Builder's Risk Policy Covers Damage Only to Structure as Built
July 8, 2014
Glacier Construction Co. (Glacier) appealed a district court's order on summary judgment limiting its recovery under a builder's risk insurance policy (Policy) issued by Travelers Property Casualty Co. (Travelers). Glacier also appealed the grant of summary judgment in favor of Travelers on the court's jury instruction on the nature and scope of damages recoverable under the Policy. Travelers filed a cross appeal asserting that none of Glacier's claimed damages were covered by the policy. This case is Glacier Construction Company, a Colorado corporation v. Travelers Property Casualty Company of America, Nos. 12-1503 & 12-1514 (USCA 10th, June 20, 2014).
In early 2009, Glacier contracted with the City of Aurora, Colorado, to construct a new wastewater pumping facility. Before construction could begin, excess water had to be removed from the site by a process called “dewatering.” To accomplish the necessary dewatering, Glacier installed four submersible wells and pumps which performed as designed until May of 2009, when above-average rainfall caused them to fail. Soil got into the original wells/pumps due to the type of soil and the amount of erosion and sediment. As a result, Glacier developed a second dewatering plan that included replacement wells/pumps, and added shoring, engineering tie-backs, and a well-point system. Glacier made a claim on the Policy for the additional costs it incurred to dewater the site, which Travelers denied.
The relevant policy terms provided coverage for direct physical loss of or damage to covered property from any of the covered causes of loss. Glacier filed suit to recover from Travelers all of the costs for the second dewatering plan. The parties eventually filed cross-motions for summary judgment. Travelers argued that the policy did not cover any of the expenses Glacier incurred due to the failure of the original wells/pumps. The district court rejected that argument, however, and ruled that the policy covered the “cost of repairing and reworking [the original] four wells and pumps.” It also concluded that Glacier's claim was limited to those costs. Based on that ruling, Travelers asserted that the covered costs totaled $9,142.25, while Glacier claimed that its covered costs were $473,884.31.
Travelers relied on the policy language providing coverage for “direct physical loss of or damage to covered property from any of the covered causes of loss.” Travelers contended that the district court erred in concluding that the original wells/pumps were covered property, that they sustained physical damage, and that the damage was from a covered cause of loss.
“Covered property” refers to “[b]uildings or structures including temporary structures while being constructed, erected, or fabricated at the 'job site,' [and] “[p]roperty that will become a permanent part of the buildings or structures at the 'job site.'” The policy covered “temporary structures” and the original wells/pumps did not fall within the policy exclusions. Consequently, the Tenth Circuit agreed with the district court that the original wells/pumps “were temporary structures constituting covered property.”
Travelers next asserted that the original wells/pumps did not sustain physical damage from a covered cause of loss. According to Travelers, to be covered the loss had to be caused by a “casualty, catastrophe, or disaster.” Travelers contended that the rainfall did not qualify because for the period May through August, the rains were only 10 percent above average. But Glacier presented evidence that the damage was caused by above-average rain that fell in surges, so averaging the rainfall over a several-month period was not relevant. The Tenth Circuit concluded that heavy rains were within the policy coverage. An “occurrence sufficient to trigger coverage need not be sudden, but must be a specific accident or happening. A long term exposure to a harmful condition that results in damage or injury may be an occurrence.” Hoang v. Assurance Co. of Am., 149 P.3d 798, 802 (Colo. 2007) (construing an “occurrence” policy).
The evidence showed that it was the surging rain that caused the soil to erode and get into the original wells/pumps, causing them to fail. The heavy rains were within the policy coverage.
The relevant policy clause covered costs necessary to re-excavate the site, re-prepare the site, re-grade the land, or re-perform similar work. The ordinary and accepted sense of the policy terms limited coverage to correction of work previously done.
The policy did not cover the expense of a new dewatering design and the costs to implement that design. To read the policy as Glacier advocated would encourage a builder to economize on an initial dewatering plan and later require the insurer to pay for a more elaborate plan. To do so would misallocate the construction expense between the construction company and the insurer. First party property insurance, like builders risk, only exists to indemnify, not to create something new and different after the loss. Therefore, as a matter of law, the policy coverage was limited to the repair and reworking of the original wells/pumps, as determined by the district court.
Editor's Note: Insurance is a contract of indemnity. No one should be able to profit from a first party property insurance policy. At most, after a covered loss, the insurer need only pay to indemnify the insured–that is, place the insured in the same position it was in before the loss.