Honorable Candy W. Dale, United States Magistrate Judge.
This case involves a dispute regarding the proper interpretation and application of a builder's risk insurance policy issued by Defendant Travelers Property Casualty Company of America ("Travelers") to Plaintiff Engineered Structures, Inc. ("ESI") ESI asserts claims for Breach of Contract, Negligence under Idaho's Unfair Claims Settlement Practices Act, and Breach of the Implied Covenant of Good Faith and Fair Dealing, and asserts also that it is entitled to a declaratory judgment against Travelers.
Both parties filed motions for summary judgment. (Dkt. 26, 30.) Travelers contends that coverage for ESI's claim is precluded under the insurance policy because the property damage and increased expense for which ESI makes its claim were the result of faulty workmanship, which is an expressly excluded cause of loss under the policy. Additionally, Travelers argues ESI's tort claims fail because the substantive law governing those tort claims is Oregon, not Idaho, and Oregon law does not permit the claims. ESI, on the other hand, argues the policy provides coverage for its losses, and that the faulty workmanship exclusion Travelers relies upon does not apply. As for its tort claims, ESI asserts Idaho substantive law governs, and therefore provides an avenue for recovery of its tort damages.
The Court conducted a hearing on May 8, 2018. After careful consideration of the parties' arguments, briefs and supporting materials, the Court will grant in part and deny in part each motion. Specifically, ESI's motion will be granted with regard to its breach of contract claim and contract damages, and Traveler's motion will be granted with regard to ESI's remaining tort claims, for the reasons explained below.
Plaintiff ESI is an Idaho corporation, with its principal place of business in Idaho. Compl. ¶ 1; Ans. ¶ 1. Travelers is an insurer, incorporated in Connecticut, and is authorized to transact business in Idaho.
On November 4, 2014, Travelers issued Policy Number QT-660-A154639-TIL-4, with effective dates of September 1, 2014 to September 1, 2015 (the "Policy") to ESI. (ESI SOF ¶ 4; TPC SOF ¶ 1.)
The Builders Risk Form states as follows:
The Builders Risk Form sets forth the following exclusion for "faulty, inadequate or defective" work:
(TPC SOF ¶ 3.)
On September 29, 2014, ESI as Contractor and Fred Meyer Stores, Inc., as Owner
The Contract for the Project included by reference a project schedule, general conditions, specifications and drawings. (ESI SOF ¶ 2.) All work was to be performed in accordance with the schedule, general conditions, specifications, and drawings. (ESI SOF ¶ 2.) The Project specifications were contained in the Project Manual, prepared by the Project Architect, Anderson Wahlen & Associates. (ESI SOF ¶ 5.)
The Contract called for installation of two underground storage tanks ("USTs") for storage and sale of fuel in the anticipated Fred Meyer fueling station. (TPC SOF ¶ 6.) One UST had a 20,000-gallon capacity designed to hold regular unleaded fuel, and the other was a split 18,000-gallon tank designed to hold both premium and diesel fuel. (ESI SOF ¶ 8.) The 20,000-gallon UST is the one at issue in this case. (ESI SOF ¶ 8.)
ESI subcontracted with 3 Kings Environmental, Inc. ("3 Kings") to install the Liquid Fuel Distribution & Electrical systems, a portion of which work included the installation of the two USTs. (ESI SOF ¶ 3.) ESI and 3 Kings were required to do their work in compliance with the Project Manual. (TPC SOF ¶ 13.) In mid-December of 2014, ESI and its subcontractors, including 3 Kings, began the process of installing the two USTs on the Project. (ESI SOF ¶ 8.)
There is a section in the Project specifications relating to the UST at issue in these proceedings, Section 33 52 00—Liquid Fuel Distribution. (ESI SOF ¶ 5.) General Condition 00 72 14-3.7.3 to the Contract provides that the contractor is to comply with the manufacturer's written instructions for installing products. (ESI SOF ¶ 6.) Similarly, the Liquid Fuel Distribution specification 33 52 00-1.5 requires that the contractor deliver, handle and install materials (including specifically the UST) in accordance with the manufacturer's instructions. (ESI SOF ¶ 6.) Xerxes manufactured the USTs, and the Xerxes Installation Manual is the UST manufacturer's instructions referenced in the Project Manual. (ESI SOF ¶ 7.)
With respect to installing the USTs, the Project Manual provided:
(TPC SOF ¶ 12.)
The Xerxes Manual contained the following "NOTICE: Adequately ballast the tank (add liquid) in a wet hole or in a dry hole that may become wet (for example, from site runoff) until the installation is totally completed. Failure to do this may result in damage to the tank and/or surrounding property." (TPC SOF ¶ 18.) The Burlingame Fuel Center Project was a "wet-hole installation." (TPC SOF ¶ 20.)
Concerning tank installation, the Xerxes Manual directed in part:
(TPC SOF ¶ 19.)
Ballast is, by design, a temporary element of the installation work much like roofers use a tarp to cover an unfinished roof as the work progresses. (ESI SOF ¶ 15.) When the work is complete, and a finished product available, no water (ballast or otherwise) should be present in the tank. (ESI SOF ¶ 15.)
Between December 15 and 17, 2014, the USTs were lowered into a shored excavation, seated into bedding material, strapped down via anchor straps to deadmen (reinforced concrete beams) on either side of the USTs, and partially backfilled with pea gravel. (ESI SOF ¶ 9.) The backfill material was placed in the hole at least 75 percent of the way up the tank (TPC SOF ¶ 21.)
On December 23, 2014, it began to rain. On the morning of December 24, 2014, it was discovered by ESI and 3 Kings that the larger of the two USTs had displaced the surrounding soils and emerged from the excavation. (ESI SOF ¶ 21.) Approximately 1.85 inches of rain had fallen over the period of time that the UST was placed in the ground to the time it floated. Depo. of Adam McClure
On January 6, 2015, ESI submitted a claim under its builders' risk policy with Travelers for the loss and associated Project repairs, including reinstallation of the UST and other resulting costs. (ESI SOF ¶ 25.) Specifically, ESI claimed damages for "additional costs that it would not have incurred had there been no direct physical loss and/or damage to the Project," in the amount of "$177,431.99." (TPC SOF ¶ 23.)
Travelers engaged Vertex Companies, Inc., to assist Travelers with determining a cause of loss. (ESI SOF ¶ 26; Traveler's Response.)
According to the Vertex Report, there was a disagreement between ESI and its subcontractor, 3 Kings, as to the amount of ballast in the USTs at the time of the loss on December 24, 2014, and it was "unclear how much, if any, ballast was delivered to the subject UST." (ESI SOF ¶ 28.)
The parties disagree regarding how much ballast was actually in the UST, and how much ballast was required to be in the UST, prior to the date of loss on December 24, 2014. Rob Law, who oversaw the project on behalf of Fred Meyer,
According to Brandon McCurdy, ESI's Project Manager in charge of the Burlingame
Jonathan Noris
Travelers contends, however, that post-installation testing had already been completed as part of an alternate procedure Xerxes had approved, and relies upon Law's installation checklist. (Dkt. 28-5 at 1-4.) The checklist contains a section entitled "Pre-Installation Testing," indicating the tanks had undergone a visual inspection and an air test. (Dkt. 28-5 at 2-3.) However, Ron King, President of 3 Kings, testified that Section 13 of the Xerxes Manual required that, after the UST was partially backfilled but before it was completely ballasted, it had to be pressurized, the fittings soaped, and then checked for leaks. Decl. of King ¶¶ 7-9 (Dkt. 32-2.) Once the integrity of the tank and fittings were confirmed, the tank could then be completely backfilled and ballasted. Id. ¶ 10.
In Travelers' February 25 and March 12, 2015 letters denying coverage for ESI's claim, Travelers relied entirely on the exclusion for faulty workmanship. The letters explained in part: "The referenced Builders' Risk policy does not cover the faulty, inadequate or defective-planning, workmanship or construction involved in properly installing the fuel tanks. After a thorough investigation it was determined that the subcontractor did not follow installation specifications from the fuel tank manufacturer relating to the amount of ballast to be used. . . ." (TPC SOF ¶ 29; Dkt. 28-10 at 3.)
3 Kings later sued ESI in the Circuit Court of the State of Oregon, for the County of Multnomah, on April 29, 2015, bringing claims for foreclosure of construction lien, breach of contract, quantum meruit, and private prompt payment. (Dkt. 43-14.) 3 Kings claimed it was owed the sum of $238,713.03. ESI and 3 Kings entered into a settlement agreement of 3 Kings' claims on February 12, 2016. (Dkt. 43-15.) As part of the settlement, the parties agreed to execute a joint prosecution agreement to recover monetary damages related to the Burlingame Project, and ESI agreed to pay to 3 Kings any and all money it might receive from Travelers under the all-risk Policy on account of the prosecution of its claims. The joint prosecution agreement provided that ESI and 3 Kings would agree to jointly prosecute all claims against Travelers relating to the
Federal Rule of Civil Procedure 56 provides, in pertinent part, that the "court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
For summary judgment purposes, an issue must be both "material" and "genuine." An issue is "material" if it affects the outcome of the litigation; an issue is "genuine" if it must be established by "sufficient evidence supporting the claimed factual dispute . . . to require a jury or judge to resolve the parties' differing versions of the truth at trial." Hahn v. Sargent, 523 F.2d 461, 464 (1st Cir. 1975) (quoting First Nat. Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968)); see also British Motor Car Distrib. v. San Francisco Auto. Indus. Welfare Fund, 882 F.2d 371, 374 (9th Cir. 1989). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
When parties submit cross motions for summary judgment, a court must independently search the record for factual disputes. See Fair Hous. Council of Riverside Cnty., Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001). The filing of cross motions for summary judgment "where both parties essentially assert that there are no material factual disputes" does not vitiate a court's responsibility to determine whether disputes as to material facts are present. See id.
In considering a motion for summary judgment, a court does not make findings of fact or determine the credibility of witnesses. See Anderson, 477 U.S. at 255, 106 S.Ct. 2505. Rather, it must draw all inferences and view all evidence in the light most favorable to the nonmoving party. See Matsushita, 475 U.S. at 587-88, 106 S.Ct. 1348; Whitman v. Mineta, 541 F.3d 929, 931 (9th Cir. 2008).
Idaho courts construe insurance contracts by their plain, unambiguous language;
"The burden is on the insurer to use clear and precise language if it wishes to restrict the scope of coverage and exclusions not stated with specificity will not be presumed or inferred." Clark v. Prudential Prop. & Cas. Ins. Co., 138 Idaho 538, 66 P.3d 242, 245 (2003). However, standardized contract language must necessarily be somewhat general, in anticipation of varying circumstances of the facts. Foster v. Johnstone, 107 Idaho 61, 685 P.2d 802, 806 (1984). "[W]here the policy language is clear and unambiguous, coverage must be determined, as a matter of law, according to the plain meaning of the words used." Cascade, 115 P.3d at 754 (internal citation and quotation omitted).
ESI's first cause of action alleges Travelers breached its contractual duty to pay ESI's claim pursuant to the terms of the Policy. In its motion, Travelers contends the faulty workmanship provision (Exclusion B.4) precludes ESI's claim, because had it not been for ESI's and 3 Kings' failure to properly ballast the UST, it would not have floated out of the ground. Travelers contends that, under either a "flawed product" or "flawed process" analysis, the faulty workmanship exclusion precludes coverage for ESI's claim. For its flawed product analysis, Travelers contends there was a defect in the workmanship of the UST, because it floated instead of remaining submerged. Alternatively, Travelers argues that the failure to fully ballast the tank once the backfill reached the top of the tank constituted a flawed installation process. Under either argument advanced, Travelers's position is that ESI was negligent and breached the standard of care, because ESI did not properly ballast the tank once it was backfilled.
In response, ESI claims the faulty workmanship provision does not apply to a work in progress, because the provision is meant to apply to a finished work product. Because neither party disputes that the work was unfinished, ESI contends summary judgment in its favor is warranted. In addition, ESI argues that it followed the requisite steps to complete the installation as prescribed by the Xerxes Project Manual, but that it was not finished with the post-installation testing at the time the UST floated. ESI contends Section 12 of the Xerxes manual requires post installation testing prior to completely filling the tank with ballast. Travelers argues to the contrary—that Xerxes had allowed testing to occur at an earlier time, and testing did not need to be repeated.
Despite the dispute regarding the water level in the tank necessary for ballast at the time of the float incident, and the sequence of testing for leaks, the Court finds the disputes immaterial.
The Ninth Circuit Court of Appeals had the occasion in Allstate Ins. Co. v. Smith, 929 F.2d 447 (9th Cir. 1991), to examine an almost identical insurance policy exclusion for faulty workmanship. In Allstate, Smith rented space in an office building. He purchased an "all risk" insurance policy from Allstate covering his property for loss or damage resulting from direct physical loss, with certain exclusions for losses caused by faulty workmanship. A roofing contractor was working on the building, and after having removed most of the roof, he forgot to place a temporary cover on the roof. That night, it rained, damaging Smith's office and equipment.
The district court ruled Allstate had no duty to reimburse Smith under the faulty workmanship exclusion. The Ninth Circuit disagreed, finding the term "faulty workmanship" ambiguous and susceptible to "at least two different interpretations: (1) the flawed quality of a finished product, or (2) a flawed process." Allstate, 929 F.2d at 449. The court explained that, under the flawed product interpretation, the failure to cover the roof with a tarp would not constitute faulty workmanship, because the roofer had not completed any portion of the new roof at the time the damage occurred, and there was therefore "no object to evaluate to determine whether the workmanship was faulty." Id. On the other hand, the court noted that the failure to place temporary cover on the incomplete roof could constitute faulty workmanship under a flawed process interpretation. Id.
However, the court did not express any view as to the soundness of the flawed process interpretation, because the court concluded that the flawed product interpretation was the more reasonable one, given the language of the policy as a whole, and it was the interpretation that favored the insured. Id. at 449-50. The Court explained that, if the broader flawed process interpretation was accepted as the only reasonable interpretation of the policy, the "`ensuing loss' language is seemingly rendered meaningless." Id. at 450. In adopting the flawed product definition of "workmanship," the court noted that numerous cases existed where faulty workmanship was found based on a defect in the object of the workmanship. Id. (citing as examples Tzung v. State Farm Fire & Casualty Co., 873 F.2d 1338 (9th Cir. 1989) (defectively constructed apartment building); U.S. Indus., Inc. v. Aetna Casualty & Sur. Co., 690 F.2d 459 (5th Cir. 1982) (defective steel tower); Kroll Constr. Co. v. Great Am. Ins. Co., 594 F.Supp. 304 (N.D. Ga.1984) (poorly waterproofed walls)). Accordingly, under the flawed product interpretation, the court concluded the exclusion did not apply because the loss was not caused by a flawed product, but "by failure to protect the premises during the roof repair process." Id.
The Idaho Supreme Court had occasion also to examine a faulty workmanship exclusion in a homeowner's insurance policy. Fisher v. Garrison Prop. & Cas. Ins. Co., 162 Idaho 149, 395 P.3d 368 (2017). In that case, Fisher decided to sell her house, and she entered into a purchase and sale agreement with Reynoso. The agreement included a provision that, until he obtained financing, Reynoso would lease the property, and that during the lease term, Reynoso
The Idaho court found that the term workmanship had a plain, ordinary meaning. "The word `workmanship' as a noun means: 1) the art or skill of a workman; 2) the art or skill with which something is made or executed; 3) the degree of art or skill exhibited in the finished product; or 4) the piece of work so produced." Fisher, 395 P.3d at 373. The court found that the loss to the house was not caused by Reynoso's lack of skillfulness or expertise in doing his work, as the house had been demolished and no work had actually been done other than some rough framing. Id. Consequently, the court found the faulty work exclusion did not apply to the loss. Id. at 374-75.
The Court finds Allstate and its reasoning, as well as that in Fisher, persuasive here in light of the policy language as a whole, and the facts before the Court. Travelers' argument—that under either the flawed finished product or flawed process interpretation the loss is excluded—is not only strained, but illogical. The Court assumes insufficient ballast was in the UST at the time of the loss.
The Xerxes manual explained, in no uncertain terms, that until the tank was fully backfilled and the top slab in place, the tank would not be adequately protected against floatation. There is no dispute that ESI and its subcontractor, 3 Kings, were in the process of installing the UST and filling it with water for ballast, but because of the rain storm the night before, the ballast was insufficient to prevent the tank from floating.
Just as in Allstate (and in Fisher), interpreting the clause "faulty workmanship" as the flawed quality of the product worked upon—in this case, the liquid fuel distribution and electrical systems of the Burlingame fuel center—makes sense in light of the policy language as a whole. For instance, in the coverage section, the Policy provides that coverage extends to Covered Property, defined as "supplies and property of a similar nature that will become a permanent part of the project described in the Declarations . . . or that will be used or expended in the completion of such project." Policy Section A(1)(a). (Dkt. 33-1 at 20.) The same section defines completion to include "site preparation (including demolition of existing structures), fabrication, assembly, installation, erection, alteration, renovation and similar construction activities." Id. Covered property therefore encompasses supplies or property not yet fully installed, and the processes necessary to install the same.
Here, the UST fits squarely within the definition of Covered Property—it is a "supply or property of a similar nature" that will become a permanent part of the liquid fuel distribution and electrical systems, and in turn a component part of the Burlingame fuel center, much like a roof on a house. Completion of the Project encompassed the installation of the USTs as part of the assembly or installation of the liquid fuel distribution and electrical systems. Coverage also extends to "labor, material and equipment charges incurred to move, remove, place or otherwise handle cut, fill and backfill materials to the extent such costs are included in the estimated `total project value' shown in the Declarations." Policy Section A(2)(c)(2). (Dkt. 33-1 at 20.)
Elsewhere in the Policy, it explains that, in the event of damage to Covered Property, Travelers will pay for the reasonable and necessary costs to repair or replace Covered Property, and the extra expenses incurred during the period of restoration. Policy Section A(4)(a)(1). (Dkt. 33-1 at 21.) Put differently, Travelers agreed to compensate its insured for loss or damage to any supplies or property that were intended to become a permanent part of the project, as well as expenses incurred during restorative work.
Also similar to the facts in Allstate, the flawed product interpretation is bolstered by the language of the faulty workmanship exclusion itself. The court in Allstate provided an example of a situation where a flawed product—i.e. a finished roof—could cause damage to the structure or its contents. Allstate, 929 F.2d at 450. For example, the roofer could neglect to install flashing,
And finally, although not discussed in detail, ESI noted the rain exclusion may apply to support its position. The rain exclusion in the applicable amendatory endorsement excludes coverage for loss or damage caused by "[r]ain, snow, sleet or ice, whether driven by wind or not. This exclusion applies only to
Travelers attempts to equate the facts of this case with those of the faulty tower in U.S. Industries, Inc. v. Aetna Cas. & Sur. Co., 690 F.2d 459 (5th Cir. 1982), and distinguish Allstate. In Aetna, plaintiff Wyatt Industries had contracted to fabricate and erect a steel cylindrical tower, 240 feet high and 15 feet in diameter. Aetna issued an "all risks" policy, with an exclusion for loss or damage caused by or resulting from faulty workmanship. The construction of the tower involved welding semi-circular steel plates into twenty-one rings, placed on top of one another to the height of the tower. The welding process, however, was faulty, and the evidence showed that excessive and uneven heating caused deformation of the tower during the first phase of construction. Wyatt sought damages for the cost of materials and labor used to replace the tower when it became deformed due to the faulty welds. The issue was whether the cause of the damage was faulty workmanship, or was instead in the nature of a covered fortuitous occurrence, even if it resulted from the negligence of Wyatt's employees. Aetna, 690 F.2d at 460.
The court in Aetna explained that the faulty workmanship in the welding process caused the finished portions of the tower to be deformed. Id. The welding process was defective such that the tower itself became damaged during phase one of the project, and therefore there were no resulting, covered losses, which could have occurred had the tower fallen and hit something else. The court distinguished the case before it from a situation where errors in workmanship contributed to the cause of loss, but the loss essentially resulted fortuitously from events extraneous to the construction process itself. Aetna, 690 F.2d at 462 (citing Equitable Fire & Marine Ins. Co. v. Allied Steel Construction Co., 421 F.2d 512, 514 (10th Cir. 1970) (pipeline being installed across a river fell into the river because the workman had replaced a fitting at one pier without securing the pipe at the other pier); and City of Barre v. New Hampshire Ins. Co., 136 Vt. 484, 396 A.2d 121, 122 (1978) (gust of
In its argument, Travelers equates the insufficient ballast to a defect in the way some part of the property—in this case the liquid fuel distribution and electrical systems—was constructed. However, in doing so, Travelers overlooks the facts presented here. Just like in Allstate, Equitable, and City of Barre, errors in workmanship during the course of construction contributed to the cause of loss. Here, it was the insufficient ballast.
If Travelers's intent was to exclude liability from all losses caused by negligence on the part of ESI, it was not clearly expressed in the Policy. Instead, the Policy, construed as a whole, excludes coverage for damage resulting from defective materials incorporated into the structure itself, or from defects in the product caused by faults in the construction process. However, the Policy covers resulting loss or damage, which may have been caused in part by the negligent practices of the contractor during the construction process. If construed otherwise, there would be no coverage under the Policy, and coverage would be illusory.
In light of the facts of this case, the Court finds the term faulty workmanship ambiguous, and applies the construction most favorable to the insured. Allstate, 929 F.2d at 450. The UST sat in the ground without incident from the time it was filled with ballast on December 17 until December 24, when it rained. Under the flawed product interpretation, the exclusion does not apply because ESI's losses were not caused by a flawed product, but by failure to adequately protect against flotation during the installation of the USTs, which installation was a component part of the completion of the liquid fuel distribution and electrical systems for the Burlingame fuel center.
Accordingly, ESI's motion for summary judgment on its first cause of action for breach of contract will be granted, and Travelers' corresponding motion will be denied.
ESI argues the Policy covers resultant damages and ensuing losses, and claims also entitlement to attorney fees under Idaho Code § 41-1839.
The Court finds that ESI's costs to remediate the UST floatation by repairing the outside of the UST, excavating the hole, re-setting the UST, and backfilling constitute charges to repair or replace "Covered Property" under the terms of the Policy. Here, the covered property, as explained above, constitutes the labor and materials necessary to construct the liquid fuel distribution and electrical systems. Such costs include "soft costs," such as overhead, or expenses due to completion beyond the planned completion date. By identifying the defect as the lack of ballast, Travelers cannot exclude the resulting damages arising from that defect. Much like a tarp that was not placed over a hole in a roof during the course of construction, it did not cost anything to "repair" the insufficient amount of ballast. Put in another context, the Policy is designed to cover the loss caused by a leaky faucet, but it would not cover the cost to replace the faucet itself. Here, all of the damages were a result of the UST floating out of the hole due to insufficient ballast to counteract the rain that fell during the night.
Turning now to Travelers' arguments regarding entitlement to damages, Travelers first relies upon the following policy provision:
(Dkt. 33-1 at 18.)
Travelers' reliance upon the policy provision cited above is in error. The policy provision cited is contained within a discrete portion of the Policy, applicable in Commercial Inland Marine Coverage Forms. (Dkt. 33-1 at 17.) According to Travelers' website, Inland Marine insurance "provides protection for a business' property that is mobile in nature or requires unique valuation. Coverage extends to property that is owned or in a business' care related to construction. . . . We provide protection for fixed property under construction and equipment used during construction, whether it is in transit, in storage or at the jobsite."
The language of Subsection J clearly restricts the clause to "payment under this Coverage Part," meaning it falls within the inland marine provisions, not the Builders' Risk Coverage Form. And, in the first paragraph to the Commercial Inland Marine Conditions, it clearly indicates that the provisions contained therein apply "in addition to the Common Policy Conditions. . . in Commercial Inland Marine Coverage." In other words, the commercial inland marine conditions supplement the other coverage conditions, but do not extend to other types of coverage provided under the Policy.
The other policy provision Travelers cites is contained within the Common Policy Conditions, and states:
(Dkt 33-1 at 6.) The provision speaks in terms of assignment of the rights and duties under the Policy, not the transfer of a claim, or right to payment. And, that is precisely how Travelers interpreted the policy during the claims process.
In a note dated September 28, 2015, Adam McClure, Travelers' claims adjuster, noted:
(Dkt. 44-1 at 19, emphasis added.) Even Travelers saw the assignment of the Policy as distinct from the assignment of a claim. Thus, ESI could not assign its rights under the Policy to 3 Kings and thereby allow another entity to step into its shoes, so to speak, but ESI could enter into an agreement whereby whatever proceeds it received were the property of 3 Kings, in an effort to pay the costs of remediating the damage caused by the floating UST.
That is precisely what ESI and 3 Kings did. The settlement agreement between ESI and 3 Kings set forth that ESI and 3
Accordingly, the Court finds no merit to Travelers' argument, and finds that the plain language of the Policy did not prohibit ESI from assigning its right to payment to 3 Kings in the event of a recovery. The Court therefore does not reach ESI's remaining arguments, and finds summary judgment is properly granted to ESI on its claim.
ESI claims also a right to attorney fees under Idaho Code § 41-1839. That provision states:
Neither party provided argument regarding ESI's claim for attorney fees in its briefing. Regardless, the Court finds the matter to be premature at this stage, and makes no finding at this time. An appropriate motion for attorney fees may be filed later in these proceedings pursuant to Fed. R. Civ. P. 54 and Dist. Idaho L. Civ. Rule 54.2. ESI is therefore entitled to summary judgment with regard to its assertion of breach of contract damages in the amount of $177,431.99.
ESI's third cause of action for negligence seeks to recover tort damages against Travelers for alleged statutory violations of the minimum standards of care under Idaho's Unfair Claims Settlement Practices Act, Idaho Code § 41-1329 ("UCSPA").
Travelers asserts that, because all of the conduct here, including the claims handling, occurred in Oregon, Oregon law should apply to this claim, and Oregon does not recognize such a claim under its version of the UCSPA. ESI argues Idaho recognizes a private right of action under Idaho's UCSPA. In response, Travelers contends that, even if Idaho law does apply, ESI cannot establish that Travelers violated Idaho's UCSPA.
The Court finds the parties' choice of law and substantive arguments are irrelevant with regard to ESI's third claim for negligence under Idaho's UCSPA, because there is no conflict between the two states' laws. Neither Idaho nor Oregon recognizes a private right of action under the UCSPA. Absent a conflict, there is no need for the
In White v. Unigard Mut. Ins. Co., 112 Idaho 94, 730 P.2d 1014 (1986), the Idaho Supreme Court held that Idaho's UCSPA "does not give rise to a private right of action whereby an insured can sue an insurer for statutory violations committed in connection with the settlement of the insured's claim." White, 730 P.2d at 1021. Oregon law also precludes a private cause of action for violation of its version of the UCSPA. Richardson v. Guardian Life Ins. Co. of Am., 161 Or.App. 615, 984 P.2d 917, 923 (1999) (dismissing claim for violation of the Unfair Claims Settlement Practices Act on summary judgment because violations of the Act are not independently actionable).
Accordingly, Travelers is entitled to summary judgment with regard to ESI's third cause of action for negligence under Idaho's UCSPA. ESI's corresponding motion seeking summary judgment on its claim for negligence will be denied.
ESI's second cause of action alleges breach of the covenant of good faith and fair dealing. Initially, Travelers applied Idaho law to ESI's bad faith claim. But, both parties later advanced a choice of law analysis, with Travelers asserting Oregon law should apply, while ESI contended Idaho law should apply.
Idaho clearly recognizes that the tort of bad faith exists independent of a claim for breach of contract against an insurer. White, 730 P.2d at 1020 (holding that a common law tort action exists, distinct from an action on the contract, for an insurer's bad faith in settling the first party claims of its insureds). Oregon courts adhere to the principle that "an insurer's bad faith refusal to pay policy benefits to its insured sounds in contract and is not an actionable tort in Oregon." Braun-Salinas v. Am. Family Ins. Grp., No. 3:13-CV-00264-AC, 2014 WL 1333731, at *8 (D. Or. Apr. 1, 2014), aff'd, 665 F. App'x 576 (9th Cir. 2016) (quoting Employers' Fire Ins. v. Love It Ice Cream, 64 Or.App. 784, 670 P.2d 160 (1983)); see also Santilli v. State Farm Life Ins. Co., 278 Or. 53, 562 P.2d 965, 969 (1977) ("In cases involving the insurer's duty to pay under polices for theft, fire, health, disability or life insurance, the unique relationship which gives rise to the special duty of liability insurers to attempt to settle within their policy limits does not arise.")).
However, the mere fact a conflict exists does not compel the Court to engage in a conflict of laws analysis under the facts here.
In Allis-Chalmers Corp. v. Lueck, the United States Supreme Court explained that a bad-faith claim is dependent upon the terms of the agreement between the parties, and is merely a mechanism for pleading a type of contract violation to claim exemplary damages not otherwise recoverable. Allis-Chalmers Corp., 471 U.S. 202, 217, 105 S.Ct. 1904, 85 L.Ed.2d 206 (1985). See also The Home Ins. Co. v. Serv. Am. Corp., 654 F.Supp. 157, 158-59, (N.D. Ill. 1987); Kvaerner IHI v. Nat'l Union Fire Ins. Co. of La., No. 10-CV-00278, 2013 WL 6244167, *4 (W.D. La. Dec. 2, 2013) (bad faith claim "inextricably intertwined" with contract). As a result of that dependency, an "unnecessarily confusing situation would result if the law of one state is used to interpret the insurance agreement regarding the breach of contract claim and the law of a second state is applied to interpret the same agreement with regard to the bad faith claim." Home Ins. Co., 654 F.Supp. at 159; Kvaerner IHI, 2013 WL 6244167 at *4; Commerce & Industry Ins. Co. v. U.S. Bank Nat'l Assoc., No. 07 Civ. 5731(JGK), 2008 WL 4178474 at *4 (S.D.N.Y. Sept. 3, 2008).
Both parties agree Idaho law governs ESI's breach of contract claim. And, at the outset, Travelers relied upon Idaho law to assert ESI's bad faith claim was subject to dismissal upon summary judgment. Accordingly, the Court finds Idaho law governs both the contract and bad faith claims, and declines to apply Idaho's choice of law rules.
Turning to the merits,
The central issue here is whether ESI's claim was reasonably in dispute, thereby rendering the claim fairly debatable. See, e.g., Tomaselli v. Transamerica Ins. Co., 25 Cal.App.4th 1269, 1280-81, 31 Cal.Rptr.2d 433, 439 (1994) ("[t]he mistaken withholding of policy benefits, if reasonable or if based on a legitimate dispute as to the insurer's liability under California law, does not expose the insurer to bad faith liability."). Travelers argues the claim was fairly debatable under the terms of the Policy. In contrast, ESI argues the claim was not fairly debatable, because an adequate investigation was not conducted before Travelers denied the claim. ESI relies upon Travelers denial of its claim on February 25, 2015, one day after receiving the Vertex report on February 24, 2015, which indicated it was unclear how much ballast was in the UST. In response, Travelers asserts its claims adjuster, Adam McClure, attempted to discern the amount of ballast in the UST at the time of loss, but because the repair had been completed at the time the claim was submitted, it was not possible to do so. Thus, other than 3 Kings' delivery ticket that documented three truckloads of water had been delivered, and witnesses reporting the UST was half-full, no one really knew how much water was contained within the UST at the time it floated.
Here, there is evidence to support Travelers' contention that ESI's claim was reasonably in dispute. Travelers discharged its contractual obligations to ESI by promptly acknowledging and investigating the claim. ESI, by contesting the adequacy of the investigation, asserts Travelers acted unreasonably in denying the claim. However, the Court notes that, at the time of the investigation, the loss had been remediated, thereby hampering Travelers's investigation. The investigation concerned how much ballast was in the UST, and whether the manufacturer's installation process was followed.
ESI does not dispute that the parties disagreed as to the amount of ballast in the UST, and its sufficiency, which no one at the time could determine with any certainty. The parties disagreed also concerning the installation process. The Vertex report was ultimately inconclusive, and ESI does not explain what further information Travelers should have or could
Accordingly, with regard to the bad faith claim, ESI's motion will be denied and Travelers's motion will be granted.
In light of the foregoing analysis and the record herein, the Court concludes that the motions should each be granted in part and denied in part. With regard to ESI's first cause of action for breach of contract, the Court finds there was coverage under the Policy for ESI's claim.
Because the Court has resolved the issue of both coverage and damages, ESI will be awarded judgment in the amount of $177,431.99. A separate form of judgment will be entered. ESI may later move to amend the judgment to account for any additional sums, including prejudgment interest pursuant to Idaho Code § 28-22-104 or attorney fees, if awarded.
