United Specialty Insurance v. Everest Construction et al
Filing
23
MEMORANDUM DECISION AND ORDER denying 14 United Specialty Insurance Companys Motion for Judgment on the Pleadings. Signed by Judge Tena Campbell on 2/28/2019. (jds)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH, NORTHERN DIVISION
UNITED SPECIALTY INSURANCE CO.,
Plaintiff,
v.
ORDER
AND
MEMORANDUM DECISION
EVEREST CONSTRUCTION,
Defendant.
Case No. 1:18-CV-45-TC
District Judge Tena Campbell
Plaintiff United Specialty Insurance Company filed this declaratory judgment action to
resolve its insurance coverage dispute with Defendant Everest Construction. To that end, United
Specialty has filed a motion for judgment on the pleadings. For the reasons stated below, the
court DENIES the motion.
Background
From October 2016 to October 2017, United Specialty insured Everest, a roofing
contractor, through a “surplus lines” insurance policy (the Policy). According to United
Specialty, this is “the type of policy that often provides a narrower range of coverage than
standard market policies.” (United Specialty Reply Mem. Supp. Mot. J. Pleadings at 2, ECF No.
20.)
In 2017, Everest filed a claim with United Specialty after it was sued by personal injury
plaintiff Kimberly Delobel in state court. Ms. Delobel—a building inspector—was seriously
injured when she was struck by an eighty-five pound package of roofing shingles thrown by an
Everest employee off the roof of a building at the Santorini Village Project.1
United Specialty denied that it had either a duty to defend Everest in Ms. Delobel’s
personal injury suit or a duty to indemnify Everest for losses arising out of the suit. In its
communications to Everest, it denied coverage, citing only the policy’s “Fall from Heights”
exclusion. It then filed this declaratory judgment action. In United Specialty’s complaint, it
denied coverage based on the “Fall from Heights” exclusion and asserted, for the first time, the
“Multi-Unit Residential Structures” exclusion.
The Policy Exclusions
Under the “Fall from Heights” exclusion, contained in an endorsement to the policy,
insurance coverage does not extend to:
“Bodily injury” sustained by any person at the location of the incident, whether
working or not, arising out of, resulting from, caused by, contributed to by, or in
any way related to, in whole or in part, from a fall from heights. For purposes of
this exclusion, a “fall from heights” shall be defined as a fall from any elevation
where there is a height differential between surfaces. This also includes the fall
of an object causing, contributing to, or in any way relating to, in whole or in part,
a person sustaining “Bodily injury.”
(Exclusion 2x of Policy (emphases added).)
The “Multi-Unit-Residential Structures” exclusion says the insurance coverage does not
extend to:
“Bodily injury” or “property damage” arising out of, resulting from, caused by,
contributed to by, or in any way related to work, development, construction,
renovation or reconstruction on, or performed about the premises of:
1
In response to United Specialty’s complaint, Everest filed a counterclaim asserting breach of
contract, breach of the implied covenant of good faith and fair dealing, and a tort claim labeled
“bad faith” which asserts breach of fiduciary duties.
2
(1) any residential or commercial condominiums, townhouses,
timeshares, cooperative housing, multi-family homes or
homeowners association project(s) or
(2) any building or location which has been or is planned to be
converted into a residential or commercial condominium,
townhouse, cooperative housing, or timeshare, whether or not the
insured knew of the planned conversion.
...
For purposes of this exclusion, “multi-unit residential
structures” shall include, but not be limited to, residential or
commercial condominiums, townhouses, timeshares, cooperative
housing, multi-family homes, and homeowners association
projects.
(Exclusionary Endorsement No. 63 of Policy (emphases added).)
Opposition of Everest and Ms. Delobel
Everest and Ms. Delobel, in separate opposition briefs, argue that the court should deny
United Specialty’s motion for a number of reasons.
First, they contend that the “Fall from Heights” exclusion does not apply because the bag
of shingles did not “fall” off the roof. It was thrown. According to Everest, “[t]he ‘Fall from
Heights’ exclusion in the policy is silent as to thrown objects. Consequently, the ‘Fall from
Heights’ exclusion does not encompass a thrown object. To the extent there is any ambiguity as
to whether it does, Utah law requires the Court to resolve this ambiguity in Everest’s favor.”
(Everest Opp’n to Mot. J. Pleadings at 3, ECF No. 18.)
Second, they assert that the “Multi-Unit Residential Structure” exclusion does not bar
coverage because United Specialty, by failing to cite that exclusion in its initial denial-ofcoverage letter, waived that exclusion as a ground for denying the claim.
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Third, Defendants maintain that United Specialty’s reliance on the “Multi-Unit
Residential Structure” exclusion is not supported by admissible evidence. Everest and Ms.
Delobel contend that the evidence submitted by United Specialty, which consists of “excerpts
from relevant websites that document the townhomes and rental units available at Santorini
Village,” (United Specialty Mot. J. Pleadings at 16, ECF No. 14), is unauthenticated and
inadmissible hearsay. Further, according to the Defendants, United Specialty’s evidence, even if
admissible, does not show what type of structure Everest was working on when Ms. Delobel was
injured, and, accordingly, an issue of fact must be resolved before the court decides whether the
exclusion applies. In other words, the court cannot resolve the issue based on the pleadings.
Finally, Defendants argue that the Policy is illusory because the exclusions prevent
coverage of the foreseeable risks created by Everest’s roofing business. That, they say, allows
the court to find the exclusions void for violation of public policy and to extend coverage to
Everest.
ANALYSIS
The insurer has the burden to show that the exclusions apply. See Nat’l Union Fire Ins.
Co. of Pittsburgh v. CML Metals Corp., No. 2:12-cv-934-TC, 2015 WL 4755207, *3 (D. Utah,
Aug. 11, 2015) (unpublished). United Specialty has not satisfied its burden at this stage.
Interpretation of “Fall from Heights” Exclusion
The court must interpret the language of the policy according to the usually accepted
meanings of the words. Ohio Cas. Ins. Co. v. Unigard Ins. Co., 268 P.3d 180, 184 (Utah 2012).
The “Fall from Heights” language excludes coverage for injury caused by a “fall from heights,”
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which is defined in the policy as “a fall from any elevation where there is a height differential
between surfaces,” and “includes the fall of an object . . . .” (Exclusion 2 of Policy.)
United Specialty argues that “fall” includes an object thrown from above. But the court
agrees with the Defendants that United Specialty’s interpretation is strained. The court
concludes, after having reviewed the various dictionary definitions cited by the parties, that the
usually accepted understanding of “fall” means that an object drops to the ground without
involvement by a human actor.
The Defendants alternatively argue that the clause is ambiguous. When an exclusion’s
language is ambiguous (i.e., susceptible to different interpretations), the court must construe it in
favor of coverage. United States Fidelity & Guaranty Co. v. Sandt, 854 P.2d 519, 522–23 (Utah
1993). “A corollary [to that rule] is that provisions that limit or exclude coverage should be
strictly construed against the insurer.” Id. at 523. Although the court holds that the exclusion
does not apply based on a plain-language interpretation, even if it were ambiguous, the result is
the same: the exclusion does not apply.
“Multi-Unit Residential Structure” Exclusion
Waiver
United Specialty denied Everest’s claim for coverage in a letter dated August 10, 2017.
In the letter, United Specialty relied solely on the “Fall from Heights” exclusion in the policy.
(See Letter from Paul Ruiz, Claims Manager, Golden State Claims Adjusters, to Joshua Martin,
Everest Construction LLC (Aug. 10, 2017), Ex. B to Delobel Mem. Opp’n Mot. J. Pleadings,
ECF No. 16-2.) United Specialty first raised the “Multi-Unit Residential Structures” exclusion
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in its complaint filed in this action on April 27, 2018, as a bar to coverage. (See Compl., ECF
No. 2.)
Based on United Specialty’s failure to advance the “Multi-Unit Residential Structures”
exclusion until filing the complaint, Ms. Delobel and Everest argue that United Specialty waived
its right to rely on it. United Specialty disagrees, arguing that it had sent a declination letter to
Everest in which it raised the Multi-Unit Residential Structures exclusion. The court cannot find
this letter in the record.
But this is not significant because the legal authority cited by United Specialty has
persuaded the court that United Specialty has not waived its right to rely on the Multi-Unit
Residential Structures exclusion. The declination letters in the record warned Everest and others
that
[t]his letter is based on the information, facts and circumstances known to us at
this time. Please note that nothing set forth in this letter should be deemed to
amount to a waiver on the part of USIC to assert the applicability of any other
policy provisions, terms, definitions or exclusions. USIC expressly reserves its
right to raise any defenses to coverage, including the right to disclaim coverage on
any basis that may become apparent as this matter progresses and we receive
further information. By stating the foregoing, USIC does not intend to waive and
shall not be estopped by asserting any coverage defenses that may apply.
(Aug. 10, 2017 Letter to Martin, ECF No. 16-2; Letter from Paul Ruiz, Claims Manager, Golden
State Claims Adjusters, to Dianne DiSera, Subrogation Adjuster, WFC Ins. (Sept. 11, 2017), Ex.
C to Delobel Mem. Opp’n Mot. J. Pleadings, ECF No. 16-3.) That language is similar to other
declination-of-coverage letters in cases where courts have rejected an insured’s waiver argument.
For example, in National Tea v. Commerce and Industry Insurance Company, 456 N.E.2d 206
(Ill. App. Ct. 1983), the insureds brought an action against their insurer to recover proceeds from
a fire insurance policy. The insureds argued that the insurance company had waived another
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ground for rejecting the insureds’ claim because the insurance company did not raise that
particular ground in its letter rejecting the claim. The court disagreed, pointing out that the letter
sent by the insurance company had “expressly stated therein that the letter was not intended as a
waiver and that it reserved the right to assert any other rights or defenses ‘which may exist or
later become known to exist.’” Id. at 213–14. See also Stargatt v. Avenell, 434 F. Supp. 234,
246 (D. Del. 1977) (no waiver by insurance company of defense not raised in letter denying
coverage where letter stated that insurance company did not waive its other defenses).
Evidentiary Issue
United Specialty offers printouts of website pages advertising sale of townhomes in the
Santorini Village Project as proof that the “multi-unit residential structure” exclusion applies.
That evidence was attached to the complaint as Exhibit 3. (See ECF No. 2-3.) The Defendants
object to the evidence, contending that the court may not rely on it because it is unauthenticated
and inadmissible hearsay. United Specialty responds that the evidence may be judicially noticed,
and, in any event, the court may consider the evidence because it was attached to the complaint.
Although the web pages are not the type of material a court may judicially notice, United
Specialty is correct that the court may consider evidence as part of the complaint. United
Specialty separately points out a provision in the policy that allows use of extrinsic evidence to
determine whether it owes a duty to indemnify. But that provision does not solve the question
because Defendants are correct: the webpages are inadmissible as unauthenticated hearsay.
Accordingly, the court cannot at this stage determine whether the multi-unit exclusion applies.
Illusory Policy
The Defendants contend that if the two exclusions apply, the Policy is illusory and so
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void as against public policy. The court will not address the issue here because the “Fall from
Heights” exclusion does not apply and the question of whether the multi-unit exclusion applies
cannot be resolved at this point.
ORDER
For the reasons set forth above, United Specialty Insurance Company’s Motion for
Judgment on the Pleadings (ECF No. 14) is DENIED.
DATED this 28th day of February, 2019.
BY THE COURT:
Tena Campbell
United States District Judge
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