Contract
Price or any additional amount paid by NWTF directly to ServerLogic.
Travelers’ argument rests on paragraph (2) of the Warranty Exclusion. Travelers argues
that the second clause of paragraph (2) (excluding “any cost or expense” incurred “to perform or
complete ‘your work’”) excludes all damages awarded by the arbitration panel to Plaintiff in the
Award because the Contract Price was paid to ServerLogic solely for the purpose of creating
working software for NWTF and ServerLogic did not, in fact, provide working software to
NWTF, according to the arbitration panel. Similarly, Travelers argues that the first clause of
paragraph (2) (excluding “any cost or expense” to repair, replace, upgrade, supplement, or
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otherwise improve “your product”) applies to all damages paid to NWTF above the Contract
Price. These additional amounts, Travelers maintains, were a result of various requests for
correction of software defects, enhancements, and change orders that modified the scope of
ServerLogic’s work. Specifically, there was no claim by NWTF and no finding by the arbitration
panel that ServerLogic’s work caused financial harm to NWTF other than the amounts it had to
pay for ServerLogic’s work or to repair or complete ServerLogic’s work.
The plain meaning of the text of the Warranty Exclusion and the underlying facts of this
case unambiguously show that the Warranty Exclusion applies to all of the damages awarded to
NWTF. NWTF paid ServerLogic to create a custom point-of-sale software system that would be
ready for pilot implementation in NWTF stores by the end of September 2009. NWTF claimed
that the software was defective, and ServerLogic was unable to correct those defects despite
additional amounts paid to ServerLogic and a third-party for this purpose. In short, ServerLogic
failed to perform or complete its work and was therefore required to pay compensatory damages
to NWTF as a result.
That the intent of the parties was to exclude these types of damages is also clear from the
broader context of the Policy. In addition to paragraph (2), paragraphs (1), (3), and (4) of the
Warranty Exclusion more generally exclude costs related to defects in an insured’s own work or
products. For example, paragraph (1) excludes damages related to compliance with warranties;
paragraph (3) excludes coverage for the “recall, removal, or withdrawal” of an insured’s
products; and paragraph (4) excludes coverage for the “adjustment, inspection, and disposal of
an insured’s own work or products. Similarly, other exclusions found in Subsection 2 of the
Policy also demonstrate an intent to exclude coverage for costs related to an insured’s own
conduct. For example, Subsection 2(b) excludes coverage for any “cost guarantee or probable
PAGE 13 – OPINION AND ORDER
cost estimate being exceeded” or any “cost overrun.” Section I, Subsection 2(e) excludes
coverage for any failure “to deliver ‘your product’” or to “begin ‘your work’ as required by
contract or agreement. Subsection 2(f) excludes coverage for wrongful acts that the insured had
knowledge of before the Policy was purchased.
ServerLogic contends, however, that while the above analysis may apply to the breach of
contract portion of the Award, it does not apply to the portion of the Award finding that
ServerLogic was also negligent in the performance of its work. In the Award, the arbitration
panel specifically held that “the breach of contract damages and negligence damages are
duplicative and not cumulative.” Dkt. 26, Ex 3 at 2. Therefore, ServerLogic argues, because the
arbitration panel held that ServerLogic owed a duty to NWTF that was “separate from and in
addition to” ServerLogic’s contractual duties, the warranty exclusion does not apply to any
damages for ServerLogic’s negligence.
This argument is unpersuasive and the Court finds no basis for ServerLogic’s claim that
the underlying theory of liability in the Award determines whether the Warranty Exclusion
applies. To the contrary, the Warranty Exclusion expressly states that it applies to “[a]ny cost or
expense incurred by any insured or others.” Dkt. 25, Ex. A at 28. The plain meaning of the
phrase “any cost or expense” suggests that the exclusion applies regardless of the underlying
theory of liability. While ServerLogic attempts to characterize the damages for negligence as
somehow distinct from those granted for breach of contract, the only damages sought by NWTF
in the underlying arbitration were for ServerLogic’s failure to “perform or complete”
ServerLogic’s work.4 Thus, regardless of the underlying theory of liability, ServerLogic paid
damages to NWTF because ServerLogic did not perform the services it had promised to provide
4
As stated above, there was no claim by NWTF for any other financial damage
supposedly caused by ServerLogic’s work.
PAGE 14 – OPINION AND ORDER
to NWTF. Damages for this failure to perform fall squarely within paragraph (2) of the Warranty
Exclusion. Accordingly, Travelers is not obligated to indemnify ServerLogic for any of the
damages in the Award.
E. Attorney Fees and Costs
The Supplementary Payments section of the Policy provides that Travelers must pay for
“costs taxed against the insured” and for pre-judgment and post-judgment interest with respect to
“that part of the judgment we pay.” Dkt 25, Ex A at 11. Because the Court finds that all of the
damages in the Award are excluded by the Warranty Exclusion, and therefore that Travelers is
not obligated to indemnify ServerLogic for any portion of the Award, Travelers also is not
obligated to pay for any interest or attorney fees under the Supplementary Payments section of
the Policy.
CONCLUSION
Travelers’ Motion for Summary Judgment (Dkt. 24) is GRANTED. ServerLogic’s
Motion for Summary Judgment (Dkt. 26) is DENIED. This case is DISMISSED.
IT IS SO ORDERED.
DATED this 3rd day of March, 2015.
/s/ Michael H. Simon
Michael H. Simon
United States District Judge
PAGE 15 – OPINION AND ORDER
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