Alkemade et al v. Quanta Indemnity Co. et al
Filing
117
OPINION AND ORDER: Granting Motion for Joinder 67 in motion for summary judgment; Granting Motion for Summary Judgment 68 ). Signed on 6/20/14 by Judge Michael J. McShane. (ljb)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON
ADRIANUS ALKEMADE and RACHELLE
ALKEMADE, individuals,
Plaintiffs,
Case No. 6:12-cv-00844-MC
OPINION AND ORDER
v.
QUANTA INDEMNITY CO., a Colorado
Domiciled insurance company; and
GENERAL FIDELITY INSURANCE CO.,
A South Carolina domiciled insurance
company,
Defendants.
MCSHANE, Judge:
Plaintiffs Adrianus and Rachelle Alkemade bring this breach of contract action against
their contractor's insurers. The insurers argue that based on the known-loss provision of the
policies, there was no duty to defend the insured in the underlying action. Because the complaint
in the underlying action alleged damages based on continuing or recurring damage from
expanding soils, and because there is no question that the insured was aware of such risk long
before the policies at issue, there was no duty to defend. Defendant's motion for summary
judgment (ECF No. 68) is GRANTED.
1 - OPINION AND ORDER
BACKGROUND
1
Defendants Quanta Indemnity Co. (Quanta) and General Fidelity Insurance Co. (GFIC)
both insured Meltebeke Built Paradise Homes (Meltebeke) under general liability policies.
Quanta insured Meltebeke from June 30, 2005 through June 30, 2006. GFIC insured Meltebeke
from June 30, 2006 through June 30, 2007; and from June 30, 2008 through June 30, 2011.
Meltebeke built the Alkemades' home in 1994. 18 months or so later, the Alkemades
noticed cracks in brick walls, floor tiles and ceiling panels, and sticking of windows and sliding
doors. Unfortunately, the home was built on expanding clay soils. Meltebeke spent years
attempting to fix the various problems. Meltebeke repaired tiles with pavers, fixed cracks, and
installed french drains to alleviate drainage problems. Nothing stopped the house from moving.
In 2002, Meltebeke hired two engineering companies to examine the property. Their
reports confirmed that at least by 2002, Meltebeke knew for certain that the home was built on
top of expanding soils and that the heaving soils were moving and damaging the home.
Eventually, Meltebeke hired Oregon Helical Piers, LLC (OHP) to create a new
foundation of helical piers. Helical piers are screw-like foundational elements that transfer
weight from soft upper soil to more compact lower soil. OHP installed the helical piers in 20022003. There is no dispute that had the piers been installed correctly, they would have provided an
acceptable solution to the expanding soils problem.
Additional property damage occurred following the installation of the piers. More cracks
appeared. In 2004, Meltebeke had OHP install a stabilizing cable in the attic in another
unsuccessful attempt to address the movement problems. In August 2004, Meltebeke established
a zero point, or normal, level for the house. By January 2005, measurements established the
1
I construe all facts in the light most favorable to plaintiffs, the non-moving parties.
2 - OPINION AND ORDER
horne had shifted one-half inch. Also in 2005, additional piers were installed under a porch after
the porch pulled away from the house. Each of the above issues occurred prior to the policy
periods in question. Needless to say, the helical piers ultimately did not fix the problems. The
parties agree that the piers did not prevent expanding soils from damaging the horne.
In January 2005, the Alkernades and Meltebeke executed a settlement agreement in
which the Alkernades released Meltebeke from liability for the original construction of the horne
in return for Meltebeke warranting the helical pier work and repairs. Similar damage to the horne
occurred in the years following the installation of the helical piers. The dispute here is whether
the post-helical pier damage was entirely new damage or a continuation or resumption of
previous damage.
I. Prior Lawsuit
In June 2010, the Alkernades filed a state court action against Meltebeke. Canal
Indemnity Company and State Farm, who insured Meltebeke before June 2005, defended
Meltebeke. Quanta and GFIC each denied coverage, refused to defend Meltebeke, and did not
participate in any settlement agreements.
In November 2011, the Alkernades, Meltebeke, Canal, and State Farm agreed to a
settlement agreement in which Meltebeke agreed to a stipulated judgment in favor of the
Alkernades. Following a reasonableness hearing, the trial court entered judgment against
Meltebeke for $1,600,000 in damages and $100,000 in attorneys fees. Canal and State Farm each
paid $100,000 to the Alkernades in partial satisfaction of the judgment. Metlebeke, Canal, and
State Farm each assigned to the Alkernades their claims against Quanta and GFIC. The
Alkernades then filed this complaint alleging breach of contract claims against Quanta and GFIC
based on failures to defend and indemnify Meltebeke in the underlying action.
3 - OPINION AND ORDER
Because ofthe number of insurers involved, GFIC's chart is helpful. As noted above, the
Alkemades argue the damage from 2003 on is new damage while GFIC's chart labels the
damage as continuing damage:
Insurer
Policy Periods
Significant Events
State Farm
1997- 111/03
Canal Co.
111/03 - 111/06
Quanta
6/30/05- 6/30/06
1994: Home is built
1995: Property damage occurs
1995-97: Fixes first performed
1998: Damage continues
1998: Porch and interior repairs
2000: Damage continues
2002: Engineering conducted
2003: OHP installs piers
2004: Interior cosmetic fixes
2004: Damage continues and cable installed in attic
2004: State Farm release signed
2005: Damage continues and porch pier installed
Damage continues
GFIC
6/30/06- 6/30/07
Damage continues
Berkeley Regional
6/30/07-6/30/08
Damage continues
GFIC
6/30/08 - 6/30111
Damage continues and lawsuit filed
STANDARDS
The court must grant summary judgment if there is no genuine issue of material fact and
the moving party is entitled to judgment as a matter oflaw. Fed. R. Civ. P. 56( a). An issue is
"genuine" if a reasonable jury could return a verdict in favor of the non-moving party. Rivera v.
Phillip Morris, Inc., 395 F.3d 1142, 1146 (9th Cir. 2005) (citing Anderson v. Liberty Lobby, Inc.,
477 U.S. 242,248 (1986)). A fact is "material" if it could affect the outcome ofthe case. Id The
court reviews evidence and draws inferences in the light most favorable to the non-moving party.
4 - OPINION AND ORDER
Miller v. Glenn Miller Prods., Inc., 454 F.3d 975, 988 (9th Cir. 2006) (quoting Hunt v.
Cromartie, 526 U.S. 541, 552 (1999)). When the moving party has met its burden, the nonmoving party must present "specific facts showing that there is a genuine issue for trial."
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (quoting Fed. R. Civ. P.
56( e)).
DISCUSSION
This case turns on the interpretation of an insurance policy. Therefore, I must ascertain
the intention of the parties to the policy. Hoffman Constr. Co. ofAlaska v. Fred S. James & Co.
ofOregon, 313 Or. 464,469 (1992). I first tum to the language ofthe policy.Id. (citing ORS
742.016 (except in cases not relevant here, "every contract of insurance shall be construed
according to the terms and conditions of the policy.")). If the terms and conditions of the policy
are ambiguous following a plain meaning review, the court considers the terms and conditions in
the particular context used and then, if necessary, in the context of the policy as a whole. I d. at
470. If any ambiguity remains-meaning if two or more plausible interpretations ofthe term
remain-the court resolves the ambiguity against the drafter and in favor of the insured. I d.
Courts examine the policy language from the perspective ofthe ordinary purchaser of insurance.
North Pacific Ins. Co., v. American Mfrs. Mut. Ins. Co., 200 Or. App. 473,478 (2005).
The relevant portions of the policy state:
b. This insurance applies to ... "property damage" only if:
(1) The ... "property damage" is caused by an "occurrence" that takes
place in the "coverage territory";
(2) The ... "property damage" occurs during the policy period; and
(3) Prior to the policy period, no insured ... knew that the ... "property
damage" had occurred, in whole or in part. If such a listed insured ... knew,
prior to the policy period, that the ... "property damage" occurred, then any
5 - OPINION AND ORDER
continuation, change or resumption of such ... "property damage" during or after
the policy period will be deemed to have been known prior to the policy period.
c. "[P]property damage" which occurs during the policy period and was not, prior
to the policy period, known to have occurred by any insured ... includes any
continuation, change or resumption of that ... "property damage" after the end of
the policy period.
d. "[P]property damage" will be deemed to have been known to have occurred at
the earliest time when any insured ... :
( 1) Reports all, or any part, of the ... "property damage" to us or any
other insurer:
(2) Receives a written or verbal demand or claim for damages because of
the ... "property damage"; or
(3) Becomes aware by any other means that ... "property damage" has
occurred or has begun to occur.
The policy provides the following definitions:
13. "Occurrence" means an accident, including continuous or repeated exposure
to substantially the same general harmful conditions.
***
17. "Property damage" means:
a. Physical injury to tangible property, including all resulting loss of use of
that property. All such loss of use shall be deemed to occur at the time of the
physical injury that caused it, or
b. Loss of use of tangible property that is not physically injured. All such
loss of use shall be deemed to occur at the time of the "occurrence" that caused it.
Stated another way, the policy covers property damage only if, prior to the policy period,
no insured knew that the physical injury to tangible property had occurred in whole or in part.
Section l(l)(b)(3) of the policy provides that if the insured knew of property damage prior to the
policy period, any continuation, change, or resumption in the property damage is deemed to have
been known prior to the policy period. Conversely, section 1(1)(c) of the policy provides that if
an insured first learns of property damage during the policy period, any continuation or
6- OPINION AND ORDER
resumption of the property damage after the policy period is deemed to occur in the policy
period. The parties disagree as to whether the damage after the unsuccessful remediation attempt
of the helical piers was a continuation, change, or resumption of property damage from
expanding soils known to Meltebeke in the 11 years prior to the policy periods in question.
I turn first to the duty to defend. Contrary to the assertions ofthe Alkernades, Judge
Coffin did not rule on this issue.
The duty to defend is broader than the duty to indemnify. School Dist. v. Mission Ins.
Co., 58 Or. App. 692, 696 (1982). Ifthere is a possibility that the policy covers the claim, the
duty to defend arises. !d. Courts look at the whether the complaint, without amendment, could
impose liability under the policy. !d. at 696-97 (quoting Ferguson v. Birmingham Fire Ins., 254
Or. 496, 507 (1969). If so, the insurer has a duty to defend the insured. "Any doubts regarding
coverage are resolved in favor of the insured." !d. at 697.
The Second Amended Complaint in the underlying state case against Meltebeke alleged
that approximately 18 months after construction, cracks, sticky windows, and other "symptoms
of movement ofthe horne" began to
appear.~
2, ECF No. 27-1, 18. The complaint states:
Meltebeke attempted to remedy the unstable foundation problem with the
installation of French drains, and repaired the structural damage from time to time
as it appeared. Notwithstanding Meltebeke's efforts, the symptoms recurred.
!d.
The complaint alleged that after OHP put in the helical piers, Meltebeke "replaced
sheetrock, tile, masonry, cabinetry and finishes in order to provide plaintiffs with a horne that
was free of damage."~ 3. "After the remediation work and related repairs were completed, the
foundation shoring failed, thus causing new damage to plaintiffs' horne, including ... cracking
interior walls, masonry, floor tiles, roof tiles, sticky doors and windows, gapping around
7 - OPINION AND ORDER
windows so that the home is not weatherproof, broken plumbing lines, and an out-of-level garage
floor
slab."~
16.
The complaint alleged Meltebeke breached its warranty by, among other reasons,
selecting an inadequate foundation system and failing to install piers to the necessary depth.
~
18.
The complaint is silent as to when Meltebeke or the Alkemades noticed any of the new damage
following installation of the helical piers.
The second amended complaint, filed on the eve of settlement, followed the original
complaint. The original complaint sought $500,000 in damages:
as the cost of the replacement of the Chance helical piers with deeper micropile
underpinning the home, the excavation of an adequate void space between the
footing and the ground surface, and all costs related to structural and cosmetic
repairs to the home.
~
8, ECF No. 27-1, 2.
As to the damage suffered, the original complaint states "After the remedial work and
related repairs were completed, the symptoms recurred." !d.
at~
5. The "symptoms" were
"symptoms of movement ofthe highly expansive soil under the home," including "cracks in the
exterior brick walls, interior sheetrock, floor tiles, and ceiling panels, as well as sticky doors and
windows." !d.
at~
2. In other words, the house experienced structural damage due to heaving
soils. After the helical piers failed, the house experienced the same structural damage (referred to
as "symptoms") from the same cause (heaving soils).
Defendants argue that the helical piers were simply one more in a long line of
unsuccessful attempted remedial fixes to the known property damage resulting from expanding
soils. Therefore, defendants argue the known property loss exclusion precludes coverage.
8 - OPINION AND ORDER
The Alkemades argue that Meltebeke is simply being penalized for performing his own
repairs, and that this policy would certainly apply to an outside contractor brought in to fix the
foundation. In that case however, section I(l)(b)(3) of the policy would not exclude coverage, as
prior to the policy, the insured (outside contractor) would not have known the property damage
occurred. Here, the insured is Meltebeke. And it is undisputed that prior to the policies at issue,
Meltebeke knew of the property damage. After all, Meltebeke spent the prior 10 years attempting
unsuccessful remedial fixes to damage caused by the expanding soils moving the foundation.
The Alkemades note that the policy does not define "continuation, change or
resumption." While that is certainly true, those terms have an unambiguous plain meaning.
"Resumption" includes "the act or fact of taking up again." Webster's Third New Int'l
Dictionary. A "continuation" includes "the action of carrying on or resuming after an
interruption or break." Id. In the context of the known loss provision, I conclude these terms are
unambiguous as to the average purchaser of insurance.
A more difficult question is how general or specific an examination of "property
damage" must be in order to come under the known loss provision. Citing Valley Forge Ins. Co.
v. American Safety Risk Retention Group, Inc., 2006 WL 314455 (D. Or.), the Alkemades argue
that Meltebeke's knowledge of the cause of"property damage" is irrelevant, and that, in order
for the known loss provision to apply, Meltebeke had to know of each specific instance of
property damage prior to the policy period. For example, the Alkemades argue that because they
did not experience plumbing problems prior to the policy periods, the damage to the pipes
necessarily is new damage under the policy, as Meltebeke clearly did not know of broken pipes
prior to the policy period.
9 -OPINION AND ORDER
Valley Forge, however, dealt with different policy language, and different facts, from
those at issue here. Valley Forge dealt with construction defects in 50 condominiums, with
undisputed evidence of hundreds of defects, including improper installation of framing moisture
barriers, sealants, and tile veneer. Here, we are dealing with, at most, two defects: (1) the
decision to build the home on expanding soils; and (2) the negligent installation of the piers.
Additionally, this case deals with one sole cause (expanding soils) with similar types of damages
(cracking and shifting of property). Under these circumstances, plainti±Is' argument that later
damage of the same type, from the same cause, is not a continuation or resumption of earlier
damage of the same type, from the same cause, is simply not a reasonable interpretation of the
policy.
The Alkemades point to Desert Mountain Properties Ltd P 'ship v. Liberty Mut. Fire Ins.
Co., 236 P .3d 421 (Ariz. 201 0). Desert Mountain involved the construction of 50 new homes.
"From the outset, some of the homes experienced settlement and drainage problems and patio
cracks." Desert Mountain at 425. Four years later, and two months after obtaining the policy, the
plaintiff learned of a particular home "that had experienced such significant settlement that the
patio had sunk two to three inches, retaining walls had rotated and cracks had appeared in the
roof and interior walls." Id An outside consultant then concluded poor soil compaction under all
50 homes caused shifting which led to cracks and other damage requiring extensive repairs.
Unlike the facts here, the insured in Desert Mountain only learned of extensive damage
during the policy period. Desert Mountain's vice president of development testified that prior to
the outside consultant's examination during the policy period, "There was no reason to think we
had a widespread settlement issue . .. It all was resolved, and it was a thing of the past. No one
even considered it any further once there was a resolution." Id (emphasis in original). Other
10 - OPINION AND ORDER
Desert Mountain employees handling the pre-policy individual complaints testified "that none of
the complaints led them to believe there was a wide-scale problem with improper soil
compaction" and that the initial problems "were minor issues typically seen in new home
construction." Id Unlike the situation in Desert Mountain, Meltebeke confirmed extensive
settlement problems involving the only property at issue years prior to the policy period. The
second amended complaint alleged Meltebeke knew, 18 months after construction, of
~
I
"symptoms of movement of the home" resulting in an "unstable foundation problem."~ 2.
Desert Mountain is simply inapplicable to these facts, where the insured's pre-policy knowledge
I
of widespread problems is undisputed. In fact, plaintiffs point to no case law analogous to the
I
I
I
somewhat unique facts at issue here.
Meltebeke' s knowledge of the cause of the property damage simply cannot be separated
from his knowledge of property damage. Metlebeke's knowledge prior to the policy period of
expanding soils, which caused structural damage (or "symptoms") resulting in physical injury to
tangible property (in the form of cracked sheetrock, masonry, tiles, and sticking windows and
doors), means Meltebeke knew of a risk of property damage from expanding soils prior the
policy periods.
As noted, the policy states that in order for coverage to apply, ''[p ]rior to the policy
period, no insured ... knew that the ... "property damage" had occurred, in whole or in part. If
such a listed insured ... knew, prior to the policy period, that the ... "property damage"
occurred, then any continuation, change or resumption of such ... "property damage" during or
after the policy period will be deemed to have been known prior to the policy period." Section
I( 1)(b )(3 ). The same type of structural property damage, from the same danger Meltebeke knew
of-and attempted unsuccessfully to address-for 10 years prior to the policy period, necessarily
11 - OPINION AND ORDER
means that according to the terms of the policy, Meltebeke knew of the property damage prior to
the policy period. After all, structural problems in the home, caused by expanding soils, occurred
before and after the policy periods. Whether these "symptoms" were cracked sheetrock or
misaligned plumbing makes no difference. No matter what the complaints call the damage, there
is no doubt that the same symptoms or damage (cracked tiles and sheetrock, sticking doors and
windows, etc) to the home occurred before and after the helical pier installation. The complaints
make clear these symptoms or damages are the result of heaving soils. The policy clearly states
property damage "is deemed to have been known to have occurred" once the insured becomes
aware that "'property damage' has occurred or has begun to occur." I(l)(d)(3).
GFIC puts it well:
Each and every symptom of property damage that has occurred at the Alkemade
residence was caused by the expansive soil, which kept heaving in spite of the
initial gravel placed under the home, in spite of the French drains and in spite of
the helical piers. To use Meltebeke's term, after each repair attempt, a
continuation, change or resumption of damage 'recurred'.
ECF No. 68, 23. I agree.
The second amended complaint clearly alleges that Meltebeke knew of "symptoms of
movement of the home" 18 months after construction.
~
2. The complaint alleges "Meltebeke
attempted to remedy the unstable foundation problem with the installation of French drains, and
repaired the structural damage from time to time as it appeared. Notwithstanding Meltebeke's
efforts, the symptoms recurred." !d. Meltebke later "undertook to improve site drainage and to
remedy the unstable foundation problem [by hiring a subcontractor to install helical piers]." !d. at
~
3. Despite his best efforts, "the foundation shoring failed, thus causing new damage to
plaintiffs' home, including without limitation: cracking interior walls, masonry, floor tiles, roof
tiles, sticky doors and windows, gapping around windows so that the home is not weather-proof,
12- OPINION AND ORDER
broken plumbing lines, and an out-of-level garage floor slab." Id.
at~
6. The second amended
complaint makes clear that the "new damage" is simply a continuation or resumption of the prior
damage. As the allegations clearly indicated the loss was not covered under the relevant policies,
there was no duty to defend.
Plaintiffs state:
What should not be lost in all this legal and factual minutiae is the reason insurers
include known property damage language. They do not want insureds buying
insurance after they learn their house is on fire. Stated another way, they don't
want contractors buying liability insurance after they discover damage they know
may result in liability.
Resp. 21. The problem with the Alkemades' argument is that the house was already on fire, and
everyone but the future insurers knew it before Meltekebe purchased the policies at issue.
Despite knowing the house was on fire, Meltebeke went out and purchased new insurance (after
reaching a settlement with his prior insurers and the Alkemades relating to the cause of all the
property damage). In other words, despite being aware of the damage, Meltebeke did not inform
the new insurers of their potential liability to known, yet undisclosed, risks.
The known loss provision does not only protect the insurer. The policy also provides that
had Meltebeke not known of structural damages from expanding soils before the policy period,
then any continuation or resumption of structural damages from expanding soils that occurs after
the policy period is deemed to have occurred during the policy period. Policy,§ I(l)(c). The
provision simply sets the risk for both parties to the contract. Any property damage from a
known risk is clearly not covered. To the average purchaser of insurance, the provision is clear
and unambiguous. Within this context, the Alkemades' argument that home movement from
expanding soils that cracked walls during the policy period is covered simply because those
13 -OPINION AND ORDER
specific cracks had not appeared prior to the policy is unreasonable. All of the post pier structural
damage from movement of the home is simply a continuation or resumption of structural damage
from movement of the home before the pier installation.
I conclude that recurring symptoms or damage to property, with the same underlying
cause, clearly and unambiguously constitute a "continuation, change or resumption" of earlier
property damage of the same type from the same cause. Because the complaints clearly allege
Meltebeke knew of prior property damage resulting from heaving soils, and because the
complaints clearly allege the helical piers not only failed to address the movement of the home,
but also led to a continuation or recurrence of property damage due to heaving soils, I conclude
defendants had no duty to defend Meltebeke in the underlying action. Attempting to define
property damage as "symptoms" rather than "damage" does not suddenly give rise to a duty to
defend.
CONCLUSION
GFIC's motion for summary judgment (ECF No. 68) is GRANTED. Quanta's Motion to
join (ECF No. 67) GFIC's motion for summary judgment is GRANTED.
IT IS SO ORDERED.
DATED this 20th day of June, 2014.
/s/ Michael J. McShane
Michael McShane
United States District Judge
14 -OPINION AND ORDER
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