United States District Court, D. Utah
CORRECTED[*]MEMORANDUM DECISION AND
S. Jenkins United States Senior District Judge
the Court is Big-D Construction Midwest, LLC's
("Big-D") Motion for Partial Summary Judgment on
its First Cause of Action (Declaratory Judgment on Property
Damage) and Second Cause of Action (Breach of Contract),
Allied World National Assurance Company's ("Allied
World") Cross-Motion for Summary Judgment on all claims,
Zurich American Insurance Company's ("Zurich")
Cross-Motion for Summary Judgment on all
claims.The Court held oral argument on March 13,
2018. Counsel present for the hearing were: Melissa A.
Beutler and Shane W. Clayton on behalf of Big-D Construction
Midwest, LLC ("Big-D"), Richard A. Vazquez on
behalf of Defendant Zurich American Insurance Company
("Zurich"), and Ian A. Cooper, Emily R. Steinberg,
and Tyler Snow on behalf of Allied World National Assurance
Company ("Allied World"). The Court reserved
judgment at the close of the hearing.
parties in this case dispute whether there is coverage under
a commercial general liability ("CGL") policy
provided by Zurich and an umbrella insurance policy provided
by Allied World for damage to non-defective portions of a
general contractor's work that are harmed as part of the
process of removing and replacing non-compliant lumber
installed by a subcontractor. The following facts were
stipulated to by all parties.
acted as the general contractor on three construction
projects: 1700 Plymouth Road in Minnetonka, Minnesota (the
"Plymouth Road" Project); 3118 West Lake Street in
Minneapolis, Minnesota (the "Lake Street" Project);
and 9201 Golden Valley Road in Golden Valley, Minnesota (the
"HELLO Apartment" Project). Insurance coverage for these
projects was issued to Big-D by Zurich and Allied World, with
Zurich issuing a commercial general liability policy (the
"Zurich Policy") and Allied World issuing a commercial
umbrella policy (the "Allied World
entered into a subcontract with J.L. Schwieters
("Schwieters") to supply and install D-Blaze
treated framing lumber at the Plymouth Road Project and Lake
Street Project (collectively, the "Projects").
Schwieters performed its work at the Projects from March 2016
to June 2016. In performing its work, however, Schwieters
installed non-compliant Chicago Flameproof Lumber treated
with FlameTech fire treatment (the "CF Lumber") as
opposed to D- Blaze fire treatment. Big-D was unaware that
the CF Lumber installed by Schwleters on the Projects was
treated with FlameTech fire treatment, not D-Blaze fire
treated lumber was not approved by the projects'
architect(s) for installation on the Lake Street Project or
Plymouth Road Project. The FlameTech treated lumber did not
comply with provisions of the International Building Code
applicable to the projects. On or about June 18, 2016, during
ongoing construction of the Lake Street Project and Plymouth
Road Project, a Building Official for the City of Minneapolis
discovered that CF Lumber was treated with FlameTech fire
treatment, not D-Blaze fire treatment. Because of
Schwieters' defective work, the municipalities for the
Projects issued stop work orders preventing further lumber
installation on the Projects, and issued correction notices
related to the CF Lumber installed by Schwieters. On July 21,
2016, the Lake Street Owner submitted a demand to Big-D to
remove the FlameTech treated CF Lumber. On or about July 24,
2016, the Plymouth Road Owner submitted a demand to Big-D to
remove the FlameTech treated CF Lumber.
in Aitgust 2016, Big-D removed and replaced the
non-conforming FlameTech treated lumber. In order to remove
and replace the non-conforming lumber, non-defective
components on the project were removed and replaced,
including framing system components, sheathing, weather
proofing, electrical equipment, mechanical equipment, sill
plates, subfloor, roof components, and windows. Big-D
incurred costs to remove and replace the non-defective
property, and the removal and replacement caused delays in
the completion of the Projects.
removal and replacement of non-conforming CF Lumber happened
during the course of ongoing construction on the Projects. CF
Lumber was removed and replaced on the Lake Street Project
from August 2016 to November 2016. The Lake Street Project
was substantially complete on April 28, 2017. A temporary
certificate of occupancy for the Lake Street Project was
issued on April 28, 2017. CF Lumber was removed and replaced
on the Plymouth Road Project from August 2016 to September
2016. A Certificate of Substantial Completion was issued for
the Plymouth Road Project on April 1, 2017. The Lake Street
Project and Plymouth Road Project were completed after the
contractual deadline for substantial completion of each
7, 2016, Big-D notified Zurich of potential claims related to
installation of FlameTech treated CF Lumber installed on the
Plymouth Road Project, Lake Street Project, and HELLO
Project. Big-D likewise notified Allied on July 22, 2016.
Both Zurich and Allied subsequently denied any coverage under
their respective policies. Big-D commenced the present action
on September 12, 2016, to determine the parties' rights
and obligations with respect to costs incurred from the Lake
Street and Plymouth Projects and indemnity for any damages
assessed against Big-D stemming from the HELLO project.
acknowledges that costs to remove and replace the defective
lumber itself do not fall within the scope of the policy.
Thus, the only costs at issue are those to repair and replace
the non-defective work damaged as part of the process of
removing and replacing the non-conforming lumber.
Defendants' assert that these damages are not covered by
their respective policies. Big-D disagrees, contending that
there is coverage under both policies and that there are no
applicable exclusions. The two policies are identical in all
respects that are material for this claim, other than one
exclusionary provision contained in the Allied World Policy
Zurich and Allied World Policies
Zurich and Allied World Policies each provide that the
insurer will pay amounts Big-D becomes legally obligated to
pay as damages for "property damage" caused by an
"occurrence," with Allied obligated to pay only
those sums in excess of the retained limit specified in the
policy. "Occurrence" is defined as "an
accident, including continuous or repeated exposure to
substantially the same general harmful conditions."
"Property damage" is defined as:
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.
(Zurich Policy, Dkt. No 131, Ex. 1, p. 15.)
broad grant of coverage is limited in scope by numerous
exclusions. Defendants assert that a number of these exclude
the damages at issue. The Zurich and Allied Policies both
exclude the following types of damages from coverage:
Damage to Property "Property damage" to:
(5) That particular part of real property on which you or any
contractors or subcontractors working directly or indirectly
on your behalf are performing operations, if the
"property damage" arises out of those operations;
or (6) That particular part of any property that must be
restored, repaired or replaced because "your work"
was incorrectly performed on it.
(Zurich Policy, Dkt. No 131, Ex.' 1, pp.
Recall Of Products, Work Or Impaired Property
Damages claimed for any loss, cost or expense incurred by you
or others for the loss of use, withdrawal, recall,
inspection, repair," replacement, adjustment, removal or
(1) "Your product";
(2) "Your work"; or
(3) "Impaired property"; if such product, work, or
property is withdrawn or recalled from the market or from use
by any person or organization because of a known or suspected
defect, deficiency, inadequacy or dangerous condition in it.
(Id., p. 5.)
Damage To Impaired Property Or Property Not Physically
"Property damage" to "impaired property"
or property that has not . been physically injured, arising
(1) A defect, deficiency, inadequacy or dangerous condition
in "your product" or "your work"; or
(2)' A delay or failure by you or anyone acting on your
behalf to perform a contract or agreement in accordance with
This exclusion does not apply to the loss of use of other
property arising out of sudden and accidental physical injury
to "your product" or "your work" after it
has been put to its intended use.
Policies contain the following definition:
22. "Your work":
(1) Work or operations performed by you or on your ...