Kvaerner North American Construction Inc. v. Liberty Mutual Fire Insurance Company

Filing 111

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND GRANTING DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT: It is ORDERED that Plaintiff's 100 Motion for Partial Summary Judgment is DENIED; Def endant's 102 Motion for Partial Summary Judgment is GRANTED; Plaintiff's Complaint is DISMISSED WITH PREJUDICE and this case is STRICKEN from the active docket. The Clerk is DIRECTED to enter a separate judgment order. Signed by District Judge Irene M. Keeley on 6/28/17. (cnd) Modified security, NEF regenerated to counsel on 6/29/2017 (cnd).

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
KVAERNER NORTH AMERICAN CONSTRUCTION
INC., as successor to Aker Kvaerner
Songer, Inc. and Aker Construction, Inc.,
Plaintiffs,
v.

//

CIVIL ACTION NO. 1:15CV210
(Judge Keeley)

CERTAIN UNDERWRITERS AT LLOYD'S
LONDON SUBSCRIBING TO POLICY NO.
509/DL486507,
Defendant.
MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
Pending before the Court are cross motions for partial summary
judgment

filed

Construction

by

the

plaintiff,

(“Kvaerner”)

(dkt.

no.

Kvaerner
100),

and

North
the

American
defendant,

Certain Underwriters at Lloyd’s London Subscribing to Policy No.
509/DL486507 (“Excess Insurers”)1 (dkt. no. 102). For the reasons
that follow, the Court DENIES Kvaerner’s motion and GRANTS the
motion of Excess Insurers.
I. BACKGROUND
A.

The Project
The Longview Power Plant in Maidsville, West Virginia, is a $2

billion, 695-megawatt supercritical coal-fired power plant owned by

1

The defendants note that they were incorrectly sued as
Certain Underwriters at Lloyd’s London Subscribing to Policy No.
509/DL486507 but are, in fact, “Aspen Insurance (UK) Ltd. (‘Aspen’)
and Syndicate 2003 (‘Caitlin’).” They are collectively referred to
here as the “Excess Insurers.”

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
Longview Power, LLC (“Longview”). It was the first plant of its
kind developed in the United States by an independent energy
producer, and it was “the first greenfield coal-fired electric
power generating plant constructed in the northeastern United
States in over twenty years.” Dkt. No. 97-25 at 3. Longview
contracted with Kvaerner to construct the plant, with the exception
of the cooling tower and main air discharge stack. Their agreement
was memorialized in a January 26, 2007, Construction Services
Agreement (“CSA”). Kvaerner self-performed some of the work and
engaged subcontractors to perform other portions. In addition,
Kvaerner

was

a

consortium

partner

with

Siemens

Energy,

Inc.

(“Siemens”), which supplied additional services and equipment, and
was the party responsible for constructing the cooling tower and
air discharge stack construction that had been excluded from
Kvaerner’s scope of work.2
At the center of this litigation is the plant’s boiler, a
“first-of-its-kind supercritical pulverized coal-fired boiler.” Id.
at 4. Foster Wheeler North America Corporation (“Foster Wheeler”)
designed and supplied the boiler pursuant to a Boiler Island

2

Siemens and Longview also entered into a separate “Turbine
Island Supply Agreement,” under which Siemens supplied the plant’s
turbine equipment for construction and installation by Kvaerner.
2

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
Equipment Agreement (“Boiler Agreement”) with Longview. Longview
later assigned the Foster Wheeler contract to the consortium to
facilitate the boiler’s installation by Kvaerner. In addition,
because Foster Wheeler was supplying the boiler to Longview for
installation by the consortium, more specifically by Kvaerner,
Longview, Siemens, and Kvaerner all entered into a Coordination
Agreement to control coordination and cooperation of the parties
under their various contracts. Of particular importance here, the
Coordination Agreement between Longview and Kvaerner contained a
liquidated

damages

clause,

obligating

the

consortium

to

pay

$275,000 per day for every day the plant remained unfinished beyond
the predetermined “substantial completion date,” which the parties
agreed would be March 12, 2011.
B.

Boiler Problems
Following Foster Wheeler’s delivery of the boiler components

to the project site, Kvaerner was tasked with its construction,
part of which required Kvaerner to weld well over 10,000 tubes
together in the “primary superheat and horizontal reheat areas” of
the boiler. Both the primary superheat and horizontal reheat areas
are composed of three banks of coils, consisting of 2" and 2.5"
pipes

arranged

in

a

serpentine

3

configuration.

The

tubes

are

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
arranged in an evenly spaced pattern running horizontally, but the
tube ends become vertical in the locations where adjacent coil bank
tubes meet and align with one another. It is in these horizontal
rows of vertically bent tube ends between each coil, also referred
to as “weld-lines,” that Kvaerner was tasked with welding the tube
ends together to essentially create a closed-loop, continuous
system.
Foster Wheeler fabricated the coil sections in its shop by
forming the tubes into the necessary coils and welding metal “Hbars” to the tubes in certain locations to aid in properly aligning
the tubes within each coil. This was vital to proper operation of
the boiler, as the tubes must be in line with one another and
cannot protrude into the “gas path” between the rows of tubes in
the coils. Upon completion of their fabrication, Foster Wheeler
delivered the coil sections to the project site, following which
Kvaerner rigged, lifted, and set the components into place in the
primary superheat and horizontal reheat areas of the boiler.
To perform the actual welds, however, Kvaerner subcontracted
with Wachs Technical Services Ltd. (“Wachs”), which utilized an
orbital welder to complete each of the required tube welds. Orbital
welding involves clamping a welding machine at the intersection of

4

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
two tubes to be welded.

The machine then rotates around the two

tubes, welding them together in an automated process. Wachs was
responsible for welding six tubes at the bottom and top of each
bank of 148 horizontal reheat coils, and eight individual tubes at
the bottom and top of each bank of 148 primary superheat coils.
The primary superheat and horizontal reheat areas are very
cramped, which made it difficult for workers and equipment to
access the weld-lines. For ease of access, Wachs used come-alongs3
to pull coils, or smaller groups of tubing within a coil, out of
the way. By pulling coils and tubes out of the way, sometimes by
several feet, Wachs was able to more easily complete its welds. It
is undisputed that Wachs did not pull on the vertical portions of
the tubes that it was actually welding to better align or assist in
the weld itself; rather, Wachs pulled on the adjacent horizontal
sections of the tubes to ease access to the weld-lines.
It was not until Wachs completed all of its welds and removed
its equipment that Kvaerner and Foster Wheeler inspectors realized
Wachs had significantly damaged the coils. The inspectors observed
multiple H-bars that were bent or had fully broken off, as well as

3

A come-along is a hand-operated, ratcheting winch capable of
pulling up to several tons.
5

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
many tubes that were bent and out of alignment and significantly
encroached into the gas path. After a detailed inspection of all of
the coils, the inspectors concluded that Wachs had bent hundreds of
H-bars and thousands of individual tubes.
C.

Boiler Repairs
In June and July of 2010, Kvaerner, as a first effort to

repair, attempted to realign the tubes by replacing the bent or
broken H-bars in the hope that would forcibly realign the tubes. As
the boiler designer, however, Foster Wheeler concluded that this
repair effort did not adequately correct the damage and deemed the
repair

unacceptable.

Kvaerner,

this

time

working

with

Foster

Wheeler, devised a plan to properly repair and return the boiler to
acceptable condition. The plan required Kvaerner to identify every
bent tube, cut the weld performed by Wachs on each of those tubes,
mechanically bend the tubes back into proper alignment, and then
re-weld the tubes.
In total, Kvaerner performed this process on thousands of
tubes and completed the repairs in early November of 2010. The
cost of the repairs ultimately exceeds $4.5 million.

Moreover, as

a consequence of the additional time required to complete the
repairs, the project was delayed by 74 days.

6

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
D. Arbitration
As a result of project delays, Longview concluded that it was
contractually entitled to liquidated damages. It therefore withheld
three milestone payments to Kvaerner, totaling $9,483,717, and drew
down on Kvaerner’s letter of credit in the amount of $26,542,627,
a total of more than $36 million. Longview also withheld payments
due to Siemens and drew down on its letter of credit in an amount
exceeding $40 million.
On June 24, 2011, Kvaerner initiated a nearly four-year long
arbitration

involving

itself,

Longview,

Siemens,

and

Foster

Wheeler. In its answer to Kvaerner’s demand for arbitration,
Longview

asserted,

among

other

claims,

liquidated

damages

of

$76,450,000 against the consortium for an alleged 278-day delay.
This claim included the 74 days attributable to the boiler tube and
H-bar repairs, which totaled $20,350,000 in liquidated damages.
Siemens asserted cross claims against Kvaerner, alleging that
Kvaerner was responsible for much of the alleged delays. Siemens
and Kvaerner ultimately resolved their dispute, with Kvaerner
accepting responsibility for the 74-day delay related to tube
repairs.
Ultimately,

through

a

series

7

of

settlement

agreements,

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
Kvaerner, Longview, and Siemens resolved their disputes as well,
with Kvaerner accepting responsibility for, and suffering the loss
of, $20,350,000 as a result of the liquidated damages attributable
to the 74-day delay caused by Wachs.
E.

Relevant Insurance Policies
Relevant to the issues before the Court, the project was

insured by a “wrap-up” commercial general liability insurance
program (“CGL policy”)) issued by Liberty Mutual Fire Insurance
Company (“Liberty Mutual”). A “wrap-up” insurance program differs
from a standard CGL policy in that it “place[s] many of the
construction participants under one coverage program.” Dkt. No.
100-1 at 14 (citing 4 Bruner & O’Connor on Construction Law §
11:569 (2016 ed.). Further, contrary to a typical CGL policy, the
“wrap-up” program is limited to a particular project, in this case,
the “Aker Kvaerner Songer Longview CCIP” in Maidsville, West
Virginia. The Liberty Mutual CGL policy had limits of $2 million
per occurrence and $4 million aggregate.
In addition, Kvaerner secured several policies to cover claims
in excess of the CGL policy limits. The policy relevant to the
issues at bar was underwritten by the Excess Insurers (“the Excess
policy”) and provided coverage of $25 million per occurrence in

8

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
excess of the primary CGL policy. Kvaerner was a named insured in
both the CGL and excess policies. Further, both policies contain a
choice of law provision, under which the parties agreed that New
York law would control any dispute.4
In exchange for paid CGL premiums, the CGL policy agreed to
“pay those sums that the [Kvaerner] becomes legally obligated to
pay as damages because of ‘bodily injury’ or ‘property damage’ to
which this insurance applies.” Dkt. No. 97-41 at 10. Under the CGL
policy, the insurance coverage applied only to “bodily injury” or
“property damage” caused by an “occurrence” in the “coverage area”
during the policy period.5 Id. It defines an occurrence as “an
accident,

including

continuous

or

repeated

exposure

to

substantially the same general harmful conditions.” Id. at 22. It
defines property damages as:
a.

Physical
injury
to
tangible
property,
including all resulting loss of use of that

4

The parties cite to numerous cases applying the law of states
other than New York, but those cases simply have no bearing on
coverage under New York law. Moreover, because they often conflict
with one another, they confuse rather than guide on the issues
presented here. Accordingly, the Court has relied only on New York
law to inform its decision.
5

There is no dispute between the parties that the “coverage
area” and “policy period” requirements are satisfied in this case
and no further discussion of those issues is necessary.
9

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
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.

Id. at 22-23.
Following

discovery

of

the

boiler

tube

damage,

Kvaerner

submitted claims to both Liberty Mutual and the Excess Insurers. On
multiple occasions during the course of the arbitration, Kvaerner
provided

further

information

to

both

insurers,

including

“Statements of Claims” provided by Longview and Foster Wheeler.
Ultimately, both Liberty Mutual and the Excess Insurers denied
coverage by letters dated April 16, 2013, and May 28, 2013,
respectively.
F.

The Instant Civil Action
Kvaerner

sued

Liberty

Mutual

in

the

Circuit

Court

of

Monongalia County, West Virginia. Liberty Mutual removed the case
to this Court based on diversity jurisdiction. Kvaerner then
amended its complaint to add the Excess Insurers as a defendant.
The amended complaint asserted claims against Liberty Mutual for
breach of contract for failure to defend, breach of contract for
failure to indemnify, first party common law bad faith, and first
10

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
party statutory bad faith. It asserted two claims against the
Excess Insurers for breach of contract for failure to indemnify and
first party common law bad faith.
The Excess Insurers answered the complaint and also filed a
counterclaim for declaratory judgment, seeking a declaration by the
Court that they have no duty to indemnify Kvaerner. Later they
amended their answer to add the defenses of “Lack of Exhaustion of
Other Insurance” and “Accord and Satisfaction/Setoff.”
The

Excess

Insurers

contended

that

Kvaerner

was

seeking

indemnification for the liquidated damages under several other
policies, which could affect Kvaerner’s ability to reach the excess
policy and, to the extent Kvaerner would recover any portion of the
liquidated damages from those other policies, the Excess Insurers
would be entitled to a setoff.6 In addition to their original claim
for

declaratory

counterclaim

to

relief,
seek

an

the

Express

accounting

of

Insurers
all

amended

other

the

insurance

recoveries related to the delay damages. For its part, Kvaerner

6

The Excess Insurers noted three other insurers with which
Kvaerner had filed claims relating to the project: Allianz Global
Risks US Insurance Co. (“Allianz”), Zurich Insurance plc Norway
Branch, and If Skadesforsikring. Of particular interest is the
claim with Allianz, which, according to Kvaerner, is the subject of
litigation in the Western District of Pennsylvania involving the
same delay related damages at issue in this case.
11

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1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
denied that the delay damages it sought in litigation against
Allianz

overlapped

with

the

delay

damages

sought

in

this

litigation.
During the scheduling conference in the case, the Court
bifurcated the issues of the duty to defend and the duty to
indemnify from the bad faith claims. Later, during a status
conference, the Court also bifurcated the quantum of damages and
the duty to indemnify issues.

Kvaerner later stipulated to the

dismissal with prejudice of all claims against Liberty Mutual,
leaving only the Excess Insurers as defendants in this action.
G.

The Parties’ Cross Motions for Partial Summary Judgment
In its motion for partial summary judgment on the coverage

question, Kvaerner argues that: “(1) [it] has exhausted the limits
of the primary policy issued by Liberty Mutual . . . , and can
therefore proceed to recover from the Excess [Insurers] under the
Excess Policy; (2) the damages for which [it] seeks indemnification
are covered by the Excess Policy; and (3) the damage caused by
[its] subcontractor, Wachs Technical Services, Ltd., constitutes
‘property damage’ caused by an ‘occurrence’ . . . pursuant to the
terms of the Excess Policy.” Dkt. No. 100 at 1.
Conversely, the Excess Insurers contend that they are entitled

12

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
to summary judgment because the liquidated damages provision of the
Coordination Agreement is unenforceable and Kvaerner has already
been paid by other sources for all the damages alleged in its
complaint. More importantly, they argue that there is no coverage
under the policy because liquidated damages do not constitute an
“occurrence” or “property damage” as those terms are defined in the
policy.

Moreover, even if there had been an occurrence and

property damages implicating coverage, the Excess Insurers assert
that several policy exclusions operate to deny coverage.
II. LEGAL STANDARD
A.

Summary Judgment Standard
Summary

documents,

judgment

is

electronically

declarations,

stipulations

appropriate

where

the

stored

information,

.

,

.

.

admissions,

“depositions,
affidavits

or

interrogatory

answers, or other materials” establish 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), (c)(1)(A).
When ruling on a motion for summary judgment, the Court reviews all
the evidence “in the light most favorable” to the nonmoving party.
Providence Square Assocs., L.L.C. v. G.D.F., Inc., 211 F.3d 846,
850 (4th Cir. 2000). The Court must avoid weighing the evidence or

13

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
determining

its

truth

and

limit

its

inquiry

solely

to

a

determination of whether genuine issues of triable fact exist.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).
The moving party bears the initial burden of informing the
Court

of

the

basis

for

the

motion

and

nonexistence of genuine issues of fact.

of

establishing

the

Celotex Corp. v. Catrett,

477 U.S. 317, 323 (1986). Once the moving party has made the
necessary showing, the non-moving party “must set forth specific
facts showing that there is a genuine issue for trial.”

Anderson,

477 U.S. at 256 (internal quotation marks and citation omitted).
The “mere existence of a scintilla of evidence” favoring the nonmoving party will not prevent the entry of summary judgment; the
evidence

must

be

such

that

a

rational

reasonably find for the nonmoving party.
B.

trier

of

fact

could

Id. at 248–52.

Insurance Policy Interpretation
When

interpreting

insurance

policies,

courts

must

first

determine whether the policy’s relevant language is unambiguous.
See Law Debenture Tr. Co. of N.Y. v. Maverick Tube Corp., 595 F.3d
458, 465 (2nd Cir. 2010). If so, the language should be given its
“plain and ordinary meaning.” Gilbane Building Co./TDX Const. Corp.
v. St. Paul Fire & Marine Ins. Co., 143 A.D.3d 146, 151 (N.Y. App.

14

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
Div. 2016). The court may then “construe [the policy] as a matter
of

law

and

grant

summary

judgment

accordingly.”

Palmieri

v.

Allstate Ins. Co., 445 F.3d 179, 187 (2d Cir. 2006) (internal
quotation marks and citation omitted). Importantly, insurance
policies are subject to the normal rules of contract, see Universal
American Corp. v. National Union Fire Ins. Co., 37 N.E.3d 78, 80
(N.Y.

2015),

and

the

relevant

coverage

must

be

within

the

contemplation of the parties. See Brody Truck Rental, Inc. v.
Country Wide Ins. Co., 277 A.D.2d 125, 126 (N.Y.A.D. 1 Dept. 2000)
(noting that recovery of a particular type of damages must be
within the contemplation of the parties).
Insurance coverage analysis follows a three step process: “(1)
Were the damages caused by an occurrence? (2) Were the damages the
result of property damage resulting from the occurrence? and (3)
Are

the

damages

excluded

under

one

or

more

of

the

policy

exclusions?” W. Schwartzkopf, Practical Guide to Construction
Contract Surety Claims § 22.03 (2d Ed. 2016). The insured bears the
initial burden of establishing that its claim is covered under the
policy. If the insured proves an “occurrence” during the policy
period as defined by the policy, the analysis then turns to whether
there was damage to a third party’s property. See ER. Squibb &

15

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
Sons, Inc. v. Lloyd’s & Cos., 241 F.3d 154. 164-65 (2d Cir. 2001);
Reliance Ins. Co. v. Keystone Shipping Co.,102 F. Supp. 2d 181, 195
(S.D.N.Y. 2000) (noting that various insurance coverages that
require an “occurrence,” including CGL policies, “all indemnify the
assured for damage he inflicts on third parties’ property; none
offer indemnity for first party property damage”). Only if coverage
is triggered by an occurrence causing third-party property damage
does the burden shift to the insurer to establish that a coverage
exclusion operates to deny coverage. See Gaetan v. Firemen’s Ins.
Co., 264 A.D.2d 806, 808 (N.Y. App. Div. 1999).
III. DISCUSSION7
Several of the parties’ arguments may be easily disposed of at
the outset. Kvaerner’s contention that it has exhausted the limits
of the underlying Liberty Mutual policy is uncontested by the
Excess

Insurers

and

the

Court

need

not

discuss

it

further.

Furthermore, the Excess Insurers’ argument relating to whether, or
to what extent, Kvaerner may have already recovered some or all of
its liquidated damages during the arbitration also is of no
consequence here. The Court has bifurcated the question of damages

7

Unless otherwise explicitly noted, all federal
decisions cited in this section apply New York law.
16

court

KVAERNER V. CERTAIN UNDERWRITERS

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MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
from the question of coverage and indemnification.8 Next, although
the Excess Insurers argue that the liquidated damages provision of
the

Coordination

Agreement

is

unenforceable,

given

their

declination of coverage, they have waived the right to argue the
validity of, or assert belated defenses to, the underlying claims
between Longview and Kvaerner.9 Accordingly, the Court need not
address that argument further.
The remaining dispositive questions presented are whether the
liquidated damages resulted from an “occurrence” as defined by the
policy, whether liquidated damages constitute “property damage,”
whether the damage was to Kvaerner’s own work, and whether any of
the policy exclusions operate to deny coverage. For the reasons
that follow, the Court concludes that there was no occurrence that

8

Moreover, because, as the Court concludes, there is no
coverage for liquidated damages, the quantum question is moot or,
at the very least, is not ripe for summary judgment.
9

See Martin v. Safeco Ins. Co. of America, 2004 WL 225486, at
*3 (N.Y.Sup. 2004) (“An ‘insurer with a duty to defend which
refuses to do so is bound by the court’s determination of the
underlying action and cannot thereafter collaterally attack the
judgment or raise defenses with respect to the merits’”. (quoting
Ramos v. National Casualty Company, 227 A.D.2d 250 (N.Y. App. Div.
1996); Matychak v. Sec. Mut. Ins. Co., 581 N.Y.S.2d 453, 455 (N.Y.
App. Div. 1992) (noting that, having denied coverage, the insurer
“assumed the risk” of a judgment against its insured and “may not
now . . . go behind the underlying . . . judgment . . . to raise
defenses extending to the merits of [the insured’s] claim”).
17

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MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
triggered coverage under the CGL and excess policies, liquidated
damages are not property damage as contemplated by the CGL and
excess policies, and there was no third-party damage because the
damage caused by Wachs was part of Kvaerner’s own work.10
A.

There was no Occurrence Triggering Coverage
The parties dispute whether there was an “occurrence” required

to

trigger

accident,

coverage
including

under

the

policy.

continuous

or

An

occurrence

repeated

is

“an

exposure

to

substantially the same general harmful conditions.” Dkt. No. 97-41
at 22. For insurance policies that base coverage on an “accident”
or

“occurrence,”

under

New

York

law

“the

requirement

of

a

fortuitous loss is a necessary element.” Consolidated Edison Co. of
New York, Inc. v. Allstate Ins. Co., 774 N.E.2d 687, 692 (N.Y.
2002); see also N.Y. Insurance Law § 1101(a)(1) (McKinney 2017)
(noting that insurance is “dependent upon the happening of a
fortuitous event”). New York defines a “fortuitous event” as “any
occurrence or failure to occur which is, or is assumed by the
parties to be, to a substantial extent beyond the control of either

10

Because the Court finds three independent grounds for its
conclusion that liquidated damages are not covered losses under the
CGL policy, it need not reach the question of whether any of that
policy’s exclusions would operate to deny coverage.
18

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
party.” N.Y. Insurance Law § 1101(a)(2) (McKinney 2017). Moreover,
the common definition of an accident is “‘an event or condition
occurring by chance or arising from unknown or remote causes,’”
usually involving “an external force of some kind.” Jakobson
Shipyard, Inc. v. Aetna Cas. and Sur. Co., 961 F.2d 387, 389 (2nd
Cir. 1992) (quoting Webster’s Third New International Dictionary 11
(1981)).
“New York courts have construed the term ‘fortuitous event’ to
mean an event ‘happening by chance or accident.’” 40 Gardenville,
LLC v. Travelers Property Cas. of America, 387 F.Supp.2d 205, 211
(W.D.N.Y. 2005) (quoting 80 Broad St. Co. v. United States Fire
Ins. Co., 389 N.Y.S.2d 214, 215 (1975)). Fortuitous losses do not
include “inherent defect[s], ordinary wear and tear, or intentional
misconduct of the insured.” Int’l Multifoods Corp. v. Commercial
Union Ins. Co., 309 F.3d 76, 83 (2nd Cir. 2002) (quoting Ingersoll
Milling Machine Co. v. M/V Bodena, 829 F.2d 293, 307–08 (2d Cir.
1987), cert. denied, 484 U.S. 1042 (1988)). Under the fortuity
doctrine, however, losses that the insured “knows of, planned,
intended, or is aware are substantially certain to occur,” are not
covered losses. 40 Gardenville, 387 F.Supp.2d at 211 (quoting
Nat’l Union Fire Ins. Co. of Pittsburgh v. Stroh Companies, Inc.,

19

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
265 F.3d 97, 106 (2d Cir. 2001); see also Consol. Edison Co. of
N.Y. v. Allstate Ins. Co., 774 N.E.2d 687, 692 (N.Y. 2002) (noting
that CGL policies “implicitly exclude coverage for intended or
expected harms”).
Furthermore, under New York law, where an insured’s faulty
construction causes damage to its own work, there is no occurrence
triggering coverage for the insured’s work. George A. Fuller Co. v.
U.S. Fidelity and Guar. Co., 200 A.D.2d 255, 261 (N.Y.A.D. 1 Dept.
1994). However, there may be an occurrence triggering coverage when
there

is

damage

to

third-party

insured’s

faulty

construction,

property

including

resulting
where

the

from

the

insured’s

property is also damaged. See, e.g., I.J. White Corp. v. Columbia
Cas. Co., 105 A.D.3d 531, 532 (N.Y. App. Div. 2013) (recognizing
coverage under a CGL policy for a third-party’s property damage
caused by the insured’s faulty workmanship); Royal Insurance Co. v.
Ru-Val Electric Corp., 1996 WL 107512, at *2-3 (E.D.N.Y. Mar. 8,
1996) (finding that electrical contractor had coverage for fire
damage to home caused by faulty wiring but not for replacement
costs of the electrical contractor’s faulty wiring itself).
To be clear, under the facts in this case, Wachs caused damage
only to the H-bars and horizontal tubing of the coil sections. The

20

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
coil sections were components of the boiler that Wachs neither made
nor supplied; rather, they were component pieces of the boiler
fabricated by Foster Wheeler off-site and delivered to the project.
Wachs’s work was limited solely to welding the vertical pipes on
adjoining coil sections following installation by Kvaerner in the
boiler structure. To aid in performing its contractual obligations,
Wachs pulled the adjacent piping to provide easier access to the
weld lines; in the process, it bent that piping, and bent or fully
dislodged the H-bars.
Kvaerner contends that, “[b]ecause Wachs’ use of excessive
force to move the tubes was neither intended nor expected, it
constitutes

an

accidental

‘occurrence’

for

which

coverage

is

appropriate . . . .” Dkt. No. 100-1 at 26. What Kvaerner misses,
however, is that the amount of force exerted by Wachs was not
unexpected or unintended, nor was it excessive for what it was
intended to accomplish. Indeed, Wachs exerted exactly enough force
to move the pipes as far as it desired in order to ease access to
each weld line.
Although Kvaerner does not explicitly frame it as such, it
could argue that, even if Wachs’s actions were intentional, the
outcome, permanently bending the pipes and bending or breaking the

21

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
H-bars, was unintended and unexpected and the damage therefore an
accident. See, e.g., Consolidated Edison Co. of New York, Inc. v.
Allstate Ins. Co., 774 N.E.2d 687, 692, (N.Y. 2002) (finding that
a jury instruction stating that there “can be accidental results of
intentional acts, thus, the term ‘accident’ or, in this case,
‘occurrence’ might apply even where the resulting damage was
unintended, even though the acts that caused the
fact,

intentional”).

Nevertheless,

Wachs’s

damage were, in

actions,

and

the

resulting damage, were not “to a substantial extent beyond [its]
control . . . .” N.Y. Insurance Law § 1101(a)(2) (McKinney 2017).
In addition, the damage caused to the pipes and H-bars likely
falls under the fortuity doctrine’s exclusion for losses the
insured “knows of, planned, intended, or is aware are substantially
certain to occur.” 40 Gardenville, 387 F.Supp.2d at 211. Kvaerner
could reasonably argue that the first time Wachs spread apart the
pipes for access the resulting damage was an accidental outcome. A
review of the photographs reveals that, at the very least, it is
quite apparent to the naked eye that the H-bars were significantly
bent or had completely broken off, often falling away from their

22

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
original position.11 See Exhibits 4, 5, 6, and 7 to Dkt. No. 97
(containing dozens of photographs of damage). This process was
repeated hundreds of times over the course of several months by
trained professionals employed by Wachs, under the direct control
and supervision of additional trained professionals employed by
Kvaerner. It lacks credulity to argue that neither Wachs nor
Kvaerner knew that this damage was occurring, or was substantially
certain to occur, after the first time, or at most, the first few
times Wachs performed this process. Were this the Court’s only
consideration, at a bare minimum, material questions of fact, such
as what and when Wachs or Kvaerner knew about this damage, would
preclude summary judgment.
Those factual questions notwithstanding, the actions taken by
Wachs were intentional and certainly not “beyond its control.” N.Y.
Insurance Law § 1101(a)(2) (McKinney 2017). Further, there were
none of the hallmarks that New York courts have found to define an
accident — a chance occurrence, an unknown or remote cause, or an

11

The same is also true of the pipes. Although not as obvious
to the naked eye as the damaged H-bars, including those that fell
from their original locations, the Wachs employees who released the
tension on the pipe surely should have noticed that they did not
move back into their original position. Nevertheless, they
continued using this technique to provide easier access for their
work.
23

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
unexpected external force. See Jakobson Shipyard, 961 F.2d at 389
(noting that “the common definition of an accident is “‘an event or
condition occurring by chance or arising from unknown or remote
causes,’” usually involving “an external force of some kind”); 40
Gardenville, LLC, 387 F.Supp.2d at 211 (“New York courts have
construed the term ‘fortuitous event’ to mean an event ‘happening
by chance or accident.’”). Consequently, there was no fortuitous
event and therefore no occurrence that would trigger coverage.12

12

This issue presents an interesting conundrum that bears
mention, that is, whether and to what extent Kvaerner’s delay
related liquidated damages are “beyond its control.” N.Y. Insurance
Law § 1101(a)(2) (McKinney 2017). At times, the Excess Insurers
contend that the “occurrence” leading to the liquidated damages
claim is the actual delay itself, not the Wachs’ damage. This
argument has some force.
Although the delay may have stemmed from the Wachs’ damage,
the liquidated damages stem only from a delay in the completion of
the project. See Dkt. No. 97-30 at 12 (Coordination Agreement
noting that liquidated damages are calculated from the date of
substantial completion of the plant, not any particular portion of
the project). The amount of liquidated damages arguably was well
within Kvaerner’s control.
More manpower, additional shifts, added equipment, or other
methods could have reduced or eliminated the ultimate delay, while
slow decision making, lack of manpower, materials, equipment, or
other causes could have increased the delay. Accordingly, the
delay, or certainly the amount of delay, was not beyond Kvaerner’s
control or a “condition occurring by chance or arising from unknown
or remote causes.” Jakobson Shipyard, 961 F.2d at 389.
Further, such damages would be difficult for an insurer to
evaluate, particularly when the amount of delay damages dictated by
the contract, may bear little to no relationship to the actual
amount of property damage. This adds additional support for the
24

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
B.

Liquidated Damages are not Property Damage Under the Policy
Even if there was an occurrence that triggered coverage,

liquidated damages still must fall under the CGL policy’s property
damage definition:
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.

Dkt. No. 97-41 at 22-23.
Specifically, Kvaerner argues that the 74 day delay in the
plant’s opening attributed to damage caused by Wachs falls within
the “loss of use” portion of the property damage definition. On the
other hand, the Excess Insurers contend that the liquidated damages
are an economic loss not contemplated by the CGL policy, and they
do not fall under the property damage definition.
Generally speaking, the “purpose of a commercial general
liability policy . . . is to provide coverage for tort liability

conclusion that liquidated damages do not constitute property
damage as contemplated by the policy. See infra at Part III.B. for
discussion on liquidated damages and whether they constitute
property damage.
25

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
for physical damage to others and not for contractual liability of
the insured for economic loss because the product . . . is not what
the

damaged

[party]

bargained

for”

Bonded

Concrete,

Inc.

v.

Transcontinental Ins. Co., 12 A.D.3d 761, 762 (N.Y.A.D. 3 Dept.
2004)(quoting Hartford Acc. & Indem. Co. v. Reale & Sons, 228
A.D.2d 935, 936 (N.Y. 1996)); see also George A. Fuller Co. v. U.S.
Fidelity and Guar. Co., 200 A.D.2d 255, 259 (N.Y.A.D. 1 Dept. 1994)
(“The [CGL] policy was never intended to provide contractual
indemnification for economic loss to a contracting party because
the

work

product

contracted

for

is

defectively

produced.”).

Requiring an insurer to indemnify for an insured’s defective work
would place them in the position of a surety rather than an
insurer. Transportation Ins. Co. v. AARK Const. Group, Ltd., 526
F.Supp.2d 350, 356 (E.D.N.Y. 2007) (citing Bonded Concrete, 12
A.D.3d at 762).
Kvaerner, however, does not cite a single case applying New
York law in which the court concluded that liquidated damages are
covered under a CGL policy. Indeed, it concedes that, “[f]or their
part, New York courts do not appear to have considered whether LDs
are covered as damages resulting from an occurrence.” See Dkt. No.
100-1

at

22.

While

it

is

true

26

that

no

New

York

court

has

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
specifically addressed whether contractual liquidated damages are
covered under a CGL policy, New York courts have addressed whether
delay damages, economic damages, and loss of use damages are
covered, and have found consistently that they are not.13
In the absence of any clear New York authority, Kvaerner
relies on I.J. White Corp. v. Columbia Cas. Co., 105 A.D.3d 531
(N.Y.App.Div. 2013), to support its contention that liquidated
damages are covered as a loss of use of damaged property.

I.J.

White Corp involved a cake supplier which purchased an allegedly

13

See, e.g., AARK Const., 526 F.Supp.2d at 357 (“Thus, an
‘occurrence’ of property damage under a CGL policy cannot exist
where a general contractor’s “negligent acts only affect[ ] [the
property owner’s] economic interest in the building.” (quoting
Fuller, 200 A.D.2d at 259)); J.Z.G. Res., Inc. v. King, 987 F.2d
98, 103 (2d Cir. 1993) (“The coverage is for tort liability for
physical damages to others and not for contractual liability of the
insured for economic loss . . . .”); Hartford Acc. & Indem. Co. v.
A.P. Reale & Sons, Inc., 644 N.Y.S.2d 442, 443 (N.Y.A.D. 3 Dept.
1996) (“We note that . . . the purpose of a [CGL] policy [] is to
provide coverage for tort liability for physical damage to others
and not for contractual liability of the insured for economic loss
. . . .); Monroe County v. Travelers Ins. Companies, 419 N.Y.S.2d
410, 413 (N.Y.Sup., 1979) (“Lost profits, delay and performance of
extra work are not encompassed within the term property damage as
that is defined in the policies. They constitute intangibles in
contrast to the requirement in the policies of damage to tangible
property.”); but see, Ohio Cas. Ins. Co. v. Lewis & Clinch, Inc.,
2014 WL 6078572, at *11 (N.D.N.Y. 2014) (finding that lost profits
for operational business were covered as a loss of use due to
property damage).
27

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
defective large spiral freezer system from the insured.

The

freezer system malfunctioned, causing damage to the supplier’s cake
products. The cake supplier claimed “that for eight months, it was
unable

to

use

the

$21

million

facility

it

had

constructed

specifically to house the equipment that it had bought from [I.J.
White].” Id. It sued I.J. White for $3.6 million.

White, in turn,

sought indemnification from its insurer. Id. at 533. The New York
State Supreme Court Appellate Division concluded that the cake
supplier’s “loss of use of the facility specifically built to house
the freezer is also covered under the policy, since ‘property
damage’ is defined to include ‘[l]oss of use of tangible property
that is not physically injured.’” Id. at 532.
The facts in I.J. White are distinguishable from those in this
case for two reasons. First, I.J. White

involved an ongoing

commercial enterprise that had lost the ability to operate; the
question

of

contractual

liquidated

damages

related

to

new

construction was never implicated. Second, despite the court’s
conclusion that loss of use of the facility was covered, the
damages sought by the cake supplier did not include any delay
damages, liquidated damages, or even lost profit damages.

Rather,

it sought “$1.7 million paid to White for the freezer, $1.2 million

28

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
in repair costs to render the freezer operational in accordance
with the contract specifications, and $700,000 in employee overtime
wages.” Id. at 533 (Abdus-Salaam, J., dissenting).14 See also Ohio
Cas. Ins. Co. v. Lewis & Clinch, Inc., 2014 WL 6078572, at *11
(N.D.N.Y. 2014) (noting while analyzing the I.J. White case that,
“[t]o be sure, damages for lost profits was not sought in that
case.”). Thus, in I.J. White, there were no actual damages for loss
of use, thus making any discussion on loss of use dicta.
Ultimately, there is simply no binding authority supporting
Kvaerner’s position that a contractual obligation to pay delay
related liquidated damages, even those resulting from property
damage, are covered under the loss of use provision of a CGL
policy. Moreover, although New York’s highest court has not ruled
specifically

on

that

issue,

several

lower

court

rulings

are

persuasive.
For example, in Monroe County v. Travelers Ins. Companies, the
court held that nearly identical policy language defining property

14

Kvaerner also cites to Mattiola Constr. Corp. v. Commercial
Union Ins. Co., 2002 WL 434296 (Pa. Comm. Pleas, Mar. 8, 2002).
There the court concluded that liquidated damages were covered as
a loss of use resulting from property damage. That case, however,
has no bearing on the analysis here, as it is the ruling of a
Pennsylvania County Court applying Pennsylvania law and is in no
way binding on this Court.
29

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
damage did not encompass losses for delay:
Lost profits, delay and performance of extra work are not
encompassed within the term property damage as that is
defined in the policies. They constitute intangibles in
contrast to the requirement in the policies of damage to
tangible property.
419

N.Y.S.2d

410,

413

(N.Y.Sup.

1979).

Kvaerner

attempts

to

distinguish Monroe County by arguing that the plaintiff there only
“sought recovery for lost profits and performance of additional
work” (dkt. no. 106 at 21). On the contrary, it is clear from the
court’s opinion that the plaintiff’s claims included damages for
“delay,” which it concluded did not constitute property damage
under the CGL policy.
Further, numerous courts in New York distinguished between
liabilities stemming from torts, which are plainly covered under
CGL policies, and damages that are contractually based and economic
in nature, which generally are not covered:
We note that this disposition is in accord with the
purpose of a commercial general liability policy which is
to provide coverage for tort liability for physical
damage to others and not for contractual liability of the
insured for economic loss because the product or
completed work is not what the damaged person bargained
for.
Hartford Acc. & Indem. Co. v. A.P. Reale & Sons, Inc., 644 N.Y.S.2d
442, 443 (N.Y.A.D. 3 Dept. 1996). See also Fuller, 200 A.D.2d at
259

(“The

policy

was

never

intended
30

to

provide

contractual

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
indemnification for economic loss to a contracting party because
the work product contracted for is defectively produced.”).
The

liquidated

damages

claimed

by

Longview

were

purely

contractual, as Kvaerner’s liability for them stems solely from the
Coordination Agreement. In addition, they are purely economic in
nature,

as

recognized

by

Kvaerner’s

General

Counsel,

James

Tedjeske:
Q.

Just to make sure that I understand you correctly,
the [liquidated damages] as to Longview were to
represent the interest carrying charge to the
owner, in other words, the cost of money?

A.

The cost of money.

Q.

So it’s effectively an economic issue or
economic exposure, the time value of money?

A.

That’s correct. You know this was an independent
power project. It was financed, heavily financed,
and the banks wanted to be assured that in the
event of a delay that the owner would have
sufficient funds from some source to pay their
interest carrying charge.

an

Dkt. No. 98-22 at 42.
Even had there been an occurrence of property damage, it would
not change the nature of the liquidated damages as contractually
based economic damages. See Fuller, 200 A.D.2d at 259-60 (“A
contract default under a construction contract is not transformed
into an ‘accident, including continuous or repeated exposure to
31

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
substantially the same general harmful conditions’ by the simple
expedient

of

alleging

negligent

performance

or

negligent

construction.”); Monroe County, 419 N.Y.S.2d at 414 (“A complaint
which plainly seeks to recover for the intangible loss of profits
plus the cost factor of extra work and time is not converted to a
property damage claim by the insured’s insistence that it is linked
to the Canal’s collapse. For this reason, the County’s argument
that

per

chance

the

economic

damages

alleged

are

merely

consequential damages resulting from the direct damage to the Canal
and that the court should infer property damage does not withstand
scrutiny.”).
A conclusion that delay-related liquidated damages are not
contemplated under a CGL policy is in keeping with the general
understanding of the nature of CGL and other forms of insurance
under New York law:
On certain types of projects, some risks are more likely
to arise than others or the magnitude of a potential loss
might be larger than usual. For example, road
construction
regularly
encounters
environmental
obstacles, or the delayed completion of a power plant
could cost a utility millions in lost revenue. Special
coverages have been designed to transfer these recurring
or heightened risks to a carrier. Owners and contractors
need to inquire about the scope and price so coverage
cost and benefit can be analyzed early on.

32

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
All construction projects are exposed to the risk of
delayed completion. Whatever the reason for the delay,
someone will have to cover the cost. Loss of revenue,
loss of investment income, and continued debt servicing
are just some of the financial ramifications. The
insurance product traditionally used to mitigate delayed
completion risks has been a consequential loss (soft
cost) endorsement to the builder’s risk policy. However,
this will cover only the cost of delay where the cause is
an insured peril under the builder’s risk policy
(typically limited to on-site physical damage) and
usually not nonphysical or financial perils, i.e.,
economic loss damages. To bridge that gap, underwriters
created these insurance solutions to what many companies
had considered uninsurable risks:
•

Delayed completion/liquidated damages coverage
insures an owner (delayed completion) or a
contractor (liquidated damages) against financial
loss
from
a
delay
in
project
completion
attributable to specified causes, such as failure
of a party to perform timely.

. . .
New

York

Construction

Law

Manual

§

10:14,

Special

Insurance

Coverages (2d ed.). Furthermore, there is no evidence that the
parties, certainly not the Excess Insurers, contemplated coverage
for delay-related liquidated damages, which would preclude any
recovery of such.15

15

See, e.g., Brody Truck Rental, Inc. v. Country Wide Insurance
Co., 277 A.D.2d 125, 126 (N.Y.A.D. 1st Dep’t 2000) (granting
insurer’s summary judgment motion where liability policy at issue
“contains no provision or language indicating that recovery of
consequential damages was within the contemplation of the parties
. . . and no factual issue has been otherwise raised as to whether
33

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
Finally, according to Kvaerner, “[t]he Excess Underwriters
claim in passing and without citing any law that Kvaerner cannot
recover loss of use damages because the physical damage to the
H-bars and tubes occurred during the course of construction.”
Kvaerner counters this contention by citing to language in the CGL
policy “stat[ing] that ‘loss of use shall be deemed to occur at the
time of the physical injury that caused it’ in cases where the
physically injured property is itself rendered inoperable, or ‘at
the time of the “occurrence” that caused it’ in cases where
tangible property, other than the property physically injured, is
unavailable for use.” Dkt. No. 106 at 19, n. 6 (quoting Policy’s
definition of property damage (dkt. no. 97-41 at 22-23)).
This language actually undercuts Kvaerner’s argument. If the
loss of use is deemed to occur either at the time of the physical
injury,

or

at

the

time

of

the

“occurrence”

that

causes

the

the parties intended that [the insured] would be able to recover
damages due to lost business and/or profits”); Martin v.
Metropolitan Property & Casualty Insurance Co., 238 A.D.2d 389, 390
(N.Y.A.D. 2d Dep’t 1997) (granting motion to dismiss claim for
consequential damages arising out of breach of “loss of use”
provision of property insurance policy where “it was neither
foreseeable nor within the contemplation of the parties at the time
of the contract that failure to pay loss of use benefits would
result in foreclosure and the consequential damages flowing
therefrom. Nor does the contract of insurance contain any language
which permits recovery for consequential damages.”)
34

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
undamaged property to become unavailable, then the loss of use here
would be the moment that Wachs’ welders damaged the tubes and Hbars. Following that logic, the plant was not in use at that time
and therefore there could be no actual loss of use. Indeed, this
appears to argue against any coverage for liquidated damages
imposed months or years later when the project is delayed beyond
the substantial completion date.
In the end, New York has never recognized delay-related
liquidated damages as covered property damage under a CGL policy
containing language similar to the policy language in this case. On
the

other

hand,

there

is

support

for

the

conclusion

that

contractually based delay damages are no more than consequential or
economic losses not covered under a CGL policy. See, e.g., Monroe
County, 419 N.Y.S.2d 410 (1979); Structural Building Products Corp.
v Business Ins. Agency Inc., 722 N.Y.S.2d 559 (2001). Consequently,
the Court declines to extend the CGL policy’s coverage to damages
previously unrecognized by New York courts, and concludes that
liquidated damages do not constitute a covered loss under the CGL
policy.
C.

There Was no Property Damage Because the Damage Caused by
Wachs was to Kvaerner’s Work
New York courts are abundantly clear that CGL policies insure

for damage to third-party property, not damage to the insured’s own
35

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
work product. See AARK Const., 526 F.Supp.2d 350, 356-57 (E.D.N.Y.
2007) (“It has been well-settled by the New York courts that a CGL
policy does not insure against faulty workmanship in the work
product itself but rather faulty workmanship in the work product
which creates a legal liability by causing bodily injury or
property damage to something other than the work product.”); Bonded
Concrete, 12 A.D.3d at 762 (N.Y.A.D. 3 Dept. 2004) (noting that
claim for property damage must fail in absence of property damage
to anything other than insured’s own work product).
The Excess Insurers maintain that, as the general contractor,
Kvaerner’s scope of work included the boiler and any damage to it,
even if caused by its subcontractor, Wachs. Therefore, such damage
would be to its own work and not an occurrence of property damage
covered by the CGL policy. See Pavarini Const. Co., Inc. v.
Continental Ins. Co., 304 A.D.2d 501, 502 (N.Y.A.D. 1 Dept. 2003)
(“As general contractor, Pavarini was responsible for the entire
project and all work done by Pavarini’s subcontractor was done on
Pavarini’s behalf.”(citation omitted)).
Kvaerner contends that the boiler was not its work, but rather
work supplied by Foster Wheeler and owned by Longview. Thus, it
argues that, because the damage was not to the actual work Kvaerner
performed — the Wachs welding — it was covered third-party property

36

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
damage. Consequently, because the liquidated damages were a result
of that third-party property damage, Kvaerner contends that they
too were covered. The Excess Insurers counter that the boiler was
under the control and care of Kvaerner as part of the parties’ CSA.
See Dkt. No. 107 at 4-5. In support, they cite to the CSA’s risk of
loss provision:
Risk of Loss. Despite the passage of title as set forth
in Section 8.1, Constructor shall bear risk of loss and
care, custody and control pertaining thereto of any
materials, Constructor Equipment . . . or any other
Constructor Work completed until the date of Substantial
Completion . . . .
Dkt. No. 97-27 at 7. As Kvaerner correctly points out, however, the
definition of Constructor Equipment specifically excludes the
boiler:
“Constructor Equipment” shall mean all of the machinery,
equipment components, materials, apparatus, structures,
supplies, special tools and other goods required by the
terms of this Agreement to be provided by Constructor and
each Subcontractor in connection with the performance of
the Constructor Work (except that the term “Constructor
Equipment” shall not include . . . (b) the Boiler Island
Equipment . . . ).
Dkt. No. 97-26 at 7-8.
Recognizing that its responsibility for, or ownership of, the
boiler dooms its claim of third-party property damage, Kvaerner
goes to great lengths to disclaim any such responsibility or
ownership. The agreements between the parties belie Kvaerner’s

37

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
contention, however, and establish that Kvaerner was contractually
obligated to deliver a functioning plant. More specifically, the
CSA provided that
[Kvaerner] shall provide design services applicable to
the Constructor Work, supply the Constructor Equipment,
install all Turbine Island Equipment, Boiler Island
Equipment and Constructor Equipment and construct the
Plant in accordance with Appendix I and in a good,
workmanlike and quality manner, with all reasonable care,
skill and diligence such that the Plant will be:
. . .
(e) sufficient, complete and adequate in all respects
necessary to enable the Plant to achieve Substantial
Completion by the Guaranteed Substantial Completion Date
. . . .
Dkt. No. 97-26 at 11-12 (emphasis added). Thus, it is clear that,
as with the general contractor in Fuller, Kvaerner was responsible
for delivering a completed, properly functioning plant — including
the boiler. See Fuller, 200 A.D.2d at 260 (noting that, because
“Fuller’s contract with Epurio required it, as a general contractor
and construction manager on the project, to provide a completed
building,”

damage

to

its

own

work

included

all

work

by

subcontractors and suppliers).
Kvaerner argues with force that Foster Wheeler performed the
work of fabricating the boiler components, and that the boiler was
owned by Longview, thereby removing it from the scope of Kvaerner’s
work,

control,

or

ownership;

Kvaerner

simply

put

the

pieces

together. That is a gross simplification of their responsibility
38

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
under the CSA, which clearly states that Kvaerner was to “install
. . . [the] Boiler Island Equipment . . . and construct the Plant
.

.

.

in

a

good,

workmanlike

and

quality

manner,

with

all

reasonable care, skill and diligence such that the Plant will be .
. . . sufficient, complete and adequate in all respects . . . .”
Dkt. No. 97-26 at 11-12. In light of this contract language, there
is no merit to Kvaerner’s argument that its scope of work somehow
did not include the care and proper installation of the boiler
components, regardless of who manufactured them, as part of its
contractual obligation to provide a fully functioning boiler as a
whole.
Additional language from the Coordination Agreement further
supports the conclusion that Kvaerner was responsible for the
boiler as a whole. For example, Section 8.1 of the Coordination
Agreement provides:
Owner has entered into the Boiler Contract for the
procurement
of
the
Boiler
Island
Equipment
contemporaneously with this Agreement. To facilitate the
coordinated design and construction of the Plant, of
which the Boiler Island Equipment is a significant part,
[Siemens and Kvaerner] have agreed . . . that the Work of
[Kvaerner] shall include [Kvaerner] acting as Owner’s
agent in connection with the installation of the Boiler
Island Equipment and the Boiler Contract (“installation
Agent”). Owner hereby appoints [Siemens and Kvaerner] to
be its Design Agent and Installation Agent, respectively,
with respect to the Boiler Contract . . . . Except as
set forth in Section 8.7 hereof, as Installation Agent,
[Kvaerner] shall be responsible for the timely and proper
39

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
installation and erection of all Boiler Island Equipment
in order to achieve Substantial Completion by the
Guaranteed Substantial Completion Date and Final
Completion by the Date Certain. . . . Except as set forth
in Section 8.7, Constructor and Turbine Island Supplier
shall be responsible for all other requirements of the
Boiler Island Equipment as an integral part of the Plant
under the Longview Contracts.
Dkt. No. 97-30 at 21 (emphasis added).
The clear language of the Coordination Agreement also dooms
Kvaerner’s argument that, because Longview owned the boiler, the
Wachs damage was to third-party property. In Section 8.2 of the
Coordination Agreement, Longview assigned the Boiler Agreement to
Kvaerner:
Owner expressly assigns and delegates to [Kvaerner and
Siemens] all rights and obligations of the Owner under
the Boiler Contract including the rights to approve or
disapprove any design drawings and changes thereto, to
request or approve or disapprove any change orders, to
inspect the Boiler Island Equipment and observe any
factory tests and to exercise the rights and remedies of
Owner with respect to the Boiler Contract, including the
right to make demand under any letter(s) of credit
provided thereunder and any other security provided by
Boiler Island Supplier under the Boiler Contract and
initiate, prosecute and/or defend any arbitration or
legal proceedings against the Boiler Island Supplier. .
. Owner agrees that any damages (including liquidated
damages) recovered from Boiler Island Supplier shall be
for the account of and paid jointly (without duplication)
to [Kvaerner and Siemens]. . . . In respect of the
exercise of any right or remedy under the Boiler
Contract, both [Kvaerner and Siemens] will be acting as
if the Boiler Island Supplier were a Subcontractor to
40

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
[Siemens and Kvaerner], and because [Siemens and
Kvaerner] have assumed all risks under the Boiler
Contract . . . , [Siemens and Kvaerner] may, in enforcing
the Boiler Contract, act in their Own best interests . .
. .
Dkt. No. 97-30 at 22 (emphasis added). As assignee of the Boiler
Agreement,

Kvaerner

“‘step[ped]

into

[Longview’s]

shoes

and

acquire[d] whatever rights the latter had,’ including the right to
enforce the contract.” BSC Associates, LLC v. Leidos, Inc., 91
F.Supp.3d 319, 323 (N.D.N.Y. 2015) (quoting In re Stralem, 303
A.D.2d 120, 123, (N.Y.A.D. 2nd Dept. 2003)).
Based on this assignment, Kvaerner was the defacto owner of
the boiler. The contracts further establish that Kvaerner was in
control of the boiler as a whole and was responsible for its
construction and final turn-over to Longview in fully functioning
condition prior to the substantial completion date. Ultimately, the
entire plant was within the scope of Kvaerner’s work. As such,
providing a properly installed, constructed, and functional boiler,
including all of its component parts, was clearly within Kvaerner’s
scope of work. It cannot credibly be argued that damage by its
subcontractor to components of the boiler was somehow outside of
the scope of that work. Accordingly, the damage caused by Wachs’
welders was to Kvaerner’s own work and therefore is not covered
under the CGL policy.
41

KVAERNER V. CERTAIN UNDERWRITERS

1:15CV210

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF’S MOTION
FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 100] AND GRANTING
DEFENDANT’S MOTION FOR PARTIAL SUMMARY JUDGMENT [DKT. NO. 102]
IV. CONCLUSION
For the reasons discussed, the Court concludes that 1) there
was no occurrence triggering coverage; 2) the liquidated damages
are not property damage losses under the CGL policy; and 3) the
damage caused by Wachs was damage to Kvaerner’s own work, which is
not a covered loss under the policy. Accordingly, the Court DENIES
Kvaerner’s motion for partial summary judgment (dkt. no. 100) and
GRANTS the Excess Insurers’ motion of partial summary judgment
(102). Further, although the cross motions were for partial summary
judgment, the Court’s ruling on the coverage issue disposes of the
remainder of the case. Consequently, the Court DISMISSES Kvaerner’s
complaint WITH PREJUDICE, and ORDERS that this case be stricken
from its active docket.
It is so ORDERED.
The Court directs the Clerk of Court to transmit copies of
this Memorandum Opinion and Order to counsel of record and to enter
a separate judgment order.
DATED: June 28, 2017
/s/ Irene M. Keeley
IRENE M. KEELEY
UNITED STATES DISTRICT JUDGE

42